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Contract Law 2 Cheat Sheet (DRAFT) by

Contract Law 2 - PGDL

This is a draft cheat sheet. It is a work in progress and is not finished yet.


Renders contract void
Mistake about quality of goods does not render contract void.


Common Mistake:
Both parties have same misapp­reh­ension
E.g. At time of contra­cting, subject matter of contract isdest­royed
Mutual Mistake:
Both parties mistaken about different things.
Objective test - if contract would be inferred by words/­con­duct, it will still be binding
E.g. A offers to sell one thing while B offers to buy another
Unilateral Mistake:
One party is mistaken and other party knows/is deemed to know
E.g. Mistaken belief as to nature of a document (even where signed)
E.g. D's offer was not an accurate reflection of their true intention
Unilateral Mistake of Identity:
Only void in precise circum­stances
Seller must establish that identity rather than attributes was of vital importance
Distance selling - presumed that seller intended to deal with persons named in corres­pon­dence if they are an identi­fiable third party
If the attributes of buyer influenced contract, can only be voidable for misrep­res­ent­ation


No person can sue or be sued on a contract unless they are party to it


Contract (Rights of Third Parties) Act 1999
Third party to a contract can enforce it in certain circum­stances
Contract still cannot be enforced against third party
Contract can exclude this Act


Where principal is named, agent is authorised and consid­eration has moved from principal, principal is party to contract, not agent
E.g. Director signs lease on behalf of company, company is party to contract, not director


Where A contracts with B and B assigns contract rights to C, C may sue A on their promise to B
Permitted unless non-as­sig­nment clause or limitation clause restri­cts­/ex­cludes


E.g. A employs B to paint house. Contract states A will specify paint to be used. C informs A their paint lasts 10 years so A instructs B to buy and use C's paint. Paint lasts only 1 year. A can sue C as A & C have commun­icated and there was consid­eration in C's warranty of 10 years to A and A's instru­ction to B to buy the paint.


Where there is a duty of care owed to a third party, third party can sue in negligence (Donoghue v Stevenson)


Contract will expire when completed on its own terms
Entire Obliga­tions
Contra­ctual obliga­tions discharged by complete perfor­mance of obliga­tions


Partial perfor­mance
Innocent party may accept partial perfor­mance
Performing party entitled to payment on quantum meruit basis
Substa­ntial perfor­mance
If lack of perfor­mance doesn't go to root of contract, it will be substa­ntially performed
Performing party entitled to contract price subject to deduction to reflect 'cost' of remedy
Divisible obliga­tions
Where contract is clearly intended to be divided into parts, e.g. salary
Performing party entitled to payment for each part performed
Wrongful prevention of perfor­mance
One party performs part of agreement but is prevented from completing by some fault of the other party
Performing party entitled to sue for damages for breach OR claim a quantum meruit


Clause which stipulates certain sum payable on particular breach of contract: EITHER
A primary clause - part of the primary obliga­tions furthering commercial objective of contract; OR
A secondary clause - obligation triggered by breach to compensate innocent party BUT does not impose dispro­por­tionate detriment to any legitimate interest of the innocent party in performing primary obliga­tions
Will NOT be a penalty if it protects a legitimate business interest and imposes a detriment which is not dispro­por­tionate to protect the legitimate interest
Valid liquidated damages clause will be binding


Subsequent binding contract
Agreement that obligation will be released (accord) and consid­eration for the promise to release a party from obliga­tions (satis­fac­tion) required.
Discharges the former obliga­tions
Operation of a term in the contract
Condition precedent
Where contract is suspended until a condition is satisfied
Condition subsequent
Where contract is terminated and outsta­nding obliga­tions discharged in the event of a specific occurr­ence, e.g. by notice


Events might occur after the formation of the contract which render perfor­mance radically different from agreed to at the time of contra­cting
Relieves parties from further obliga­tions. Contract is brought to an end automa­tic­ally: the parties have no choice in the matter

Frustr­ation: Common Purpose is Frustrated

Common purpose for entering contract can no longer occur due to superv­ening event
E.g. renting out and agreeing to rent room for purpose of viewing a proces­sion. If procession is cancelled, contract may be discharged by frustr­ation

Frustr­ation: Perfor­mance is impossible

Due to partia­l/total destru­ction of some object necessary to perfor­mance of contract
Due to destru­ction of asset not part of subject matter, but essential to perfor­mance
Due to death/­illness of one of the parties
Due to unavai­lab­ility, e.g. in shipping

Frustr­ation: Perfor­mance is illegal

A change in law or state interv­ention may render perfor­mance illegal


A frustr­ating event is not merely an increase in expens­e/o­ner­ousness
A frustr­ating event is not something cause by the default of a party (i.e. self-i­nduced)
A frustr­ating event is not something which parties could have reasonably contem­plated
A frustr­ating event is not something provided for in the contract


All future obliga­tions automa­tically discharged by common law
Money paid before frustr­ating event can be recovered
Money that should have been paid no longer needs to be paid
Expenses incurred by payee can be recovered:
- Expenses must be directly related to perfor­mance of contract to be recove­rable
- Amount recove­rable capped and cannot exceed:
1. Actual expenses incurred; AND
2. Amount paid/p­ayable prior to frustr­ating event


Mental distress
Damages not awarded in relation to distress, anguish or annoyance caused by breach
Damages awarded where major/­whole object of contract was to provide pleasure, relaxation and peace of mind
Loss of reputation
Damages not awarded
Limited exception where contract adversely affects future prospects if contract contained implie­d/e­xpress term not to (very rare)
Loss of chance
Damages not awarded if too specul­ative (instead, expect­ation interest)
Recove­rable if lost chance is quanti­fiable in monetary terms and there was a real and substa­ntial chance
Damages on behalf of another
Damages not awarded on behalf of anothe­r/for losses suffered by another
Exceptions relating to privity


A liquidated damages clause which requires party to pay excessive sum such that it becomes penalty
A secondary clause - imposes a dispro­por­tionate detriment to any legitimate interest of innocent party in perfor­mance of the primary obligation


C must establish that:
(1) Breach by D object­ively caused their loss(es)
(2) D should be held respon­sible for loss(es) which have object­ively been caused by D's breach


Injured party should take object­ively reasonable steps to minimise the effect of breach
No obligation to mitigate but losses attrib­utable to failure to mitigate are not recove­rable
No duty to mitigation a claim for payment of debt/l­iqu­idated damages (amount is payable as contra­ctual right, not as damages)


A promise by X to ensure that Y carries out its obliga­tions, or a promise to fulfil those obliga­tions itself if Y does not
X's obligation is effect­ively defined by Y's obliga­tion: so X cannot face any obligation that is greater than Y's obligation


A promise by X to reimburse Z in the event that they suffer a stated loss
Primary obliga­tion: X's obligation is legally indepe­ndent of Y's obliga­tion, although what X has to pay will be affected by what Y pays
E.g. Party X agrees to indemnify Party Z from any losses which arise from the failure to recover the sum loaned to Party Y


Compensate C for damage, loss or injury suffered as a result of D's breach
Specific perfor­mance, injunc­tion, damages

Breach Damages: Expect­ation Interest

Cost of cure (most frequent):
Cost of substi­tut­e/r­emedial work required to put C in position they would have been in had contract been properly performed
C must act reasonably
Diminution in value:
Calculated by reference to difference in value between perfor­mance received and perfor­mance promised
Loss of amenity:
Non-ec­onomic loss of pleasure

Breach Damages: Reliance Interest

Puts C back in position they would have been if not for the contract
Recover expenses which have been incurred in preparing for, or in part perfor­mance of, contract, which have been rendered pointless by breach
Can only recover wasted expend­iture, not all expend­iture
Limited to reliance if expect­ation damages are highly specul­ative

Breach Damages: Restit­ution Interest

The interest C has in the restor­ation of benefits which D has acquired at C's expense
Awarded in except­ional circum­stances where other remedies are inadequate

Breach Remedy: Specific Perfor­mance

Requires D to carry out its obliga­tions under a positive term of the contract
For this remedy, subject matter of contract must be unique­/ir­rep­lac­eable
Will not be awarded if damages are an approp­riate and adequate remedy
Will not be awarded where it would cause undue hardship on D
Will not be awarded for breach of contracts of employment
Will not be awarded for breach of an obligation to perform a series of acts requiring constant superv­ision of court
Will not be awarded for breach of a contract which is not binding on both parties

Breach Remedy: Prohib­itory Injunction

Restrains a party from breaching a negative term
Will not be granted if damages are an approp­riate and adequate remedy
May be limited to what is considered reasonable in all circum­stances of the case
Only granted where 'just and conven­ient'


Remedies for consumer when implied terms of contracts between businesses and consumers are breached

CRA Remedies: Contracts for Goods

CRA Remedies: Contracts for Services

CRA Remedies: Contracts for Digital Content


Loss must be of a type ordinarily and naturally arising from breach to be recove­rable
If loss is too unusual and far-re­aching to satisfy the above, C must establish that D had sufficient actual knowledge of the particular and special circum­stances to be aware of the risk to those losses
(Losses must be a type arising naturally within the reasonable contem­plation of both parties to be recove­rable)


Antici­patory Breach
Party indicates it will not perform its contra­ctual duties - it renounces the contract
Innocent party has immediate right to 'accept' renunc­iation and treat contract as termin­ated.
Repudi­atory Breach
Breach of warranty (or innominate term treated as such)
Damages only
Breach of condition (or innominate term treated as such)
Damages plus right of election
Elect to terminate
Notifi­cation required; must mitigate loss
Elect to affirm
Contract remains; unequi­vocal commitment to continue; not (often) required to mitigate losses; need legitimate interest; C must not require D's cooper­ation