Contract Law

CONTRACT LAW Offer

Treitel defines an offer as "an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed", the "offeree". [1] An offer is a statement of the terms on which the offeror is willing to be bound. It is the present contractual intent to be bound by a contract with definite and certain terms communicated to the offeree. The "expression" referred to in the definition may take different forms, such as a letter, newspaper, fax, email and even conduct, as long as it communicates the basis on which the offeror is prepared to contract. Whether two parties have an agreement or a valid offer is an issue which is determined by the court using the Objective test (Smith v. Hughes). Therefore the "intention" referred to in the definition is objectively judged by the courts. In the English case of Smith v. Hughes [2] the court emphasised that the important thing is not a party's real intentions but how a reasonable person would view the situation. This is due mainly to common sense as each party would not wish to breach his side of the contract if it would make him or her culpable to damages, it would especially be contrary to the principle of certainty and clarity in commercial contract and the topic of mistake and how it affects the contract. As a minimum requirement the conditions for an offer should include at least the following 4 conditions: Delivery date, price, terms of payment that includes the date of payment and detail description of the item on offer including a fair description of the condition or type of service. Without one of the minimum requirements of condition an offer of sale is not seen as a legal offer but rather seen as an advertisement. Unilateral contract The contract in Carlill v Carbolic Smoke Ball Co[3] was of a kind known as a unilateral contract, one in which the offeree accepts the offer by performing an act which indicates their agreement with the bargain. This can be something as simple as raising an eyebrow or wearing a certain color t-shirt. It can be contrasted with a bilateral contract, where there is an exchange of promises between two parties. In Australian Woollen Mills Pty Ltd v. The Commonwealth (1954), the High Court of Australia held that, for a unilateral contract to arise, the promise must be made "in return for" the doing of the act. The court distinguished between a unilateral contract and a conditional gift. The case is generally seen to demonstrate the connection between the requirements of offer and acceptance, consideration and intention to create legal relations. Invitations to treat An invitation to treat is not an offer, but an indication of a person's willingness to negotiate a contract. In Harvey v. Facey[4], an indication by the owner of property that he or she might be interested in selling at a certain price, for example, has been regarded as an invitation to treat. Similarly in Gibson v Manchester City Council[5] the words "may be prepared to sell" were held to be a notification of price and therefore not a distinct offer, though in another case concerning the same change of policy (Manchester City Council underwent a change of political control and stopped the sale of council houses to their tenants) Storer v. Manchester City Council[6], the court held that an agreement was completed by the tenant's signing and returning the agreement to purchase, as the language of the agreement had been sufficiently explicit and the signature on behalf of the council a mere formality to be completed.

The courts have tended to take a consistent approach to the identification of invitations to treat, as compared with offer and acceptance, in common transactions. The display of goods for sale, whether in a shop window or on the shelves of a self-service store, is ordinarily treated as an invitation to treat and not an offer.[7] The holding of a public auction will also usually be regarded as an invitation to treat. Auctions are, however, a special case generally. The rule is that the bidder is making an offer to buy and the auctioneer accepts this in whatever manner is customary, usually the fall of the hammer.[8] A bidder may withdraw his or her bid at any time before the fall of the hammer, but any bid in any event lapses as an offer on the making of a higher bid, so that if a higher bid is made, then withdrawn before the fall of the hammer, the auctioneer cannot then purport to accept the previous highest bid. If an auction is without reserve then whilst there is no contract of sale between the owner of the goods and the highest bidder (because the placing of goods in the auction is an invitation to treat) there is a collateral contract between the auctioneer and the highest bidder that the auction will be held without reserve (i.e., that the highest bid, however low, will be accepted).[9] The U.S. Uniform Commercial Code provides that in an auction without reserve the goods may not be withdrawn once they have been put up.[10] Revocation of offer An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option (see also option contract). If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked at any time. Acceptance Test of acceptance For the Acceptance, the essential requirement is that the parties had each from a subjective [citation needed] perspective engaged in conduct manifesting their assent. Under this meeting of the minds theory of contract, a party could resist a claim of breach by proving that he had not intended to be bound by the agreement, only if it appeared subjectively that he had so intended. This is unsatisfactory, as one party has no way to know another's undisclosed intentions. One party can only act upon what the other party reveals objectively to be his intent. Hence, an actual meeting of the minds is not required. Indeed, it has been argued that the "meeting of the minds" idea is entirely a modern error: 19th century judges spoke of "consensus ad idem" which modern teachers have wrongly translated as "meeting of minds" but actually means "agreement to the [same] thing".[11] The requirement of an objective perspective is important in cases where a party claims that an offer was not accepted and seeks to take advantage of the performance of the other party. Here, we can apply the test of whether a reasonable bystander (a "fly on the wall") would have perceived that the party has impliedly accepted the offer by conduct. Rules of acceptance Communication of acceptance There are several rules dealing with the communication of acceptance:



The acceptance must be communicated: see Powell v Lee (1908) 99 L.T. 284; Robophone Facilities Ltd v. Blank [1966] 3 All E.R. 128. Prior to acceptance, an offer may be withdrawn.  An exception exists in the case of unilateral contracts, in which the offeror makes an offer to the world which can be accepted by some act. A classic instance of this is the case of Carlill v. Carbolic Smoke Ball Co. [1892] 2 Q.B. 484 in which an offer was made to pay £100 to anyone who having bought the offeror's product and used it in accordance with the instructions nonetheless contracted influenza. The plaintiff did so and the court ordered payment of the £100. Her actions accepted the offer - there was no need to communicate acceptance. Typical cases of unilateral offers are advertisements of rewards (e.g., for the return of a lost dog).  An offer can only be accepted by the offeree, that is, the person to whom the offer is made.  An offeree is not usually bound if another person accepts the offer on his behalf without his authorisation, the exceptions to which are found in the law of agency, where an agent may have apparent or ostensible authority, or the usual authority of an agent in the particular market, even if the principal did not realise what the extent of this authority was, and someone on whose behalf an offer has been purportedly accepted it may also ratify the contract within a reasonable time, binding both parties: see agent (law).  It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance (called waiver of communication - which is generally implied in unilateral contracts): see also Re Selectmove Ltd [1994] BCC 349.  If the offer specifies a method of acceptance (such as by post or fax), acceptance must be by a method that is no less effective from the offeror's point of view than the method specified. The exact method prescribed may have to be used in some cases but probably only where the offeror has used very explicit words such as "by registered post, and by that method only": see Yates Building Co. Ltd v. R.J. Pulleyn & Sons (York) Ltd (1975) 119 Sol. Jo. 370.  However, acceptance may be inferred from conduct, see, e.g.: Brogden v. Metropolitan Railway Company (1877) 2 App. Cas. 666; Rust v. Abbey Life Assurance Co. Ltd [1979] 2 Lloyd's Rep. 334; Saint John Tugboat Co. v. Irving Refinery Ltd (1964) 46 DLR (2d) 1; Wettern Electric Ltd v. Welsh Development Agency [1983] Q.B. 796. `` Correspondence with offer The "mirror image rule" states that if you are to accept an offer, you must accept an offer exactly, without modifications; if you change the offer in any way, this is a counter-offer that kills the original offer: Hyde v. Wrench (1840) 3 Beav 334. However, a mere request for information is not a counter-offer: Stevenson v. McLean (1880) 5 Q.B.D. 346. It may be possible to draft an enquiry such that it adds to the terms of the contract while keeping the original offer alive. An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to the offeree, although not necessarily by the offeror: Dickinson v. Dodds (1876) 2 Ch.D. 463. If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is similar to the offer. However, an offer may not be revoked if it has been encapsulated in an option (see also option contract). Battle of the forms Often when two companies deal with each other in the course of business, they will use standard form contracts. Often these terms conflict (e.g. both parties include a liability waiver in their form) and yet offer and acceptance are achieved forming a binding contract. The battle of the forms refers to the resulting legal dispute of these circumstances, wherein both parties recognize that an enforceable contract exists, however they are divided as to whose terms govern that contract.

Under English law, the question was raised in Butler Machine Tool Co Ltd v. Ex-Cell-O Corporation (England) Ltd [1979] WLR 401, as to which of the standard form contracts prevailed in the transaction. Lord Denning MR preferred the view that the documents were to be considered as a whole, and the important factor was finding the decisive document; on the other hand, Lawton and Bridge LJJ preferred traditional offer-acceptance analysis, and considered that the last counter-offer prior to the beginning of performance voided all preceding offers. The absence of any additional counter-offer or refusal by the other party is understood as an implied acceptance. In U.S. law, this principle is referred to as the last shot rule. Under the Uniform Commercial Code (UCC) Sec. 2-207(1), A definite expression of acceptance or a written confirmation of an informal agreement may constitute a valid acceptance even if it states terms additional to or different from the offer or informal agreement. The additional or different terms are treated as proposals for addition into the contract under UCC Sec. 2-207(2). Between merchants, such terms become part of the contract unless:   

a) the offer expressly limits acceptance to the terms of the offer, b) material alteration of the contract results, c) notification of objection to the additional/different terms are given in a reasonable time after notice of them is received. Material is defined as anything that may cause undue hardship/surprise, or is a significant element of the contract. If there is no contract under 2-207(1), then under UCC Sec. 2-207(3), conduct by the parties that recognize there is a contract may be sufficient to establish a contract. The terms for this contract include only those that the parties agree on and the rest via gap fillers. Postal acceptance rule Main article: Mailbox rule As a rule of convenience, if the offer is accepted by post, the contract comes into existence at the moment that the acceptance was posted (Adams v. Lindsell (1818) 106 ER 250). This rule only applies when, impliedly or explicitly, the parties have in contemplation post as a means of acceptance. It excludes contracts involving land, letters incorrectly addressed and instantaneous modes of communication. The relevance of this early 19th century rule to modern conditions, when many quicker means of communication are available has been questioned, but the rule remains for the time being. Knowledge of the offer In Australian law, there is a requirement that an acceptance is made in reliance or pursuance of an offer: see R v. Clarke (1927) 40 C.L.R. 227. Rejection, death or lapse of time An offer can be terminated on the grounds of rejection on the part of the offeree, that is if the offeree does not accept the terms of the offer. Also upon making an offer,an offeror may include as a condition to the contract the duration in which the offer will be available.If the offeree fails to accept the offer within this specific period then the offer will be deemed as terminated.

Death of offeror Generally death (or incapacity) of the offeror terminates the offer. This does not apply to option contracts. The offer cannot be accepted if the offeree knows of the death of the offeror. In cases where the offeree accepts in ignorance of the death, the contract may still be valid, although this proposition depends on the nature of the offer. If the contract involves some characteristic personal to the offeror, the offer is destroyed by the death. Death of offeree An offer is rendered invalid upon the death of the offeree: see Re Irvine. Counter Offers If the offeree rejects the offer, the offer has been destroyed and cannot be accepted at a future time. A case illustrative of this is Hyde v. Wrench (1840) 49 E.R. 132, where in response to an offer to sell an estate at a certain price, the plaintiff made an offer to buy at a lower price. This offer was refused and subsequently, the plaintiffs sought to accept the initial offer. It was held that no contract was made as the initial offer did not exist at the time that the plaintiff tried to accept it, the offer having been terminated by the counter offer. It should be noted that a mere inquiry (about terms of an offer) is not a counter offer and leaves the offer intact. The case Stevenson v. McLean (1880) 28 W.R. 916 is analogous to this situation. Formation A contract will be formed (assuming the other requirements are met) when the parties give objective manifestation of an intent to form the contract. Of course, the assent must be given to terms of the agreement. Usually this involves the making by one party of an offer to be bound upon certain terms, and the other parties' acceptance of the offer on the same terms. Because offer and acceptance are necessarily intertwined, in California, offer and acceptance are analyzed together as sub elements of a single element, known either as consent of the parties or mutual assent. 2.

Defenses against formation

A defendant who raises a defense of duress has actually done everything to constitute the actus reus of the crime and has the mens rea because he or she intended to do it in order to avoid some threatened or actual harm. Thus, some degree of culpability already attaches to the defendant for what was done. In criminal law, the defendant's motive for breaking the law is usually irrelevant although, if the reason for acting was a form of justification, this may reduce the sentence. The basis of the defense is that the duress actually overwhelmed the defendant's will and would also have overwhelmed the will of a person of ordinary courage (a hybrid test requiring both subjective evidence of the accused's state of mind, and an objective confirmation that the failure to resist the threats was reasonable), thus rendering the entire behavior involuntary. Thus, the liability should be reduced or discharged, making the defense one of exculpation. The extent to which this defense should be allowed, if at all, is a matter of public policy. A state may say that no threat should force a person to deliberately break the law, particularly if this breach will cause significant loss or damage to a third person.[citation needed] Alternatively, a state may take the view that even though people may have

ordinary levels of courage, they may nevertheless be coerced into agreeing to break the law and this human weakness should have some recognition in the law. A variant of duress involves hostage taking, where a person is forced to commit a criminal act under the threat, say, that their family member or close associate will be immediately killed should they refuse. This has been raised in some cases of ransom where a person commits theft or embezzlement under orders from a kidnapper in order to secure their family member's life and freedom. Requirements For duress to qualify as a defense, four requirements must be met:[1] 1. 2. 3. 4.

The threat must be of serious bodily harm or death The threatened harm must be greater than the harm caused by the crime The threat must be immediate and inescapable The defendant must have become involved in the situation through no fault of his or her own

A person may also raise a duress defense when force or violence is used to compel him to enter into a contract, or to discharge one In contract law Duress in the context of contract law is a common law defense, and if one is successful in proving that the contract is vitiated by duress, the contract may be rescinded, since it is then voidable. Duress has been defined as a "threat of harm made to compel a person to do something against his or her will or judgment; esp., a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition". - Black's Law Dictionary (8th ed. 2004) Duress in contract law falls into two broad categories:[3]    

Physical duress, and Economic duress Physical duress

Duress to the person Professor Ronald Griffin, Washburn University School of Law, Topeka, KS, puts physical duress simply: "Your money or your life." In Barton v. Armstrong [1976] AC 104, a decision of the Privy Council, Armstrong threatened to kill Barton if he did not sign a contract, which was set aside due to duress to the person. An innocent party wishing to set aside a contract for duress to the person need to prove only that the threat was made and that it was a reason for entry into the contract; the onus of proof then shifts to the other party to prove that the threat had no effect in causing the party to enter into the contract. Duress can be made also by social influence. Courts frown on this type of contract because there is really no manifestation of mutual assent "meeting of the minds" or agreement to the terms. Rather, when someone is threatened and agrees to act to avoid physical harm by the party making the offer, all you truly have is a mirror of the other party's manifestation of mutual assent not the manifestation of mutual assent by the party being forced or induced to assent to the terms of the contract.

Therefore, the meeting of the minds "in truth" does not exist. Since, there is no meeting of the minds there can be no contract. Duress to goods In such cases, one party refuses to release the goods belonging to the other party until the other party enters into a contract with them. For example, in Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298, the contract was set aside after Hawker Pacific's threats to withhold the helicopter from the plaintiff unless further payments were made for repairing a botched paint job. Economic duress A contract is voidable if the innocent party can prove that it had no other practical choice (as opposed to legal choice) but to agree to the contract. The elements of economic duress 1. Wrongful or improper threat: No precise definition of what is wrongful or improper. Examples include: morally wrong, criminal, or tortuous conduct; one that is a threat to breach a contract "in bad faith" or threaten to withhold an admitted debt "in bad faith". 2. Lack of reasonable alternative (but to accept the other party's terms). If there is an available legal remedy, an available market substitute (in the form of funds, goods, or services), or any other sources of funds this element is not met. 3. The threat actually induces the making of the contract. This is a subjective standard, and takes into account the victim's age, their background (especially their education), relationship of the parties, and the ability to receive advice. 4. The other party caused the financial distress. The majority opinion is that the other party must have caused the distress, while the minority opinion allows them to merely take advantage of the distress. Undue influence Undue influence (as a term in jurisprudence) is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible Undue influence in contract law If undue influence is proved in a contract, in U.S. law, the contract is voidable by the innocent party, and the remedy is rescission. There are two categories to consider:  

Presumed undue influence Actual undue influence

Presumed undue influence First subgroup In the first subgroup, the relationship falls in a class of relationships that as a matter of law will raise a presumption of undue influence. Such classes include:

     

Government/People Parent/child Guardian/ward Priest/member of parish Solicitor/client Doctor/patient

In such cases, the onus of proof lies on a doctor, say, to disprove undue influence on a patient. Second subgroup The second subgroup covers relationships that do not fall into the first subgroup, but on the facts of case, there was an antecedent relationship between the parties that led to undue influence. The test is one of whether there was a relationship of such trust and confidence that it should give rise to such a presumption (see Johnson v. Buttress (1936) 56 CLR 113). In Garcia v National Australia Bank (1998) 194 CLR 395, the High Court of Australia distinguished between cases of actual undue influence and situations where the transaction is set aside because the guarantor does not understand the nature of the transaction. Although there is no presumption of undue influence, a "lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet... did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her." Actual undue influence An innocent party may also seek to have a contract set aside for actual undue influence, where there is no presumption of undue influence, but there is evidence that the power was unbalanced at the time of the signing of the contract. Undue influence in probate law "Undue influence" is the most common ground for will contests and are often accompanied by a capacity challenge. In probate law, it is generally defined as a testator's loss of free agency regarding property disposition through contemporaneous psychological domination by an advisor which results in an excessive benefit to the advisor. It is important to note that "undue influence" is only an issue when the advisor is benefiting, not when advisor is getting a benefit for someone else; in that case it would be considered fraud. In litigation most jurisdictions place the burden of proving undue influence on the party challenging the will. Illusory promise In contract law, an illusory promise is one that courts will not enforce. This is in contrast with a contract, which is a promise that courts will enforce. A promise may be illusory for a number of reasons. In common law countries this usually results from failure or lack of consideration (see also consideration under English law). Illusory promises are so named because they merely hold the illusion of contract. For example, a promise of the form, "I will give you ten dollars if I feel like it," is purely illusory and will not be enforced as a contract.

It is a general principle of contract law that courts should err on the side of enforcing contracts.[citation needed] Parties entering into the arrangement presumably had the intention of forming an enforceable contract, and so courts generally attempt to follow this intention.[1] A promise conditioned upon an event within the promisor's control is not illusory if the promisor also "impliedly promises to make reasonable effort to bring the event about or to use good faith and honest judgment in determining whether or not it has in fact occurred."[2] Methods of finding potentially illusory contracts enforceable include:   

Implied-in-law "good faith" terms Implied-in-fact terms Bargaining for a chance

Contents [hide]    

1 Implied-in-law "good faith" terms 2 Implied-in-fact terms 3 Bargaining for a chance 4 Changes to a "contract" without

notification 

5 References

Implied-in-law "good faith" terms Many contracts include "satisfaction clauses", in which a promisor can refuse to pay if he isn't subjectively satisfied with the promisee's performance. Strictly speaking, this is an illusory promise, since the promisor has no actual legal burden to pay if he chooses not to. However, courts will generally imply in law that the promisor must act in good faith and reject the deal only if he is genuinely dissatisfied. As another example, if a contract promises a promisee a certain percentage of the proceeds of a promisor's business activities, this is illusory, since the promisor doesn't have to do anything: any percentage of zero is zero. However, courts will imply that the promisor promised to use reasonable efforts to try to make money, and cite him for breach of contract if he does absolutely nothing.[3] The U.C.C. in contracts exclusive to both sides requires "best efforts" in such contracts. This is either read to be the same as a good faith effort, but is seen by some courts as a higher duty. Implied-in-fact terms Judges will often infer terms into the contract that the parties did not explicitly cite. For instance, in the "satisfaction clause" case, judges might infer that the parties intended a "reasonableness test" - that the clause could be satisfied if a reasonable person would be satisfied by the promisee's performance, regardless of whether the promisor himself asserts he is satisfied. (This interpretation is often used in cases in which a performance can be objectively evaluated, such as with the construction of a warehouse; the implied-in-law interpretation above is preferred where satisfaction is more subjective, as with the painting of a portrait.) Bargaining for a chance

Many judges[who?] would consider the "bargaining for a percentage of the proceeds" example above an enforceable contract, even without an implied-in-fact or implied-in-law good faith term. They would view the opportunity to enter into a business relationship to itself be acceptable consideration. Put differently, the mere possibility that the promisor would do business is a valuable product of the bargain even if he does not do anything. Of course, if the promisor entered into the relationship purely with the intent of fraudulently harming the promisee, he could be cited for fraud or bad faith principles that apply to all contracts. Changes to a "contract" without notification Statute of frauds

The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract. Traditionally, the statute of frauds requires a signed writing in the following circumstances:  

Contracts in consideration of marriage. This provision covers prenuptial agreements. Contracts which cannot be performed within one year. However, contracts of indefinite duration do not fall under the statute of frauds regardless of how long the performance actually takes.  Contracts for the transfer of an interest in land. This applies not only to a contract to sell land but also to any other contract in which land or an interest in it is disposed, such as the grant of a mortgage or an easement.  Contracts by the executor of a will to pay a debt of the estate with his own money.  Contracts for the sale of goods involving a purchase price of $500 or more.  Contracts in which one party becomes a surety (acts as guarantor) for another party's debt or other obligation. This can be remembered by the mnemonic "MY LEGS": Marriage, one year, land, executor, goods, surety; or Marriage, one year, land, executor, guarantor, sale. Contents [hide]  

1 Terminology 2 Raising

the

defense 

3 Uniform Commercial Code  4 England and Wales  5 Scotland  6 Exceptions  7 See also  8 References  9 External links

Terminology The term statute of frauds comes from an Act of the Parliament of England (29 Chas. 2 c. 3) passed in 1677 (authored by Sir Leoline Jenkins and passed by the Cavalier Parliament), the title of which is An Act for Prevention of Frauds and Perjuries.[1] Many common law jurisdictions have made similar statutory provisions, while a number of civil law jurisdictions have equivalent legislation incorporated into their civil codes. The original English statute itself may still be in effect in a number of US states or Canadian provinces, depending on the constitutional or reception statute of English law, and any subsequent legislative developments. Raising the defense A defendant in a statute of frauds case who wishes to use the Statute as a defense must raise the Statute in a timely manner. The burden of proving that a written contract exists only comes into play when a Statute of Frauds defense is raised by the defendant. A defendant who admits the existence of the contract in his pleadings, under oath in a deposition or affidavit, or at trial, may not use the defense. A statute of frauds defense may also be effected by a showing of part performance, upon showing of one of two different conditions. If the parties have taken action in reliance on the agreement, as in the case Riley v. Capital Airlines, Inc. the court held that part performance does not take an executory portion of contract out of the Statute of Frauds. Each performance constitutes a contract that falls outside the Statute of Frauds and was enforceable to the extent it is executed. But the unexecuted portion of the contract falls within the Statute of Frauds and is unenforceable. As a result, only the executed portion of the contract can be recovered, and the doctrine of part performance does not remove the contract from the statute. On the other hand, the court in Schwedes v. Romain held that partial performance and grounds for estoppel can make the contract effective. In an action for specific performance, an agreement to convey land must satisfy the Statute of Frauds. The Statute is satisfied if the contract to convey is evidenced by a writing or writings containing the essential terms of a purchase and sale agreement and signed by the party against whom the contract is to be enforced. If there is no written agreement, a court of equity can specifically enforce an oral agreement to convey only if the part performance doctrine is satisfied. In a majority of jurisdictions, part performance is proven when the purchaser pays the purchase price, has possession of the land, and makes improvements on the land, all with the permission of the seller. No jurisdiction is satisfied by payment of the purchase price alone. Under common law, the Statute of Frauds also applies to contract modification - for example, suppose party A makes an oral agreement to lease a car from party B for 9 months. Immediately after taking possession party A decides that he really likes the car, and makes an oral offer to party B to extend the term of the lease by 6 months. Although neither agreement alone comes under the Statute of Frauds, the extension modifies the original contract to make it a 15-month lease, thereby bringing it under the Statute. In practice, this works in reverse as well - an agreement to reduce the lease from 15 months to 9 months would not require a writing. However, almost all jurisdictions have enacted statutes that require a writing in such situations. The Uniform Commercial Code abrogated this requirement for contract modification, discussed below. Uniform Commercial Code In the United States, contracts for the sale of goods where the price equals $500 or more (with the exception of professional merchants performing their normal business transactions, or any custom-made items designed for one specific buyer) fall under the statute of frauds under the Uniform Commercial Code (article 2, section 201).[2] The most recent revision of UCC § 2-201 increases the triggering point for the UCC Statute of Frauds to $5,000, but as of 2006 no U.S. state has adopted revised Section 201.

The application of the statute of frauds to dealings between merchants has been modified by provisions of the Uniform Commercial Code, which is a statute that has been enacted at least in part by every state (Louisiana has enacted all of the UCC except for Article 2, as it prefers to maintain its civil law tradition governing the sale of goods). Uniform Commercial Code § 1-206[3] sets out a "catch-all" statute of frauds for personal property not covered by any other specific law, stating that a contract for the sale of such property where the purchase price exceeds $500 is not enforceable unless memorialized by a signed writing. This section, however, is rarely invoked in litigation. Interestingly, with respect to securities transactions, the Uniform Commercial Code (section 8-113) has abrogated the statute of frauds. The drafters of the most recent revision commented that "with the increasing use of electronic means of communication, the statute of frauds is unsuited to the realities of the securities business." England and Wales The Statute of Frauds[4] (1677) was largely repealed in England and Wales by the Law Reform (Enforcement of Contracts) Act 1954. Section 4 now provides that contracts of guarantee (surety for another's debt) are unenforceable unless evidenced in writing. This requirement is subject to section 3 of the Mercantile Law Amendment Act 1856 which provides that the consideration for the guarantee need not appear in writing or by necessary inference from a written document. Section 6 of the Statute of Frauds Amendment Act 1828[5] (commonly known as Lord Tenterden's Act[6]) was enacted to prevent section 4 of the 1677 Act being circumvented by bringing an action for the tort of deceit (the tort in Freeman v. Palsey). Scotland Section 6 of the Mercantile Law Amendment Act Scotland 1856 was derived from those parts of section 4 of the Statute of Frauds (1677) which relate to contracts of guarantee and from section 6 of the Statute of Frauds Amendment Act 1828. It was repealed (see here) on 1 August 1995[7] by the Requirements of Writing (Scotland) Act 1995, sections 14(2) and Schedule 5 (with ss. 9(3)(5)(7), 13, 14(3)). Exceptions An agreement may be enforced even if it does not comply with the statute of frauds in the following situations: 

Merchant Confirmation Rule, under the UCC. If one merchant sends a writing sufficient to satisfy the statute of frauds to another merchant and the receiving merchant has reason to know of the contents of the sent confirmation and does not object to the confirmation within 10 days, the confirmation is good to satisfy the statute as to both parties.  Admission of the existence of a contract by the defendant under oath,  Part Performance of the contract. The agreement is enforceable up to the amount already paid, delivered, etc.  The goods were specially manufactured for the buyer and the seller either 1) began manufacturing them, or 2) entered into a third party contract for their manufacture, and the manufacturer cannot without undue burden sell the goods to another person in the seller's ordinary course of business-- for example, t-shirts with a baseball team logo or wall-to-wall carpeting for an odd-sized room.



Promissory Estoppel can be applied when the charging party detrimentally relies on the otherwise unenforceable contract.  Non est factum



Non est factum – Latin for "it is not [my] deed" – is a doctrine in contract law that allows a signing party to escape performance of the agreement. A claim of non est factum means that the signature on the contract was signed by mistake, without knowledge of its meaning, but was not done so negligently. A successful plea would make the contract void ab initio.  Non est factum is difficult to claim as it does not allow for negligence on the part of the signatory, i.e. failure to read a contract before signing it will not allow for non est factum, except in Canada using the precedent of Tilden Rent-A-Car Co. v. Clendenning. In a successful case, the fundamental basis of the signed contract must be completely different from what was intended. In Lloyds Bank v Waterhouse [1990] a father acted as a guarantor to his son's debt when purchasing a farm. The father was illiterate and signed the bank document under the belief that he was acting as the guarantor for the farm only, when the contract was actually for all the debt accumulated by the son. As he was illiterate, this was a mistake as to the document signed and the father was successful in claiming non est factum.  Another notable case on non est factum is Foster v Mackinnon (1869) LR 4 CP 704 where an elderly man signed a bill of exchange but was only shown the back of it. He was granted a new trial.[1] 

3

. Contract interpretationParol evidence rule

The parol evidence rule is a substantive common law rule in contract cases that prevents a party to a written contract from presenting extrinsic evidence that contradicts or adds to the written terms of the contract that appears to be whole. The supporting rationale is that since the contracting parties have reduced their agreement to a single and final writing, the extrinsic evidence of past agreements or terms should not be considered when interpreting that writing, as the parties had decided to ultimately leave them out of the contract.

Overview To take an example, Carl agrees in writing to sell Betty a car for $1,000. Betty argues that Carl told her that she would only need to pay Carl $800. The parol evidence rule would generally prevent Betty from testifying to this conversation because the testimony ($800) would directly contradict the written contract's terms ($1,000). In order for the rule to be effective, the contract in question must first be a final integrated writing; it must, in the judgment of the court, be the final agreement between the parties (as opposed to a mere draft, for example). A final integrated agreement is either a partial or complete integration. If it contains some, but not all, of the terms as to which the parties have agreed then it is a partial integration. This means that the writing was a final agreement between the parties (and not mere preliminary negotiations) as to some terms, but not as to others. On the other hand, if the writing were to contain all of the terms as to which the parties agreed, then it would be a complete integration. One way to ensure that the contract will be found to be a final and complete integration is through the inclusion of a merger clause, which recites that the contract is, in fact, the whole agreement between the parties. However, many modern cases have found merger clauses to be only a rebuttable presumption.

The importance of the distinction between partial and complete integrations is relevant to what evidence is excluded under the parol evidence rule. For both complete and partial integrations, any evidence contradicting the writing is excluded under the parol evidence rule. However, for a partial integration, terms that supplement the writing are admissible. To put it mildly, this can be an extremely subtle (and subjective) distinction. There are a number of exceptions to the parol evidence rule. Extrinsic evidence can always be admitted for the following purposes:  

To aid in the interpretation of existing terms. To show that in light of all the circumstances surrounding the making of the contract, the contract is actually ambiguous, thus necessitating the use of extrinsic evidence to determine its actual meaning (California law).[1]  To resolve an ambiguity in the contract.  To show that an unambiguous term in the contract is in fact a mistaken transcription of a prior valid agreement. Such a claim must be established by clear and convincing evidence, and not merely by the preponderance of the evidence.  To correct mistakes.  To show wrongful conduct such as misrepresentation, fraud, duress, unconscionability (276 N.E.2d 144, 147), or illegal purpose on the part of one or both parties.[2]  To show that consideration has not actually been paid. For example, if the contract states that A has paid B $1,000 in exchange for a painting, B can introduce evidence that A had never actually conveyed the $1,000.  To identify the parties, especially if the parties have changed names.  To imply or incorporate a term of the contract.  To make changes in the contract after the original final contract has been agreed to. That is, oral statements can be admitted unless they are barred by a clause in the written contract.[2] In order for evidence to fall within this rule, it must involve either (1) a written or oral communication made prior to execution of the written contract; or (2) an oral communication made contemporaneous with execution of the written contract. Evidence of a later communication will not be barred by this rule, as it is admissible to show a later modification of the contract (although it might be inadmissible for some other reason, such as the Statute of Frauds). Similarly, evidence of a collateral agreement - one that would naturally and normally be included in a separate writing - will not be barred. For example, if A contracts with B to paint B's house for $1,000, B can introduce extrinsic evidence to show that A also contracted to paint B's storage shed for $100. The agreement to paint the shed would logically be in a separate document from the agreement to paint the house. Though its name suggests that it is a procedural evidence rule, the consensus of courts and commentators is that the parol evidence rule constitutes substantive contract law. Additional information on the parol evidence rule may be found in Restatement 2d of Contracts § 213. Examples The parol evidence rule is a common trap for consumers. For example: 

Health club contracts. You enroll in a health club, and the salesperson tells you that the contract can be cancelled. You later decide you would like to cancel, but the written contract provides that it is noncancellable. The oral promises of the salesperson are generally non-enforceable. However, the salesperson in misleading you into the terms of the contract constitutes a misrepresentation and you may seek to rescind the contract.



Auto sales agreements. You purchase a used car, and the salesperson tells you it is "good as new". But the contract provides that the sale is as is. Again, in most circumstances the written contract controls. However, this also constitutes misrepresentation. 

Timeshares. While in certain jurisdictions, and in certain circumstances, a consumer may have a right of rescission, some people attend real estate sales presentations at which they may feel pressured into immediately signing binding contracts. Evidence that the contract was entered into under duress will not be precluded by the parol evidence rule. Standard form contract

A standard form contract (sometimes referred to as an adhesion contract or boilerplate contract) is a contract between two parties that does not allow for negotiation, i.e. take it or leave it. It is often a contract that is entered into between unequal bargaining partners, such as when an individual customer is given a contract by the salesperson of a multinational corporation. The customer is in no position to renegotiate the standard terms of the contract and the company's representative usually does not have the authority to do so. While adhesion contracts, in and of themselves, are not illegal per se, there exists a very real possibility for unconscionability. Theoretical issues There is much debate on a theoretical level whether, and to what extent, courts should enforce rules form contracts. On one hand, they undeniably fulfill an important role of promoting economic efficiency. Standard form contracting reduces transaction costs substantially by precluding the need for buyers and sellers of goods and services to negotiate the many details of a sale contract each time the product is sold. On the other hand, there is the potential for inefficient, and even unjust, terms to be accepted by signatories to these contracts. Such terms might be seen as unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract.[1] These terms often come in the form of, but are not limited to, forum selection clauses and mandatory arbitration clauses, which can limit or foreclose a party's access to the courts; and also liquidated damages clauses, which set a limit to the amount that can be recovered or require a party to pay a specific amount. They might be inefficient if they place the risk of a negative outcome, such as defective manufacturing, on the buyer who is not in the best position to take precautions. There are a number of reasons why such terms might be accepted:[2] [3] Standard form contracts are rarely read Lengthy boilerplate terms are often in fine print and written in complicated legal language which often seems irrelevant. The prospect of a buyer finding any useful information from reading such terms is correspondingly low. Even if such information is discovered, the consumer is in no position to bargain as the contract is presented on a ―take it or leave it‖ basis. Coupled with the often large amount of time needed to read the terms, the expected payoff from reading the contract is low and few people would be expected to read it. Sometimes a standard form contract may literally be dispensed from a vending machine to drivers sitting in line to enter a parking garage (see photograph below), which means that stopping to read the contract risks provoking road rage. Access to the full terms may be difficult or impossible before acceptance

Often the document being signed is not the full contract; the purchaser is told that the rest of the terms are in another location. This reduces the likelihood of the terms being read and in some situations, such as software license agreements, can only be read after they have been notionally accepted by purchasing the good and opening the box. These contracts are typically not enforced, since common law dictates that all terms of a contract must be disclosed before the contract is executed. Boilerplate terms are not salient The most important terms to purchasers of a good are generally the price and the quality, which are generally understood before the contract of adhesion is signed. Terms relating to events which have very small probabilities of occurring or which refer to particular statutes or legal rules do not seem important to the purchaser. This further lowers the chance of such terms being read and also means they are likely to be ignored even if they are read. There may be social pressure to sign Standard form contracts are signed at a point when the main details of the transaction have either been negotiated or explained. Social pressure to conclude the bargain at that point may come from a number of sources. The salesperson may imply that the purchaser is being unreasonable if they read or question the terms, saying that they are "just something the lawyers want us to do" or that they are wasting their time reading them. If the purchaser is at the front of a queue (for example at an airport car rental desk) there is additional pressure to sign quickly. Finally, if there has been negotiation over price or particular details, then concessions given by the salesperson may be seen as a gift which socially obliges the purchaser to respond by being co-operative and concluding the transaction. Standard form contracts may exploit unequal power relations If the good which is being sold using a contract of adhesion is one which is essential or very important for the purchaser to buy (such as a rental property or a needed medical item) then the purchaser might feel they have no choice but to accept the terms. This problem may be mitigated if there are many suppliers of the good who can potentially offer different terms (see below). Some contend that in a competitive market, consumers have the ability to shop around for the supplier who offers them the most favorable terms and are consequently able to avoid injustice. However, in the case of credit cards (and other oligopolies), for example, the consumer while having the ability to shop around may still have access to only form contracts with like terms and no opportunity for negotiation. Also, as noted, many people do not read or understand the terms so there might be very little incentive for a firm to offer favorable conditions as they would gain only a small amount of business from doing so. Even if this is the case, it is argued by some that only a small percentage of buyers need to actively read standard form contracts for it to be worthwhile for firms to offer better terms if that group is able to influence a larger number of people by affecting the firm‘s reputation. Another factor which might mitigate the effects of competition on the content of contracts of adhesion is that, in practice, standard form contracts are usually drafted by lawyers instructed to construct them so as to minimize the firm‘s liability, not necessarily to implement managers' competitive decisions. Sometimes the contracts are written by an industry body and distributed to firms in that industry, increasing homogeneity of the contracts and reducing consumer's ability to shop around. Common law status

As a general rule, the common law treats standard form contracts as any other contract. Signature or some other objective manifestation of intent to be legally bound will bind the signor to the contract whether or not they read or understood the terms. The reality of standard form contracting, however, means that many common law jurisdictions have developed special rules with respect to them. In general, courts will interpret standard form contracts contra proferentem (literally 'against the proffering person') but specific treatment varies between jurisdictions. United States Generally Standard form contracts are generally enforceable in the United States. The Uniform Commercial Code which is followed in most American states has specific provisions relating to standard form contracts for the sale or lease of goods. Furthermore, standard form contracts will be subject to special scrutiny if they are found to be contracts of adhesion. Contracts of adhesion The concept of the contract of adhesion originated in French civil law, but did not enter American jurisprudence until the Harvard Law Review published an influential article by Edwin W. Patterson in 1919. It was subsequently adopted by the majority of American courts, especially after the Supreme Court of California endorsed adhesion analysis in 1962. See Steven v. Fidelity & Casualty Co., 58 Cal. 2d 862, 882 n.10 (1962) (explaining history of concept).[1] For a contract to be treated as a contract of adhesion, it must be presented on a standard form on a "take it or leave it" basis, and give one party no ability to negotiate because of their unequal bargaining position. The special scrutiny given to contracts of adhesion can be performed in a number of ways: 

If the term was outside of the reasonable expectations of the person who did not write the contract, and if the parties were contracting on an unequal basis, then it will not be enforceable. The reasonable expectation is assessed objectively, looking at the prominence of the term, the purpose of the term and the circumstances surrounding acceptance of the contract.  Section 211 of the American Law Institute's Restatement (Second) of Contracts, which has persuasive though non-binding force in courts, provides: Where the other party has reason to believe that the party manifesting such assent would not do so if he knew that the writing contained a particular term, the term is not part of the agreement. This is a subjective test focusing on the mind of the seller and has been adopted by only a few state courts. 

The doctrine of unconscionability is a fact-specific doctrine arising from equitable principles. Unconscionability in standard form contracts usually arises where there is an "absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms which are so oppressive that no reasonable person would make them and no fair and honest person would accept them." (Fanning v. Fritz's Pontiac-Cadillac-Buick Inc.) Shrink wrap contracts Courts in the United States have faced the issue of shrink wrap contracts in two ways. One line of cases follows ProCD v. Zeidenberg which held such contracts enforceable (eg. Brower v Gateway) and the other follows

Klocek v. Gateway, Inc, which found them unenforceable. These decisions are split on the question of consent, with the former holding that only objective manifestation of consent is required while the latter require at least the possibility of subjective consent. Canada In Canada, exclusion clauses in a standard form contract cannot be relied on where a seller knows or has reason to know a purchaser is mistaken as to its terms (Tilden Rent-A-Car Co. v. Clendenning). Australia Standard form contracts have generally received little special treatment under Australian common law. A 2003 New South Wales Court of Appeal case (Toll (FGCT) Pty Limited v Alphapharm Pty Limited) gave some support for the position that notice of exceptional terms is required for them to be incorporated. However the defendant successfully appealed to the High Court so currently there is no special treatment of standard form contracts in Australia. Legislation In recognition of the consumer protection issues which may arise, many governments have passed specific laws relating to standard form contracts. These are generally enacted on a state level as part of general consumer protection legislation and typically allow consumers to avoid clauses which are found to be unreasonable, though the specific provisions vary greatly. Some laws require notice to be given for these clauses to be effective, others prohibit unfair clauses altogether (eg. Victorian Fair Trading Act 1999). Integration clause

In contract law, an integration clause, or merger clause (sometimes, particularly in the United Kingdom, referred to as an entire agreement clause) is a term in the language of the contract that declares it to be the complete and final agreement between the parties. It is often placed at or towards the end of the contract. Effect In the United States, the existence of such a term is normally not conclusive proof that no varied or additional conditions exist with respect to the performance of the contract beyond those that are in the writing but instead is simply evidence of that fact. A contract that has such a clause may be deemed an integrated contract, and any previous negotiations in which the parties to the contract had considered different terms will be deemed superseded by the final writing. However, many modern cases have found merger clauses to be only a rebuttable presumption. Sample clause "This Agreement, along with any exhibits, appendices, addendums, schedules, and amendments hereto, encompasses the entire agreement of the parties, and supersedes all previous understandings and agreements between the parties, whether oral or written. The parties hereby acknowledge and represent, by affixing their hands and seals hereto, that said parties have not relied on any representation, assertion, guarantee, warranty,

collateral contract or other assurance, except those set out in this Agreement, made by or on behalf of any other party or any other person or entity whatsoever, prior to the execution of this Agreement. The parties hereby waive all rights and remedies, at law or in equity, arising or which may arise as the result of a party‘s reliance on such representation, assertion, guarantee, warranty, collateral contract or other assurance, provided that nothing herein contained shall be construed as a restriction or limitation of said party‘s right to remedies associated with the gross negligence, willful misconduct or fraud of any person or party taking place prior to, or contemporaneously with, the execution of this Agreement." Contra proferentem Contra proferentem is a rule of contractual interpretation which provides that an ambiguous term will be construed against the party that imposed its inclusion in the contract – or, more accurately, against (the interests of) the party who imposed it.[1] The interpretation will therefore favor the party that did not insist on its inclusion. The rule applies only if, and to the extent that, the clause was included at the unilateral insistence of one party without having been subject to negotiation by the counter-party. Additionally, the rule applies only if a court determines the term to be ambiguous, which often forms the substance of a contractual dispute.It translates from the Latin literally to mean "against (contra) the one bringing forth (the proferens)." The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can. Additionally, the rule reflects the court's inherent dislike of standard-form take-it-or-leave-it contracts also known as contracts of adhesion (e.g., standard form insurance contracts for individual consumers, residential leases, etc.). The court perceives such contracts to be the product of bargaining between parties in unfair or uneven positions. To mitigate this perceived unfairness, legal systems apply the doctrine of contra proferentem; giving the benefit of any doubt in favour of the party upon whom the contract was foisted. Some courts when seeking a particular result will use contra proferentem to take a strict approach against insurers and other powerful contracting parties and go so far as to interpret terms of the contract in favor of the other party, even where the meaning of a term would appear clear and unambiguous on its face, although this application is disfavored. Contra proferentem also places the cost of losses on the party who was in the best position to avoid the harm. This is generally the person who drafted the contract. An example of this is the insurance contract mentioned above, which is a good example of an adhesion contract. There, the insurance company is the party completely in control of the terms of the contract and is generally in a better position to, for example, avoid contractual forfeiture. This is a longstanding principle: see, for example, California Civil Code §1654 (―In cases of uncertainty ... the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist"), which was enacted in 1872. Numerous other states have codified the rule as well. The principle has also been codified in international instruments such as the UNIDROIT Principles and the Principles of European Contract Law. 4.

Excuses for non-performance

Mistake · Frustration of Impracticability · Unclean hands · Unconscionability Mistake (contract law)

purpose ·

Misrepresentation Impossibility Illegality

In contract law a 'mistake' is an erroneous belief, 'at contracting', that certain facts are true. Mistake can be argued as a defence, and if raised successfully can lead to the agreement in question being found void ab initio or voidable, or alternatively an equitable remedy may be provided by the courts. Common law has identified three different types of mistake in contract: the 'unilateral mistake', the 'mutual mistake' and the 'common mistake'. It is important to note the distinction between the 'common mistake' and the 'mutual mistake'. Unilateral mistakes A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter contained in a contract. This kind of mistake is more common than other types of mistake. One must first distinguish between mechanical calculations and business error when looking at unilateral mistake. For mechanical calculations, a party may be able to set aside the contract on these grounds provided that the other party does not try to take advantage of the mistake, or 'snatch up' the offer (involving a bargain that one did not intend to make, betrayed by an error in arithmetic etc.). This will be seen by an objective standard, or if a reasonable person would be able to know that the mistake would not make sense to one of the parties. Unless one of the parties 'snatched up' the one-sided offer, courts will otherwise uphold the contract. Conversely, when a party is guilty of an error in business judgment, there is no relief. Leading British cases on unilateral mistake are Smith v Hughes[Case 1] and Hartog v Colin & Shields.[Case 2] There are situations, such as in the contracting and subcontracting contexts, where a subcontractor provides a bid that would not seem reasonable in the context of industry norms. Similar to Donovan v. RRL Corp.,[Case 3] if a person sees an advertisement and there is a mistake that a person reading the newspaper would believe to be a valid offer and there is sufficient reliance on the offer, then it is unlikely that a court will rescind the contract. In the case of Donovan, the error in the newspaper was not the fault of the car dealer. The mistake was made on the part of the newspaper company that printed the error. This would be more of an example of a mutual mistake. Both the buyer (Donovan) and seller (RRL Corp.) mistakenly believed that the advertisement was correct. As is discussed in the mutual mistake section on this page, most likely a court will excuse each of a duty to perform the contract. Mutual mistake theory will also discuss the factors that will determine the allocation of risk in the event of a mutual mistake. The test to determine the allocation of risk is as follows: A defendant should bear the risk of the mistake if: (i) the agreement allocated the risk to the defendant; (ii) the defendant was aware of having limited knowledge with respect to the facts to which the mistake related but treats his limited knowledge as sufficient; or (iii) the court finds that it is reasonable under the circumstances to allocate the risk to the defendant. Given the facts in Donovan, who is in the better position to bear the risk? The car dealer who provides the advertisement? Or the consumer? Many jurisdictions would claim that the car dealer has more knowledge in this regard than a consumer. A consumer, generally, will not be aware of errors in an advertisement nearly as often as a commercial seller of goods who is in the business of advertising their own products to the public at large. As any area of law, any doctrine has its exceptions. In Speckel v. Perkins,[Case 4] there was a unilateral mistake by one of the parties. However, the mistake should have been apparent to a reasonable person in the position of the party who did not make the mistake. The court determined that the offer of US$50000 was, on its face, clearly a mistake. The correct amount, as both parties were aware, was for US$15000. The question raises, at what point will the unilateral mistake become so apparent that it leaves unilateral mistake theory and enters into mutual mistake doctrine? Mistake of identity It is also possible for a contract to be void if there was a mistake in the identity of the contracting party. In the leading English case of Lewis v Avery[Case 5] Lord Denning held that the contract can be avoided only if the

plaintiff can show, that at the time of agreement, the plaintiff believed the other party's identity was of vital importance. A mere mistaken belief as to the credibility of the other party is not sufficient. Shogun Finance Ltd v Hudson[Case 6] is now the leading UK case on mistake as to identity [2003] UKHL 62. In this case, the House of Lords stated there was a strong presumption the owner intends to contract with the person physically present before him and only in extreme cases would the presumption be rebutted. Mutual mistake A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are mistaken. Hence the contract is voidable. Collateral mistakes will not afford the right of rescission. A collateral mistake is one that 'does not go to the heart' of the contract. For a mutual mistake to be void, then the item the parties are mistaken about must be material (emphasis added). When there is a material mistake about a material aspect of the contract, the essential purpose of the contract, there is the question of the assumption of the risk. Who has the risk contractually? Who bears the risk by custom? Restatement (Second) Contracts Sec. 154 deals with this scenario. This is easily confused with mutual assent cases such as Raffles v Wichelhaus.[Case 7] In Raffles, there was an agreement to ship goods on a vessel named Peerless, but each party was referring to a different vessel. Therefore, each party had a different understanding that they did not communicate about when the goods would be shipped. In this case, both parties believed there was a "meeting of the minds," but discovered that they were each mistaken about the other party's different meaning. This represents not a mutual mistake but a failure of mutual assent. In this situation, no contract has been formed, since mutual assent is required in the formation stage of contract. Common mistake A common mistake is where both parties hold the same mistaken belief of the facts. The House of Lords case of Bell v Lever Brothers Ltd.[Case 8] established that common mistake can void a contract only if the mistake of the subject-matter was sufficiently fundamental to render its identity different from what was contracted, making the performance of the contract impossible. Later in Solle v Butcher,[Case 9] Lord Denning added requirements for common mistake in equity, which loosened the requirements to show common mistake. However, since that time, the case has been heavily criticized in cases such as Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd.[Case 10] Those categories of mistake in the United States exist as well, but it is often necessary to identify whether the error was a "decisional mistake," which is a mistake as a matter of law (faced with two known choices, making the wrong one), or an "ignorant mistake," unaware of the true state of affairs. The difference is in the extent to which an innocent in the information chain, passing along or using or processing incorrect information, becomes liable. There is a principal that an entity or person cannot be made more liable merely by being in the information chain and passing along information taken in good faith in the belief that it was true, or at least without knowledge of the likelihood of falsity or inaccuracy.

Roswell State Bank v. Lawrence Walker Cotton Co. Under American law bank, title company, document processing firm, or the like is not liable for false information provided to it, any more than a bank was liable for false information from a trusted customer turned embezzler who drew an unauthorized cashier‘s check. Roswell State Bank v. Lawrence Walker Cotton Co., 56 N.M. 107, 240 P.2d 143 (1952): ‗A thing is done ―in good faith‖ within the meaning of this act, when it is in fact done honestly, whether it be done negligently or not. ‗… ‗…[a] transferee is not bound to inquire whether the fiduciary is committing a breach of his obligation as fiduciary in transferring the instrument, and is not chargeable with notice that the fiduciary is committing a breach of his obligation as fiduciary unless he takes the instrument with actual knowledge of such breach or with knowledge of such facts that his action in taking the instrument amounts to bad faith.‘ 56 N.M. at 112-113 (quoting from the Uniform Fiduciaries Act[Law 1]). Davis v. Pennsylvania Co. 337 Pa. 456 Roswell was the case of first impression on this issue in the state of New Mexico, and drew on cases in other jurisdictions interpreting the same language, most notably Davis v. Pennsylvania Co. 337 Pa. 456, 12 A.2d 66 (1940), which on similar facts to Roswell came to the same conclusion and exonerated the innocent actor in favor of shifting any responsibility for the loss to tortfeasors and those who enabled them to act by giving them unjustified authority. 56 N.M. at 114. The Davis case leads into another good analysis, in a case relied upon by Davis: ‗At what point does negligence cease and bad faith begin? The distinction between them is that bad faith, or dishonesty, is, unlike negligence, wilful. The mere failure to make inquiry, even though there be suspicious circumstances, does not constitute bad faith, unless said failure is due to the deliberate desire to evade knowledge because of a belief or fear that inquiry would disclose a vice or defect in the transaction, – that is to say, where there is an intentional closing of the eyes or stopping of the ears.‘ Union Bank & Trust Co.v. Girard Trust Co. Union Bank & Trust Co.v. Girard Trust Co., 307 Pa. 468, 500-501, 161 A.2d 865 (1932). A firm processing information in order to transfer title using information provided by customers lacked the intent to commit illegal or improper acts when the information furnished to it was wrong. It was not part of its job description to know better, and it did not know better, and charged only a nominal fee for the clerical work, clearly not including any investigation. Further, it could not be in a conspiracy with another party or several parties who knew the information was wrong but failed to inform the title firm. The title firm could not unknowingly become part of a conspiracy of which it was never informed, and from which it could derive no benefit. The attempt to enhance liability or shift blame by filtering data through an innocent party has been tried before, but where the conduit providing document preparation does not know more than its informants, and was not hired or paid to investigate, it is not liable in their place for using their bad facts without guilty knowledge. Hynix Semiconductor America, Inc. v. United States The law governing record-keeping mistakes and how they are corrected has been gathered by the U.S. Court of International Trade in Hynix Semiconductor America, Inc. v. United States, 414 F. Supp. 2d 1317 (C.I.T. 2006),

in which the Court was faced with application of a tariff which had been calculated at the wrong rate by a customs clerk. To enforce "anti-dumping" legislation and keep foreign-made goods (in this case, Korean electronic components) made using cheap labor and undercutting American industry, a regulatory scheme was implemented under which such imports were charged a ―liquidation duty‖ at a rate to be found on a schedule. The schedule had been made up by a panel of experts using standards for adjusting the price differential in the overseas goods. The custom clerk used the wrong category of goods and overcharged the duty, and by the time Hynix figured out what had happened, part of a very short statute of limitations on protest had expired. Hynix nevertheless prevailed and received the correction in its tariff rate by showing that such an error ―…was correctable under 19 U.S.C. § 1820(c) as a mistake of fact or clerical error not amounting to an error in the construction of a law, and because the failure to file a protest within ninety days of the liquidation of the entries is without legal consequence in this context …‖ Id. at 1319. The Hynix court explains the difference between a mistake of law ―…where the facts are known but the legal consequences are not, or are believed to be different than they really are…,‖ Century Importers, Inc. v. United States, 205 F.3d 1308, 1313 (Fed. Cir. 2000), and a mistake of fact, ―…where either (1) the facts exist, but are unknown, or (2) the facts do not exist as they are believed to [exist],‖ quoting Hambro Auto. Corp. v. United States, 66 C.C.P.A. 113, 118, C.A.D. 1231, 603 F.2d 850, 853 (1979) (―A mistake of fact is any mistake except a mistake of law.‖ Id. at 855) Hynix, 414 F. Supp. 2d. at 1325. Hynix, in reviewing the tariff application to the facts, also provided a guided tour of the different kinds of mistake and how they are treated in the federal court system. The key distinction is between ―decisional mistakes‖ and ―ignorant mistakes.‖ Id. at 1326; G & R Produce Co, v. U.S., 281 F. Supp. 2d 1323, 1331 (2003); Prosegur, Inc. v. U.S., 140 F. Supp. 2d 1370, 1378 (2001); Universal Cooperatives, Inc. v. United States, 715 F. Supp. 1113, 1114 (1989). ‗Decisional mistakes are mistakes of law and occur when ―…a party [makes] the wrong choice between two known, alternative sets of facts.‖ Universal Cooperatives, (citation partly omitted), 715 F. Supp. at 1114. On the other hand, an ignorant mistake occurs where ―…a party is unaware of the existence of the correct alternative set of facts.‖ Id. ―In order for the goods to be reliquidated under 1520 (c) (1), the alleged mistake of fact must be an ignorant mistake.‖ Prosegur, (citation partly omitted), 140 F. Supp. 2d at 1378.‘ Hynix at 1326. Hynix provided one more criterion, and that is ―materiality,‖ citing to extensive development of that requirement in Degussa Canada Ltd. v. United States, 87 F.3d 1301, 1304 (Fed. Cir. 1996), and Xerox Corp. v. United States, 2004 C.I.T. (Sept. 8, 2004) (―[A] mistake of fact … is a factual error that, if the correct fact had been known, would have resulted in a different classification.‖) The error must be ―material‖ in order to be corrected without consequence. Misrepresentation From Wikipedia, the free encyclopedia Jump to: navigation, search This article is about a legal term. For the sociological one, see Misrepresentation (sociology). Misrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation.

According to Gordon v Selico (1986) 18 HLR 219 it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation.[1] If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact.[2] Representation is not a term As enacted by the Misrepresentation Act,[3] the statement in question may constitute a representation even if later incorporated into the contract as a term (i.e. a warranty, condition or innominate term). An alternative approach, applied in parallel but in exclusivity to, is to find a collateral contract by interpreting the representation as a promise accompanied by some sort of consideration (see Heilbut, Symons & Co. v Buckleton [1913] A.C. 30 (H.L.)). The collateral contract will have the effect of adding the representation as a term to the contract. If the representation is found to be a term then the normal remedies for breach of contract apply. Criteria for Misrepresentation Misrepresentation is one of several vitiating factors which can affect the validity of a contract. A misrepresentation occurs when one party makes a false statement with the intention of inducing another party to contract. For an action to be successful, some criteria must be met in order to prove a misrepresentation. These include:   

A false statement of fact has been made, The statement was directed at the suing party and The statement had acted to induce the suing party to contract.

Distortion of Fact A representor may make a statement which prima facie is technically true; however this may tell only half the story. If a statement of fact is made but the representor fails to include information which would significantly alter the interpretation of this fact, then a misrepresentation may have occurred. In Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, Krakowski agreed to enter into a contract to buy a shop premises from Eurolynx as long as a 'strong tenant' had been organised. The contract proceeded on the grounds that such a tenant had been arranged. Unbeknown to Krakowski, Eurolynx had entered into an additional agreement with the tenant to provide funds for the first three months rent to ensure the contract went ahead. When the tenant defaulted on the rent and subsequently vacated the premises, Krakowski found out about the additional agreement and rescinded the contract with Eurolynx. It was held that Eurolynx‘s failure to disclose all material facts about the 'strong tenant' was enough to constitute a misrepresentation and the contract could be rescinded on these grounds. Learned Falsity The negotiating stage of a contract can be a time consuming process. Because of this, new information may arise and circumstances may change. This can result in two situations which can result in a misrepresentation if silence is kept. The first is if the representor subsequently discovers that the statement was false, the second being if the statement becomes false at a later time. If a statement is made and it is subsequently made known to the representor that it is false, it would obviously be inequitable to allow the representor to remain silent with the new information. In Lockhart v. Osman [1981] VR 57, an agent had advertised some cattle as being ―well

suited for breeding purposes‖. Later on it was discovered that the stock had been exposed to a contagious disease which affected the reproductive system. It was held that the agent had a duty to take remedial action and correct the representation. The failure by the agent to take such measures resulted in the contract being set aside. Should a statement be made which is true at the time, but subsequently becomes untrue due to a change in circumstances, the representor is obligated to amend the original statement. In With v O’Flanagan [1936] Ch. 575, the plaintiff entered into a contract to purchase O‘Flanagan‘s medical practice. During negotiations it was said that the practice produced an income of £2000 per year. Before the contract was signed, the practice took a downward turn and lost a significant amount of value. After the contract had been entered into the true nature of the practice was discovered and the plaintiff took action in misrepresentation. In his decision, Lord Wright said "...a representation made as a matter of inducement to enter into a contract is to be treated as a continuing representation."[4]. This means that the representation must be true till the contract is made; creating the obligation mentioned above and accordingly the plaintiff‘s petition was successful. Special Relationships Some relationships also provide that silence can form the basis of an actionable misrepresentation. 

Fiduciary Relationships

A fiduciary relationship is one of trust and confidence; it involves one party acting for the benefit of another. For this reason, when entering into a contract, it is important for a fiduciary to disclose all facts which could be considered material even if not expressly asked about.[5] In Lowther v Lord Lowther (1806) 13 Ves Jr 95, the plaintiff handed over a picture to an agent for sale. The agent knew of the pictures true worth yet bought it for a considerably lower price. The plaintiff subsequently discovered the pictures true worth and sued to rescind the contract. It was held that the defendant was in a fiduciary relationship with the plaintiff and accordingly assumed an obligation to disclose all material facts. Accordingly the contract could be rescinded. 

Contracts „Uberrimae Fidei‟

A contract uberrimae fidei is a contract of ‗utmost good faith‘. Similarly to fiduciary relationships, the parties are required to make known all material facts influencing the contract. Contracts uberrimae fidei usually arise when one party has knowledge which the other does not have access to. Contracts which are commonly considered to be of such a nature include contracts of insurance and family agreements. When applying for insurance, the person or entity must disclose all material facts so that the insurer can properly asses the risk involved with the offering of insurance. Since the insurer cannot have access to all information relating to the insured and their situation which could affect the risk involved, it is necessary for this disclosure so that both parties are entering into the contract on equal grounds. Lord Blackburn addressed the issue in Brownlie v Campbell (1880) 5 App Cas 925 when he noted "...the concealment of a material circumstance known to you...avoids the policy." [6] Another contract considered uberrimae fidei is that of family agreements. In Gordon v Gordon (1821) 3 Swan 400, two brothers had reached an agreement regarding the family estate. The elder brother was under the impression that he was born out of wedlock and thus not their fathers true heir. The agreement was reached on this basis. The elder brother subsequently discovered that this was not the case and that the younger brother had knowledge of this during the negotiation of the settlement. The elder brother sued to set aside the agreement and was successful on the grounds that such a contract was one of uberrimae fidei and the required disclosure had not been executed. Statement of Fact

It is a general requirement that for an action in misrepresentation to proceed, that the statement in question be one of present or past fact. This has its grounding in that only facts can be distinguished as being true or untrue at the time they are made. Opinion Statements of opinion are not often seen as sufficient to produce a misrepresentation[7]. Obviously it would be unreasonable to treat opinions in the same manner as truths as opinions can be based purely on personal beliefs with no additional foundation. There are however some exceptions where opinions can give rise to an action in misrepresentation:   

where an opinion is expressed yet this opinion is not actually held by the representor, where it is implied that the representor has facts on which to base the opinion[8], or where one party should have known facts on which such an opinion would be based[9].

Intention and the Future Statements which are made in relation to the intention of a party or the occurrence of some event in the future do not constitute misrepresentations should they fail to eventuate. This is because at the time the statements were made they can not be categorised as either true or false. However, similarly to the first point above, an action can be brought if the intention never actually existed. This can be illustrated by the decision in Edgington v Fitzmaurice (1885) 29 Ch. D. 459, which deals with a statement of intention by the directors of a company to use loaned money to alter company buildings and make purchases to expand the company‘s operating options. It was found that the directors actually intended to repay current debts and according it was held by the judges that the contract was voidable[10]. Law Statements of law were, in the past, considered to be free from claims of misrepresentation because it is equally accessible by both parties and is "...as much the business of the plaintiff as of [the defendants] to know what the law [is]."[11]. This has since changed and it is now more recognised that statements of law should be treated as akin to statements of fact rather than occupy a special isolation[12]. As stated by Lord Denning "...the distinction between law and fact is very illusory."[13]. Statement to the Misled An action in misrepresentation can only be brought by a representee. This means that only those who were an intended party to the representation can sue. This principle can be seen in Peek v Gurney (1873) LR 6 HL 377, where the plaintiff sued the directors of a company for indemnity. The action failed because it was found that the plaintiff was not a representee (an intended party to the representation) and accordingly misrepresentation could not be a protection. It is not required that in order to be a representee, the representation must be received directly. It is sufficient that the representation was made to another party with the intention that it would be made known to a subsequent party and ultimately acted upon by them as a representee[14]. Types of misrepresentation Four types of misrepresentations are identified with different remedies available:



Fraudulent misrepresentation occurs when one makes representation with intent to deceive and with the knowledge that it is false. An action for fraudulent misrepresentation allows for a remedy of damages and rescission. One can also sue for fraudulent misrepresentation in a tort action. Fraudulent misrepresentation is capable of being made recklessly.[15]  Negligent misrepresentation at common law occurs when the defendant carelessly makes a representation while having no reasonable basis to believe it to be true. This type of misrepresentation is relatively new and was introduced to allow damages in situations where neither a collateral contract nor fraud is found. It was first seen in the case of Hedley Byrne v Heller [1964] A.C. 465 where the court found that a statement made negligently that was relied upon can be actionable in tort. Lord Denning in Esso Petroleum Co. Ltd. v Mardon [1976] Q.B. 108 however, transported the tort into contract law, stating the rule as: if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another…with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable 

Negligent misrepresentation under Statute, enacted by the Misrepresentation Act 1967. When dealing with a negligent misrepresentation it is most lucrative[16] (joint with fraudulent misrepresentation, Contributory Negligence notwithstanding[17]) for an action to be brought under statute law as the burden of proof that is required passes to the person who made the statement. So it is for the person who made the negligent statement to prove that the statement was either not one of fact but opinion and that "had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true" [18] - the socalled innocent defence. This creates an inconsistency of law due to the low burden and damages being calculated as extensive as those under fraudulent misrepresentation whereby a "wicked mind"[19] is the basis of action. It is, to use the words of Rix J, "a mighty weapon"[20]. Due to academic and judicial criticism in this area, the law is ripe for reform probably adjusting the measure of damages to that of negligent misrepresentation at common law. [21] 

Innocent misrepresentation (Derry v. Peek)occurs when the representor had reasonable grounds for believing that his or her false statement was true. [22] Prior to Hedley Byrne, all misrepresentations that were not fraudulent were considered to be innocent. This type of representation primarily allows for a remedy of rescission, the purpose of which is put the parties back into a position as if the contract had never taken place. Section 2(2) Misrepresentation Act 1967, however, allows for damages to be awarded in lieu of rescission if the court deems it equitable to do so. This is judged on both the nature of the innocent misrepresentation and the losses suffered by the claimant from it. Misrepresentation (in India under IPC section-90) In India, the federal laws defines misrepresentation under "Misconception Of Fact". This is dealt with under the Indian Penal Code in Section 90, which states: Consent given firstly under fear of injury, and secondly under a misconception of fact, is not consent at all. That is what is explained in the first part of Section 90. There are two grounds specified in Section 90 which are analogous to coercion and mistake of fact which are the familiar grounds that can vitiate a transaction under the jurisprudence of India and other countries. The factors set out in first part of Section 90 are from the point of view of the victim; the second part of Section 90 enacts the corresponding provision from the point of view of the accused. It envisages that the accused has knowledge of - or reason to believe that - the consent was given by the victim in consequence of fear of injury or misconception of fact. Thus the second part lays emphasis on the knowledge or reasonable belief of the person who obtains the tainted consent. The requirements of both parts

should be cumulatively satisfied. In other words, the Court has to determine whether the person giving the consent has done so under fear or misconception of fact; the court should also be satisfied that the person doing the act (i.e. the alleged offender) is conscious of the fact or should have reason to think that but for the fear or misconception, the consent would not have been given. This is the scheme of Section 90 which is couched in negative terminology. Remedies Rescission Main article: Rescission Generally, the effect of misrepresentation is that it makes the contract voidable not void ab initio. This is important for two reasons. Firstly because the representee can continue to be bound by the contract at his or her will. Secondly because the transactions and effects of the (voided) contract are recognised as to have taken place, therefore if a party transfers title of property to a third party of which the former only holds title to pursuant to the voided contract, the third party can retain legal title.[23] Rescission can be done either by informing the representor or by requesting an order from the court. There are certain circumstances where rescission is not possible though. The idea behind rescission is that the parties are restored to the positions they were before entering into the contract. Therefore, if this is not possible, rescission is not an option.[24] If the representee discovers the misrepresentation and fails to take steps to avoid the contract, then he may not be able to rescind it.[25] The time limit for taking such steps varies depending on the type of misrepresentation. In cases of fraudulent misrepresentation, the time limit runs until when the misrepresentation ought to have been discovered, whereas in innocent misrepresentation, the right to rescission may lapse even before the representee can reasonably be expected to know about it.[26] In certain circumstances, third party rights may interfere with rescission and render it impossible. For example, if B contracts with A to sell a house with a misrepresentation and then A sells the house to C, the courts are not likely to permit rescission as that would require C to give up the house. In England and Wales, under Misrepresentations Act 1967 s. 2(2) of the Misrepresentation Act 1967, the court has the discretion to award damages instead of rescission. Damages In cases of fraudulent misrepresentation, a claim for damages is under the tort of deceit, making the damages tortious, in other words, only actual losses are recoverable. If the losses are calculated under the Misrepresentation Act 1967, damages for misrepresentation are calculated as if the defendant had been fraudulent, even if he has been only negligent. This is a wider scope than usual tortious liability, as it protects the claimant's loss even if not reasonably foreseeable. Inclusion of the representation into the contract as a term will leave the remedy for breach in damages as a common law right. The difference is that damages for misrepresentation usually reflect C's reliance interest, whereas damages for breach of contract protect C's expectation interest, although the rules on mitigation will apply in the latter case. In certain cases though, the courts have awarded damages for loss of profit, basing it on loss of opportunity.[27] In the law of contracts, frustration of purpose is a defense to enforcement of the contract. Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made. Despite frequently arising as

a result of government action, any third party (or even nature) can frustrate a contracting party's primary purpose for entering into the contract. This concept is also called commercial frustration. For example, if Joe gets a mortgage for a new home, and, after three years, the house is destroyed, for whatever reason, at no fault of Joe's. Without a hell or high water clause, Joe might be exempt from the remainder of the mortgage, as the principal purpose of the contract (to have a house to live in) has been compromised. However, he might still have a foreclosure on his credit rating. Frustration of purpose is often confused with the related doctrine of impossibility, which is closely related. The distinction between the two is that impossibility concerns the duties specified in the contract, whereas frustration of purpose concerns the reason a party entered into the contract. For example, suppose entrepreneur Emily leases space from landlord Larry so she can open a restaurant that only serves Tibetan Speckled Lizard meat. If the city rezones the property to forbid commercial uses, or if the property is destroyed by a tornado, then both Larry and Emily are excused from performing the contract by impossibility. However, if the Tibetan Speckled Lizard suddenly goes extinct, then Emily may be excused from performing the contract because Larry knew her primary purpose for entering into the lease was to serve Tibetan Speckled Lizard, and that purpose has been frustrated. In the second scenario, the parties could still carry out their obligations under the lease, but one of them no longer has a reason to. The Restatement of Contracts, Second § 265 defines frustration of purpose: “ Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or ” circumstances [of the contract] indicate the contrary. A circumstance is not deemed to be a "basic assumption on which the contract is made" unless the change in circumstances could not have been reasonably foreseen at the time the contract was made. As a result, it is rarely invoked successfully. Successful invocations usually come in waves during times of substantial tumult, such as after the passage of Prohibition, when bars and taverns no longer had a reason for their leases, or during major wars, when demand for many consumer goods and services drops far below normal. If successfully invoked, the contract is terminated, and the parties are left as they are at the time of the litigation. In English law Main article: Frustration in English law See also: Coronation cases The leading case in English law on the subject is the famous 1903 case of Krell v. Henry, which concerned a party who had rented a room for the purpose of watching the coronation procession of Edward VII. When the king fell ill, the coronation was indefinitely postponed. The hirer refused to pay for the room; the owner sued for breach of contract and the hirer then counter-sued for the return of his £25 deposit. The court determined that the cancellation of the coronation was unforeseeable by the parties, and discharged the contract, leaving the parties as they were: the hirer lost his one third deposit and the owner lost the rest of the rent.

In addition, the Court also noted that the doctrine of 'impossibility' could not be applied in this manner, because it would not have technically been 'impossible' for the lessee (the 'renter') to take possession of the flat on that prescribed day and merely sit in front of the window and view the street where the coronation parade was to have occurred. The point the Court was making is this: The illness of the King did not make the execution of the contract 'impossible.' Rather, the cancellation of the parade merely frustrated the purpose for which both gentlemen originally contracted. Impossibility In contract law, impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (or the discovery of preexisting circumstances), the nonoccurrence of which was an underlying assumption of the contract, that makes performance of the contract literally impossible. For such a defense to be raised, performance must not merely be difficult or unexpectedly costly for one party; there must be no way for it to actually be accomplished. For example, if Rachel contracts to pay Joey $1000 to paint her house on October 1, but the house burns to the ground before the end of September, Rachel is excused from her duty to pay Joey the $1000, and he is excused from his duty to paint her house; however, Joey may still be able to sue for the unjust enrichment of any benefit conferred on Rachel before her house burned down (e.g. if Rachel paid Joey in advance, then the amount of payment might be a compensatory injury). However, the parties to a contract may choose to ignore impossibility by inserting a hell or high water clause, which mandates that payments continue even if completion of the contract becomes physically impossible. The English case that established this doctrine at common law is Taylor v. Caldwell. Impracticability The doctrine of impracticability in the common law of contracts excuses performance of a duty, where that duty has become unfeasibly difficult or expensive for the party who was to perform. Impracticability is similar in some respects to the doctrine of impossibility because it is triggered by the occurrence of a condition which prevents one party from fulfilling the contract. The major difference between the two doctrines is that while impossibility excuses performance where the contractual duty cannot physically be performed, the doctrine of impracticability comes into play where performance is still physically possible, but would be very burdensome for the party whose performance is due. Thus, impossibility is an objective condition, whereas impracticability is a subjective condition for a court to determine. Typically, the test U.S. courts use for impracticability is as follows (with a few variations between jurisdictions) [1]: 1. There must be an occurrence of a condition, the nonoccurence of which was a basic assumption of the contract, 2. The occurrence must make performance extremely expensive or difficult 3. This difficulty was not anticipated by the parties to the contract (note: some jurisdictions require that there be no measure within the contract itself to allocate risk between the parties)

Illegal agreement

An illegal agreement, under the common law of contract, is one that the courts will not enforce because the purpose of the agreement is to achieve an illegal end. The illegal end must result from performance of the contract itself. However, a contract that requires only legal performance on the part of each party, such as the sale of packs of cards to a known gambler, where gambling is illegal, will nonetheless be enforceable. A contract directly linked to the gambling act itself, such as paying off gambling debts (see proximate cause), however, will not meet the legal standards of enforceability. Therefore an employment contract between a blackjack dealer and a speakeasy manager, is an example of an illegal agreement and the employee has no valid claim to his anticipated wages if gambling is illegal under that jurisdiction. A famous example in the United States is Bovard v. American Horse Enterprises, 247 Cal. Rptr. 340 (1988), in which the California Supreme Court refused to enforce a contract for payment of promissory notes used for the purchase of a company that manufactured drug paraphernalia. In Canada, one cited case of lack of enforceability based on illegality is Royal Bank of Canada v. Newell, 147 D.L.R (4th) 268 (N.S.C.A.), in which a woman forged her husband's signature on 40 cheques, totalling over $58,000. To protect her from prosecution, her husband signed a letter of intent prepared by the bank in which he agreed to assume "all liability and responsibility" for the forged cheques. However, the agreement was unenforceable, and struck down by the courts, because of its essential goal, which was to "stifle a criminal prosecution." Because of the contract's illegality, and as a result voided status, the bank was forced to return the payments made by the husband. Contracts in restraint of trade are a variety of illegal contracts and generally will not be enforced unless they are reasonable in the interests of the contracting parties and the public. Contracts in restraint of trade if proved to be reasonable can be enforced. When restraint is placed on an exemployee, the court will consider the geographical limits, what the employee knows and the extent of the duration. Restraint imposed on a vendor of business must be reasonable and is binding if there is a genuine seal of goodwill. Under common law, contracts to fix prices are legal. Solus agreements are legal if reasonable. Contracts which contravene public policy are void. Unclean hands Unclean hands, sometimes clean hands doctrine or dirty hands doctrine[1] is an equitable defense in which the defendant argues that the plaintiff is not entitled to obtain an equitable remedy on account of the fact that the plaintiff is acting unethically or has acted in bad faith with respect to the subject of the complaint—that is, with "unclean hands".[2] The defendant has the burden of proof to show the plaintiff is not acting in good faith. The doctrine is often stated as "those seeking equity must do equity" or "equity must come with clean hands". A defendant's unclean hands can also be claimed and proven by the plaintiff to claim other equitable remedies and to prevent that defendant from asserting equitable affirmative defenses. In other words, 'unclean hands' can be used offensively by the plaintiff as well as defensively by the defendant. Historically, the doctrine of unclean hands can be traced as far back as the Fourth Lateran Council. [edit] Relation to equitable remedies Equitable remedies are generally remedies other than the payment of damages. This would include such remedies as obtaining an injunction, or requiring specific performance of a contract. Before the development of the courts of equity in England, such remedies were unavailable in the common law courts. Such remedies were developed in the equity courts as the payment of damages was often not a sufficient remedy for a plaintiff in certain circumstances. For example, if a landowner polluted the land of the neighbor, the common law tort of

nuisance would only allow the innocent party to recover damages. Common law had no remedy that would force the defendant to stop the pollution. Equity courts developed such a remedy, the injunction, that provided an ongoing bar to the activity that caused the damage. Equity courts realized that such extraordinary remedies were only justified in extraordinary cases, and would generally not grant such a remedy where damages were sufficient to make the plaintiff whole. For example, if a car dealership broke a contract of sale and refused to deliver a particular car, which now could only be obtained for $10,000 more than what the plaintiff was willing to pay, the courts would merely award the plaintiff $10,000 (in addition to the original amount paid, if it had already been paid). It would not force the dealer to obtain exactly the same car and sell it to the plaintiff. However, if the subject matter of the sale were a particular work of art, the court would order specific performance and require the sale of the art work. However, equity courts also realized that these extraordinary remedies were subject to abuse. For example, if a doctor had signed a non-compete clause with a clinic, the non-compete clause might prevent the doctor from earning a living if he left the clinic's employment. As such, the court will generally only grant these remedies on the strictest terms. If there is any indication that the plaintiff seeking the remedy had acted in bad faith, either prior to the commencement of the litigation or afterwards, the court will generally not grant the remedy. For example, if the doctor left the clinic because it was involved in insurance fraud, a court would most likely refuse to enforce the non-compete agreement by issuing an injunction, although it might allow the clinic to recover damages if they did lose business to the doctor. Unconscionability Unconscionability (also known as unconscientious dealings) is a term used in contract law to describe a defense against the enforcement of a contract based on the presence of terms that are excessively unfair to one party. Typically, such a contract is held to be unenforceable because the consideration offered is lacking or is so obviously inadequate that to enforce the contract would be unfair to the party seeking to escape the contract. In and of itself, inadequate consideration is likely not enough to make a contract unenforceable. However, a court of law will consider evidence that one party to the contract took advantage of its superior bargaining power to insert provisions that make the agreement overwhelmingly favor the interests of that party. [citation needed] Usually for a court to find a contract unconscionable the party claiming unconscionability will have to prove both that there was a problem with the substance of the contract and the process through which that contract was formed.[citation needed] The substantive problem will usually be the consideration, but could also be the terms, interest payments, or other obligations the court finds unfair. Procedural issues that a court could consider include a party's lack of choice, superior bargaining position or knowledge, and other circumstances surrounding the bargaining process. Upon finding unconscionability a court has a great deal of flexibility on how it remedies the situation. It may refuse to enforce the contract, refuse to enforce the offending clause, or take other measures it deems necessary to have a fair outcome. Damages are usually not awarded. Typical scenarios There are several typical scenarios in which unconscionability is most frequently found: 1. Where a party that typically engages in sophisticated business transactions inserts boilerplate language into a contract containing terms unlikely to be understood or appreciated by the average person. Such terms might include a disclaimer of warranties, or a provision extending liability for a newly purchased item to goods previously purchased from the same seller.

2. Where a seller offers a contract of adhesion for the purchase of necessary goods (e.g. food, shelter, means of transportation). 3. Where a seller is vastly inflating the price of goods, particularly where this inflation is conducted in a way that conceals from the buyer the total cost for which the buyer will be liable. In the 2009 case of Harris v. Blockbuster, Inc., the plaintiff argued that Blockbuster's provision to compel arbitration and forbid class action lawsuits was illusory and unconscionable. However, whether or not it is unconscionable is unknown, as the court agreed that it was illusory (not enforceable), and disregarded all further consideration.[1] For the defense of unconscionability to apply, the contract has to have been unconscionable at the time that it was made - later circumstances that have the effect of making the contract extremely one-sided are irrelevant. The determination of unconscionability is made by the judge, not by a jury. Case law U.S. case law The leading case on unconscionability in the United States is Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). In this case, the plaintiff, a retail furniture store, sold multiple items to a single mother. The contract was written so that none of the furniture was considered paid for until all of it was paid for. When the defendant failed to make payments on the last furniture item, the furniture store attempted to repossess all of the furniture, not just the last one purchased. The court ruled that this was unconscionable and ruled that the lower court did not need to enforce the contract. English case law The leading case on this point is considered to be the English case of Lloyds Bank Ltd v Bundy. In that case, Bundy had agreed to increase the mortgage on his house in order to maintain the line of credit being extended to his son's business. The Court of Appeal of England and Wales ruled that as Bundy received no direct benefit from the agreement to increase the mortgage amount, and that the bank had threatened to call in the son's loan if Bundy had not agreed to the extension, and that the amount of the loan was already higher than the existing mortgage, that the transaction was unconscionable and Bundy only had to honor the lower mortgage. Essentially, the court ruled that only the bank benefitted from the agreement to raise the amount of the mortgage. Canadian case law In the case of Harry v. Kreutziger, a member of the First Nations was allowed to rescind a contract for the sale of his boat and fishing license for a nominal amount. The boat was worthless but, unknown to the seller, his fishing license was worth a great deal of money, and could have been mortgaged to finance a new boat. The court ruled that the buyer was merely trying to take advantage of the seller's lack of knowledge of the value of the license and refused to allow the contract to be enforced. However, sorely inadequate consideration in and of itself is not a determination of whether a transaction is unconscionable. For example, in an Ontario case, a property owner agreed to sell an option for the sale of his property for the sum of $1.00. The owner later learned that options to purchase property usually sell for more than nominal sums. The court enforced the contract in favor of the option holder, ruling that the negotiations over the price of the option and the price the option holder would pay for the house if he chose to buy were both fairly negotiated and that the seller had adequate opportunity to investigate the market and simply did not do so.

Australian case law The leading Australian case is Commercial Bank of Australia Ltd v. Amadio (1983) 151 CLR 447. [1] In this case, an elderly Italian couple with little command of written English secured their son's debts arising from his failing business. Their son misled them as to the extent of the guarantee, and the bank did nothing to explain it to the parents. When the son's business failed, the Amadios had the contract set aside due to unconscionable dealing by the bank. Deane J reformulated the Early Test in Blomley v Ryan making it easier for the plaintiff to succeed as they don't have to prove actual exploitation. Key elements set out by Deane J: 1. The weaker party has some 'special disadvantage', in dealing with the other party without any reasonable degree of equity between them. The relevant weaknesses here were age, limited understanding of written English, inexperience with business at the level being conducted in the relevant transaction such that they relied upon their son's expertise. Although these circumstances "are of great variety and cannot be satisfactorily classified... The common characteristic appears to be that they have the effect of placing one party at a serious disadvantage vis a vis the other"[2] 2. The disability was sufficiently evident to the stronger party to make it prima facie unfair that they accept the weaker parties assent to the transaction. 3. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable. Amadio, and other cases have seen a greater willingness by courts to set aside contracts on the grounds of unconscionability.[3] This has been partly influenced by recent statutory developments such as the Contracts Review Act 1980 (NSW) and the Trade Practices Act 1974 (Cth). Legislation United States legislation In the United States, the concept as applied to sales of goods is codified in Section 2-302 of the Uniform Commercial Code. Legal Commentary Restatement of contracts Under the Second Restatement of Contracts, a party may assert a claim for relief from unilateral mistake regarding the terms or conditions of a contract or a liquidated damages clause. Relief for unilateral mistake may be granted if the mistake would render enforcement of the contract unconscionable. The Restatement considers factors such as: 1) absence of reliance by the promisee;[4] and 2) gross disparity in values exchanged.[5] Despite the indication of these considerations, however, most challenges to liquidated damages clauses survive legal challenges based on unconscionability. The Restatement also has a separate provision on unconscionability at §208, "Unconscionable Contract or Term," which broadly allows a court to limit the application of an unconscionable term or contract in order to avoid an unconscionable result.

Other contexts "Unconscionability" can also be used in reference to an action, statement, or practice that is morally unjustifiable, especially if it seems particularly bold or audacious, as in "This is just unconscionable". In political controversy, proposed policies are often said by their opponents to be unconscionable: for example, in the U.S., social conservatives often label liberal public policies as such, and economic progressives often label conservative fiscal and defense policies as such. Accord and satisfaction Accord and satisfaction is a contract law concept about the purchase of the release from a debt obligation. The payment is typically less than what is owed and is not paid by the actual performance of the original obligation. The accord is the agreement to discharge the obligation and the satisfaction is the legal "consideration" which binds the parties to the agreement. If a person is sued over an alleged debt, that person bears the burden of proving the affirmative defense of accord and satisfaction. Illustration Accord and satisfaction is a settlement of an unliquidated debt. For example, a builder is contracted to build a homeowner a garage for $35,000. The contract called for $17,500 prior to starting construction, to disburse $10,000 during various stages of construction, and to make a final payment of $7,500 at completion. At completion, the homeowner complained about inferior work quality and refused to make the final payment. After a mutual settlement agreement, the builder accepted $4,000 as full payment. Thereby, a new contract was formed by offer, acceptance, and consideration. The consideration is that for a $3,500 savings, the homeowner gives up that which he is entitled, a well-constructed garage. The builder gives up his right to full price to avoid suit for inferior performance. When accord and settlement has occurred, the homeowner and builder have given up his right to sue for more money under this settlement agreement. Another example would be where a lender agrees to loan $100,000 at 5.0% interest for 30 years, and at the closing the loan documents are all drawn up for a loan with a 6.0% interest rate. If the lender agrees to reduce the closing costs by an extra $1000 and the borrowers agree, then there has been an accord and satisfaction. If the borrowers later sue for breach of contract, the settlement (offer and acceptance of the $1000) constitutes an accord and satisfaction and is a valid defense to the borrowers law suit. The accord agreement must be transacted on a new agreement. It must therefore have the essential terms of a contract, (parties, subject matter, time for performance, and consideration). If there is a breach of the accord there will be no "satisfaction" which will give rise to a breach of accord. In this instance the non-offending party has the right to sue under either the original contract or the accord agreement. Consideration In an accord contract it is typical that the consideration supplied is less than bargained for in the original contract. In accord contracts that require an amount of consideration that is less than the original, the consideration must be of a different type, i.e. instead of money, debtor offers a car or a boat. Accord as an Equitable Defense

A valid accord does not discharge the prior contract; instead it suspends the right to enforce it in accordance with the terms of the accord contract, in which satisfaction, or performance of the contract will discharge both contracts (the original and the accord). If the creditor breaches the accord, then the debtor will be able to bring up the existence of the accord in order to enjoin any action against him. 5. Rights of third parties

Privity Assignment · Novation · Third party beneficiary

of

contract Delegation

Privity of contract The doctrine of privity in the common law of contract provides that a contract cannot confer rights or impose obligations arising under it on any person or agent except the parties to it. The premise is that only parties to contracts should be able to sue to enforce their rights or claim damages as such. However, the doctrine has proven problematic due to its implications upon contracts made for the benefit of third parties who are unable to enforce the obligations of the contracting parties. Third-party rights Privity of contract occurs only between the parties to the contract, most commonly contract of sale of goods or services. Horizontal privity arises when the benefits from a contract are to be given to a third party. Vertical privity involves a contract between two parties, with an independent contract between one of the parties and another individual or company. If a third party gets a benefit under a contract, it does not have the right to go against the parties to the contract beyond its entitlement to a benefit. An example of this occurs when a manufacturer sells a product to a distributor and the distributor sells the product to a retailer. The retailer then sells the product to a consumer. There is no privity of contract between the manufacturer and the consumer. This, however, does not mean that the parties do not have another form of action e.g. Donoghue v. Stevenson – here a friend of Ms. Donoghue bought her a bottle of ginger beer, which was defective. Specifically, the ginger beer contained the partially decomposed remains of a snail. Since the contract was between her friend and the shop owner, Mrs. Donoghue could not sue under the contract, but it was established that the manufacturer has a duty of care owed to their consumers and she was awarded damages in tort. Privity is the legal term for a close, mutual, or successive relationship to the same right of property or the power to enforce a promise or warranty. History Prior to 1861 there existed decisions in English Law allowing provisions of a contract to be enforced by persons not party to it, usually relatives of a promisee, and decisions disallowing third party rights [1][2]. The doctrine of privity emerged alongside the doctrine of consideration, the rules of which state that consideration must move from the promisee. That is to say that if nothing is given for the promise of something to be given in return, that

promise is not legally binding unless promised as a deed. 1833 saw the case of Price v. Easton, where a contract was made for work to be done in exchange for payment to a third party. When the third party attempted to sue for the payment, he was held to be not privy to the contract, and so his claim failed. This was fully linked to the doctrine of consideration, and established as such, with the more famous case of Tweddle v. Atkinson. In this case the plaintiff was unable to sue the executor of his father-in-law, who had promised to the plaintiff's father to make payment to the plaintiff, because he had not provided any consideration to the contract. 1. ^ [www.lawcom.gov.uk/docs/lc242.pdf Privity of Contracts: Contracts for the benefits of third parties], Law Commission, LC242, www.lawcom.gov.uk/docs/lc242.pdf 2. ^ Drive Yourself Hire Co (London) v Strutt, 1 Q.B. 250 (1954). The doctrine was developed further in Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd. through the judgment of Lord Haldane. Privity of Contract played a key role in the development of negligence as well. In the first case of Winterbottom v. Wright (1842), in which Winterbottom, a postal service wagon driver, was injured due to a faulty wheel, attempted to sue the manufacturer Wright for his injuries. The courts however decided that there was no privity of contract between manufacturer and consumer. This issue appeared repeatedly until MacPherson v. Buick Motor Co. (1916), a case analogous to Winterbottom v Wright involving a car's defective wheel. Judge Cardozo, writing for the New York Court of Appeals, decided that no privity is required when the manufacturer knows the product is probably dangerous if defective, third parties (e.g. consumers) will be harmed because of said defect, and there was no further testing after initial sale. Foreseeable injuries occurred from foreseeable uses. Cardozo's innovation was to decide that the basis for the claim was that it was a tort not a breach of contract. In this way he finessed the problems caused by the doctrine of privity in a modern industrial society. Although his opinion was only law in New York State, the solution he advanced was widely accepted elsewhere. Exceptions Common law exceptions There are exceptions to the general rule, allowing rights to third parties and some impositions of obligations. These are:   

Collateral Contracts (between the third party and one of the contracting parties) Trusts (the beneficiary of a trust may sue the trustee to carry out the contract) Land Law (restrictive covenants on land are imposed upon subsequent purchasers if the covenant benefits neighbouring land)  Agency and the assignment of contractual rights are permitted.  Third-party insurance.a third party may claim under an insurance policy made for their benefit, even though that party did not pay the premiums.  Contracts for the benefit of a group where a contract to supply a service is made in one person's name but is intended to sue at common law if the contract is breached; there is no privity of contract between them and the supplier of the service. Attempts have been made to evade the doctrine by implying trusts (with varying success), constructing the Law of Property Act 1925 s. 56(1) to read the words "other property" as including contractual rights, and applying the concept of restrictive covenants to property other than real property (without success).

Statutory exceptions The Contracts (Rights of Third Parties) Act 1999 now provides some reform for this area of law which has been criticised by judges such as Lord Denning and academics as unfair in places. The act states: 1. - (1) Subject to the provisions of this Act, a person who is not a party to a contract (a "third party") may in his own right enforce a term of the contract if(a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him. (2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party. This means that a person who is named in the contract as a person authorised to enforce the contract or a person receiving a benefit from the contract may enforce the contract unless it appears that the parties intended that he may not. The Act enables the aim of the parties to be fully adhered to. Taking the situation in Beswick v Beswick whereby the only reason why Mr Beswick and his nephew contracted was for the benefit of Mrs Beswick. Under the Act Mrs Beswick would be able to enforce the performance of the contract in her own right. Therefore, the Act realises the intentions of the parties. The law has been welcomed by many as a relief from the strictness of the doctrine, however it may still prove ineffective in professionally drafted documents, as the provisions of this statute may be expressly excluded by the draftsmen. Third-party beneficiaries In Australia, it has been held that third-party beneficiaries may uphold a promise made for its benefit in a contract of insurance to which it is not a party (Trident General Insurance Co Ltd v. McNiece Bros Pty Ltd (1988) 165 CLR 107). It is important to note that the decision in Trident had no clear ratio, and did not create a general exemption to the doctrine of privity in Australia. Queensland, the Northern Territory and Western Australia have all enacted statutory provisions to enable third party beneficiaries to enforce contracts, and limited the ability of contracting parties to vary the contract after the third party has relied on it. In addition, section 48 of the Insurance Contracts Act 1984 (Cth) allows third-party beneficiaries to enforce contracts of insurance. Although damages are the usual remedy for the breach of a contract for the benefit of a third party, if damages are inadequate, specific performance may be granted (Beswick v. Beswick [1968] AC 59). The issue of third-party beneficiaries has appeared in cases where a stevedore has claimed it is covered under the exclusion clauses in a bill of lading. In order for this to succeed, four factors must be made out:  

The bill of lading must clearly intend to benefit the third party. It is clear that when the carrier contracts with the consignor, it also contracts as an agent of the

stevedore. 

The carrier must have had authority by the stevedores to act on its behalf, or the stevedores must later endorse the actions of the carrier.  Any difficulties with consideration moving from the stevedores must be made out.

The last issue was explored in New Zealand Shipping Co Ltd v. A M Satterthwaite & Co Ltd [1975] AC 154, where it was held that the stevedores had provided consideration for the benefit of the exclusion clause by the discharge of goods from the ship. New Zealand has enacted the Contracts Privity Act 1982, which enables third parties to sue if they sufficiently identified as beneficiaries by the contract, and in the contract it is expressed or implied they should be able to enforce this benefit. Assignment (law) An assignment (Latin cessio) is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee.[1] The legal nature of the assignment determines some additional rights and liabilities that accompany the act. Contents [hide]  o  o

1 Liabilities 1.1 Continuing liability of assignor 2 Assignment of contract rights 2.1 When assignment will be

permitted o

2.2 Requirements for an effective

assignment 

2.2.1

Requirement

of

a

writing  o o o o 

3 Novation 3.1 Revocability 3.2 Breach and defenses 3.3 Successive assignments 3.4 Compare: Delegation 4 Special rules for assignment of certain

rights o o o o  

4.1 Property rights 4.2 Partnership rights 4.3 Intellectual property rights 4.4 Personal injury torts 5 Equitable assignment 6 References

Liabilities Continuing liability of assignor Assignor remains liable unless there is an agreement to the contrary. An agreement must manifest intent to transfer rights, it may not necessarily be in writing, words will do, and the rights assigned must be certain. The

effect of a valid assignment is to extinguish privity between the assignor and the obligor and create privity between the obligor and the assignee. Assignment of contract rights Assignment of rights under a contract is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if Party A contracts with Party B to sell Party A's car to Party B for $10, Party A can later assign the benefits of the contract - i.e., the right to be paid $10 - to Party C. In this scenario, Party A is the obligee/assignor, Party B is an obligor, and Party C is the assignee. Such an assignment may be donative (essentially given as a gift), or it may be contractually exchanged for consideration. It is important to note, however, that Party C is not a third party beneficiary, because the contract itself was not made for the purpose of benefitting Party C. However an Assignment only transfers the rights/benefits to a new owner. The obligations remain with the previous owner. Compare Novation. When assignment will be permitted The common law favors the freedom of assignment, so an assignment will generally be permitted unless there is an express prohibition against assignment in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment cannot have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality. Certain kinds of performance, therefore, cannot be assigned, because they create a unique relationship between the parties to the contract. For example, if party A contracts to hire an attorney to represent her in a civil case for a fee of $1000, she cannot then assign her contractual right to legal representation to another party. Note however, that party A can assign her right to sue under the same claim she contracted with the attorney to pursue. Requirements for an effective assignment For assignment to be effective, it must occur in the present. No specific language is required to make such an assignment, but the assignor must make some clear statement of intent to assign clearly identified contractual rights to the assignee. A promise to assign in the future has no legal effect. Although this prevents a party from assigning the benefits of a contract that has not yet been made, a court of equity may enforce such an assignment where an established economic relationship between the assignor and the assignee raised an expectation that the assignee would indeed form the appropriate contract in the future. A contract may contain a non-assignment clause, which prohibits the assignment of specific rights, or of the entire contract, to another. However, such a clause does not necessarily destroy the power of either party to make an assignment. Instead, it merely gives the other party the ability to sue for breach of contract if such an assignment is made. However, an assignment of a contract containing such a clause will be ineffective if the assignee knows of the non-assignment clause, or if the non-assignment clause specifies that "all assignments are void". Two other techniques to prevent the assignment of contracts are rescission clauses or clauses creating a condition subsequent. The former would give the other party to the contract the power to rescind the contract if an assignment is made; the latter would rescind the contract automatically in such circumstances. Requirement of a writing There are certain situations in which the assignment must be in writing.

1. 2. 3. 4.

Assignment of wages Assignment of any interest in real property Assignment of choses in action worth over $5,000 Assignment as collateral for a loan or debt

For more information about contractual writing requirements see Statute of frauds. Novation Novation replaces the original party with a new party. For a valid novation, (i) all parties must assent to novation, (ii) there must be a previously valid contract, (iii) the duties provided for in the contract be extinguished immediately, and (iv) a new, enforceable contract need be created. Revocability Assignments made for consideration are irrevocable, meaning that the assignor permanently gives up the legal right to take back the assignment once it has been made. Donative assignments, on the other hand, are generally revocable, either by the assignor giving notice to the assignee, taking performance directly from the obligor, or making a subsequent assignment of the same right to another. There are some exceptions to the revocability of a donative assignment: 1. The assignment can not be revoked if the obligor has already performed 2. The assignment can not be revoked if the assignee has received a token chose (chose being derived from the French word for "thing", as in a chose of action) - a physical object that signifies a right to collect, such as a stock certificate or the passbook to a savings account. 3. The assignment can not be revoked if the assignor has set forth in writing the assignment of a simple chose - a contract right embodied in any form of token. 4. Estoppel can prevent the revocation of a donative assignment if the assignee changed their position in reliance on the assignment. Finally, the death or declaration of bankruptcy by the assignor will automatically revoke the assignment by operation of law. Breach and defenses A cause of action for breach on the part of the obligor lies with the assignee, who will hold the exclusive right to commence a cause of action for any failure to perform or defective performance. At this stage, because the assignee "stands in the shoes" of the assignor, the obligor can raise any defense to the contract that the obligor could have raised against the assignor. Furthermore, the obligor can raise against the assignee counterclaims and setoffs that the obligor had against the assignor. For example, suppose that A makes a contract to paint B's house in exchange for $500. A then assigns the right to receive the $500 to C, to pay off a debt owed to C. However, A does such a careless job painting the house that B has to pay another painter $400 to correct A's work. If C sues B to collect the debt, B can raise his counterclaim for the expenses caused by the poor paint job, and can reduce the amount owed to C by that $400, leaving only $100 to be collected. When the assignor makes the assignment, he makes with it an implied warranty that the right to assign was not subject to defenses. If the contract had a provision that made the assignment ineffective, the assignee could sue the assignor for breach of this implied warranty. Similarly, the assignee could also sue under this theory if the assignor wrongfully revoked the assignment.

Successive assignments Occasionally, an unscrupulous assignor will assign exactly the same rights to multiple parties (usually for some consideration). In that case, the rights of the assignee depend on the revocability of the assignment, and on the timing of the assignments relative to certain other actions. In a quirk left over from the common law, if the assignment was donative, the last assignee is the true owner of the rights. However, if the assignment was for consideration, the first assignee to actually collect against the assigned contract is the true owner of the rights. Under the modern American rule, now followed in most U.S. jurisdictions, the first assignor with equity (i.e. the first to have paid for the assignment) will have the strongest claim, while remaining assignees may have other remedies. In some countries, the rights of the respective assignees are determined by the old common law rule in Dearle v Hall. 1. Earlier donative assignees for whom the assignment was revocable (because it had not been made irrevocable by any of the means listed above) have no cause of action whatsoever. 2. Earlier donative assignees for whom the assignment was made irrevocable can bring an action for the tort of conversion, because the assignment was technically their property when it was given to a later assignee. 3. Later assignees for consideration have a cause of action for breaches of the implied warranty discussed above. See interpleader. Compare: Delegation A parallel concept to assignment is delegation, which occurs when one party transfers his duties or liabilities under a contract to another. A delegation and an assignment can be accomplished at the same time, although a non-assignment clause also bars delegation. Special rules for assignment of certain rights Property rights See also: Rule in Dumpor's Case and Privity of estate Real property rights can be assigned just as any other contractual right. However, special duties and liabilities attach to transfers of the right to possess property. With an assignment, the assignor transfers the complete remainder of the interest to the assignee. The assignor must not retain any sort of reversionary interest in the right to possess. The assignee's interest must abut the interest of the next person to have the right to possession. If any time or interest is reserved by a tenant assignor then the act is not an assignment, but is instead a sublease. The liability of the assignee depends upon the contract formed when the assignment takes place. However, in general, the assignee has privity of estate with a lessor. With privity of estate comes the duty on the part of the assignee to perform certain obligations under covenant, e.g. pay rent. Similarly, the lessor retains the obligations to perform on covenants to maintain or repair the land. If the assignor agrees to continue paying rent to the lessor and subsequently defaults, the lessor can sue both the assignor under the original contract signed with the lessor as well as the assignee because by taking

possession of the property interest, the assignee has obliged himself to perform duties under covenant such as the payment of rent. Unlike a Novation where consent of both the lessor and lesse is required for the third party to assume all obligations and liabilities of the original lessee, an assignment does not always need the consent of all parties. If the contract terms state specifically that the lessor's consent is not needed to assign the contract, then the lesee can assign the contract to whomever the lesee wants to. Absent language to the contrary, a tenant may assign their rights to an assignee without the landlord's consent. In the majority of jurisdictions, when there is a clause that the landlord may withhold consent to an assignment, the general rule is that the landlord may not withhold consent unreasonably unless there is a provision that states specifically that the Landlord may withhold consent at Landlord's sole discretion. Partnership rights A person can also assign their rights to receive the benefits owed to a partner in a partnership. However, the assignee can not thereby gain any of the assignor's rights with respect to the operation of the partnership. The assignee may not vote on partnership matters, inspect the partnership books, or take possession of partnership property; rather, the assignee can only be given the right to collect distributions of income, unless the remaining partners consent to the assignment of a new general partner with operational, management, and financial interests. If the partnership is dissolved, the assignee can also claim the assignor's share of any distribution accompanying the dissolution. Intellectual property rights Ownership of intellectual property, including patents, copyrights, and trademarks, may be assigned, but special conditions attach to the assignment of patents and trademarks. In the United States, assignment of a patent is governed by statute, 35 U.S.C. § 261. Patent rights are assignable by an "instrument in writing." Title in a patent can also be transferred as a result of other financial transactions, such as a merger or a takeover, or as a result of operation of law, such as in an inheritance process, or in a bankruptcy. An assignment of a patent can be recorded with the United States Patent and Trademark Office. Although such recording is not required, if an assignment is not recorded at the USPTO within three (3) months or prior to a subsequent assignment, the assignment will be void against a subsequent assignee without notice of the earlier, unrecorded assignment. With respect to a trademark, the owner of the mark may not transfer ownership of the mark without transferring the goodwill associated with the mark. Companies sometimes request from employees that they assign all intellectual property they create while under the employment of the company. This is typically done within an Employment Agreement, but is sometimes done through a specific agreement called Proprietary Information and Inventions Agreement (PIIA). Personal injury torts The standard rule is that personal injury tort causes of action are nonassignable as a matter of public policy.[2] These should be distinguished from final settlements or judgments resulting from lawsuits brought on such causes of action, which may be assignable. Delegation (law)

Delegation (Latin intercessio) is a term used in the law of contracts to describe the act of giving another person the responsibility of carrying out the performance agreed to in a contract. Three parties are concerned with this act - the party who had incurred the obligation to perform under the contract is called the delegator; the party who assumes the responsibility of performing this duty is called the delegatee; and the party to whom this performance is owed is called the obligee. The term is also a concept of Administrative Law.

Contracts Delegable contracts A delegation will be null and void if it poses any threat to the commercially reasonable expectations of the obligee. For example, a task requiring specialized skills or based on the unique characteristics of the promisee can not be delegated. If a specific celebrity was hired to make a speech, they could not delegate the task to another person, even if the other person would give the same speech, word for word. However, a delegation of performance that does not pose such a threat will be held to be valid. In such a case, the obligee will be under an affirmative duty to cooperate with the delegatee to the extent necessary for the fulfillment of the delegator's obligations Breach of a delegated contract If the delegatee fails to perform satisfactorily, the obligee may elect to treat this failure as a breach of the original contract by the delegator or may assert himself as a third party beneficiary of the contract between the delegator and the delegatee, and can claim all remedies due to a third party beneficiary. If the delegation is without consideration, the delegator remains liable for nonperformance, while the delegatee will not be liable to anyone for anything. Unlike an assignment, a delegation is virtually always for consideration, and never donative - few people are going to accept the charitable offer to perform a task contracted to someone else. Compare: assignment A parallel concept to delegation is assignment, which occurs when one party transfers his present rights to receive the benefits accruing to the assignor under that contract. A delegation and an assignment can be accomplished at the same time, although the right to sue for nonpayment always stays with delegator. Under the common law, a contract clause prohibiting assignment also prohibits delegation. Another common law rule requires that a party to a contract can not delegate performance that involves special skills or reputation (although it is possible to have a novation under such circumstances). Novation In contract law and business law, novation is the act of either replacing an obligation to perform with a new obligation, or replacing a party to an agreement with a new party. In contrast to an assignment, which is valid so long as the obligee (person receiving the benefit of the bargain) is given notice, a novation is valid only with the consent of all parties to the original agreement: the obligee must consent to the replacement of the original obligor with the new obligor.[1] A contract transferred by the novation process transfers all duties and obligations from the original obligor to the new obligor.

For example, if there exists a contract where Dan will give a TV to Alex, and another contract where Alex will give a TV to Becky, then, it is possible to novate both contracts and replace them with a single contract wherein Dan agrees to give a TV to Becky. Contrary to assignment, novation requires the consent of all parties. Consideration is still required for the new contract, but it is usually assumed to be the discharge of the former contract. Another classic example is where Company A enters a contract with Company B and a novation is included to ensure that if Company B sells, merges or transfers the core of their business to another company, the new company assumes the obligations and liabilities that Company B has with Company A under the contract. So in terms of the contract, a purchaser, merging party or transferee of Company B 'steps into the shoes' of Company B with respect to its obligations to Company A. The criteria for novation comprise the obligee's acceptance of the new obligor, the new obligor's acceptance of the liability, and the old obligor's acceptance of the new contract as full performance of the old contract.[2] Application in financial markets Novation is also used in futures/options trading markets to describe a special situation where the clearing house interposes between buyers and sellers as a legal counter party, i.e., the clearing house becomes buyer to every seller and vice versa. This obviates the need for ascertaining credit-worthiness of each counter party and the only credit risk that the participants face is the risk of clearing house committing a default. Clearing House puts in place a sound risk-management system to be able to discharge its role as a counter party to all participants. The term is also used in markets that lack a centralized clearing system (such as the swap market), where "novation" is used to refer to the process where one party to a contract may assign its role to another, who is described as "stepping into" the contract. This is analogous to selling a futures contract. Third-party beneficiary A third party beneficiary, in the law of contracts, is a person who may have the right to sue on a contract, despite not having originally been an active party to the contract. This right, known as a ius quaesitum tertio, arises where the third party (tertius or alteri) is the intended beneficiary of the contract, as opposed to an incidental beneficiary. It vests when the third party relies on or assents to the relationship, and gives the third party the right to sue either the promisor (promittens, or performing party) or the promisee (stipulans, or anchor party) of the contract, depending on the circumstances under which the relationship was created. A contract made in favor of a third party is known as a third-party contract or contract for the benefit of a third party (stipulatio alteri), and any action to enforce a ius quaesitum tertio is known as a third party action. Under traditional common law, the ius quaesitum tertio principle was not recognized, instead relying on the doctrine of privity of contract, which restricts the rights, obligations, and liabilities arising from a contract to the contracting parties (said to be privy to the contract). However, a number of allowances and exceptions for ius quaesitum tertio were introduced into English law with the Contracts (Rights of Third Parties) Act 1999. Other common-law countries are also making reforms in this area, though America is unique in abandoning privity early in the mid-19th century. Ius quaesitum tertio While the law on this subject varies, there is nonetheless a commonly accepted construction of third-party rights in the laws of most countries. A right of action arises only where it appears the object of the contract was to benefit the third party's interests and the third-party beneficiary has either relied on or accepted the benefit. A promisee nominates a third party usually for one of two reasons, either the promisee owes something to the third party and the performance of this new obligation will discharge it, or the promisee will somehow get a material

benefit by giving something to the third party. There are also two possible ways to explain the functioning of the contractual relationship; either, 

the parties A (promisee) and B (promisor) contract each in his own name but with the intention of creating an opportunity for C (third-party beneficiary) to acquire a benefit, conditional upon acceptance, from B; or  C immediately acquires a conditional right, from which A is able to release B until the moment of acceptance, when the right of A to release B is extinguished.[1] In either case, a third-party contract differs from agency in that the promisee acts in his own name and for himself, whereas an agent or representative does not. It is also distinguishable from a promesse de porte-fort under which the third party has a negative obligation to perform and, by expressing his consent, initially substitutes himself for an intended party to a contract and therefore binds himself. Also, as a somewhat distinct rule, the intended beneficiary of a third-party contract does not need to be in existence at the time the contract is concluded. This means a contract may benefit an unborn person (usually a family member) or secure benefits for a legal person, such as a company, still in the process of forming or registering. Object to benefit For third-party rights to come into existence, certain contractual criteria must be met to show an object to benefit:  

a valid contract must exist between two contracting parties and not some other relationship; the contracting parties must have intended to confer a benefit, and not a simple interest, to a third party, either expressly or impliedly;  the third-party beneficiary must be named or referred to, or is a member of a distinct class referred to;  the intention to benefit must generally be irrevocable, though a life insurance policy is an exception;  finally, there must be some intimation to the third party of the contract's existence. Irrevocability To be enforceable, a ius quaesitum tertio must be irrevocable. This is established by any of the following:     

delivery of the contractual document to the third party registration for publication intimation to the third party the third party coming under onerous obligations on the faith of having a ius quaesitum by evidence that the third party knew of the provision intended for his or her benefit.

Acceptance A third-party beneficiary only acquires a right of action to enforce his benefit once he has accepted the benefit provided for in the contract. Under the South African interpretation, however, prior to formal acceptance of the benefit, the third-party beneficiary only has a spes, or expectation; in other words, he does not have the right to accept, but rather a mere competency.[2] Acceptance may also be a suspensive condition in certain contracts. Under Scots law, acceptance is not necessary to be vested in a right of action, but is necessary to be liable. Before acceptance, however, the ius quaesitum tertio is tenuous so that acceptance of a benefit does not create a right, but rather entrenches that right. In either case, the contracting parties may vary or rescind the contract until acceptance or reliance.[3]

Intended vs. incidental beneficiary In order for a third party beneficiary to have any rights under the contract, he must be an intended beneficiary, as opposed to an incidental beneficiary. The burden is on the third party to plead and prove that he was indeed an intended beneficiary. Incidental beneficiary An incidental beneficiary is a party who stands to benefit from the execution of the contract, although that was not the intent of either contracting party. For example, if party A, Andrew, hires party B, Bethany, to renovate his (Andrew's) house, and insists that Bethany use a particular house painter—party C, Charlie—because that house painter has an excellent reputation, then the house painter is an incidental beneficiary. Neither Andrew nor Bethany is entering into the contract with the particular intent to benefit Charlie. Andrew simply wants his house properly renovated; Bethany simply wants to be paid to do the renovation. If the contract is breached by either party in a way that results in Charlie never being hired for the job, Charlie nonetheless has no rights to recover anything under the contract. Similarly, if Andrew were to promise to buy Bethany a Cadillac, and were to later go back on that promise, General Motors would have no grounds upon which to recover for the lost sale. Intended beneficiary The distinction that creates an intended beneficiary is that one party - called the promisee - makes an agreement to provide some consideration to a second party - called the promisor - in exchange for the promisor's agreement to provide some product, service, or support to the third party beneficiary named in the contract. The promisee must have an intention to benefit the third party - but this requirement has an unusual meaning under the law. Although there is a presumption that the promisor intends to promote the interests of the third party in this way, if party A, Andrew, contracts with party B, Bethany, to have a thousand killer bees delivered to the home of Andrew's worst enemy, party C, Charlie, then Charlie is still considered to be the intended beneficiary of that contract. (This would be illegal if the intent was to scare his enemy, contracts are voided based on criminality.) There are two common situations in which the intended beneficiary relationship is created: 

One is the creditor beneficiary, which is created where Andrew owes some debt to Charlie, and Andrew agrees to provide some consideration to Bethany in exchange for Bethany's promise to pay Charlie some part of the amount owed. 

The other is the donee beneficiary, which is created where Andrew wishes to make a gift to Charlie, and Andrew agrees to provide some consideration to Bethany in exchange for Bethany's promise to pay Charlie the amount of the gift. Under old common law principles, the donee beneficiary actually had a greater claim to the benefits this created; however, such distinctions have since been abolished. Vesting of rights Once the beneficiary's rights have vested, the original parties to the contract are both bound to perform the contract. Any effort by the promisor or the promisee to rescind or modify the contract at that point are void. Indeed, if the promisee changed his mind and offered to pay the promisor money not to perform, the third party could sue the promisee for tortious interference with the third party's contract rights. There are three tests used to determine whether the third party beneficiary's rights have vested:

1. 2. 3.

if the beneficiary knows of and has detrimentally relied on the rights created; if the beneficiary expressly assented to the contract at the request of one of the parties; or if the beneficiary files a lawsuit to enforce the contract

Breach and defenses Where a contract for the benefit of a third party is breached by the non-performance of the promisor, the beneficiary can sue the promisor for the breach just as any party to a contract can sue the other. Because the rights of the third party are defined by the contract created between the promisor and the promisee, the promisor may assert against the beneficiary any defenses to the contract that could be asserted against the promisee. These include all of the traditional basis by which the formation of a contract may be challenged: lack of capacity, lack of consideration, the Statute of frauds, etc.; and all of the traditional bases by which nonperformance on the contract may be excused: failure of consideration, impossibility, illegality, frustration of purpose, etc. Because the promisor can assert any defenses that could be asserted against the promisee, the beneficiary also becomes liable for counterclaims on the contract that the promisor could establish against the promisee. This liability can never exceed the amount that the promisor owes under the contract. In other words, if the promisor is owed money by the promisee, any award to the third party for the promisor's failure to perform can be reduced by the amount thus owed. If the promisor is owed more than the value of the contract, the beneficiary's recovery will be reduced to nothing (but the third party can never be made to assume an actual debt). A creditor beneficiary can sue both the promisor and the promisee, but the beneficiary cannot recover against both. If the suit is successful against one party to the contract, the other party will be dismissed. Because the creditor beneficiary is receiving the performance of the promisor in order to fulfill the promisee's debt, the failure of the promisor to perform means that the beneficiary can still sue the promisee to recover the preexisting debt. The failure of performance simply means that the debt has never been paid. A donee beneficiary can sue the promisor directly to enforce the promise. (Seaver v. Ransom, 224 NY 233, 120 NE 639 [1918]). A donee beneficiary is when a contract is made expressly for giving a gift to a third party, the third party is known as the donee beneficiary. The most common donee beneficiary contract is a life insurance policy. Rights that accrue to the promisee The promisee can also sue the promisor for failing to pay the third party beneficiary. Under the common law, such suits were barred, but courts have since determined that the promisee can sue for specific performance of the contract, provided that the beneficiary has not already sued the promisor. Furthermore, if the promisee was in debt to a creditor beneficiary, and the failure of the promisor to perform caused the promisee to be held liable for that debt, the promisee can sue to recover the amount of the debt. 6. Breach of contract Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. If the party does not fulfill his contractual promise, or has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to breach the contract.

Contents     

1 Minor breaches 2 Material breach 3 Fundamental breach 4 Anticipatory breach 5 Limits on remedies and

damages 

6 See also

Minor breaches In a "minor" breach (a partial breach or immaterial breach), the non-breaching party cannot sue for specific performance, and can only sue for actual damages. Suppose a homeowner hires a contractor to install new plumbing and insists that the pipes, which will ultimately be hidden behind the walls, must be red. The contractor instead uses blue pipes that function just as well. Although the contractor breached the literal terms of the contract, the homeowner cannot ask a court to order the contractor to replace the blue pipes with red pipes. The homeowner can only recover the amount of his or her actual damages. In this instance, this is the difference in value between red pipe and blue pipe. Since the color of a pipe does not affect its function, the difference in value is zero. Therefore, no damages have been incurred and the homeowner would receive nothing. (See Jacob & Youngs v. Kent.) However, had the pipe colour been specified in the agreement as a condition, a breach of that condition would constitute a "major" breach. For example, when a contract specifies time is of the essence and one party to the contract fails to meet a contractual obligation in a timely fashion, the other party could sue for damages for a major breach. Material breach A material breach is any failure to perform that permits the other party to the contract to either compel performance, or collect damages because of the breach. If the contractor in the above example had been instructed to use copper pipes, and instead used iron pipes that would not last as long as the copper pipes would have lasted, the homeowner can recover the cost of actually correcting the breach - taking out the iron pipes and replacing them with copper pipes. As with nearly everything in the law, there are exceptions to this. Legal scholars and courts often state that the owner of a house whose pipes are not the specified grade or quality (a typical hypothetical example) cannot recover the cost of replacing the pipes for the following reasons: 1. Economic waste. The law does not favor tearing down or destroying something that is valuable (almost anything with value is "valuable"). In this case, significant destruction of the house would be required to completely replace the pipes, and so the law is hesitant to enforce damages of that nature.[citation needed] 2. Pricing in. In most cases of breach, a party to the contract simply fails to perform one or more terms. In those cases, the breaching party should have already considered the cost to perform those terms and thus "keeps" that cost when they do not perform. That party should not be entitled to keep that savings. However, in the pipe

example the contractor never considered the cost of tearing down a house to fix the pipes, and so it is not reasonable to expect them to pay damages of that nature.[citation needed] Most homeowners would be unable to collect damages that compensate them for replacing the pipes, but rather would be awarded damages that compensate them for the loss of value in the house. For example, say the house is worth $125,000 with copper and $120,000 with iron pipes. The homeowner would be able to collect the $5,000 difference, and nothing more. The Restatement (Second) of Contracts lists the following criteria can be used to determine whether a specific failure constitutes a breach: In determining whether a failure to render or to offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. American Law Institute, Restatement (Second) of Contracts § 241 (1981) Fundamental breach A fundamental breach (or repudiatory breach) is a breach so fundamental that it permits the aggrieved party to terminate performance of the contract. In addition that party is entitled to sue for damages. Anticipatory breach A breach by anticipatory repudiation (or simply anticipatory breach) is an unequivocal indication that the party will not perform when performance is due, or a situation in which future non-performance is inevitable. An anticipatory breach gives the non-breaching party the option to treat such a breach as immediate, and, if repudiatory, to terminate the contract and sue for damages (without waiting for the breach to actually take place). Limits on remedies and damages Typically, the judicial remedy for breach of contract is monetary damages (see damages). Where the failure to perform cannot be adequately redressed by money damage, the court may enter an equity decree awarding an injunction or specific performance. The aggrieved person has a duty to mitigate or reduce damages by reasonable means. Liquidated Damages may be limited to a specific amount. In the United States, punitive damages are generally not awarded for breach of contract but may be awarded for other causes of action in a lawsuit. Limitation of Liability (Exculpatory) clauses. [Private agreement is permissible.] [Invalid when public interest is involved and there is willful conduct or gross negligence.] Anticipatory repudiation

Anticipatory repudiation, also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract.[1] Contents 

1 Repudiation and

retraction 

2

Measuring

damages   

3 References 4 See also 5 External links

Repudiation and retraction When such an event occurs, the performing party to the contract is excused from having to fulfill his or her obligations. However, the repudiation can be retracted by the promising party so long as there has been no material change in the position of the performing party in the interim. A retraction of the repudiation restores the performer's obligation to perform on the contract. If the promising party's repudiation makes it impossible to fulfill its promise, then retraction is not possible and no act by the promising party can restore the performing party's obligations under the contract. For example, if A promises to give B a unique sculpture in exchange for B painting A's house, but A then sells the sculpture to C before B begins the job, this act by A constitutes an anticipatory repudiation which excuses B from performing. Once the sculpture has left A's possession, there is no way that A can fulfill the promise to give the sculpture to B. The question arises as to why any party would want to provide notice of anticipatory breach. The reason is that once the performing party is informed of the anticipatory breach, a duty is then created for the performing party to mitigate damages as a result of the breach. Another situation where anticipatory repudiation can occur is where a party has reason to believe the other party is not going to perform and requests reasonable assurances that the other party will perform (see UCC 2-609(1)). If such reasonable assurances are not given, it will constitute anticipatory repudiation, for which the performing party has various remedies, including termination. However, anticipatory repudiation only applies to a bilateral executory contract with non-performed duties on both sides. Additionally, the repudiation must be unequivocal. Measuring damages UCC 2-713(1) tells us to measure damages at the time when the buyer learned of the breach. This is easy with a one transaction sale (e.g. a widget at my door step on X date), but when do you learn of the breach in an anticipatory repudiation? There are three main views: 1. When the buyer learns of the repudiation 2. When the buyer learns of repudiation plus a commercial reasonable time 1. UCC 2-610(a) gives this indication, you would be waiting at your risk if we determined the market price at the time you learn of repudiation.

2. UCC 2-723(1) would indicate this, but it would be superfluous with 2-713 so 2-713 must have something other than the plain meaning. 3. (1) If an action based on anticipatory repudiation comes to 2-723 trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section UCC 2-708 or Section UCC 2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation. 4. This is the majority view: when repudiation is accepted or within a commercial reasonable time 3. Time of performance, when the trail that occurs after the time of performance 1. This is different than the plain reading for UCC 2-713. Cover (law) Cover is a term used in the law of contracts to describe a remedy available to a merchant buyer who has received an anticipatory repudiation of a contract for the receipt of goods. Under the Uniform Commercial Code, the buyer is permitted (but not required) to find another source of the same type of goods. The buyer may then file a lawsuit against the breaching seller to recover the difference, if any, between the cost of the goods offered and the cost of the goods actually purchased. The possibility of cover will prevent a party from being able to sue for specific performance, which is an equitable remedy that requires the buyer have no adequate remedy at law. If the buyer is able to buy elsewhere and sue for the difference, that provides an adequate remedy. This prohibition does not apply, however, to the sale of unique goods such as original works of art, collectibles, real estate, and exclusive rights. Judge Richard Posner has suggested that the availability of cover allows for efficient breach - that is, that it encourages the most efficient allocation of resources by allowing a seller to breach a contract to sell goods to one buyer when another, more lucrative opportunity comes along. The seller may thus be able to realize a sufficiently increased profit to make more money even after repaying the difference to the original buyer. Therefore, no value is lost in the transaction because the original buyer is in the same position he would have been in but for the breach, and the seller is in a better position. Exclusion clause An exclusion clause is a term in a contract that seeks to restrict the rights of the parties to the contract. Traditionally, the district courts have sought to limit the operation of exclusion clauses. In addition to numerous common law rules limiting their operation, in England and Wales, the main statutory interventions are the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. The Unfair Contract Terms Act 1977 applies to all contracts, but the Unfair Terms in Consumer Contracts Regulations 1999, unlike the common law rules, do differentiate between contracts between businesses and contracts between business and consumer, so the law seems to explicitly recognize the greater possibility of exploitation of the consumer by businesses. Contents [hide]  

1 Types of Exclusion Clause 2 Term Must be Incorporated



3 Judicial Control of Exclusion

Clauses o

3.1

Strict

Literal

Interpretation o

3.2

Contra

Proferentem  

4 Statutory Control 5 References

Types of Exclusion Clause 

True exclusion clause: The clause recognises a potential breach of contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only includes reasonable care to perform duties on one of the parties.  Limitation clause: The clause places a limit on the amount that can be claimed for a breach of contract, regardless of the actual loss.  Time limitation: The clause states that an action for a claim must be commenced within a certain period of time or the cause of action becomes extinguished. Term Must be Incorporated The courts have traditionally held that exclusion clauses only operate if they are actually part of the contract. There seem to be three methods of incorporation: Incorporation by signature: according to L'Estrange v Graucob[1], if the clause is written on a document which has been signed by all parties, then it is part of the contract. If a document has not been signed, any exception clause which it contains will only be incorporated if the party relying on the clause (the 'proferens') can show that he took reasonable steps to bring it to the attention of the other party before the contract was made. In somewhat of a contradiction, that is not to say that the proferens actually has to show that the other person read the clause or understood it (except where the clause is particularly unusual or onerous). It is not even necessary to show that the attention of that particular person was actually drawn to it. It is somewhat like the 'reasonable man' test in tort: the party trying to rely on the clause needs to take reasonable steps to bring it to the attention of the reasonable person.  Incorporation by notice: the general rule, as provided in Parker v SE Railway[2] is that an exclusion clause will have been incorporated into the contract if the person relying on it took reasonable steps to draw it to the other parties' attention. Thornton v. Shoe Lane Parking[3] seems to indicate that the wider the clause, the more the party relying on it will have had to have done to bring it to the other parties' attention. The notice must be given before formation of the contract as illustrated in Olley v Marlborough[4].  Incorporation by previous course of dealings: according to McCutcheon v David MacBrayne Ltd[5], terms (including exclusion clauses) may be incorporated into a contract if course of dealings between the parties were "regular and consistent". What this means usually depends on the facts, however, the courts have indicated that equality of bargaining power between the parties may be taken into account. 

Judicial Control of Exclusion Clauses Strict Literal Interpretation

For an exclusion clause to operate, it must cover the breach (assuming there actually is a breach of contract). If there is, then the type of liability arising is also important. Generally, there are two varieties of liability: strict liability (liability arising due to a state of affairs without the party at breach necessarily being at fault) and liability for negligence (liability arising due to fault). The courts have a tendency of requiring the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause. As espoused in Darlington Future Ltd v. Delcon Australia Pty Ltd[6], the meaning of an exclusion clause is construed in its ordinary and natural meaning in the context. Although we construe the meaning much like any other ordinary clause in the contract, we need to examine the clause in light of the contract as a whole. The judge in R & B Custom Brokers Co. Ltd. v United Dominions Trust Ltd.[7] refused to allow an exemption clause, of which did cover the nature of the implied term, on the grounds that it did not make specific and explicit reference to that term.[8] Contra Proferentem If, after attempting to construe an exclusion clause (or indeed any other contractual term) in accord with its ordinary and natural meaning of the words, there is still ambiguity then (if the clause was imposed by one party upon the other without negotiation) the contra proferentem rule applies. Essentially this means that the clause will be construed against the person who imposed its inclusion. that is to say, contra the proferens. In terms of negligence, the courts have taken the approach that it is unlikely that someone would enter into a contract that allows the other party to evade fault based liability. As a result, if a party wishes exempt his liability for negligence, he must make sure that the other parties understand that. The decision in Canada SS Lines Ltd v. The King[9] held that:  

If the exclusion clauses mention "negligence" explicitly, then liability for negligence is excluded. If "negligence" is not mentioned, then liability for negligence is excluded only if the words used in the exclusion clause are wide enough to exclude liability for negligence. If there is any ambiguity, then the contra proferentem rule applies.  If a claim on another basis can be made, then liability for negligence is not covered by the exclusion clause. In Australia, the four corners rule has been adopted in preference over the idea of a fundamental breach (The Council of the City of Sydney v. West[10]). The court will presume that parties to a contract will not exclude liability for losses arising from acts not authorised under the contract. However, if acts of negligence occur during authorised acts, then the exclusion clauses shall still apply. If the contract is for the carriage of goods, if the path is deviated from what was agreed, any exclusion clauses no longer apply. In Australia, exclusion clauses have been recognised as valid by the High Court. They do not apply in cases of deliberate breach. Statutory Control Even if terms are incorporated into the contract and so would be effective, there are various statutory controls over the types of terms that may have legal effect. The Unfair Contract Terms Act 1977 renders many exemption

clauses ineffective. The Unfair Terms in Consumer Contracts Regulations 1999 provide further protection for consumers. Efficient breach Efficient breach is a concept within legal theory, particularly law and economics, referring to a voluntary breach of contract and payment of damages by a party who concludes that they would incur greater economic loss by performing under the contract. Contents 

1 Development of

the theory 

2

Posner's

illustration   

3 Criticism 4 Notes 5 References

Development of the theory According to Black's Law Dictionary, efficient breach theory is "the view that a party should be allowed to breach a contract and pay damages, if doing so would be more economically efficient than performing under the contract." The first statement of the theory of efficient breach appears to have been made in a law review article by Robert Birmingham in "Breach of Contract, Damage Measures, and Economic Efficiency", 24 Rutgers L.Rev. 273, 284 (1970) ("Repudiation of obligations should be encouraged where the promisor is able to profit from his default after placing his promisee in as good a position as he would have occupied had performance been rendered"). The theory was named by Charles Goetz and Robert Scott, "Liquidated Damages, Penalties, and the Just Compensation Principle: A Theory of Efficient Breach", 77 Colum.L.Rev. 554 (1977). Efficient breach theory is associated with Richard Posner and the Law and Economics school of thought. It has been used to defend the traditional common law rule that a non-tortious breach of contract cannot be remedied by punitive damages and penal damages (unreasonably excessive liquidated damages that are seen as a punishment for breach rather than a means to fairly compensate the other party). Such penalties would discourage efficient breach, and therefore "efficient" behavior, which would be undesirable for society as a whole. Posner explains his views in his majority opinion in Lake River Corp. v. Carborundum Co., 769 F.2d 1284 (7th Cir. 1985). Posner's illustration Judge Richard Posner gave this well-known illustration of efficient breach in "Economic Analysis of Law": Suppose I sign a contract to deliver 100,000 custom-ground widgets at $.10 apiece to A, for use in his boiler factory. After I have delivered 10,000, B comes to me, explains that he desperately needs 25,000 custom-ground widgets at once since otherwise he will be forced to close his pianola factory at great cost, and offers me $.15 apiece for 25,000 widgets. I sell him the widgets and as a result do not complete timely delivery to A, who

sustains $1000 in damages from my breach. Having obtained an additional profit of $1250 on the sale to B, I am better off even after reimbursing A for his loss. Society is also better off. Since B was willing to pay me $.15 per widget, it must mean that each widget was worth at least $.15 to him. But it was worth only $.14 to A – $.10, what he paid, plus $.04 ($1000 divided by 25,000), his expected profit. Thus the breach resulted in a transfer of the 25,000 widgets from a lower valued to a higher valued use. Criticism Some, such as Charles Fried in his "Contract as Promise", have argued that morally, A is obligated to honor a contract made with B because A has made a promise. Fried wrote, "The moralist of duty thus posits a general obligation to keep promises, of which the obligation of contract will only be a special case – that special case in which certain promises have attained legal as well as moral force." Others argue that the costs of litigation relevant to gaining expectation damages from breach would leave one or both of the original parties worse off than if the contract had simply been performed. Also, Posner's hypothetical assumes that the seller is aware of the value the buyer places on the commodity, or the cost of purchase plus the profits the buyer will make.[1] Deviation (law) The doctrine of deviation, as it pertains to legal contracts, is a departure from a planned contractual course or design. When a plan has been adopted for a building, and in the progress of the work a change is made from the original plan, the change is called a deviation. When a ship alters her course or remains in port without just cause, the ship's new course or delay is called a deviation. Unless the contract permitted otherwise, in either case there is a breach of contract by the party responsible for the deviation. Insurance regarding voyages and shipment In the case of an insured voyage or shipment, deviation is a voluntary departure, without necessity, or any reasonable cause, from the regular and usual course of the voyage insured. From the moment this happens, the voyage is changed, the contract determined, and the insurer discharged from all subsequent responsibility. By the contract the insurer only runs the risk of the contract agreed upon, and no other; and it is, therefore, a condition implied in the policy, that the ship shall proceed to her port of destination by the shortest and safest course (or usual course), and on no account to deviate from that course, but in cases of necessity. The effect of a deviation is not to vitiate or avoid the policy, but only to determine the liability of the underwriters from the time of the deviation. If, therefore, the ship or goods, after the voyage has commenced, receive damage, then the ship deviates, and afterwards a loss happen, there, though the insurer is discharged from the time of the deviation, and is not answerable for the subsequent loss, yet he is bound to make good the damage sustained previous to the deviation. But though he is thus discharged from subsequent responsibility, he is entitled to retain the whole premium. What amounts to a deviation is not easily defined, but a departure from the usual course of the voyage, or remaining at places where the ship is authorized to touch, longer than necessary, or doing there what the insured is not authorized to do; as, if the ship have merely liberty to touch at a point, and the insured stay there to trade, or break bulk, it is a deviation.

The "course of the voyage" is not meant to be the shortest course the ship can take from her port of departure to her port of destination, but the regular and customary track, if such there be, which long usage has proved to be the safest and most convenient. A deviation that will discharge the insurer must be a voluntary departure from the usual course of the voyage insured, and not warranted by any necessity. If a deviation can be justified by necessity, it will not affect the contract; and necessity will justify a deviation, though it proceed from a cause not insured against. The cases of necessity which are most frequently adduced to justify a departure from the direct or usual course of the voyage, are 1. 2. 3. 4. 5. 6. 7.

Stress of weather, The want of necessary repairs, Joining convoy, Succoring ships in distress, Avoiding capture or detention, Sickness of the ship's master or mariner, and Mutiny of the crew.

In construction When the contract is to build a house according to the original plan, and a deviation takes place, the contract shall be traced as far as possible, and the additions, if any have been made, shall be paid for according to the usual rate of charging. Fundamental breach From Wikipedia, the free encyclopedia Jump to: navigation, search A fundamental breach of a contract, sometimes known as a repudiatory breach, is a breach so fundamental that it permits the distressed party to terminate performance of the contract, in addition to entitling that party to sue for damages. History The law of fundamental breach was historically treated as an extension of the doctrine of deviation. The development of this doctrine can be traced down to the first half of the 19th century, when Tindal C.J. stated in Davis v. Garrett that deviation made by the carrier from the agreed voyage route brings the latter outside of contract and therefore outside of exceptions or limitation clauses provided by such a contract. This harsh attitude to deviation cases originated from the earlier marine insurance practice when cargo insurance policy was lost in case of deviation. Thereby strict obligations imposed to the carrier were designed to afford protection to the cargo owner. English law The doctrine of fundamental breach further developed in numerous cases and by the second half of the nineteenth century was extended far beyond of the deviation cases and cases related to the carriage of goods by sea. Lord Greene M.R. in Alderslade v. Hendon Laundry Ltd.[1] labelled the fundamental term as ‗the hard

core of the contract'. Lord Reid in Suisse Atlantique Societe d'Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale[2] defined fundamental breach as a ‗well-known type of breach which entitles the innocent party to treat it as repudiatory and to rescind the contract‘. As a matter of law, under the doctrine of fundamental breach of contract, exclusion clauses were deemed not to be available to a party in fundamental breach of the contract. In particular, the common law approach that the carrier deviated from his contractual voyage has been deprived of the defence available under the Hague Rules, even if the bill of lading contract of carriage was governed by the Rules, was unchanged and unchallenged for many years when in Tate & Lyle, Ltd. v. Hain Steamship Company, Ltd. the ordinary law of contract was applied to the deviation case for the first time. In the second half of the 20th century, first in Maxine Footwear[3] and Suisse Atlantique and then in several posterior cases, principally in Photo Production Ltd. v. Securicor Transport Ltd, the unavailability of exclusion clauses to the party in fault in cases of fundamental breach was doubted in favour of such cases as falling within authority of the ordinary law of contract . Several statutory changes such as passing by the Parliament of the Carriage of Goods by Sea Act 1971 and the Unfair Contract Terms Act 1977, further affected the law position on the doctrine of fundamental breach and liability limitations. Former by giving the force of law to the Hague-Visby Rules and later by providing the rules to regulate the contracts between the parties with the different bargaining strength. This law was successfully applied in two most recent cases related to carriage of goods by sea and application of limitation clauses under the Hague and The Hague-Visby Rules:Daewoo Heavy Industries Ltd. v. Klipriver Shipping Ltd.[4] and The Happy Ranger[5] In English law, fundamental breach was first examined by the House of Lords in the Suisse Atlantique case[6], wherein they decided that a contract can be voided if a breach of a fundamental term can be found. That is, a breach of a condition that "goes to the root of the contract". This approach is known as the Rule of Law doctrine. At the Court of Appeal level in Photo Productions Ltd. v. Securicor Transport Ltd.[7] Lord Denning championed the Rule of Law doctrine and extended the rule in Suisse Atlantique case to apply to all exemption clauses. However on appeal to the House of Lords Lord Wilberforce effectively overturned the Rule of Law doctrine and instead maintained a strict Rule of Construction approach whereby a fundamental breach is found only through examining the reasonable intentions of the parties at the time of the contract. Canada The doctrine of fundamental breach has been ―laid to rest‖[8] by the Supreme Court of Canada in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways)..[9] In its place, the Court has created a threestep test to evaluate the application of exclusion clauses. The first step is to evaluate the exclusion clause in the factual context of each case to determine if it applies to the material circumstances. The second step is to evaluate if the exclusion clause was unconscionable at the time of incorporation. The final step is to evaluate whether the exclusion clause should not be enforced on public policy grounds. 7. Legal remedies (damages) A legal remedy (also judicial relief) is the means with which a court of law, usually in the exercise of civil law jurisdiction, enforces a right, imposes a penalty, or makes some other court order to impose its will. There are three crucial remedies in American law. One is from the traditional law courts of England, and is seen in the form of a payment of money to the victim. This payment is commonly referred to as damages.

Compensatory damages compensate an injured victim or plaintiff, and punitive damages punish someone who because of fraud or intentional conduct, is deemed to deserve punishment. Punitive damages serve the function in civil law that fines do in criminal law. The second category of remedy comes from the Chancellor of England, commonly called the Chancery Court, or, more commonly, equity. The injunction or restraining order is a type of equitable remedy, as is specific performance, in which someone who enters into a contract is forced to perform whatever promise s/he has reneged upon. The equitable lien and constructive trust are two additional equity remedies. The third broad group of remedies is known as declaratory relief. With this remedial device, the court pronounces its decision about the status of a person or a law, perhaps even the parties' rights in a contract. A divorce or adoption decree is an example of a declaratory judgment. While those three round out the basic remedies in American law, there are also reformation and recission, both dealing with contracts whose terms need to be rewritten or undone.[citation needed] In Commonwealth common law jurisdictions and related jurisdictions (e.g. the United States), the law of remedies distinguishes between a legal remedy (e.g. a specific amount of monetary damages) and an equitable remedy (e.g. injunctive relief or specific performance). Another type of remedy is declaratory relief, where a court determines the rights of the parties to an action without awarding damages or ordering equitable relief. In English and American jurisprudence, there is a legal maxim that for every right, there is a remedy; where there is no remedy, there is no right. That is, lawmakers claim to provide appropriate remedies to protect rights. This legal maxim was first enunciated by William Blackstone: "It is a settled and invariable principle in the laws of England, that every right when with-held must have a remedy, and every injury it‘s [sic] proper redress." [1][2] Liquidated damages Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance). When damages are not predetermined/assessed in advance, then the amount recoverable is said to be 'at large' (to be agreed or determined by a court or tribunal in the event of breach). At common law, a liquidated damages clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.[1] In order for a liquidated damages clause to be upheld, two conditions must be met. 

First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term.  Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. Damages that are sufficiently uncertain may be referred to as unliquidated damages, and may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.

For example, suppose John agrees to lease a store-front to Mary, from which Mary intends to sell jewellery. If John breaches the contract by refusing to lease the store-front at the appointed time, it will be difficult to determine what profits Mary will have lost because the success of newly created small businesses is highly uncertain. This, therefore, would be an appropriate circumstance for Mary to insist upon a liquidated damages clause in case John fails to perform. In the case of construction contracts, courts have occasionally refused to enforce liquidated damages provisions, choosing to follow the Doctrine of Concurrent Delay when both parties have contributed to the overall delay of the project. The law applied to bank and credit card charges This law has recently been of great interest to UK bank and credit card customers who have been charged as much as £39 for a single transaction that took them over their credit limit. Consumers argued these charges were well beyond the cost of sending a computerised letter. In 2007 the Office of Fair Trading investigated the excessively high charges being imposed on customers of credit card companies. In its report, the OFT confirmed these charges were unlawful under UK Law as they amounted to a penalty. It said it would be prepared to investigate any charge over £12, though this was not intended to indicate that £12 is a fair and acceptable charge. The OFT said it would be up to a court to determine such an amount based on the established legal precedent that the only recoverable cost would be actual costs incurred. The credit card companies did not produce evidence of their actual costs to the OFT, instead insisting their charges are in line with clear policy and information provided to customers. Following the ruling, many bank customers have made County Court claims against their banks and credit card companies for return of penalty charges for returned cheques, direct debits and unauthorized overdraft charges. To date no bank or credit card company, save NatWest on one occasion, has attended at Court for a Trial. 

OFT v Abbey

Trial In law, a trial is when parties to a dispute come together to present information (in the form of evidence) in a tribunal, a formal setting with the authority to adjudicate claims or disputes. One form of tribunal is a court. The tribunal, which may occur before a judge, jury, or other designated trier of fact, aims to achieve a resolution to their dispute. Types of trial divided by the finder of fact 

Where the trial is held before a group of members of the community, it is called a jury trial. Where the trial is held solely before a judge, it is called a bench trial. Bench trials are often resolved faster. Furthermore, a favorable ruling for one party in a bench trial will frequently lead the other party to offer a settlement. Hearings before administrative bodies may have many of the features of a trial before a court, but are typically not referred to as trials.

An appellate proceeding is also generally not deemed a trial, because such proceedings are usually restricted to review of the evidence presented before the trial court, and do not permit the introduction of new evidence. [edit] Types of trial divided by the type of dispute Trials can also be divided by the type of dispute at issue. A criminal trial is designed to resolve accusations brought (usually by a government) against a person accused of a crime. In common law systems, most criminal defendants are entitled to a trial held before a jury. Because the state is attempting to use its power to deprive the accused of life, liberty, or property, the rights of the accused afforded to criminal defendants are typically broad. The rules of criminal procedure provide rules for criminal trials. A civil trial is generally held to settle lawsuits or civil claims - non-criminal disputes. In some countries, the government can both sue and be sued in a civil capacity. The rules of civil procedure provide rules for civil trials. [edit] Administrative hearing and trial Although administrative hearings are not ordinarily considered trials, they retain many elements found in more "formal" trial settings. When the dispute goes to judicial setting, it is called an administrative trial, to review the administrative hearing, depending on the jurisdiction. The types of disputes handled in these hearings is goverened by administrative law and auxiliarily by the civil trial law. [edit] Labor trial Main article: Labor and employment law This section requires expansion.

Labor law (also known as employment law) is the body of laws, administrative rulings, and precedents which address the legal rights of, and restrictions on, working people and their organizations. As such, it mediates many aspects of the relationship between trade unions, employers and employees. In Canada, employment laws related to unionized workplaces are differentiated from those relating to particular individuals. In most countries however, no such distinction is made. However, there are two broad categories of labour law. First, collective labour law relates to the tripartite relationship between employee, employer and union. Second, individual labour law concerns employees' rights at work and through the contract for work. The labour movement has been instrumental in the enacting of laws protecting labour rights in the 19th and 20th centuries. Labour rights have been integral to the social and economic development since the industrial revolution. Trial The form of the trial There are two primary systems for conducting a trial: 

Adversarial: In common law systems, an adversarial or accusatory approach is used to adjudicate guilt or innocence. The assumption is that the truth is more likely to emerge from the open contest between the prosecution and the defense in presenting the evidence and opposing legal arguments with a judge

acting as a neutral referee and as the arbiter of the law. In several jurdictions in more serious cases, there is a jury to determine the facts. although some common law jurisdictions have abolished the jury trial. This polarizes the issues, with each competitor acting in its own self-interest, and so presenting the facts and interpretations of the law in a deliberately biased way. The intention is that through a process of argument and counter-argument, examination-in-chief and cross-examination, each side will test the truthfulness, relevancy, and sufficiency of the opponent's evidence and arguments. To maintain fairness, there is a presumption of innocence, and the burden of proof lies on the prosecution. Critics of the system argue that the desire to win is more important than the search for truth. Further, the results are likely to be affected by structural inequalities. Those defendants with resources can afford to hire the best lawyers. Some trials are—or were—of a more summary nature, as certain questions of evidence were taken as resolved (see handhabend and backberend).  Inquisitorial: In civil law legal systems, the responsibility for supervising the investigation by the police into whether a crime has been committed falls on an examining magistrate or judge who then conducts the trial. The assumption is that the truth is more likely to emerge from an impartial and exhaustive investigation both before and during the trial itself. The examining magistrate or judge acts as an inquisitor who directs the fact-gathering process by questioning witnesses, interrogating the suspect, and collecting other evidence. The lawyers who represent the interests of the State and the accused have a limited role to offer legal arguments and alternative interpretations to the facts that emerge during the process. All the interested parties are expected to co-operate in the investigation by answering the magistrate or judge's questions and, when asked, supplying all relevant evidence. The trial only takes place after all the evidence has been collected and the investigation is completed. Thus, most of the factual uncertainties will already be resolved, and the examining magistrate or judge will already have resolved that there is prima facie of guilt. Critics argue that the examining magistrate or judge has too much power in that he or she will both investigate and adjudicate on the merits of the case. Although lay assessors do sit as a form of jury to offer advice to the magistrate or judge at the conclusion of the trial, their role is subordinate. Further, because a professional has been in charge of all aspects of the case to the conclusion of the trial, there are fewer opportunities to appeal the conviction alleging some procedural error. Also see Hung jury. Mistrials A judge may cancel a trial prior to the return of a verdict; legal parlance designates this as a mistrial. A judge may declare a mistrial due to:     

The court determining that it lacks jurisdiction over a case, Evidence being admitted improperly, Misconduct by a party, juror, or an outside actor, if it prevents due process, A hung jury which cannot reach a verdict with the required degree of unanimity Disqualification of a juror after the jury is impanelled, if no alternate juror is available and the litigants do not agree to proceed with the remaining jurors. A declaration of a mistrial generally means that the court must hold a retrial on the same subject. An important exception occurs in criminal cases in the United States. If the court erroneously declares a mistrial, or if prosecutorial misconduct forced the defendant into moving for a mistrial, the constitutional protection against double jeopardy bars any retrial.[citation needed] Other kinds of trials

Some other kinds of processes for resolving conflicts are also expressed as trials. For example, the United States Constitution requires that, following the impeachment of the President, a judge, or another federal officer by the House of Representatives, the subject of the impeachment may only be removed from office by a trial in the Senate. In earlier times disputes were often settled through a trial by ordeal, where parties would have to endure physical suffering in order to prove their righteousness; or through a trial by combat, in which the winner of a physical fight was deemed righteous in their cause Penal damages Penal damages are best seen as quantitatively excessive liquidated damages and are invalid under the common law. While liquidated damages are a priori calculations of expectation loss under the contract, penal damages go further and seek to penalise a party in some way for breach of a clause above and beyond the loss suffered by the innocent party as a result of this breach. Many clauses which are found to be penal are expressed as liquidated damages clauses but are seen by courts as excessive and thus invalid. The judicial approach to penal damages is conceptually important as it is one of the few examples of judicial paternalism in contract law. Even if two parties genuinely and without coercion wish to consent to a contract which includes a penal clause, they are unable to. So, for example, a person wishing to give up smoking cannot contract with a third party to be fined $100 each time they smoke as this figure does not represent the expectation loss of the contract. Rescission In contract law, rescission has been defined as the unmaking of a contract between parties. [1] Rescission is the unwinding of a transaction. This is done to bring the parties, as far as possible, back to the position in which they were before they entered into a contract (the status quo ante). In court Rescission is an equitable remedy and is discretionary. A court may decline to rescind a contract if one party has affirmed the contract by his action (see Long v Lloyd [1958] 1 WLR 753) or a third party has acquired some rights or there has been substantial performance in implementing the contract. Furthermore, because rescission is supposed to be imposed mutually upon both sides to a contract, the party seeking rescission normally must offer to give back all benefits he or she has received under the contract (an "offer of tender"). Virginia uses the term "cancellation" for equitable rescission. Furthermore, a minority of common law jurisdictions, like South Africa, use the term "rescission" for what other jurisdictions call "reversing", "overturning" or "overruling" a court judgment. In this sense, the term means to be set aside or made void, on application to the court that granted the judgment or a higher court. Applications to rescind a judgment are usually made on the basis of error or for good cause. Most common law jurisdictions avoid all this confusion by holding that one rescinds a contract and cancels a deed (i.e. of real property), and treat rescission as a contractual remedy rather than a type of procedural remedy against a court judgment. By private companies

In finance, law, and insurance, rescission is the termination of a contract from the beginning (as if it never existed), rendering it void ab initio. In 2008, one judge ruled that borrowers who refinanced into an adjustablerate mortgage could force a bank to rescind mortgage loans if it acted similarly inappropriately. [2] Rescission is typically viewed as "an extreme remedy" which is "rarely granted".[3] Insurance Insurers have the right to rescind an insurance policy due to concealment, material misrepresentation, or material breach of warranty. Generally, to rescind, an insurer will send a notice to the insured and tender a check in the amount of the premium paid for the relevant policy period. In certain states such as Oklahoma the insurer is additionally required to prove an "intent to deceive" in the misrepresentation;[4] this fraud or intent requirement was extended federally for health insurance contracts effective September 23, 2010[5] by Section 2712 of the Patient Protection and Affordable Care Act. In the longrun the change may have little effect in practice given that the bill eventually will not allow underwriting based on preexisting conditions.[6] In health insurance and specifically the individual and small group insurance markets, rescissions have generally followed the diagnosis of an expensive-to-treat illness in the patient (policyholder), typically because of withheld information about a pre-existing medical condition.[7] This practice was popularized during the 2009 US healthcare debate, known colloquially as "cancel coverage when you get sick". The practice of health insurance rescission will be partially limited starting [8] September 23, 2014, following the adoption of the Patient Protection and Affordable Care Act in 2010. A House committee report[9] found that WellPoint Inc., UnitedHealth Group and Assurant rescinded policies for more than 20,000 people over a five-year period;[7] the House report also found highlighted 13 particular cases.[9] In 2010, it was revealed that WellPoint specifically targeted women with breast cancer for aggressive investigation with the intent to cancel (rescind) their policies.[10] The disclosures followed the discovery that Assurant Health similarly targeted all recently-diagnosed HIV-positive (AIDS) policyholders for rescission.[11] U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius sent a letter to WellPoint urging the insurer to immediately end their practice of dropping health insurance coverage for the women.[5] The software technology used by Wellpoint as well as other major American health insurance companies [12] is provided by MIB Group, Inc.. The software automatically triggered a fraud investigation on every policyholder recently diagnosed with breast cancer and searched for conditions not disclosed in the application. [10][13] The MIB Group provides a "Follow-up Service" which allows for a "second chance" to underwrite based on additional, discovered information during the contestable period.[14] The service is maintained for two years after initial underwriting and may include, among other information credit history, medical conditions, driving records, criminal activity, drug use, participation in hazardous sports, and personal or family genetic history. [15] Consumers can request a copy of the data in their report from MIB Group.[16] By government In American government, rescission authority rests with the President. This authority was granted in the Congressional Budget and Impoundment Control Act of 1974. The President can force Congress to vote on rescinding (or permanently withholding) already appropriated funds.[17] The average amount that Presidents requested between 1974 and 2005 was about $15 billion.[18] In parliamentary procedure, the motion to rescind, repeal or annul is used to cancel or countermand a motion previously adopted.

Quasi-contractual obligation A quasi-contract (or implied-in-law contract) is a fictional contract created by courts for equitable, not contractual purposes[1]. A quasi-contract is not an actual contract, but is a legal substitute for a contract formed to impose equity between two parties. The concept of a quasi-contract is that of a contract that should have been formed, even though in actuality it was not. It is used when a court finds it appropriate to create an obligation upon a non-contracting party to avoid injustice and to ensure fairness.[2][3][4] It is invoked in circumstances of unjust enrichment,[4] and is connected with the concept of restitution. Generally the existence of an actual or implied-in-fact contract is required for the defendant to be liable for services rendered, and a person who provides a service uninvited is an officious intermeddler who is not entitled to compensation. "Would-be plaintiffs cannot deliver unordered goods or services and demand payment for the benefit....A corollary is that one who does have an enforceable contract is bound by the contract's terms: subject to a few controversial exceptions, she cannot sue for restitution of the value of benefits conferred..." [5] However, in many jurisdictions under certain circumstances plaintiffs may be entitled to restitution under quasi-contract (as in the example of Oklahoma below). Quasi-contracts are defined to be "the lawful and purely voluntary acts of a man, from which there results any obligation whatever to a third person, and sometime a reciprocal obligation between the parties." [6] Elements According to the Oklahoma pattern jury instructions, the elements of quasi-contract are: 1. Plaintiff furnished / rendered valuable goods / services to Defendant with a reasonable expectation of being compensated; 2. Defendant knowingly accepted the benefits of the goods / services; and 3. Defendant would be unfairly benefited by the services / receiving the goods if no compensation were paid to the Plaintiff.[7] Knowledge, the second element, is required, and if the defendant had no knowledge of the benefits, there would be no contract of any kind, even a quasi-contract.[3] Contract compared In contracts, it is the consent of the contracting parties which produces the obligation; in quasi-contracts no consent is required, and the obligation arises from the law or natural equity, on the facts of the case. These acts are called quasi-contracts, because, without being contracts, they bind the parties as contracts do.[citation needed] "A quasi-contract is not really a contract at all in the normal meaning of a contract," according to one scholar, but rather is "an obligation imposed on a party to make things fair."[3] The Oklahoma Supreme Court has: described the distinction between a contract and a quasi-contract in T & S Inv. Co. v. Coury, 593 P.2d 503 (Okla. 1979), as follows: A "quasi" or constructive contract is an implication of law. An "implied" contract is an implication of fact. In the former the contract is a mere fiction, imposed in order to adapt the case to a given remedy. In the latter, the

contract is a fact legitimately inferred. In one the intention is disregarded; in the other, it is ascertained and enforced. In one, the duty defines the contract; in the other, the contract defines the duty. (quoting from Berry v. Barbour, 279 P.2d 335, 338 (Okla. 1954)). —Oklahoma Uniform Jury Instructions, § 23.10 citing cases therein at [7]. Liability The defendant's liability under quasi-contract is equal to the value of the benefit conferred by the plaintiff. The value is the fair market value of the benefit and not necessarily the subjective value that the defendant enjoys.[citation needed] A traditional measure of the fair market value is called quantum meruit, for "as much as is deserved."[citation needed] For example, accountant prepares tax-payer's taxes, finding a way to get him an unusually large refund. Tax-payer doesn't pay accountant. Assuming a court finds no contract, tax-payer is only liable for the fair market value of tax preparation services, which is not inflated up to account for the unusually large refund he enjoyed.[citation needed] Under Oklahoma law: The measure of damages in a quasi-contract action is the amount which will compensate the party aggrieved for the detriment proximately caused thereby, and, if the obligation is to pay money, the detriment caused by the breach in the amount due by the terms of the obligation. —Welling v. American Roofing & Sheet Metal Co., Inc., 617 P.2d 206, 209-210 (Okla. 1980), cited at [7]. The party to be charged is any defendant, or in the case of a guarantee or surety, a co-defendant, in a breach of contract lawsuit. Examples An example of a quasi-contract is the case of a plumber who accidentally installs a sprinkler system in the lawn of the wrong house. The owner of the house had learned the previous day that his neighbor was getting new sprinklers. That morning, he sees the plumber begin installing them in his own lawn. Pleased at the mistake, he says nothing, and then refuses to pay when the plumber hands him the bill, claiming that he never agreed to pay for the sprinklers. If the plumber can prove that the man knew that the sprinklers were being installed mistakenly on his property and failed to prevent the installation, the court would make him pay under a quasi-contract theory. If that knowledge could not be proven, he would not be liable.[citation needed] Compare this example with the three elements from above: 1. The plumber conferred a benefit on the owner by installing the sprinkler system. 2. The owner accepted the installation of the sprinkler system by not stopping the plumber when he first noticed the mistake. 3. Without payment, the owner will unfairly benefit at the expense of the mistaken plumber. Because the owner failed to stop the plumber from installing the sprinkler system, with the intention of benefiting from the mistake, the court will create a quasi-contract. The owner's failure to refuse the plumber's service will be interpreted as an implicit agreement to pay for it and the court will treat it as if there was an actual contract. However, if the owner were away from home at the time of the installation and had no chance to stop it, he could not be held liable and the plumber will be forced to bear the costs of his mistake.

Examples of quasi-contracts vary by jurisdiction. A painter, who mistakenly paints a house with the owner's knowledge, can sue in court to get paid.[3] A mechanic who fixes the brakes to a car as requested, but who also makes repairs to the axle (without which the brakes would not function properly), has an implied quasi-contract.[2] A homebuilder who signs a contract with a purported agent, who actually has no authority, can recover the cost of the services and materials from the homeowner.[4] Promissory estoppel Estoppel in its broadest sense is a legal term referring to a series of legal and equitable doctrines that preclude "a person from denying or asserting anything to the contrary of that which has, in contemplation of law, been established as the truth, either by the acts of judicial or legislative officers, or by his own deed, acts, or representations, either express or implied."[1] This term appears to come from the Old French estoupail (or a variation), which meant "stopper plug", referring to placing a halt on the imbalance of the situation. The term is related to the verb "estop" which comes from the Old French term estopper, meaning "stop up, impede." Overview Where a court finds that a party has done something warranting a form of estoppel, that party is said to be "estopped" from making certain related arguments or claiming certain related rights. The defendant is said to be "estopped" from presenting the related defence, or the plaintiff is said to be "estopped" from making the related argument against the defendant. Lord Coke stated, "It is called an estoppel or conclusion, because a man's own act or acceptance stoppeth or closeth up his mouth to allege or plead the truth."[2] Because estoppel is so factually dependent, it is perhaps best understood by considering specific examples. 

Example 1: A city entered into a contract with another party. The contract stated that it had been reviewed by the city's counsel and that the contract was proper. Promissory estoppel applied to estop the city from claiming the contract was invalid.[3]  Example 2: The creditor unofficially informs the debtor that the creditor forgives the debt. Even if such forgiveness is not formally documented, the creditor may be estopped from changing its mind and seeking to collect the debt, because that change would be unfair.  Example 3: A landlord informs a tenant that rent has been reduced, for example, because there was construction or a lapse in utility services. If the tenant relies on this notice in choosing to remain in the premises, the landlord could be estopped from collecting the full rent. Estoppel is closely related to the doctrines of waiver, variation, and election and is applied in many areas of law, including insurance, banking, employment, international trade, etc.[citation needed] In English law, the concept of legitimate expectation in the realm of administrative law and judicial review is estoppel's counterpart in public law, although subtle but important differences exist. [edit] Major types The main species of estoppel under English, Australian, and American laws are: 

Reliance-based estoppels—These involve one party relying on something the other party has done or said. The party who did/said the act is the one who is estopped. Under English law, this class includes estoppel by representation of fact, promissory estoppel and proprietary estoppel (see Halsbury's Laws of

England, Vol 16(2), 2003). Although some authorities have used language to suggest reliance-based estoppels are mere rules of evidence,[citation needed] they are rules of substantive law. o Estoppel by representation of fact (English law name), equitable estoppel (American law) o Equitable estoppel (in English law), including  Proprietary estoppel  Promissory estoppel  Estoppel by record—This frequently arises as issue/cause of action estoppel or judicial estoppel where the orders or judgments made in previous legal proceedings prevent the parties from relitigating the same issues or causes of action,  Estoppel by deed (often regarded as technical or formal estoppels)—Where rules of evidence prevent a litigant from denying the truth of what was said or done  Estoppel by silence—Estoppel that prevents a person from asserting something when he had the right and opportunity to do so earlier, and such silence put another person at a disadvantage.  Laches—estoppel in equity by delay. Laches has been considered both a reliance-based estoppel, and a sui generis estoppel. [edit] Reliance-based estoppels Reliance-based estoppels (at English law) include:[4]  

by representation of fact, where one person asserts the truth of a set of facts to another; promissory estoppel, where one person makes a promise to another, but there is no enforceable

contract; and 

proprietary estoppel, where the parties are litigating the title to land.

Both Halsbury's and Spencer Bower (see below) describe these three estoppels collectively as estoppels by representation. More simply, one party must say or do something and see the other party rely on what is said or done to change behavior. All reliance-based estoppels require the victimised party to show both inducement and detrimental reliance, i.e.: 

there must be evidence to show that the representor actually intended the victim to act on the representation or promise, or  the victim must satisfy the court that it was reasonable for him or her to act on the relevant representation or promise, and  what the victim did must either have been reasonable, or  the victim did what the representor intended, and  the victim would suffer a loss or detriment if the representor was allowed to deny what was said or done — detriment is measured at the time when the representor proposes to deny the representation or withdraw the promise, not at the time when either was made, and  in all the circumstances, the behavior of the representor is such that it would be "unconscionable" to allow him or her to resile. Simply put, promissory estoppel has four necessary elements which the plaintiff must prove:    

there was a promise that was reasonably relied upon resulting legal detriment to the promisee justice requires enforcement of the promise

Estoppel by representation of fact and promissory estoppel are mutually exclusive: the former is based on a representation of existing fact (or of mixed fact and law), while the latter is based on a promise not to enforce some pre-existing right (i.e. it expresses an intention as to the future). A proprietary estoppel operates only between parties who, at the time of the representation, were in an existing relationship, while this is not a requirement for estoppel by representation of fact. The test for unconscionability in the English and Australian courts takes many factors into account, including the behavior, state of mind and circumstances of the parties. Generally, the following eight factors are determinative (Michael Spence, Protecting Reliance: The Emergent Doctrine of Equitable Estoppel, Oxford: 1999, pp60–66):        

how the promise/representation and reliance upon it were induced; the content of the promise/representation; the relative knowledge of the parties; the parties' relative interest in the relevant activities in reliance; the nature and context of the parties' relationship; the parties' relative strength of position; the history of the parties' relationship; and the steps, if any, taken by the promisor/representor to ensure he has not caused preventable

harm. But in Cobbe v Yeoman's Row [2008] UKHL 55, Lord Scott of Foscote stated the following: the ingredients for a proprietary estoppel should include, in principle, a proprietary claim made by a claimant and an answer to that claim based on some fact, or point of mixed fact and law, which the person against whom the claim was made could be estopped from asserting. To treat a ―proprietary estoppel equity‖ as requiring simply unconscionable behaviour was a recipe for confusion. The remedy to which, on the facts as found by the judge, the claimant was entitled could be described neither as based on an estoppel nor as proprietary in character. His Lordship‘s present view was that proprietary estoppel could not be prayed in aid to render enforceable an agreement declared by statute (s 2 of the Law Reform (Miscellaneous Provisions) Act 1989) to be void. A claim for the imposition of a constructive trust to provide a remedy for a disappointed expectation engendered by a representation made in the course of incomplete contractual negotiations was misconceived and could not be sustained by reliance on unconscionable behaviour. The claimant was, however, entitled to a quantum meruit payment for his services in obtaining the planning permission. [edit] Estoppel by representation of fact (English law), equitable estoppel (American law) In English law, estoppel by representation of fact is a term coined by Spencer Bower. This species of estoppel is also referred to as "common law estoppel by representation" in Halsbury's Laws of England, vol 16(2), 2003 reissue. In The Law relating to Estoppel by Representation, 4th edition, 2004 at para I.2.2, Spencer Bower defines estoppel by representation of fact as follows: Where one person (‗the representor‘) has made a representation of fact to another person (‗the representee‘) in words or by acts or conduct, or (being under a duty to the representee to speak or act) by silence or inaction, with the intention (actual or presumptive) and with the result of inducing the representee on the faith of such representation to alter his position to his detriment, the representor, in any litigation which may afterwards take

place between him and the representee, is estopped, as against the representee, from making, or attempting to establish by evidence, any averment substantially at variance with his former representation, if the representee at the proper time, and in proper manner, objects thereto. A second definition can be found at Wilken and Villiers, The Law of Waiver, Variation and Estoppel, 2nd ed, Oxford: 2003, at para 9.02: An estoppel by representation [of fact] will arise between A and B if the following elements are made out. First, A makes a false representation of fact to B or to a group of which B was a member. [It is not necessary to demonstrate A knew that the representation was untrue.] Second, in making the representation, A intended or [in the alternatively,] knew that it was likely to be acted upon. Third, B, believing the representation, acts to its detriment in reliance on the representation. [It must have been reasonable to rely on the representation.] Fourth, A subsequently seeks to deny the truth of the representation. Fifth, no defence to the estoppel can be raised by A. A representation can be made by words or conduct. Although the representation must be clear and unambiguous, a representation can be inferred from silence where there is a duty to speak or from negligence where a duty of care has arisen. Under English law, estoppel by representation of fact usually acts as a defence, though it may act in support of a cause of action or counterclaim. Although there is some debate as to whether "unconscionability" is an element that English courts need to take into account when considering estoppel by representation of fact, the Australian courts clearly do (see Wilken and Villiers, para 9-03; The Commonwealth v Verwayen (1990) 170 CLR 394 at 444 per Deane J.) American equitable estoppel is the counterpart to estoppel by representation, and its elements are summarized as:[5]      

facts misrepresented or concealed knowledge of true facts fraudulent intent inducement and reliance injury to complainant clear, concise, unequivocal proof of actus (not by implication)

For example, in the case of Aspex Eyewear v. Clariti Eyewear,[6] eyeglass frame maker Aspex sued competitor Clariti for patent infringement. Aspex waited three years to assert its patent in litigation, however, and, during this prolonged silence, Clariti expanded its marketing and sales of the accused eyeglass frames. The Federal Circuit found Aspex guilty of misleading conduct because it led Clariti to believe it would not enforce its patent, and thus Aspex was estopped and could not proceed with the suit.[7] [edit] Equitable estoppel (English law) For the American doctrine of equitable estoppel, see Estoppel by representation of fact. Under English and Australian legal systems, estoppels in equity include promissory and proprietary estoppels. (Contrast with estoppel by representation, which is a claim (under the English system) at law.) For more information, see Promissory estoppel and Proprietary estoppel below.

The status of estoppel by representation of fact is less clear in Australia. Two seminal decisions purport to fuse common law and equitable estoppels into a single unified doctrine,[8] but the New South Wales Court of Appeal[9] continues to treat estoppel by representation at common law as distinct from equitable estoppel. [10] This can be significant in deciding which court has jurisdiction to adjudicate on the issue. [edit] Proprietary estoppel Main article: Proprietary estoppel In English law, proprietary estoppel is distinct from promissory estoppel. Proprietary Estoppel is not a concept in American law, but a similar result is often reached under the general doctrine of promissory estoppel. Traditionally, proprietary estoppel arose in relation to rights to use the land of the owner, and possibly in connection with disputed transfers of ownership. Although proprietary estoppel was only traditionally available in disputes affecting title to real property, it has now gained limited acceptance in other areas of law. Proprietary estoppel is closely related to the doctrine of constructive trust.[11] J. Fry summarized the five elements for proprietary estoppel as:[12]  o

the claimant... ...made a mistake as to his legal rights (typically because the actual owner attempted to convey the property, but the transfer is invalid or ineffective for some reason); o ...did some act of reliance;  the defendant... o ...knows of the existence of a legal right which he (the defendant) possesses, and which is inconsistent with the right claimed by the claimant; o ...knows of the claimant's mistaken belief; and, o ...encouraged the claimant in his act of reliance. Example: A father promised a house to his son who took possession and spent a large sum of money improving the property, but the father never actually transferred the house to the son. Upon the father's death, the son claimed to be the equitable owner. The court found the testamentary trustees (as representatives of the deceased father's estate) were estopped from denying the son's proprietary interest, and ordered them to convey the land to the son.[13] The decision of the Court of Appeal in "Collier v P & MJ Wright (Holdings)" Ltd 2008 1 WLR 643 suggests that the doctrine of promissory estoppel can now operate to mitigate the harshness of this common law rule. Moreover, Arden LJ held that allowing a creditor to renege on his promise to forebear seeking the balance of a debt in return for part payment would be, in and of itself, inequitable. Therefore, the only reliance that the promisee must demonstrate is the actual making of the part payment. This approach has been criticised as doing violence to the principle set down in Hughes and the extent to which the other members of the Court, namely Longmore LJ, agreed with it is uncertain. [edit] Australian law The doctrine of promissory estoppel was adopted into Australian law in Legione v. Hateley (1983) 152 CLR 406; however, the plaintiffs were unsuccessful in that case because the reliance was unreasonable and the promise not unequivocal.

In fact, now Australian law has gone beyond the position espoused in the High Trees case; it has been extended successfully to cases where there is no pre-existing legal relationship between the two parties, and promissory estoppel can be wielded as a "sword", not just as a "shield". Mason CJ and Wilson J in Waltons Stores (Interstate) Ltd v. Maher (1988) 164 CLR 387 held that if estoppel is proven, it gives rise to an equity in favour of the plaintiff, and the court will do the minimum equity that is just in the circumstances. From this case, it is also possible for the promise to come from silence or inaction. Stated by Brennan J in Waltons Stores: "To establish an equitable estoppel, it is necessary for the plaintiff to prove that 1) the plaintiff assumed that a particular legal relationship would exist between them (and in the latter case) that the defendant would not be free to withdraw from that expected legal relationship; 2) the defendant has induced the plaintiff to adopt that assumption or expectation; 3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; 4) the defendant knew or intended him to do so; 5) the plaintiff's action or inaction will occasion detriment if the assumption of expectation is not fulfilled; and 6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation of otherwise." As noted above, in Australian law, there is an element of unconscionability, which is satisfied if one party encourages the other party to create assumptions that lead to reliance. Today, the principle of estoppel may give birth to an enforceable obligation even without a consideration under the following conditions: 1. promise 2. dishonest behavior of the promittant 3. special relationship between the promittant and the beneficior (e.g.: duty of information) 4. irreversible changement of the situation of the beneficior of the promise [edit] American law In the many jurisdictions of the United States, promissory estoppel is generally an alternative to consideration as a basis for enforcing a promise. It is also sometimes referred to as detrimental reliance. The American Law Institute in 1932 included the principle of estoppel into § 90 of the Restatement of Contracts, stating: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. —Restatement (Second) removed the requirement that the detriment be "substantial". The distinction between promissory estoppel and equitable estoppel should be noted: Equitable estoppel is distinct from promissory estoppel. Promissory estoppel involves a clear and definite promise, while equitable estoppel involves only representations and inducements. The representations at issue in promissory estoppel go to future intent, while equitable estoppel involves statement of past or present fact. It is also said that equitable estoppel lies in tort, while promissory estoppel lies in contract. The major distinction between equitable estoppel and promissory estoppel is that the former is available only as a defense, while promissory estoppel can be used as the basis of a cause of action for damages. —28 Am Jur 2d Estoppel and Waiver § 35 Suppose that B goes to a store and sees a sign that the price of a radio is $10. B tells the shopkeeper that he will get the money and come back later that day to purchase it; there is no discussion of price. The shopkeeper says that when B returns, he will be happy to deal with B as he deals with all his customers but that, if he sells all

the radios (he has three), he will not be able to help B. Hearing this, B goes and sells his watch for $10 (it was really worth $15, but since B wanted the money right away, he chose not to wait for the best price). When B returns, the sign says $11, and the owner tells B that he has raised the price. In Equity, can you argue that the shopkeeper is estopped by conduct? B relied upon the implied representation that a radio would be sold for $10 when he returned with the money; B has sold his watch at a price lower than the market price, and thus he has acted to his detriment. (Note that if B's watch was worth $10, and he received a fair price, there would be no detriment.) But the problem is that the shopkeeper did not guarantee to hold one of the radios against the possibility of B's return nor did they agree a fixed price. The shopkeeper's conscience might have been affected if he had known that B was going home to collect the money and would definitely return to buy one of the three radios. Indeed, in some common law jurisdictions, a promise by the shopkeeper to hold a specific radio would create a binding contract, even if B had to go for the money. A promise to pay the owner in the future is good consideration if it is made in exchange for a promise to sell a specific radio (one from three is probably sufficiently specific): one promise in exchange for a second promise creates equal value. So the shopkeeper's actual words and knowledge are critical to deciding whether either a contract or an estoppel arises. For an example of promissory estoppel in the construction industry, suppose that B Ltd consolidates estimates from a number of subcontractors and quotes a single price on a competitive tender. The client accepts B Ltd's quote and construction begins. But one of the subcontractors then claims reimbursement above its original estimate and, because of this change, B Ltd cannot profit from the works. If both parties knew that the accuracy of the individual estimates was critical to the success of the tender and the profitability of the contract as a whole, a court might apply promissory estoppel and allow B Ltd to pay only what the subcontractor originally estimated rather than the new, higher price. But, if both parties hoped that there would be an opportunity to increase the contract prices to reflect additional expenditure, the subcontractor's conscience would not be as limited in seeking a higher payment and B Ltd might be penalised for not building an adequate contingency sum into the tendered price. One contentious point during the drafting of the Restatement was how to calculate the amount of damages flowing from a promissory estoppel. During the deliberations, the following example was considered: a young man's uncle promises to give him $1,000 to buy a car. The young man buys a car for $500, but the uncle refuses to pay any money. One view was that the young man should be entitled to $1,000 (the amount promised), but many believed that the young man should only be entitled to $500 (the amount he actually lost). The language eventually adopted for the Second Restatement reads: "The remedy granted for breach may be limited as justice requires." — a formula which leaves quantification to the discretion of the court. Other estoppels Pais Estoppel in pais (literally ―by act of notoriety", or "solemn formal act‖) is the historical root of common law estoppel by representation and equitable estoppel. The terms Estoppel in pais and equitable estoppel are used interchangeably in American law. Convention Estoppel by convention in English law (also known as estoppel by agreement) occurs where two parties negotiate or operate a contract but make a mistake. If they share an assumption, belief or understanding of how the contract will be interpreted or what the legal effect will be, they are bound by that belief, assumption or understanding if:[citation needed] 

(i) they both knew the other had the same belief, and



(ii) they both based their subsequent dealings on those beliefs.

Some say[who?][by whom?] that estoppel by convention is not truly an estoppel in its own right, but merely an instance of reliance-based estoppel (estoppel by representation would be its most frequent form). Others[who?][by whom?] see it as no more than an application of the rule of interpretation that, where words in a contract are ambiguous, one always interprets those words so as to give effect to the actual intentions of the parties even though that would not be the usual legal outcome.[citation needed] Estoppel by convention is most commonly invoked if one party wishes to rely on pre-contract negotiation as an aid to construction of the contract, Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] UKHL 38. Acquiescence Estoppel by acquiescence may arise when one person gives a legal warning to another based on some clearly asserted facts or legal principle, and the other does not respond within "a reasonable period of time". By acquiescing, the other person is generally considered to have lost the legal right to assert the contrary. As an example, suppose that Jill has been storing her car on Jack's land with no contract between them. Jack sends a registered letter to Jill's legal address, stating: "I am no longer willing to allow your car to stay here for free. Please come get your car, or make arrangements to pay me rent for storing it. If you do not do so, within 30 days, I will consider the car abandoned and will claim ownership of it. If you need more time to make arrangements, please contact me within 30 days, and we can work something out." If Jill does not respond, she may be said to have relinquished her ownership of the car, and estoppel by acquiescence may prevent any court from invalidating Jack's actions of registering the car in his name and using it as his own. Deed Estoppel by deed is a rule of evidence arising from the status of a contract signed under seal — such agreements, called deeds, are more strictly enforced than ordinary contracts and the parties are expected to take greater care to verify the contents before signing them. Hence, once signed, all statements of fact (usually found in the opening recital which sets out the reason(s) for making the deed) are conclusive evidence against the parties who are estopped from asserting otherwise. Conflict Estoppel ―an inconsistent position, attitude or course of conduct may not be adopted to loss or injury of another‖ Brand v. Farmer‘s Mut. Protective Assoc of Texas, Tex. App 95 S.W.2d 994, 997. For example, as between two or more claimants, a party that takes multiple and inconsistent legal positions is estopped to assert its positions against another consistent and certain claim, i.e. preferential treatment for certain over uncertain claims. Issue estoppel Issue estoppel (more commonly known as issue preclusion) prevents, in some cases, an issue that has already been litigated and decided on the merits from being re-litigated, even when the parties are different. In the world of crime, some cases have achieved notoriety, e.g. in the Birmingham Six saga, the House of Lords ruled in Hunter v. Chief Constable of the West Midlands Police (1982) that issue estoppel applied. Lord Diplock said:

The inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people.[14]

Quantum meruit Quantum meruit is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services". In the United States, the elements of quantum meruit are determined by state common law. For example, to state a claim for unjust enrichment in New York, a plaintiff must allege that (1) defendant was enriched; (2) the enrichment was at plaintiff's expense; and (3) the circumstances were such that equity and good conscience require defendants to make restitution. 

Situations Quantum meruit is the measure of damages where an express contract is mutually modified by the implied agreement of the parties, or not completed. While there is often confusion between the concept of quantum meruit and that of "unjust enrichment" of one party at the expense of another, the two concepts are distinct. The concept of quantum meruit applies to the following situations: I. When a person hires another to do work for him, and the contract is either not completed or is otherwise rendered un-performable, the person performing may sue for the value of the improvements made or the services rendered to the defendant. The law implies a promise from the employer to the workman that he will pay him for his services, as much as he may deserve or merit. The measure of value set forth in a contract may be submitted to the court as evidence of the value of the improvements or services, but the court is NOT required to use the contract's terms when calculating a quantum meruit award. (This is because the values set forth in the contract are rebuttable, meaning the one who ultimately may have to pay the award can contest the value of services set in the contract.) II. When there is an express contract for a stipulated amount and mode of compensation for services, the plaintiff cannot abandon the contract and resort to an action for a quantum meruit on an implied assumpsit. However, if there is a total failure of consideration, the plaintiff has a right to elect to repudiate the contract and may then seek compensation on a quantum meruit basis. Examples I. An example used in United States law schools is usually as follows: A Man (plaintiff in this hypothetical) talks to a neighbor (defendant) and tells him he's going to build a wall on their property that will give a benefit to both the man and his neighbor; the Man implies that it would be cheaper

for both of them if the Man perform the labor instead of hiring a professional. The neighbor agrees that the wall should be built, but no price is negotiated. The man builds the wall, and then asks the neighbor to compensate him for the benefit of the wall that he conferred on the neighbor (usually half the value of the wall). The neighbor refuses. The man is entitled to some compensation based on quantum meruit. This is because there was an implied promise between the man and the neighbor, which is derived from contract law, because the man was acting under the assumption that the neighbor would pay for part of his services (see Estoppel). The plaintiff files suit in court on the basis of quantum meruit. The plaintiff makes an estimation of value conferred on the defendant, which the defendant has not paid. Plaintiff will likely win because of quantum meruit. The winning of the case will be directed as an assumpsit on a quantum meruit. Day v. Caton, 119 Mass. 513 (1876). In Canada, 'quantum meruit' is not based on contract law but rather depends on equitable principles of unjust enrichment. Estoppel allows an implied promise to act as a shield against litigation but never a sword. Therefore an implied promise would not create a cause of action. Instead 'quantum meruit' is based on the need to prevent the neighbor from unjustly enriching himself by allowing the fence builder to proceed with the work based on an assumption that he would be compensated. II. This is not the only factual scenario where this will work. Quantum meruit will also work where there is a breached contract. A contractor is contracted to work on a school. The contractor does some work but then quits (breach of contract). The contractor is entitled to be paid for the services he has already provided for the school on the basis of quantum meruit (however the school may be entitled to damages arising out of the need to look for a new contractor). III. If a plaintiff is prohibited from completing work based on a long term service contract where other contracts have been negotiated, the plaintiff may ask a court to determine a judgment based on the amounts that the defendant benefited. Third parties may also bring actions against the plaintiff. IV. A Promoter enters into a long term service contract with a Theatre to exclusively present events for a specified period. The promoter books events and contracts with others to perform during the entire period but alleges that the theatre is unsafe. The Promoter withholds payments until the theatre is made safe. The Theatre performs no repairs. Instead the Theatre terminates the entire service contract before the benefit of the events occurs to the plaintiff and refuses to repair the theatre. After the contract is terminated, the theatre operates the events negotiated by the promoter and gains a significant benefit but does not pay the promoter anything. The theatre also cancels some events without cause. A court determines that the promoter is entitled to an assumpsit on a quantum meruit. Quantum meruit cases  

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Boardman v Phipps Sumpter v Hedges [1898] 1 QB 673