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					CONTRACT

  Unit 30
                     Preview
   Definition
   Requirements for a valid contract
   Breaking off contractual negotiations
   Privity of contract (third party)
   Contents of a contract (terms)
   Vitiating factors
   Ending the contract
   Remedies for breach of contract
   Legal terms
                 Definition

   A legally binding agreement between two
    or more persons which the courts will
    enforce
   Generates rights and obligations that may
    be enforced by courts
   Agreement arises as a result of offer and
    acceptance
    Requirements for a valid contract

   1) parties must have legal capacity to
    enter contracts
   2) one party must make a binding offer to
    the other, and the offer must be accepted
    by the other party
   3) consideration
    Requirements for a valid contract

   4) Agreement must be genuine
   5) in some cases, the contract must be
    made in a particular form
   6) the object of the contract must not be
    disapproved by the law
                     Offer

   An indication of willingness to do or refrain
    from doing sth that is capable of being
    converted into a legally binding contract
   It is made by an offeror to an offeree and
    is capable of acceptance only by an
    offeree who knows of its existence
                    Offer

   An offer is terminated when it has been
    revoked, or lapsed, or met with a counter-
    offer
                 Acceptance

   Agreement to the terms of an offer that,
    provided other requirements are fulfilled,
    converts the offer into a legally binding
    contract
                 Acceptance

   If the method by which acceptance is to
    be signified is indicated by the offeror,
    that method alone will be effective
   If it is not, acceptance may be either
    express (by word of mouth or in writing)
    or inferred by the offeree‟s conduct, e.g. if
    he receives goods and makes use of them
                Acceptance

   Must involve some action on the part of
    the offeree
         Validity of acceptance

   1) it must   take place while the offer is still
    in force;
   2) it must   be on the same terms as the
    offer
   3) it must   be unconditional
   4) it must   be communicated to the offeror
               Counter-offer
   Acceptance: Only when all the terms of
    the offer are agreed to
   If you propose a change to the terms of
    an original offer, you are making a new
    offer – this is called a counter-offer
   Counter-offer – a rejection of the original
    offer; there can be no contract until the
    counter-offer is accepted
              Special cases

   When the offer consists of a promise to
    confer a benefit on whoever may perform
    a specified act, the offeror waives the
    requirement of communication
                  Example

   If the offeror offers a reward for
    information, a person able to supply the
    information is not expected to accept the
    offer formally
   The act of giving the information
    constitutes the acceptance, the
    communication of the acceptance, and the
    performance of the contract
    Intention to create legal relations

   If it can be shown that it was not the
    intenion of the parties to create a legally
    binding relationship, there is no contract
   Presumption: if the agreement is with
    family or friends, the agreement was not
    intended to be binding; commercial
    agreements – the other way round
              Consideration

   An exchange of promises to perform acts
    in the future
   An act, forbearance, or promise by one
    party that constitutes the price
                  Principles

   1) a valuable consideration is required, i.e.
    the act, forbearance, or promise must
    have some economic value
   2) consideration need not be adequate but
    it must be sufficient (it need not constitute
    a realistic price as long as it has some
    economic value)
                 Principles

   3) consideration must move from the
    promise
   4) consideration must not be past
        Consideration: example

   A promises to sell a car to party B
   B promises to pay $ 5.000 to A for the car
   Therefore:
   A‟s consideration is the promise to transfer
    the car to B
   B‟s consideration is the promise to pay
    $5.000 to A for the car
               Legal capacity

   Adults have capacity, but not if they are of
    unsound mind
         Breaking off contractual
              negotiations
   In legal systems where the doctrine of
    good faith is recognised, breaking off
    contractual negotiations may give rise to
    legal consequences
   No duty to negotiate in good faith in
    English law; no liability for pulling out of
    negotiations at any stage or for whatever
    reason
            Privity of contract

   You get the rights or have to fulfill the
    obligations of a contract only if you are a
    party to the contract
   If you are not a party, you can neither sue
    nor be sued because of the contract
          Exception: third party
   Example: you have entered into a contract with
    an insurance company; the aim – that your
    partner can benefit from the contract; it would
    be pointless if the company later refused to pay
    anything to your partner because she was not a
    party to the contract
   English law allowes a third party who is to
    benefit from the contract to enforce it
       Contents of the contract

   Express terms
   Implied terms
   Conditions
   Warranties
   Exclusion terms
                   Terms

   Conditions or duties which have to be
    carried out as part of a contract,
    arrangemens which have to be made
    before a contract is valid
              Express terms

   Terms that the parties have specifically
    agreed to, being terms the parties either
    said or wrote
               Implied terms

   Example: you buy a boat. The first day
    you go sailing the boat sinks. You
    complain to the seller, he says the
    contract did not promise that the boat
    would float
   One of the terms implied into a contract of
    sale –that goods are of satisfactory quality
    and are fit for their purpose
           Terms of a contract

   Term: a promise that is part of the
    contract
   Terms of a contract:
   1) conditions
   2) warranties
                 Condition

   A fundamental term
   If a party does not carry it out, you not
    only have the right to claim damages, but
    also to treat the contract as terminated
                 Warranty
   A term of contract of lesser importance
   Does not deal with the main purpose of
    the contract
   If you have not carried out your
    obligations under a warranty, the other
    party has the right to sue you for
    damages, but not to terminate the
    contract
              Exclusion clauses
   The purpose: to exclude all liability for failing to
    carry out the contract, either at all or not
    properly; open to abuse
   In order to prevent parties relying on unfair
    contract terms, there are strict legal rules about
    the use of exclusion clauses
   The law protects consumers in particular against
    the wrongful use of exclusion clauses by
    businesses
            Ending the contract
   1) a contract can be set aside (cancelled) if it
    later appears there was sth wrong
    (misrepresentation, duress, mistake, undue
    influence)
   2) a contract can be discharged where the
    contract is valid, but comes to an end because it
    has been carried out,the parties agree to end it,
    or there is a serious breach of contract
               Contract

   Valid
   Void
   voidable
                 Contracts

   Void contract – one that was never legally
    valid
   Voidable c. – can have legal effect but
    could be made void if you want to rescind
    it (=annul)
   Valid c. – legally enforceable
     Reasons to have a contract set
         aside: vitiating factors
   Misrepresentaion
   Duress and undue influence
   Mistake
             Misrepresentation
   A representation – a statement that was made
    to encourage you to enter into a contract, but it
    does not itself become part of the contract
   Misrepresentation (false representation) – you
    cannot bring an action for breach of contract,
    but you can bring special acton for a
    misrepresentation if you would not have
    otherwise entered into the contract
    Remedies for misrepresentation

   Misrepresentation makes the contract voidable
   Recission: if you rescind the contract, the parties
    are put back in the position they were in before
    the contract was entered into. It is as if the
    contract never existed
   Damages: you can sue for financial
    compensation if you have suffered any losses
     Duress and undue influence

   Duress: either actual violence or the
    threat of violence was used to make the
    other party enter into the contract (“sign
    this contract or I‟ll shoot you!”)
   Undue influence: improper pressure other
    than violence (e.g. blackmail)
                   Mistake

   If absolutely fundamental, as it gets to the
    very heart of the transaction, the contract
    will be considered void from the outset
Discharge of contractual obligations

   Discharge: parties are free of their mutual
    obligations
       Termination of a contract

   Performance
   Express agreement
   Breach
   Doctrine of frustration
      Discharge by performance

   Only after you have carried out everything
    you promised to do in the contract,
    exactly in the way you agreed to do it,
    your contractual obligations will be
    discharged
       Discharge by agreement

   Parties may agree that the contract should
    end automaticaly if some event occurs or
    after a fixed period of time
          Discharge by breach

   A party has made it clear that he will not
    carry out the contract, or
   The party has not performed his
    obligations properly
              Consequences

   Some breaches give you the right to sue
    for damages, but not the right to
    terminate the contract
   Has there been fundamental breach or
    not?
   Condition or warranty?
                   Example

   In the contract it states that you must
    deliver 10,000 tonnes of tomatoes on 23
    May. You deliver tomatoes two days later,
    on 25 May.
   If the date of delivery was a condition, the
    other party has the right not only to claim
    damages, but also to end the contract,i.e.
    he can refuse to take delivery.
                  Example

   If the delivery date is a warranty, he does
    not have the right to refuse the tomatoes,
    only to sue you for any loss he might have
    suffered because you delivered two days
    late
       Common law vs. Civil law

   At common law, contractual liability for
    breach is strict and the motive for that
    breach is irrelevant
   In civil law systems this may seem a very
    harsh approach
        Discharge by frustration

   Example: you hire a room in a pub for
    your band to put on a show. Before the
    date for the show, the pub gets burned
    down. The fire is not your fault, nor the
    fault of the owner of the pub. The fire has
    made it impossible to carry out the
    contract: discharge by frustration
               Force majeure

   It is usual for commercial contracts to
    include a force majeure clause: a list of
    events considered to be outside the
    control of the parties, e.g. labour disputes,
    war, riot, accident, fire, flood, etc.
           Remedies for breach
   Damages: the aim is to put the claimant in the
    position he would have been in if the contract
    had been performed properly
   Specific performance: an order to make a party
    perform his obligations under the contract
   Injunction: a court order to stop someone
    breaching a term of the contract
   Suspension of performance
     Suspension of performance

   In civil law systems: if the other party is in
    breach, you can stop carrying out your
    obligations under the contract
   In common law: there is no general
    principle allowing for suspension of
    performance if the other party is in
    breach; suspension of performance –
    considered to be breach of contract
                Legal terms

   Unconditional acceptance of all the terms
    of an offer
   Acceptance
   Refusal or failure by a party to a contract
    to perform an obligation imposed under
    the contract
   Breach of contract
                 Legal terms
   Ability of a natural or legal person to enter
    into a contract
   Capacity
   A fundamental term of the contract. If it is
    breached, the innocent party may not only
    claim damages, but may also opt to treat
    the contract as ended
   Condition
                Legal terms
   A contract must be a bargain. Each party
    gives value to the other by exchanging
    promises (or by a promise given in
    exchange for an act). This exchange of
    value is
   Consideration
   Legally enforceable agreement
   Contract
                Legal terms

   If not all the terms of an offer have been
    accepted, then there is no acceptance of
    the offer, but a…This is in effect a new
    offer, which now has to be accepted by
    the other party
   Counter offer
                  Legal terms
   In contract law, financial compensation that
    shuld put the claimant in the position he would
    have been if the contract had been performed
    properly
   Damages
   Release from the obligations under a contract.
    D…may be by performance, agreement, breach
    or frustration
   Discharge
                Legal terms
   Both parties agree to end the contract
   Discharge by agreement
   A contract may be discharged by
    ___where the party in default has refused
    to perform, or where the performance is
    so defective that there has been
    fundamental___
   Discharge by breach
                Legal terms

   Parties are excused from the contract if,
    through no fault of either party, after the
    formation of the contract it becomes
    impossible to carry out the contract or the
    contract has become commercially
    pointless
   Discharge by frustration
                Legal terms

   The obligations under the contract has
    been carried out fully and exactly
   Discharge by performance
   Violence or threats of violence in order to
    make someone enter into a contract
   duress
                Legal terms
   Term in a contract to exclude the liability
    of a party for contractual failure. That
    failure could be in the form of breach of
    contract, misrepresentation or negligence
   Exclusion clause
   Terms explicitly stated by the parties,
    either oral or written
   Express terms
                   Legal terms
   Most contracts include a f__ m___clause. This
    lists events considered to be outside the control
    of the parties and for which the parties cannot
    be held responsible.
   Force majeure
   A term is f:__ if it goes to the root of the
    contract. If it is breached, the breach is referred
    to as ____
   Fundamental breach
                  Legal terms
   Terms that can be read into the contract,
    whether by custom, statute or by the courts
   Implied terms
   A court order to stop a clause in the contract
    from being broken. It is a discretionary remedy
    and will not be ordered if damages are a
    sufficient remedy
   injunction
                  Legal terms
   Where the representation is a false statement, it
    is called:____. M. can be fraudulent, negligent
    or innocent.
   Misrepresentation
   A contract only confers rights and obligations on
    the parties to the contract. There are exceptions
    to this rule, both in statute law and common
    law.
   Privity of contract
                 Legal terms

   A statement that encourages a party to
    enter into the contract, but does not itself
    form a part of that contract
   Representation
   Improper pressure other than violence to
    make someone enter into a contract
   Undue influence
                Legal terms

   A defect that was present in th agreement
    at the time the contract was made. The
    defect is sufficiently serious to have the
    contract set aside. V___ factors include
    misrepresentation, mistake, duress and
    undue influence
   Vitiating factor
                   Questions
   1. For the formation of a contract, consideration
    is one of the three requirements to make an
    agreement into a contract. What are the other
    two requirements?
   2. What is the doctrine of privity of contract?
   3. What is the difference between an express
    tem and an implied term?
                  Questions

   4. In English law, contractual terms are
    classified according to their importance: a
    term may be of fundamental importance
    or it may be only a minor term. Name
    these two categories of terms.
   5. What is the purpose of an exclusion
    clause in a contract?
                  Questions

   6. What is misrepresentation?
   7. What is the difference between
    discharge by frustration and discharge by
    breach?
     Contract law case discussion
   Mr Jones is a second-hand car dealer. Miss Smith wants
    a second-hand car, but tells Mr Jones that she is only
    interested in buying a car which has done less than
    10,000 miles. He ofers Miss Smith a 1998 Ford Escort for
    a reasonable price. During the trial run, Miss Smith tells
    him she likes the car, the price is acceptable, but she
    repeats that she only wants the car if it has done less
    than 10,000 miles. Mr Jones says: „Of course it has not
    done more than 10,000 miles. Look at the milometer!”
    The milometer shows 7,000 miles.
    Contract law case discussion

   However, what Mr Jones said was not
    true. The milometer has been tampered
    with and Miss Smith finds out that the
    care has done at least 30,000 miles.
   Advise Miss Smith as to her legal position.
      Put the verbs in brackets into
            appropriate forms
   In any contractual situation, it __(require,
    passive) that the promise ___(make) by each
    party must have some economic value.
    However, there is no requirement that it must
    constitute a realistic price for the promise it
    ____(buy). Thus, a contract ___(make) to sell a
    property worth $200,000 for the sum of $10,000
    is legally valid. It would therefore _____(say,
    passive) to be legally binding.
                      Key
   In any contractual situation, it is required
    that the promise made by each party must
    have some economic value. However,
    there is no requirement that it must
    constitute a realistic price for the promise
    it buys. Thus, a contract made to sell a
    property worth $200,000 for the sum of
    $10,000 is legally valid. It would therefore
    be said to be legally binding.
      Fill in the missing words: contractual,
    gratuitous, jurisdictions, legislation, party,
                       promise
   The main effect of the requirement of
    consideration is that _____promises made
    by one ___ to another (i.e. where one
    party makes a ____to another party but
    no promises are made in return) do not
    give rise to ____obligations. However, it
    should be noted that in many ____this
    requirement has been displaced by ___in
    respect of certain kinds of contract.
                        Key
   The main effect of the requirement of
    consideration is that gratuitous promises made
    by one party to another (i.e. where one party
    makes a promise to another party but no
    promises are made in return) do not give rise to
    conractual obligations. However, it should be
    noted that in many jurisdictions this requirement
    has been displaced by legislation in respect of
    certain kinds of contract.

				
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