Selected Contract Law Terms

condition - n.1. A major term of a contract. It is frequently described as a term that goes to the root of a contract or is of the essence of a contract (see also time provisions in contracts); it is contrasted with a warranty, which is a term of minor importance. Breach of a condition constitutes a fundamental breach of the contract and entitles the injured party to treat it as discharged, whereas breach of warranty is remediable only by an action for damages, subject to any contrary provision in a contract (see breach of contract). A condition or a warranty may be either an express term or an implied term. In the case of an express term, the fact that the contract labels it a condition or a warranty is not regarded by the courts as conclusive of its status. See also innominate terms.

A provision that does not form part of a contractual obligation but operates either to suspend the contract until a specified event has happened (a condition precedent) or to bring it to an end in certain specified circumstances (a condition subsequent). When X agrees to buy Y's car if it passes its MOT test, this is a condition precedent; a condition in a contract for the sale of goods that entitles the purchaser to return the goods if dissatisfied with them is a condition subsequent.

consideration - n. An act, forbearance, or promise by one party to a contract that constitutes the price for which he buys the promise of the other. Consideration is essential to the validity of any contract other than one made by deed. Without consideration an agreement not made by deed is not binding; it is a nudum pactum (naked agreement), governed by the maxim ex nudo pacto non oritur actio (a right of action does not arise out of a naked agreement).

The doctrine of consideration is governed by four major principles. (1) A valuable consideration is required, i.e. the act, forbearance, or promise must have some economic value. Good consideration (natural love and affection or a moral duty) is not enough to render a promise enforceable. (2) Consideration need not be adequate but it must be sufficient. Not to be adequate in this context means that it need not constitute a realistic price for the promise it buys, as long as it has some economic value. If X promises to sell his £50,000 house to Y for £5000, Y is giving valuable consideration despite its inadequacy. £1 is often the consideration in commercial contracts. That it must be sufficient means sufficient in law. A person's performance of, or promise to perform, an existing duty usually cannot in law constitute consideration. (3) Consideration must move from the promisee. Thus if X promises to give Y £1000 in return for Y's promise to give employment to Z, Z cannot enforce Y's promise, for he has not supplied the consideration for it. (4) Consideration may be executory or executed but must not be past. A promise in return for a promise (as in a contract of sale) is executory consideration; an act or forbearance in return for a promise (as in giving information to obtain a reward) is executed consideration. However, a completed act or forbearance is past consideration in relation to any subsequent promise. For example, if X gives information to Y gratuitously and Y then promises to reward him this is past consideration, which does not constitute consideration.

economic duress - Historically within contract law, a claim that a contract was voidable for duress could only be successful if a threat to the person (i.e. physical duress) had induced the contract. Now, however, a contract may be voidable for economic duress. The essential elements are that an illegitimate threat is made (e.g. to breach an existing contract or to commit a tort) and that the injured party has no practical alternative to agreeing to the terms set out by the person making the threat. See also voidable contract.

fraud - n. A false representation by means of a statement or conduct made knowingly or recklessly in order to gain a material advantage. If the fraud results in injury to the deceived party, he may claim damages for the tort of deceit. A contract obtained by fraud is voidable on the grounds of fraudulent misrepresentation. See also constructive fraud. In relation to crime, see cheat; conspiracy; cybercrime; defrauding; dishonesty; false pretence; forgery.

frustration of contract - The unforeseen termination of a contract as a result of an event that either renders its performance impossible or illegal or prevents its main purpose from being achieved. Frustration would, for example, occur if the goods specified in a sale of goods contract were destroyed (impossibility of performance); if the outbreak of a war caused one party to become an enemy alien (illegality); or if X were to hire a room from Y with the object (known to Y) of viewing a procession and the procession was cancelled (failure of main purpose). Unless specific provision for the frustrating event is made, a frustrated contract is automatically discharged and the position of the parties is, in most cases, governed by the Law Reform (Frustrated Contracts) Act 1943. Money paid before the event can be recovered and money due but not paid ceases to be payable. However, a party who has obtained any valuable benefit under the contract must pay a reasonable sum for it. The Act does not apply to certain contracts for the sale of goods, contracts for the carriage of goods by sea, or contracts of insurance.

innominate terms - (intermediate terms) Terms of a contract that cannot be classified as conditions or warranties. The parties to a contract may label the terms of the contract as either conditions or warranties and those labels will usually be respected by the courts provided that the result is reasonable. Similarly, certain terms have traditionally been treated as conditions or warranties even though they have not been labelled as such (for example, time clauses in mercantile contracts are to be treated as conditions). Innominate terms are those that will not fit the above categories. The remedy for breach of an innominate term will depend on whether or not the breach is of a fundamental nature, i.e. that the injured party has been deprived of substantially the whole of the benefit of the contract. If the injured party has been so deprived, he will be entitled to treat the contract as repudiated and claim damages. If not, he will be entitled to damages only. See also breach of contract.

liquidated damages - see damage - n. Loss or harm. Not all forms of damage give rise to a right of action; for example, an occupier of land must put up with a reasonable amount of noise from his neighbours (see nuisance), and the law generally gives no compensation to relatives of an accident victim for grief or sorrow, except in the limited statutory form of damages for bereavement (see fatal accidents). Damage for which there is no remedy in law is known as damnum sine injuria. Conversely, a legal wrong may not cause actual damage (injuria sine damno). If the wrong is actionable without proof of damage (such as trespass to land) and no damage has occurred, the claimant is entitled to nominal damages. Most torts, however, are only actionable if damage has been caused (see negligence). In libel and some forms of slander, damage to reputation is presumed.

misrepresentation - n. An untrue statement of fact, made by one party to the other in the course of negotiating a contract that induces the other party to enter into the contract. The person making the misrepresentation is called the representor, and the person to whom it is made is the representee. A false statement of law, opinion, or intention does not constitute a misrepresentation; nor does a statement of fact known by the representee to be untrue. Moreover, unless the representee relies on the statement so that it becomes an inducement (though not necessarily the only inducement) to enter into the contract, it is not a misrepresentation. The remedies for misrepresentation vary according to the degree of culpability of the representor. If he is guilty of fraudulent misrepresentation (i.e. if he did not honestly believe in the truth of his statement, which is not the same as saying that he knew it to be false) the representee may, subject to certain limitations, set the contract aside by rescission and may also sue for damages. If he is guilty of negligent misrepresentation (i.e. if he believed in his statement but had no reasonable grounds for doing so) the representee was formerly entitled only to rescission but may now (under the Misrepresentation Act 1967 or by an action in tort for negligence) also obtain damages. If the representor has committed merely an innocent misrepresentation (one he reasonably believed to be true) the representee is restricted to rescission, subject to the discretion of the court under the 1967 Act to award him damages in lieu. A representee entitled to rescind a contract for misrepresentation may decide instead to affirm it. See also misdescription; nondisclosure.

mitigation - n.1. Reduction in the severity of some penalty. Before sentence is passed on someone convicted of a crime, the defence may make a plea in mitigation, putting forward reasons for making the sentence less severe than it might otherwise be. These might include personal or family circumstances of the offender, and the defence may also dispute facts raised by the prosecution to indicate aggravating circumstances. In raising mitigating factors, hearsay evidence and documentary evidence of character are accepted.

2. Reduction in the loss or injury resulting from a tort or a breach of contract. The injured party is under a duty to take all reasonable steps to mitigate his loss when claiming damages.

privity of contract - The relationship that exists between the parties to a contract. The common law doctrine of privity of contract established that only the parties to the contract, i.e. those that provided consideration, could sue or be sued under the contract. Third parties could not derive rights from, nor have obligations imposed on them by, someone else's contract. This position has now been modified by the Contracts (Rights of Third Parties) Act 1999. By the provisions of the Act, a person can enforce a term of a contract to which he is not a party provided that the term purports to confer a benefit on him or the contract expressly provides for such enforcement.

promissory estoppel - see estoppel n. [from Norman French estouper, to stop up] A rule of evidence or a rule of law that prevents a person from denying the truth of a statement he has made or from denying facts that he has alleged to exist. The denial must have been acted upon (probably to his disadvantage) by the person who wishes to take advantage of the estoppel or his position must have been altered as a result. There are several varieties of estoppel. Estoppel by conduct (or in pais) arises when the party estopped has made a statement or has led the other party to believe in a certain fact. Estoppel by deed prevents a person who has executed a deed from saying that the facts stated in the deed are not true. Estoppel by record (or per rem judicatam) prevents a person from reopening questions that are res judicata (i.e. that have been determined against him in a previous legal proceeding). See also issue estoppel.

There are two forms of equitable estoppel – promissory and proprietary. The doctrine of promissory estoppel applies when one party to a contract promises the other (by words or conduct) that he will not enforce his rights under the contract in whole or in part. Provided that the other party has acted in reliance on that promise, it will, though unsupported by consideration, bind the person making it: he will not be allowed subsequently to sue on the contract. When applicable, the doctrine thus modifies the common-law rules relating to accord and satisfaction. Under the doctrine of proprietary estoppel, the courts can grant a discretionary remedy in circumstances where an owner of land has implicitly or explicitly led another to act detrimentally in the belief that rights in or over land would be acquired. The remedy may take the form of the grant of a fee simple in the property at one extreme or the grant of a short-term occupational licence at the other.

quantum meruit - see quasi-contract - n. A field of law covering cases in which one person has been unduly enriched at the expense of another and is under an obligation quasi ex contractu (as if from a contract) to make restitution to him. In many cases of quasi-contract, the defendant has received the benefit from the claimant himself. The claimant may have paid money to him under a mistake of fact, or under a void contract, or may have supplied services under the mistaken belief that he was contractually bound to do so. In that case, he is entitled to be paid a reasonable sum and is said to sue on a quantum meruit (as much as he deserved). Alternatively, the claimant may have been required to pay to a third party money for which the defendant was primarily liable. The defendant's receipt of the benefit need not necessarily, however, have been from the claimant. It is enough that it was at the latter's expense, and he may therefore be liable in quasi-contract for money paid to him by a third party on account of the claimant.

repudiation - n.(in contract law)

1. An anticipatory breach of contract.

2. A minor's disclaimer of a contract that is voidable because of his minority (see capacity to contract; rescission).

rescission - n. The setting aside of a voidable contract, which is thereby treated as if it had never existed. Rescission is an irrevocable step and can be effected by any clear indication of intention to be no longer bound by the contract; this intention must be either communicated to the other party or publicly evidenced in some way. Rescission can also be effected by a formal action (a remedy developed by the courts of equity). There are limits on the right of rescission. It cannot be exercised unless restitutio in integrum is possible, i.e. unless it is possible to restore both parties to their original positions, and it cannot be exercised if this would involve upsetting rights acquired by third parties. Thus, a buyer of goods cannot rescind if he cannot return the goods, and a seller of goods cannot rescind if they have been resold to a third party.

The setting aside of a proprietary contract by a minor is normally called repudiation rather than rescission, but there is no distinction in substance. The treating of a contract as discharged by breach (see breach of contract) is frequently, but misleadingly, called rescission. It does not operate retrospectively and is permissible whether or not restitutio is possible.

undue influence - Influence that prevents someone from exercising an independent judgment with respect to any transaction. A contract or gift procured by the exercise of undue influence is liable to be set aside by the courts. The exercise of undue influence must normally be proved affirmatively – it must be shown that there is a dealing or transaction in which an unfair advantage has been taken of another person. In the case of certain relationships (for example, between parent and child, husband and wife, doctor and patient, solicitor and client) undue influence is presumed to be exercised in the absence of evidence to the contrary, and banks should advise spouses to seek independent legal advice before mortgaging the family home at the behest of the other spouse for business loans.

unilateral contract - A contract in which one party (the promisor) undertakes to do or refrain from doing something if the other party (the promisee) does or refrains from doing something, but the promisee does not undertake to do or refrain from doing that thing. An example of a unilateral contract is one in which the promisor offers a reward for the giving of information. Compare bilateral contract.

void contract - A contract that has no legal force from the moment of its making (compare voidable contract). Void contracts occur when there is lack of capacity to contract and by the operation in some instances of the doctrine of mistake. An illegal contract is void. In addition, certain contracts (e.g. gaming and wagering contracts) are declared void but not illegal by statute, and certain contracts that are at common law contrary to public policy are merely void but not illegal. Under UK and EU competition law on restrictive trade practices, clauses infringing those laws are void but usually the rest of the contract continues. Contracts that are void or, in certain cases, illegal may be saved by severance.

voidable contract - A contract that, though valid when made, is liable to be subsequently set aside (compare void contract). Voidable contracts may arise through misrepresentation, some instances of mistake, nondisclosure, and duress (see economic duress; undue influence). Certain proprietary contracts entered into by minors are also voidable (see capacity to contract). The setting aside of a voidable contract is effected by rescission.

warranty - n.1. (in contract law) A term or promise in a contract, breach of which will entitle the innocent party to damages but not to treat the contract as discharged by breach. Compare condition. See also innominate terms.

2. (in insurance law) A promise by the insured, breach of which will entitle the insurer to treat the contract as discharged by breach. The word therefore has the same meaning as condition in the general law of contract.

3. Loosely, a manufacturer's written promise as to the extent he will repair, replace, or otherwise compensate for defective goods; a guarantee.

Source: A Dictionary of Law. Ed. Elizabeth A. Martin. Oxford University Press, 2002. Oxford Reference Online. Oxford University Press. 26 January 2005 www.oxfordreference.com

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Oxford University Press, Online Resource Centre, Selected Contract Law Terms.

Selected Contract Law Terms