The Law of Contracts

1
Chapter 3

• The Law of Contracts

2
DEFINITIONS

• A contract is a promise for a promise that the
  law will enforce.
• Examples in society???

3
DEFINITIONS Contd.

• Unilateral, or one-way contracts feature an
  exchange of a promise for a performance. The
  performance brings the contract into existence.
• Bilateral, or two-way contracts feature an
  exchange of a promise for a promise. The
  contract comes into existence upon the exchange
  of the promises.
• Multi-lateral contracts are similar to bilateral
  contracts but feature more than two parties.

4
THE SIX ELEMENTS of a contract

• Offer
• Acceptance
• Consideration
• Intention
• Capacity
• Legality
• If some element is found missing, the contract is
  void.

5
1. OFFER (the offeror makes the offer)

• Differentiate
• offer and invitation. Examples?
• An offer lapses when
• It is not accepted by a deadline or within a
  reasonable time, if there is no deadline.
• Offers may be revoked any time prior to
  acceptance unless there is an option, making them
  irrevocable for a time.

6
2. ACCEPTANCE

• There is no contract until there is acceptance of
  the offer. (offeree receives the offer)
• Rejection terminates the offer.
• Changes to the terms revoke the offer and create
  a counteroffer.
• The offeror chooses the method of communication.

7
3. CONSIDERATION

• Consideration is the price a party pays for a
  promise.
• Promises made without consideration are
  gratuitous no legal remedy.
• The court is not normally concerned with the
  fairness of the contract.

8
4. INTENTION

• The parties must intend to enter into the
  contract and be legally bound by the terms.

9
5. CAPACITY

• The parties must have the legal capacity to
  contract, or the contract may be void or
  voidable.
• Special circumstances

10
CAPACITY Special circumstances

• Lack of Mental Capacity
• the contract will be unenforceable against
  him/her.
• Minors
• Generally, contracts entered into by minors are
  unenforceable against them.
• Contracts for necessaries or beneficial
  employment are exceptions.
• Minors may make themselves liable through part
  payments or other conduct.

11
CAPACITY Special circumstances Contd.

• Business Partners
• A partner may bind, and be bound by, the other
  partners.
• Bankrupts
• Capacity is reduced until discharged

12
6. LEGALITY

• The purpose of the contract must not be to break
  the law or run counter to public policy.

13
OTHER ELEMENTS

• WRITING
• PRIVITY
• ALLOCATION OF RISK

14
WRITING Some contract must be in writing,
including

• 1. Agreements involving interests in land
• 2. Domestic contracts such as marriage agreements
• 3. A guarantee of someone else' debt
• 6. Agreements that will take more than a year to
  complete
• 7. Sale of goods exceeding a minimum amount
  unless part performance proves the contract

15
PRIVITY

• The obligations and benefits arising under a
  contract are confined to the parties to the
  contract.
• EXCEPTIONS TO THE PRIVITY RULE

16
PRIVITY Exceptions to the Privity Rule, including

• The Tort Law Bypass
• persons not privy to a contract may be able to
  sue in negligence to recover damages
• Life Insurance Policies
• although the agreement is between the policy
  holder and the insurer, the beneficiary may
  enforce it
• Principals of Agents
• agents make contracts for the principal who then
  becomes privy to the contract
• Vicarious Liability
• employers are vicariously liable for breaches of
  contract by employees
• Novation
• a promissor can assign its liabilities only if
  the promissee agrees
• Assignment of Rights
• unless precluded in the contract, a party may
  generally assign his/her rights

17
ALLOCATION OF RISK

• Risk generally follows title.
• Risks during transit
• COD cash-on-delivery
• seller has the title and the risk until delivery
  to the buyer.
• FOB free-on-board
• buyer assumes the title and the risk once the
  goods are delivered to the carrier.
• CIF cost-insurance-freight
• buyer has the title, but seller has the risk of
  delivery.

18
E-COMMERCE

• Form of communication
• Traditional rules apply
• Legislations being developed to deal with
• International contracts
• Place of acceptance
• Signatures
• Integrity of information

19
INTERPRETATION OF CONTRACTS

• Rules of Interpretation
• disputes are generally about meaning
• The Contra Proferentum Rule
• contracts interpreted against the drafting party
• The Parol Evidence Rule
• outside evidence cannot change the terms of a
  written contract
• Certainty of Terms
• the terms must be precise.

20
INTERPRETATION contd.

• Warranties
• if breached, there would be remedies but not
  termination.
• Conditions
• if breached, there would be termination of the
  contract.
• Waivers
• a party may waive his/her rights under contract.
• Disclaimers
• attempts to minimize liability under a contract.

21
TERMINATION OF CONTRACTS

• DISCHARGE
• IMPEACHMENT
• BREACH

22
DISCHARGE OF CONTRACTS

• By Performance
• By Agreement
• By Frustration
• through no fault of the parties, completion of
  the contract is impossible.
• By operation of the law
• Bankruptcy, death

23
IMPEACHMENT of contract

• Claims by the victim of an offending behavior
• 1. Duress
• coerced into an agreement.
• 2. Undue Influence
• unduly influenced into a contract.
• 3. Mistake
• Common Mistake
• Parties agree there is a mistake contract is
  void.
• Mutual Mistake
• Parties have misunderstood a term. The court
  will favor the more reasonable interpretation.
• Unilateral Mistake
• One party mistaken about a term.

24
IMPEACHMENT of contract contd.

• 4. Misrepresentation
• Innocent
• plaintiff can sue for recession, not damages.
• Negligent or Fraudulent
• plaintiff can rescind and sue for damages.
• 5.Contracts of Utmost Good Faith
• Parties must give full disclosure

25
BREACH of contract

• A minor breach will not normally terminate the
  contract.
• Breach may occur as follows
• Repudiation
• a party declares that he will not perform.
• Sabotage
• a party performs a willful act that renders
  performance impossible.
• Failure to Perform
• a party fails to perform a material term.

26
REMEDIES TO BREACH OF CONTRACT

• The innocent party has the option to
• forgive the breach, or
• terminate the contract and seek remedies
  (voidable contract).

27
REMEDIES TO BREACH OF CONTRACT contd.

• Limitation Period
• Action must commence before the expiry of the
  statutory limitation period.
• Necessity of Loss
• the plaintiff must show some damages.
• Duty to Mitigate
• injured party has a duty to minimize damages.

28
REMEDIES TO BREACH OF CONTRACT contd.

• Rectification
• courts may rectify a written contract that has a
  clear error (typographical or copying error).
• Rescission
• if possible, the innocent party may choose to be
  returned to the state that existed prior to
  entering the contract.
• Injunction
• a court order to restrain a party from certain
  courses of action.
• Specific Performance
• a court order forcing the a party to complete the
  contract.

29
REMEDIES TO BREACH OF CONTRACT contd.

• Damages
• compensation for reasonable and foreseeable
  damages.
• Types of damages

30
REMEDIES TO BREACH OF CONTRACT contd.

• Nominal
• a remedy in principle, 1
• Liquidated
• the contract may predetermine the amount of the
  damages.
• Expenses and Loss of Profit
• the innocent party recovers .
• General
• for mental distress, difficult to quantify.
• Punitive and Exemplary
• to make an example of or to punish the offending
  party.