Chapter Three: Contracts 1. Contracts : Contracts are an essential component of commercial law....

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Chapter Three: Chapter Three: Contracts Contracts 1

Transcript of Chapter Three: Contracts 1. Contracts : Contracts are an essential component of commercial law....

Page 1: Chapter Three: Contracts 1. Contracts : Contracts are an essential component of commercial law. Contracts are an essential component of commercial law.

Chapter Three: Chapter Three: ContractsContracts

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ContractsContracts:: Contracts are Contracts are an essential component of an essential component of

commercial lawcommercial law. . A contract is “A contract is “a legally binding exchange a legally binding exchange

of promises or agreement between parties of promises or agreement between parties that the law will enforcethat the law will enforce”. ”.

Contract Law is based on the latin phrase Contract Law is based on the latin phrase ((pacts must be keptpacts must be kept). ).

BreachBreach of a contract is of a contract is recognisedrecognised by the by the law and law and remedies can be provided. can be provided.

Almost everyone makes contracts every Almost everyone makes contracts every day.day.

Sometimes Sometimes writtenwritten contracts are required, contracts are required, e.g., when buying a house. However, the e.g., when buying a house. However, the vast majority of contracts are made vast majority of contracts are made orallyorally. .

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Quasi-ContractQuasi-Contract A quasi-contract A quasi-contract an implied-in-law contract an implied-in-law contract

is “ is “a legal substitute for a contracta legal substitute for a contract”. ”. A quasi-contract A quasi-contract used when a used when a courtcourt wishes to wishes to

create an create an obligationobligation upon a non-contracting party upon a non-contracting party to to avoid injusticeavoid injustice..

Quasi-contracts are Quasi-contracts are “ “the lawful and purely the lawful and purely voluntary acts of a man, from which there results voluntary acts of a man, from which there results any obligation whatever to a third person, and any obligation whatever to a third person, and sometime a reciprocal obligation between the sometime a reciprocal obligation between the partiesparties”. ”.

In contracts In contracts consentconsent of the contracting parties of the contracting parties produces obligations produces obligations In quasi-contracts In quasi-contracts no consentno consent is required is required the the

obligation arises from the law or natural equity obligation arises from the law or natural equity They are called quasi-contracts, because they They are called quasi-contracts, because they

bind the parties without being contracts.bind the parties without being contracts.

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An An exampleexample a plumber accidentally installs a a plumber accidentally installs a sprinkler system in the lawn of the wrong house. sprinkler system in the lawn of the wrong house.

Will the man be held liable for payment? Will the man be held liable for payment? YesYes, if it could be proven that the man knew that , if it could be proven that the man knew that

the sprinklers were being installed mistakenly the sprinklers were being installed mistakenly the the court would make him pay because of a quasi-court would make him pay because of a quasi-contract. contract.

NoNo, he would not be liable if that knowledge could , he would not be liable if that knowledge could not be proven.not be proven.

Fair market valueFair market value: The defendant's : The defendant's liabilityliability equal = equal = to the to the valuevalue of the benefit conferred by the plaintiff of the benefit conferred by the plaintiff not necessarily the subjective value that the not necessarily the subjective value that the defendant enjoys. defendant enjoys. e.g., an accountant prepares tax-payer's taxes, e.g., an accountant prepares tax-payer's taxes,

finding a way to get him a large refund. Tax-payer is finding a way to get him a large refund. Tax-payer is only only liableliable for the fair market value of for the fair market value of tax tax preparation servicespreparation services is not inflated up to account is not inflated up to account for the large refund he enjoyed.for the large refund he enjoyed.

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Contractual FormationContractual Formation:: Three key elements to the creation of a contract. Three key elements to the creation of a contract.

Offer and acceptance Offer and acceptance Consideration Consideration is the legal concept of value in the common sense, promised to another when making a is the legal concept of value in the common sense, promised to another when making a

contract. It can take the form of money, physical objects, services…contract. It can take the form of money, physical objects, services… Intention to create legal relations Intention to create legal relations In addition, for some contracts In addition, for some contracts formalitiesformalities

One of the most famous cases on forming a contract is One of the most famous cases on forming a contract is Carlill v. Carbolic Smoke Ball Company, (in 19, (in 19thth century century England). England).

A medical firm advertised that its new drug, a smoke A medical firm advertised that its new drug, a smoke ball, would cure people's ball, would cure people's flu, and if it did not, buyers , and if it did not, buyers would receive £100. would receive £100.

Many people sued for their £100 when it did not work. Many people sued for their £100 when it did not work. The The court of appeal held that it would appear to a held that it would appear to a

reasonable man that Carbolic had made a serious offer. that Carbolic had made a serious offer. People had given good "consideration" by using a faulty People had given good "consideration" by using a faulty product. product.

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Offer and AcceptanceOffer and Acceptance:: The most important feature of a contract The most important feature of a contract one one

party makes an party makes an offeroffer for a bargain for a bargain another another acceptsaccepts “concurrence of wills” of two or more “concurrence of wills” of two or more parties. parties.

Parties must have been engaged in Parties must have been engaged in conductconduct manifesting their assent manifesting their assent

Objective perspectiveObjective perspective: it is necessary that : it is necessary that somebody gives the impression of offering or somebody gives the impression of offering or accepting contractual terms in the eyes of a accepting contractual terms in the eyes of a reasonable person..

In the In the U.SU.S., an offer is interpreted as inviting the ., an offer is interpreted as inviting the offereeofferee to accept to accept eithereither by by promisingpromising to perform to perform what the offer requests what the offer requests oror by by renderingrendering the the performance, as the offeree chooses.performance, as the offeree chooses.

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Offer and acceptance Offer and acceptance orally or in writing. orally or in writing. An An implied contractimplied contract “some of the terms are “some of the terms are

not expressed in words”. This can take two not expressed in words”. This can take two forms. forms.

1.1. Implied in factImplied in fact:: where the circumstances imply where the circumstances imply that parties have reached an agreement even that parties have reached an agreement even though they have not done so expressly. though they have not done so expressly. e.g., by going to a doctor for a checkup, a e.g., by going to a doctor for a checkup, a

patient agrees that he will pay for the service. patient agrees that he will pay for the service. 2.2. Implied in lawImplied in law:: isis also called a quasi-contract, also called a quasi-contract,

because it is a means for the court to remedy because it is a means for the court to remedy situations situations in which one party would be in which one party would be unjustly enriched. unjustly enriched. Example of the plumber who accidentally Example of the plumber who accidentally

installed a sprinkler system in the lawn of the installed a sprinkler system in the lawn of the wrong house. wrong house.

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Consideration and Consideration and EstoppelEstoppel:: Consideration is “Consideration is “value paid for a promisevalue paid for a promise”. ”.

Consideration is needed for a valid contract. Consideration is needed for a valid contract. e.g. If you sign a contract with a man, agreeing to e.g. If you sign a contract with a man, agreeing to

buy his car for an amount of money, his buy his car for an amount of money, his consideration is the car, which he promises to give consideration is the car, which he promises to give to you. Your consideration is the money that you to you. Your consideration is the money that you pay for the car. pay for the car.

In basic terms, the offeree must In basic terms, the offeree must give somethinggive something back to the offeror in return for his back to the offeror in return for his promisepromise. .

Consideration must be Consideration must be sufficientsufficient. . Consideration of one party Consideration of one party greatly exceedsgreatly exceeds that that

of another of another may be held invalid for lack of may be held invalid for lack of sufficient consideration == or == no sufficient consideration == or == no consideration. consideration.

Such contracts may also be held invalid for fraud, Such contracts may also be held invalid for fraud, duress, unequal bargaining power, or being duress, unequal bargaining power, or being contrary to public policy. contrary to public policy.

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In In Civil LawCivil Law, Consideration is not necessary , Consideration is not necessary and it came under criticism. and it came under criticism.

In civil law an exchange of In civil law an exchange of promisespromises / / concurrence of wills is the correct basis concurrence of wills is the correct basis rather than an exchange in valuable rightsrather than an exchange in valuable rights

Consideration is a controversial requirement Consideration is a controversial requirement for contracts under for contracts under common lawcommon law the the concept is based on concept is based on Estoppel used to create used to create obligations during pre-contractual obligations during pre-contractual negotiations negotiations if a party has given another if a party has given another an assurance and the other has relied on the an assurance and the other has relied on the assurance to his assurance to his detrimentdetriment. .

A number of commentators have suggested A number of commentators have suggested that consideration be abandoned, and that consideration be abandoned, and estoppel be used to replace it as a basis for estoppel be used to replace it as a basis for contracts. contracts.

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Intention to be Legally Intention to be Legally BoundBound::

The presumption The presumption in commercial agreements in commercial agreements parties intend to be legally bound. parties intend to be legally bound.

Many domestic and social agreements are Many domestic and social agreements are unenforceable unenforceable lack of intention to be legally lack of intention to be legally bound bound

The case of The case of Balfour v. Balfour. Using contract-like . Using contract-like terms, Mr Balfour had agreed to give his wife terms, Mr Balfour had agreed to give his wife £30 a month as maintenance while he was £30 a month as maintenance while he was abroadabroad They separated and Mr Balfour stopped They separated and Mr Balfour stopped

payments. payments. Mrs Balfour brought an action to enforce the Mrs Balfour brought an action to enforce the

payments. payments. The Court of Appeal, decided “no enforceable The Court of Appeal, decided “no enforceable

agreement as they were not intending to be agreement as they were not intending to be legally bound by the promise.”legally bound by the promise.”

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The Abstraction The Abstraction PrinciplePrinciple::

special approach to contracts special approach to contracts “abstraction “abstraction principle” principle”

It means It means personal obligationpersonal obligation of contract forms of contract forms separately to the separately to the title of propertytitle of property being being conferred. conferred.

When contracts are invalidated for some reason When contracts are invalidated for some reason e.g. a car buyer was so drunk that he lacked legal e.g. a car buyer was so drunk that he lacked legal

capacity to contract, capacity to contract, The contractual obligation to pay can be The contractual obligation to pay can be

invalidated separate from proprietary title of invalidated separate from proprietary title of the car. the car.

Unjust Enrichment LawUnjust Enrichment Law, rather than the , rather than the Law of Law of ContractContract is used to restore title to the rightful is used to restore title to the rightful owner.owner.

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Formalities and WritingFormalities and Writing : : Exchange of promises can be binding and Exchange of promises can be binding and

legally = as a written contract. legally = as a written contract. ““Verbal contractVerbal contract” ” Any contract that uses Any contract that uses

words, spoken or written.words, spoken or written. All oral contracts and written contracts. All oral contracts and written contracts.

““Non-verbal contractNon-verbal contract” ” non-oral contract non-oral contract a contract implied by the acts of the parties, a contract implied by the acts of the parties, which can be either which can be either implied in fact or or implied in law..

Most jurisdictions have rules which may Most jurisdictions have rules which may render render valid oral contracts unenforceablevalid oral contracts unenforceable. . Especially regarding contracts involving large Especially regarding contracts involving large amounts of money or real estate. amounts of money or real estate. In the U.S., a contract is unenforceable for In the U.S., a contract is unenforceable for

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The The purposepurpose of formalities and writing of formalities and writing is to is to prevent prevent false allegationsfalse allegations of the existence of contracts that were of the existence of contracts that were never made never made

Contracts that do not meet this requirement are Contracts that do not meet this requirement are unenforceable, but are not necessarily void.unenforceable, but are not necessarily void. However, a party unjustly enriched by an However, a party unjustly enriched by an

unenforceable contract may be subject to unenforceable contract may be subject to restitutionrestitution. .

In many jurisdictions (in common law) In many jurisdictions (in common law) there is no there is no requirement for the requirement for the entireentire contract to be in contract to be in writingwriting, ,

Although there must be a Although there must be a notenote evidencing the contract. evidencing the contract. The note must be signed in some way. The note must be signed in some way. It must contain all material terms of the contract, the It must contain all material terms of the contract, the

subject matter and the parties to the contract. subject matter and the parties to the contract. In england, some agreements are made orally, but the In england, some agreements are made orally, but the

guarantees must be in writing. guarantees must be in writing.

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SigningSigning a contract a contract the person is bound by the person is bound by its terms whether they have read it or not. its terms whether they have read it or not.

If a party wishes to use a If a party wishes to use a documentdocument as the as the basis of a contract basis of a contract reasonable notice of reasonable notice of its terms must be given to the other party its terms must be given to the other party prior to their entry into the contract. prior to their entry into the contract. including tickets issued at parking including tickets issued at parking

stations.stations.

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Uncertainty, Uncertainty, Incompleteness and Incompleteness and

SeveranceSeverance:: The terms of the contract are The terms of the contract are uncertainuncertain or or

incompleteincomplete Legally Legally no agreement. no agreement. InabilityInability to agree on key issues, such as price or to agree on key issues, such as price or

safety safety may cause the entire contract to fail. may cause the entire contract to fail. CourtsCourts attempt to give effect to attempt to give effect to commercialcommercial

contracts where possible, by construing a contracts where possible, by construing a reasonable construction of the contract.reasonable construction of the contract. Courts may look to Courts may look to external standardsexternal standards, ,

mentioned in the contract or implied by mentioned in the contract or implied by common practice in a certain field. common practice in a certain field.

CourtsCourts may imply a reasonable may imply a reasonable priceprice if it is if it is excluded, with the exception of land, and excluded, with the exception of land, and second-hand goods, which are unique.second-hand goods, which are unique.

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Uncertain or incomplete Uncertain or incomplete clausesclauses in the in the contract + + all options in resolving its contract + + all options in resolving its true true meaningmeaning have failed have failed

It may be possible to sever and void just It may be possible to sever and void just those affected clauses if the contract includes those affected clauses if the contract includes a a severability clause. . The contract standing without the clauses The contract standing without the clauses

in the eyes of a reasonable person.in the eyes of a reasonable person.

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Contractual TermsContractual Terms:: A contractual term is “A contractual term is “any provision forming any provision forming

part of a contractpart of a contract termterm gives rise to a gives rise to a contractual obligation contractual obligation Some terms are stated Some terms are stated expresslyexpressly some terms carry some terms carry less legal gravityless legal gravity

peripheral to the objectives of the contract.peripheral to the objectives of the contract. Provisions appear at the Provisions appear at the end of the contractend of the contract

tell the parties how to govern their relationship tell the parties how to govern their relationship have secondary importance have secondary importance but have but have significant business consequences. significant business consequences.

Common provisionsCommon provisions include: include: 1.1. the governing law provision the governing law provision 2.2. assignment and delegation provisions assignment and delegation provisions 3.3. waiver of jury trial provisionswaiver of jury trial provisions

In general, a party can only take In general, a party can only take legal action for for the non fulfillment of a the non fulfillment of a term. .

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Classification of TermsClassification of Terms:: First: Condition or Warranty:First: Condition or Warranty: ConditionsConditions are essential in contract. are essential in contract.

Breach of these terms will allow the other Breach of these terms will allow the other party to discharge (reject) the contract party to discharge (reject) the contract or seek or seek damagesdamages

It is an objective matter It is an objective matter whether a term is whether a term is essential or not. essential or not.

A A warrantywarranty is not imperative is not imperative so the contract so the contract will exist after a breach of a warranty, butwill exist after a breach of a warranty, but gives gives rise to a claim for damagesrise to a claim for damages

Statute may declare a term to be a condition or may declare a term to be a condition or warrantywarranty e.g. the e.g. the Sale of Goods Act 1979 provides that provides that

terms as to title, description, quality and terms as to title, description, quality and sample sample are conditions save in certain are conditions save in certain defined circumstances.defined circumstances.

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Second: Implied Terms:Second: Implied Terms: Explicit termsExplicit terms is stated by the parties in a is stated by the parties in a

contractual document. contractual document. Implicit termsImplicit terms are not stated but form a are not stated but form a

provisionprovision of the contract. of the contract.1.1. Terms may be implied due to the Terms may be implied due to the

proceedingsproceedings by which the contract was by which the contract was formed. formed.

2.2. To determine situations where the To determine situations where the factsfacts of a of a case may imply term. (case may imply term. (working hours… timeworking hours… time))

3.3. Some Some jurisdictions, notably , notably Australia, Israel Australia, Israel and India, imply a term of and India, imply a term of good faithgood faith. .

4.4. Other implied terms are through a Other implied terms are through a previousprevious course of dealing trade practice.course of dealing trade practice.

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ImpliedImplied in lawin law: : terms have been implied into terms have been implied into standardisedstandardised relationships. relationships. e.g., Liverpool City Council e.g., Liverpool City Council established a term to be established a term to be

implied into all contracts between tenant and landlord implied into all contracts between tenant and landlord that the landlord is obliged to keep the common areas in that the landlord is obliged to keep the common areas in a reasonable state of repair. a reasonable state of repair.

One of the important One of the important legislation under the UK law is under the UK law is the Sale of Goods Act 1979, the Sale of Goods Act 1979, which imply terms into which imply terms into all contracts whereby goods are sold or services all contracts whereby goods are sold or services provided. provided. These terms will be implied into all contracts of These terms will be implied into all contracts of

the same nature as a matter of law.the same nature as a matter of law. Specialised statutesSpecialised statutes that deal with particular subjects that deal with particular subjects

set up rules by which set up rules by which many contracts are many contracts are governed are provided with terms. governed are provided with terms.

Most countries, for example, have statutes which deal Most countries, for example, have statutes which deal directly with sale of goods, lease transactions, and directly with sale of goods, lease transactions, and trade practices. trade practices.

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Setting Aside the Setting Aside the ContractContract::

Three different ways. A contract may Three different ways. A contract may be deemed be deemed

1.1. Void: implies that a contract never Void: implies that a contract never came into existence came into existence

2.2. Voidable: implies that one or both Voidable: implies that one or both parties may declare a contract parties may declare a contract ineffective at their wish ineffective at their wish

3.3. Unenforceable: implies that neither Unenforceable: implies that neither party have recourse (resort) to a party have recourse (resort) to a court for a remedy. court for a remedy.

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MisrepresentationMisrepresentation : : Misrepresentation is “Misrepresentation is “a false statement of fact a false statement of fact

made by one party to another and has the made by one party to another and has the effecteffect of inducing that party into the contractof inducing that party into the contract.” .”

False statements regarding the False statements regarding the qualityquality or or naturenature of the product may constitute of the product may constitute misrepresentation. misrepresentation.

A finding of misrepresentation allows for a A finding of misrepresentation allows for a remedyremedy of rescission or causing damage. of rescission or causing damage.

Misrepresentation Misrepresentation can becan be made either by made either by wordswords or by or by conductconduct

Statements of opinion are not statements of Statements of opinion are not statements of fact in the context of misrepresentation. fact in the context of misrepresentation. But, if one party claims But, if one party claims specialist knowledgespecialist knowledge

on the topic on the topic then it is more likely for the then it is more likely for the court to hold a statement of opinion as a court to hold a statement of opinion as a statement of fact.statement of fact.

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MistakesMistakes : : A mistake is “A mistake is “an incorrect understanding by one an incorrect understanding by one

or more party to a contract and may be used as or more party to a contract and may be used as bases to invalidate the agreementbases to invalidate the agreement.” .”

First: First: Unilateral MistakeUnilateral Mistake -- one party to a contract -- one party to a contract is mistaken as to the terms or subject-matter. is mistaken as to the terms or subject-matter. The The courtscourts will uphold such a contract will uphold such a contract unlessunless it it

was determined that the non-mistaken party was determined that the non-mistaken party was aware of the mistake and tried to take was aware of the mistake and tried to take advantage. advantage.

A contract may be void if there was a mistake in A contract may be void if there was a mistake in the the identityidentity of the contracting party. of the contracting party. The plaintiff has to show that, at the time of The plaintiff has to show that, at the time of

agreement, he believed the other party's agreement, he believed the other party's identity was of vital importance. identity was of vital importance.

Mistaken to the credibility of the other party is Mistaken to the credibility of the other party is not sufficient. not sufficient.

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Second: Second: Mutual MistakeMutual Mistake -- both parties of a -- both parties of a contract are mistaken as to the terms. Each contract are mistaken as to the terms. Each believes they are contracting to something believes they are contracting to something different. different. The The courtcourt usually tries to uphold such a contract usually tries to uphold such a contract

if a reasonable interpretation of the terms can be if a reasonable interpretation of the terms can be found. found.

A contract based on a mutual A contract based on a mutual mistake in mistake in judgementjudgement is not voidable by the party that is is not voidable by the party that is adverselyadversely affected. affected.

Third: Third: Common MistakeCommon Mistake -- both parties hold the -- both parties hold the same mistaken belief of the facts. same mistaken belief of the facts. common mistake can only common mistake can only void a contractvoid a contract if the if the

mistake of the subject-matter was mistake of the subject-matter was fundamentalfundamental to render its identity different from what was to render its identity different from what was contracted contracted making the performance of the making the performance of the contract impossible. contract impossible.

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Duress and Undue Duress and Undue InfluenceInfluence::

DuressDuress: is “: is “a threat of harm made by one a threat of harm made by one person to compel another to do something person to compel another to do something against his will or judgment (to a against his will or judgment (to a transaction without real assent)transaction without real assent).”.”

e.g., (in e.g., (in Barton v. Armstrong)Barton v. Armstrong). Armstrong . Armstrong threatened to kill Barton if he did not sign a threatened to kill Barton if he did not sign a contract contract the court set the contract aside. the court set the contract aside.

An innocent party has to An innocent party has to proveprove that the that the threat was made and that it was a reason threat was made and that it was a reason for entry into the contract for entry into the contract

The onus of The onus of proofproof then shifts to the other then shifts to the other party to prove that the threat had no effect party to prove that the threat had no effect in causing the party to enter into the in causing the party to enter into the contract. contract.

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Undue influence:Undue influence: “ “one person taking one person taking advantage of a position of power over another advantage of a position of power over another personperson.” .”

The law The law presumespresumes that in certain that in certain special special relationshiprelationship, (such as between parent and , (such as between parent and child, or solicitor and client) child, or solicitor and client) there will be there will be a special risk of one party unduly influencing a special risk of one party unduly influencing their conduct for contracting. their conduct for contracting. As an equitable doctrine, the As an equitable doctrine, the courtcourt has the has the

discretion to vitiate such a contract. discretion to vitiate such a contract. When When nono special special relationshiprelationship exists, exists, but but

there was a relationship of trust and there was a relationship of trust and confidence confidence it should give rise to such a it should give rise to such a presumption. presumption.

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IncapacityIncapacity:: IncapacityIncapacity: “: “the capacity of a person to the capacity of a person to

either enforce contracts, or have contracts either enforce contracts, or have contracts enforced against them is restrictedenforced against them is restricted.” .” e.g., children may not be held to bargains e.g., children may not be held to bargains

they have made, they have made, people who are mentally incapacitated, people who are mentally incapacitated,

either by disability or drunkenness. either by disability or drunkenness. When the law limits or bars a person from When the law limits or bars a person from

engaging in specified activities engaging in specified activities any any contracts to do so are either contracts to do so are either voidable or voidable or voidvoid for incapacity. for incapacity. The law on capacity can serve either a The law on capacity can serve either a

protectiveprotective function or a way of function or a way of restrainingrestraining people who act as agents for others.people who act as agents for others.

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Illegal ContractsIllegal Contracts:: Illegal Contracts: are “Illegal Contracts: are “contracts based on an contracts based on an

illegal purpose illegal purpose oror contrary to public policy contrary to public policy.” .” - -is is void. void.

ExampleExample, a woman forged her husband's , a woman forged her husband's signature on 40 signature on 40 chequescheques. . To protect her from To protect her from prosecution, her husband signed a letter to the prosecution, her husband signed a letter to the bank in which he agreed to assume "all liability bank in which he agreed to assume "all liability and responsibility" for the forged and responsibility" for the forged chequescheques. . However, the agreement was unenforceable by However, the agreement was unenforceable by the court, because of its goal to "stifle a the court, because of its goal to "stifle a criminal prosecution." (contract's illegality). criminal prosecution." (contract's illegality).

Contracts agreeing to work for less than the Contracts agreeing to work for less than the minimum wage are unenforceable minimum wage are unenforceable

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Remedies for Breach of Remedies for Breach of ContractContract::

BreachBreach of contract is “ of contract is “failure to failure to perform as stated in the contractperform as stated in the contract.” .”

There are many ways to remedy a There are many ways to remedy a breached contract assuming it has breached contract assuming it has not been waived. not been waived.

Typically, the remedy is an award of Typically, the remedy is an award of money money damagesdamages. .

When dealing with unique subject When dealing with unique subject matter, specific matter, specific performanceperformance may be may be ordered.ordered.

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DamagesDamages:: There are four different types of damages:There are four different types of damages:1.1. Compensatory damagesCompensatory damages given to the party which was given to the party which was

affectedaffected by the breach of contract. (consequential damages by the breach of contract. (consequential damages and direct damages). and direct damages).

2.2. Nominal damagesNominal damages include minimal dollar amounts (often include minimal dollar amounts (often sought to obtain a legal record of sought to obtain a legal record of who was at faultwho was at fault). ).

3.3. Punitive damagesPunitive damages used to punish the party at fault. used to punish the party at fault. possible in a fraudulent situation. possible in a fraudulent situation.

4.4. Exemplary damagesExemplary damages used to make an example of the used to make an example of the party at fault to party at fault to discouragediscourage similar crimes. Fines can be similar crimes. Fines can be multiplied by factors of up to 50 for such damages. multiplied by factors of up to 50 for such damages.

Reliance measure:Reliance measure: When it is not possible or desirable to When it is not possible or desirable to award damages measured in above ways award damages measured in above ways a court may a court may award money damagesaward money damages designed to restore the injured party to the economic designed to restore the injured party to the economic

position that he had occupied at the time the contract position that he had occupied at the time the contract was entered was entered oror

designed to prevent the breaching party from being designed to prevent the breaching party from being unjustly enriched. unjustly enriched.

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Specific PerformanceSpecific Performance:: There may be circumstances in which it would be There may be circumstances in which it would be

unjustunjust to permit the defaulting party simply to buy to permit the defaulting party simply to buy out the injured party with damages.out the injured party with damages.

The The courtcourt may order a party " may order a party "specific performancespecific performance", ", requiring that the contract be performed. requiring that the contract be performed.

or issue an order, known as an "or issue an order, known as an "injunctioninjunction," ," that that a party refrain from doing something that would a party refrain from doing something that would breach the contract. breach the contract.

In most jurisdictions, both an order for specific In most jurisdictions, both an order for specific performanceperformance and an and an injunctioninjunction are discretionary are discretionary remedies, originating for the most part in equity. remedies, originating for the most part in equity. Thus, a Thus, a courtcourt will not normally order specific will not normally order specific performance. performance. Moreover, the defenses to an action in equity may Moreover, the defenses to an action in equity may

act as a bar to specific performance.act as a bar to specific performance. Thus, neither Thus, neither performanceperformance nor nor injunctioninjunction are are

available as of available as of rightright to parties to parties

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ProceduresProcedures:: In the In the U.S.U.S. to obtain to obtain damagesdamages for breach of for breach of

contract or to obtain specific contract or to obtain specific performanceperformance, the , the aggrieved party may file a aggrieved party may file a civil lawsuitcivil lawsuit in state in state court. court.

If the contract contains an arbitration clause If the contract contains an arbitration clause the the aggrieved party must submit an arbitration claim.aggrieved party must submit an arbitration claim. Many contracts provide that all disputes arising Many contracts provide that all disputes arising

will be resolved by arbitration will be resolved by arbitration Certain claims Certain claims held to be non-arbitrable if they held to be non-arbitrable if they

implicate a implicate a public interestpublic interest that goes beyond the that goes beyond the narrow interests of the parties (e.g. civil rights narrow interests of the parties (e.g. civil rights violations). violations).

Arbitration Arbitration judgementsjudgements enforcedenforced in the same in the same manner as court manner as court judgementsjudgements. . However, arbitral However, arbitral decisions are generally immune from decisions are generally immune from appealappeal unless unless the arbitrator's decision was irrational or tainted by the arbitrator's decision was irrational or tainted by fraud. fraud.

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In In England,England, WalesWales and the and the U.S.U.S. a contract a contract may be enforced by use of a may be enforced by use of a claimclaim, or by , or by applying for an applying for an interim injunctioninterim injunction To prevent a breach of a contract where To prevent a breach of a contract where

such a breach would result in irreparable such a breach would result in irreparable harm harm

A breach that could not be adequately A breach that could not be adequately remedied by money damages.remedied by money damages.

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Third PartiesThird Parties:: The doctrine of The doctrine of privity of contractprivity of contract

means “only those involved in striking means “only those involved in striking a bargain would have standing to a bargain would have standing to enforceenforce it.” it.”

Only parties to a contract may sue for Only parties to a contract may sue for the the breachbreach of a contract of a contract

In recent years In recent years third party third party beneficiaries have been allowed to beneficiaries have been allowed to recover damages for breaches of recover damages for breaches of contracts they were not party to. contracts they were not party to.

In England, In England, Rights of Third Parties Act Rights of Third Parties Act was introducedwas introduced 1999 1999..

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Contractual TheoryContractual Theory:: Contract theory is “Contract theory is “the body of a legal theory that the body of a legal theory that

addresses normative and conceptual questions in addresses normative and conceptual questions in contract lawcontract law.” .”

One of the most important One of the most important questionsquestions is why contracts is why contracts are enforced. are enforced.

1.1. One prominent One prominent answeranswer focuses on the economic focuses on the economic benefitsbenefits of enforcing bargains. of enforcing bargains.

2.2. Another maintains that the purpose of contract law is Another maintains that the purpose of contract law is to enforce to enforce promisespromises. .

3.3. A third dimension is its relationship to the wider Law of A third dimension is its relationship to the wider Law of ObligationsObligations..

Contract is “Contract is “the total legal obligations which results the total legal obligations which results from the parties' agreementfrom the parties' agreement” ” Obligations resulted from Obligations resulted from contractscontracts, which are , which are

voluntarily undertaken and owed to a specific personvoluntarily undertaken and owed to a specific person Obligations in Obligations in torttort which are based on the wrongful infliction of harm to which are based on the wrongful infliction of harm to

certain protected interestscertain protected interests RestitutionaryRestitutionary obligations, based on the obligations, based on the unjust enrichmentunjust enrichment..

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