University of Technology, Jamaica School of Business Administration Business Law Unit 2 Law of Contract
University of Technology, Jamaica School of Business Administration Business Law Unit 2 Law of Contract
University of Technology, Jamaica School of Business Administration Business Law Unit 2 Law of Contract
BUSINESS LAW
Definition
Types of Contracts
1. Simple contracts
2. Speciality contracts
A. Offer
An offer may be defined as a clear statement of the terms on which the offeror is
prepared to do business with the offeree. An offer may be bilateral (i.e. a
promise made in return for a promise) or unilateral (i.e. a promise made in return
for the completion of a specified act). For an offer to be valid, it must:
Termination of offers
Note - promise to keep the offer open for a certain time or to give someone the
right of first refusal will not be legally binding unless the offeree gave some
payment to the offeror in return for the promise. (Routledge v Grant)
B. Acceptance
Be exactly on the same terms of the offer and must not be varied
otherwise it would be considered a counter offer Hyde v Wrench, Jones
v Daniel
Be certain and definite
Be communicated in the manner implied or expressed in the offer and this
may be verbal, in writing or by conduct Felthouse v Bindley,(1863)
Powell v Lee,(1908)
Brogden v Metropolitan Railway, Entores v Miles Far East Corp.
C. Consideration
Definition
In Dunlop v Selfridge, consideration was defined as the price one party pays for
the other partys act or promise.
According to the law of contract, any party who intends to enforce a promise
given by the other party must have given consideration for that promise.
Types
Note - most contracts are bilateral therefore, both parties would have to
give consideration for their promises to be binding.
Exceptions
Part-payment at an earlier date
Part-payment at a different place
Where goods or other material benefit accompany the part payment
Defects in Contracts
Defects in the contract may render the contract void, voidable or unenforceable.
In a void contract, the defect is considered serious in the eyes of the law that
the law sees the contract as non-existent. Any property given or money paid
will have to be returned.
For a voidable contract, the defect is not considered so serious and therefore
the contract is not void, but, the aggrieved party has the option of canceling
the contract is he or she so desires.
An unenforceable contract is valid but not enforceable against a vulnerable
party.
Contractual Incapacity
Vitiating factors
Vitiating factors may either render the contract void or voidable. Vitiating factors
are: misrepresentations, mistakes, undue influence and duress.
1. that the claimant intended to deal with some other person than the
contracting party King s Norton Metal Co. v Edridge, Merrett &
Co., Cundy v Lindsay and
2. that the other party was aware of the claimants mistake and
3. that when the contract was made the issue of identity was crucial
Phillips v Brooks, Lewis v Avery Contrast Cundy v. Lindsay
3. Duress
4. Undue influence
Contracts designed to defraud the revenue of the state are illegal e.g.
where an employee receives a car allowance although he has no car.
The general rule is that no action can be brought on an illegal contract. Any party
who participated in the performance of the illegal contract will be debarred from
claiming damages for breach of contract.
Public Policy
There are some contracts that are not illegal per se but which will be held void
for being against public policy. These are;
These contracts are not illegal in the full sense; instead they are void to the
extent of the public policy contravention. As a result, unlike in the case of illegal
contracts, money paid or property transferred is generally recoverable. The court
will perform an act of severance, i.e., separating the valid part of the contract
from the void part.
Terms of Contract
A contract is made up of terms offered by one party and accepted by the other
party. Contracts usually consist of both express terms and implied terms.
Express terms - These are terms in the contract that have been specifically
communicated by a party to the contract. Communication may either be verbal
or in writing, and both parties know or should know that these terms exist.
Implied terms These terms are deemed to be part of the contract or are
deemed to apply to the contract. These terms may be implied by Statute,
Custom or the Courts.
Terms implied by the courts The courts would sometimes imply terms into a
contract if it were so obvious that the parties can only be deemed to have
intended it, especially if the contract will not make any sense if the terms are not
implied. For example, it is implied that in a conduct for delivery of goods the
customer is not expected to go into the delivery truck and remove the goods
himself.
Conditions are the most important terms, which form the main structure of a
contract. These crucial terms must be pointed out to the other party before the
formation of a contract is completed. Breach of conditions gives the wronged
party a right to cancel the contract and claim compensation for any loss suffered.
Warranties are minor terms of the contract, which are ancillary rather than crucial
or important to the contract. A breach of warranty does not give the wronged
party the right to refuse to perform his side of the obligation but rather, he will be
entitled to claim compensation for any loss suffered as a result of the breach.
Example In a contract for the sale of a car, they year of manufacture, model
and engine capacity will be considered conditions, while things such as the car
stereo, window tint will be considered warranties. Innominate terms are broad
terms in the contract, which have not been categorized by the parties into
conditions and warranties. The court is given the task in situations of breach to
determine whether such terms are conditions or warranties. In order to make this
decision the court takes various factors into consideration, which include the
intentions of the parties and the extent of damage to the injured party.
Poussared v Spiers, Bettni v Gye.
Note That a party may be deemed to have implied notice from past dealings
Kendall v Lilllico
That the more onerous the terms, the greater the degree of notice required
Interfoto Picture Library Ltd. V Stiletto Productions That customers are
deemed to have constructive notice of the content of any contractual documents
they sign whether they have read it or not – L Estrange v Graucob
Customers cannot claim they misunderstood a clause unless the seller helped to
cause misunderstanding Curtis v Chemical Cleaning & Dyeing Co. An
exclusion clause is not effective if it is ambiguous; the courts may apply the
contra proferentem rule to restrict the effect of the exclusion clause Andrews v
Singer
Usually, a party cannot exclude liability for a fundamental breach; however in
some circumstances, the court may allow the exclusion clause to protect the
party in breach Photo Production Ltd v Securior Transport Ltd
Privity of Contract
Persons who are not parties to the contract cannot enforce the contract; neither
can the burdens of the contract be enforced against them. They are said not to
be privy to the contract or have privity of contract.
Tweddle v Atkinson, Dunlop Rubber Co. v Selfridge, Beswick v Beswick.
DISCHARGE OF CONTRACT
Method of Discharge
(a) Performance
(b) Agreement
(c) Breach
(d) frustration
Where the promisor is unable or unwilling to give more than partial performance
there is no discharge. The practical effect of this rule is that where a contract
provides for payment by one party after performance by the other, no action to
recover payment may be maintained until performance is complete, nor will an
action for a proportionate payment be available on the basis of quantum meruit.
Cuter v Powell.
Exceptions include:-
Prevention of Performance
Where a party is prevented from completing his undertaking because of some act
or omission of the other party, the party who has been prevented from performing
may either sue for damages or for payment on a quantum meruit basis.
Discharge by Agreement
A contract may provide for its own discharge by inclusion of a clause imposing a
condition precedent or condition subsequent or it may contain a term giving one
or both parties the right to end the agreement by giving notice to the party (e.g.
contracts of employment).
Condition Precedent prevents the contract from coming into operation unless the
condition is satisfied. The condition becomes binding it is contingent to
something occurring.
Mutual Agreement Both parties can agree to accept something different where
there has been accord and satisfaction that the former obligation is discharged.
Discharge of Breach
Refusal or substantive failure by one party to perform his obligations, releases
the other party from his obligations and renders the party in default liable for
breach of contract;
The general principle is that the breach must be a breach of condition of the
contract and not a breach of warranty. In the case of a Breach of Condition, the
injured party can treat the contract as being automatically discharged in which
case he cannot also sue for damages or breach of contract since he has
indicated his willingness to regard the contract as dead and has therefore waived
his right to action for damages. However, if he has incurred expenses on the
contract he may bring a quasi contractual quantum meruit action for
compensation.
In the case of Breach of Warranty the injured party can sue for damages but
must go on with the contract he does not have the right to rescind or terminate
the contract.
If a person chooses the latter course he keeps the contract alive and should
immediately commence action to enforce it, i.e., sue for damages or specific
performance.
A breach does not, in itself discharge a contract but it may, in circumstances give
the innocent party the right to treat it as discharge if he so wishes. There are
several forms of breach of contract:
(1) failure to perform the contract which is the most usual form - as where
a seller fails to deliver goods by the appointed time;
(2) express repudiation where one party states he will not perform is part
of the contract.
Where appropriate, the plaintiff may apply for declaration that the contract has
been rescinded or obtain restitution of property which he has transferred.
The right to remedy for breach of Contract is subject to time limit (limitation) i.e.
the right of action for breach, may be statute barred because of lapse of time.
As a general rule the amount awarded as damages is what is needed to put the
plaintiff in the position he would have achieved if the contract had been
performed.
If for example there is a failure to deliver goods at a contract price of $100 per
ton and similar goods are obtainable at a market price $110 per ton, damages
are calculated at the rate of $10 per ton. (Sale of Goods Act 1979 s. 51) More
complicated questions of assessing damages can arise but the general principle
is to compensate for financial loss.
Lapse of Time
The right to sue for breach of contract becomes statute barred six (6) years from
the date of the breach (or 12 years if the contract is by deed). The plaintiff s
rights cease to be enforceable at law but right to liquidate a sum may be revived
by acknowledgement in writing the debtor even if made after the limitation period
has expired.
In the following situation the 6 year period does not begin at date of breach but
later:-
(i) if plaintiff is a minor or of unsound mind at the time of the breach, the
6-year period begins only when his disability ceases. Once begun it is
not subsequent disability;
(ii) if the defendant or his agent conceals the right of action by fraud, the 6
year period begins only when plaintiff discovered or could by
reasonable diligence, have discovered the fraud.
(Case Applegate v Moss 1970)
The doctrine of frustration may also not be applicable where express terms in
a contract cover the contingency complained of British Movie News v
London Cinema Ltd.
LIST OF CASES
Gunthing v. Lynn
Fisher v Bell,
Pharmaceutical Society of Great Britain v Boots Cash Chemists
Patridge v Crittenden
Harvey v Facey
Carlill v Carbolic Smoke Ball Co. Ltd.
Blackpool v Blackpool Council
Hyde v Wrench
Stevenson v McLean
Ramsgate Hotel v Montefiore
Dickinson v Dodds
Routledge v Grant
Hyde v Wrench,
Jones v Daniel
Felthouse v Bindley
Powell v Lee
Brogden v Metropolitan Railway
Entores v Miles Far East Corp.
Adams v Lindsell
Household Insurance v Grant
Byrne v Van Tienhoven
Holwell Securities v Hughes
Currie v Misa
Dunlop v Selfridge
Re McArdle
Re Stewart v Casey
Alliance Bank v Broome
White v Bluett
Thomas v Thomas
Chappell v Nestle & Co.
Collins v Godefroy
Stilk v Myrick.
Pinnel s case.
Central London Property Trust v High Trees House.
Balfour v Balfour, Merit v Merit, Simpkins v Pays.
Rose Frank Co. v J.R.Crompton & Bros.
Jones v Vernons Pools.
Peters v Fleming
Nash v Inman.
Bisset v Wilkinson
Smith v Land & House Prop. Corp.
Edington v Fitzmaurice
Esso Petroleum v Mardon
Lawrence v Lexcourt Holdings.
Smith v Hughes
Dimmock v Hallett
Galloway v. Galloway
Raffles v Wichelhaus
King s Norton Metal Co. v Edridge, Merrett & Co.
Cundy v Lindsay
Phillips v Brooks
Lewis v Avery Contrast Cundy v. Lindsay
Barton v Armstrong.
Williams v Bayley
Tate v. Williamson
Alcard v. Skinner
Re Craig
Goldsworthy v Brickell
Beresford v Royal Insurance Company.
Pearce v. Brooks
Poussared v Spiers
Bettni v Gye.
Olley v Marlborough Court Hotel
Thornton v Shoe Lane Parking
Chapelton v Barry UDC.
Kendall v Lilllico
Interfoto Picture Library Ltd. V Stiletto Productions
L Estrange v Graucob
Curtis v Chemical Cleaning & Dyeing Co.
Andrews v Singer
Photo Production Ltd v Securior Transport Ltd
Tweddle v Atkinson
Dunlop Rubber Co. v Selfridge
Beswick v Beswick.
Cuter v Powell.
Moore & Co. v Laundaeur
Hoening v Isaacs
Dawkins & Co. v Lee
Hargraves Transportation Ltd. V Lynch
Pynn v Campbell
Rochester v De LaTour
Omnium Enterprises v Sutherland
Applegate v Moss
Taylor v Caldwell
Krell v Henry
Avery v Bowden and Reshipton, Anderson & Co.)
Maritime National Fish Ltd v Ocean Sea Trawlers.
British Movie News v London Cinema Ltd.
Interfoto Picture Library v Stilletto Visual Programmes (1988)