1. What do we mean by contract? Types.

A contract is a promise or a set of promises for the breach of which the law gives remedy, or
the performance of which the law in some way recognizes as a duty.

Contracts may be classified in a number of different ways:

1. Express versus implied in fact contracts

An express contract is one in which the parties demonstrate mutual assent through
their words, either spoken or written, or partly written or partly oral.
An implied-in-fact is one in which the parties demonstrate mutual assent through their
conduct
2. Quasi contracts (implied-in-law contracts)
A quasi contract is one that a court may consider implied in law when in reality there is
no express contract or implied-in-fact contract. This kind of contract is usually imposed
by the law on the parties as a way of preventing one party from being unjustly
enriched at the expense of the other.
3. Bilateral versus Unilateral
A bilateral contract is one in which a promise is given in exchange for another promise.
In other words, a bilateral contact is an exchange of mutual promises. (Jack promises
Mike $15 and Mike promises to mow Jack's lawn.)
A unilateral contract is one in which a promise is given in exchange for a requested act.
(If a homeowner offers a youngster $5.00 to mow her lawn, this is an offer to make a
unilateral contract.)
4. Valid, unenforceable, void and voidable contracts
A valid contract is one that meets all the requirements and is therefore enforceable at
law.
An unenforceable contract is one that meets all requirements of mutual assent,
consideration, and competency of parties, and is in fact in pursuance of a lawful
purpose, but because it does not meet some other legal requirement. It is not
enforceable.
A void contract is one that never had any validity and cannot be enforced by either
party.
A voidable contract is one that is binding on one party but not on the other. The
contract is enforceable unless the party that has the option to withdraw rejects the
contract. Grounds for rejecting a contract include fraud, lack of legal capacity, mutual
mistake, misrepresentation, and lack of free will.
5. Entire versus severable
An entire contract is one in which no provision could be separated and severed from
the rest without destroying the basic intent of the parties.
A severable contract, on the other hand, on the other hand, is one in which one or
more parts or provisions could be severed from the rest without destroying the basic
intent of the parties. This distinction is particularly relevant to the concept of “Lawful
purpose”
6. Executed versus executory contracts
An executed contract is one that is completely performed by both parties. There are
no remaining promises to be fulfilled.
An executory contract is one that contains promises still unperformed.
 2. . Difference between “contract “and “agreement”.

A contract, the most general type of transactional document, creates reciprocal duties
between the parties. Contracts are promises that the law will enforce.

An agreement is a mutual understanding between two or more persons about their relative
rights and duties regarding past or future performances; a manifestation of mutual assent by
two or more persons.

The general rule is that what has been created by agreement may be extinguished by
agreement. An agreement by the parties to an existing contract to extinguish the rights and
obligations that have been created is itself a binding contract, provided that it is made ubder
seal or supported by consideration. Where the agreement for discharge is not under seal, the
legal position varies according to wheter the discharge is bilateral or unilateral.

3. Define consideration. Explain.

Consideration entails the price, cause, motive, or influence that induces a party to
enter into a contract.
It is sometimes a value that is given in exchange for a promise. Under the terms of that
promise, usually party gets something – a benefit – and in return, each party gives up
something – a detriment.

A. A legal benefit or detriment need not to be tangible.

It does need to involve cash, property, service, or any other tangible asset. In some
cases, it may be nothing more than a promise to give up or take on a legal
obligation.
B. Legal benefits as assignable to a third party
A person who is not a party to a contract has no legal right to receive a benefit.
Exception: a third-party beneficiary.
C. Consideration need not to involve equal value.

4. Compare “consideration” with “bargain”.

5. Define and explain “accord and satisfaction”.

The parties may intend to rescind their present agreement and nothing more. Where there is
an agreement mutually to release the other from the obligations under the first agreement,
there is an accord and satisfaction.

7. In mutual assent necessary to form a contract? Explain.

A necessary element to the formation of a contract consists of an offer by one party (the
offeror) and an acceptance of that offer by another party (the offeree). Several elements
must be present in order to have a valid offer and a valid acceptance.
 An offer is a proposal by an offeror to an offeree for the purpose of forming a contract.
When the offer is made and acceptance is given, there is MUTUAL ASSENT.

7. What constitutes an offer? Essential elements.

A contractual promise is defined as any promise contained in an agreement between legally

competent parties, supported by consideration, and in pursuance of a lawful purpose.
Therefore, the four essential elements of a valid contract are:

Valid offer and acceptance

A necessary element to the formation of a contract consists of an offer by one party (the
offeror) and an acceptance of that offer by another party (the offeree). Several elements must
be present in order to have a valid offer and a valid acceptance.

An offer is a proposal by an offeror to an offeree for the purpose of forming a contract. When
the offer is made and acceptance is given, there is MUTUAL ASSENT.

An offer also must have certain elements to construe a valid offer

There must be clear intention to contract

Defitiness: the terms of the offer must be clear and complete

Communication: an offer must be communicated to the offeree

Consideration

Consideration is the price, cause, motive, or influence that induces a party to enter into a
contract.

It is sometimes a value that is given in exchange for a promise. Under the terms of that
promise, usually each party gets something- a benefit- and in return, each party gives up
something- a detriment. In general, consideration is required for a contract to be enforceable.

Legally competent parties

In general, a person entering into a contract must possess a certain legally defined level of
rationality or mental competency – called LEGAL CAPACITY - or the contract will be voidable.

There are two major categories of persons who lack legal capacity to contract:

Minors
Persons who are incompetent due to insanity, intoxication, or any condition that
causes severe mental impairment
In some states, convicts and aliens also lack legal capacity to contract

Persons who lack legal capacity have the right to void a contract. In most cases, a contract
involving a person who does not have legal capacity is voidable. A person can be deemed
legally incompetent to enter a contract if he or she is temporarily or permanently unable to
comprehend his or her actions with regard to forming the contract. Such incompetence may
be due to insanity, abuse of alcohol or narcotics, senility, or anything else that causes severe
mental impairment.

Lawful purpose
The final element that must be present for an agreement to be valid is legality of subject
matter. An agreement has legality of subject matter except when it is considered to be:

-Contrary to public policy

Agreements that are contrary to Public Policy

a.Unconscionable agreement is one in which one party, through its supirior bargaining power,
has compelled the other party to accept the terms that are grossly unfair.

b.Contracts containing clauses that restrain trade or competition may be contrary to public
policy.

-In violation of statutory or common law

Agreements that violate Statutory or Common Law

a.A contract is illegal if its execution requires the performance of a criminal act.

b.A contract is illegal if its execution violates laws designed to uphold public morality. Most
litigation regarding such laws involves those against usury and gambling.

8. Define price.

The amount of money or other consideration asked for or given in exchange for something
else; the cost at which something is bought or sold.

9. What do we mean by mistake? Types.

UNILATERAL MISTAKE
The case of unilateral mistake is where only one party is mistaken. The cases may be
categorised as follows:
(A) MISTAKE AS TO THE TERMS OF THE CONTRACT
Where one party is mistaken as to the nature of the contract and the other party is aware of
the mistake, or the circumstances are such that he may be taken to be aware of it, the contract
is void. For the mistake to be operative, the mistake by one party must be as to the terms of
the contract itself.

(B) MISTAKE AS TO IDENTITY

Here one party makes a contract with a second party, believing him to be a third party (i.e.,
someone else). The law makes a distinction between contracts where the parties are inter
absentes and where the parties are inter praesentes.
MUTUAL MISTAKE
A mutual mistake is one where both parties fail to understand each other.
10. Define the “Statute of Frauds” and its purpose.

Although oral contracts are generally enforceable, each state has a statute of limitation under
which certain types of contracts are enforceable only if they are in writing. A statute of this
type is called a Statute of Frauds, and it is intended to provide protection against fraud and
perjury in contracts.

•Any contract that must comply with the Statute of Frauds must be in writing to be
enforceable.

•When a contract that should comply with the Statute of Frauds is not in writing, that contract
is not void, but it is enforceable between the parties.

•An executed contract need not to comply with the Statute of Frauds.

There are 5 categories of contracts that must comply with the statute of frauds

1) Collateral contracts
2) Contracts involving the sale or transfer of any interest in real property
3) Contracts that cannot be performed within one year
4) Contracts for the sale of goods for $500 or more
5) miscellaneous

11. Which types of contracts must be stated in writing? Define each of them briefly.

12. Define Part Performance.

Where the party to whom the promise of performance was made receives the benefit of
partial performance of the promise under such circumstances that he is able to accept or
reject the work and he accepts the work, then the promisee is obliged to pay a reasonable
price for the benefit received.
But it must be possible to infer from the circumstances a fresh agreement by the parties that
payment shall be made for the goods or services in fact supplied.

13. Which is the effect of noncompliance with the Statute of Frauds?

14. Who may enter into contracts?

15. In which case is a contract illegal?

A contract is illegal if its execution requires the performance of a criminal act.

A contract is illegal if its execution violates laws designed to uphold public morality. Most
litigation regarding such laws involves those against usury and gambling.

16. Which are the methods by which contracts can be discharged?

A contract may be discharged by performance, agreement, breach, or frustration.
1. PERFORMANCE
THE GENERAL RULE
The general rule is that the parties must perform precisely all the terms of the contract in
order to discharge their obligations. A contract may be discharged by performance,
agreement, breach, or frustration.

2. AGREEMENT

The general rule is that what has been created by agreement may be extinguished by
agreement.

An agreement by the parties to an existing contract to extinguish the rights and obligations
that have been created is itself a binding contract, provided that it is made under seal or
supported by consideration. Where the agreement for discharge is not under seal, the legal
position varies according to whether the discharge is bilateral or unilateral:

BILATERAL DISCHARGE

Bilateral discharge occurs whenever both parties to the contract have some right to surrender,
e.g. where there has been non-performance by either party, or is partly performed by one or
both parties.

The agreement by the parties to discharge their contract may be designed to have one of
several effects:

(A) ACCORD AND SATISFACTION

The parties may intend to rescind their present agreement and nothing more. Where there is
an agreement mutually to release the other from the obligations under the first agreement,
there is an accord and satisfaction.

(B) RESCISSION AND SUBSTITUTION

The parties may intend rescission of the original contract and substitution of a new contract.

(C) VARIATION

The parties may agree on the variation of an existing contract, i.e. modifying or altering the
terms of the original agreement.

(D) WAIVER

Where one party voluntarily accedes to a request by another to forbear his right to strict
performance of the contract, or where he represents to another that he will not insist upon his
right to strict performance of the contract, the court may hold that he has waived his right to
performance as initially contemplated by the parties.

UNILATERAL DISCHARGE

Unilateral discharge takes place where only one party has rights to surrender. Where one party
has entirely performed his part of the agreement, he is no longer under obligations but has
rights to compel the performance of the agreement by the other party.

For unilateral discharge, unless the agreement is under seal, consideration must be furnished
in order to make the agreement enforceable, i.e. accord and satisfaction.

3. BREACH
A failure to perform the terms of a contract constitutes a breach. A breach which is serious
enough to give the innocent party this option of treating the contract as discharged can occur
in one of two ways:

· either one party may show by express words or by implications from his conduct at some
time before performance is due that he does not intend to observe his obligations under the
contract (anticipatory breach); or

· he may in fact break a condition or otherwise break the contract in such a way that it
amounts to a substantial failure of consideration.

4. FRUSTRATION

The doctrine of frustration operates in situations where it is established that due to

subsequent change in circumstances, the contract is rendered impossible to perform, or it has
become deprived of its commercial purpose by an event not due to the act or default of either
party.

Frustration is not to be confused with initial impossibility, which may render the contract void
ab initio. See Couturier v Hastie (1856) 5 HL Cas 673 (Handout on Mistake).

17. What is a remedy and which are the two basic types? Explain

When one party breaches the contract, the other party may seek a remedy. A remedy is
intended to give the nonbreaching party the benefit he or she would have received if the
contract had not been breached.

There are three categories of remedies that the courts may allow to a nonbreaching party.

1) Damages may be order by the court.

The court may order that damage, or money, be paid to the nonbreaching party to recover any
financial loss or injury caused by the breach. When suing for damages, the nonbreaching party
must base the number of damages caused by the breach of contract on fact. The court will
allow recovery of losses that could have been avoided. There are four categories

2) Specific Performance

In some cases, such as contracts involving a truly unique item, money would not be a sufficient
remedy for relief. The court may order the Specific Performance of the contract, in essence not
allowing the breach of contract.

Injunction

It is a second form of relief available in equity in certain situations. An injunction is a court

order to a person or party to do, or refrain from doing, a specific thing. Injunction may be
obtained to block the person from violation of his/her agreement.

3) Rescission and Restitution

Under some circumstances, such as failure of the original consideration, the court may allow a
full rescission, or cancellation of the contract. Restitution would be required, meaning that the
parties would have to return any benefits received from each other up to the time of the
breach.
18. Explain damages.

1. CAUSATION
The plaintiff must show that his loss was one which resulted from a breach of contract by the
defendant (a direct causal link). An act of the defendant in a sequence of events leading to a
loss might not be held to be the cause of the loss. For example, a shipowner was not liable to a
charterer when, as a result of delay, the ship ran into a typhoon, as such a catastrophe may
occur anywhere.

2. REMOTENESS OF DAMAGE
Not every type of damage caused to the plaintiff as a result of the breach of contract will be
recoverable. If the loss flowing from the breach of contract is too remote then it cannot be
recovered. Losses, to be recoverable, must have been within the reasonable contemplation of
the parties.
Damages are recoverable under two limbs under Hadley v Baxendale: (i) Damages which may
fairly and reasonably be considered as arising naturally from the breach; (ii) Damages which
may reasonably be supposed to have been in the contemplation of the parties, as liable to
result from the breach, at the time of the contract.
The Court of Appeal took the opportunity to review and restate the principles governing the
measure of damages in
3. MITIGATION OF LOSS
It is the duty of every plaintiff to mitigate his loss, that is, to do his best not to increase the
amount of damage done. There are three rules:

(i) The plaintiff cannot recover for loss which the plaintiff could have avoided by taking
reasonable steps.
(ii) The plaintiff cannot recover for any loss he has actually avoided, even though he took more
steps than were necessary in compliance with the above rule.

(iii) The plaintiff may recover loss incurred in taking reasonable steps to mitigate his loss, even
though he did not succeed.
The plaintiff must minimise the loss resulting from the breach by taking all reasonable steps
available to him. If he fails to do so, then he cannot recover anything in respect of that extra
loss.

4. PURPOSE OF DAMAGES
Damages are meant to compensate the injured party for any consequences of the breach of
contract. The underlying principle is to put the injured party financially as near as possible, into
the position he would have been in had the promise been fulfilled.
In Addis v Gramaphone Co Ltd [1909] AC 488, Lord Atkinson said: "I have always understood
that damages for breach of contract were in the nature of compensation, not punishment."
5. HEADS OF DAMAGE & CALCULATION
There are several ways in which the plaintiff can be compensated for his loss and the plaintiff
is entitled to choose whichever form of compensation he feels is most appropriate to his case.
HEADS OF DAMAGE
(i) LOSS OF BARGAIN
Damages for loss of bargain are assessable to put the plaintiff, so far as money can do it, in the
same situation as if the contract had been performed. For example, in a contract for the sale of
goods which are defective, the plaintiff will (under this head) be entitled to damages reflecting
the differences between the price paid under the contract and the actual value of the
defective goods.

(ii) RELIANCE LOSS Damages for reliance loss are designed to put the plaintiff in the position he
would have been, if the contract had never been made, by compensating him for expenses he
has incurred in his abortive performance.
(iii) RESTITUTION
Where a bargain is made and the price paid, but the defendant fails to deliver the goods, then
the plaintiff is entitled to recover the price paid plus interest thereon.
TIME FOR ASSESSMENT OF LOSS
The general rule is that damages are to be assessed at the time of the breach. However, the
court can postpone the date for assessment of damages to a more appropriate time.
CALCULATION OF DAMAGES FOR LOSS OF BARGAIN
Where the plaintiff claims for loss of bargain and that he be put in the position as if the
contract had been performed, two bases of assessment are available: cost of cure and
difference in value.

In the majority of cases where there is a discretion, the court will exercise this to use the most
appropriate basis of assessment in the case. However, certain rules do exist for working out
the appropriate mode of assessment:
(i) In sale of goods contracts if a defect can be cured at a reasonable cost, the cost of cure will
be awarded, otherwise the difference in value is awarded.
(ii) In building contracts, cost of cure basis is usual, and the builder must put the defects right.
However, if the cost of cure is greater than the whole value of the building, then only the
difference in value will be awarded.
ACTUAL AND MARKET VALUES

Where damages are based on the difference in value principle, then market values may be
taken into account to assess the plaintiff's loss. For example, where the defendant fails to
deliver goods or render services, then the plaintiff can go into the market and obtain these
goods or services at the prevailing price. Therefore the plaintiff's damages will be the
difference between the market price and the price of the goods or services in the contract.
There are two rules:

(i) Under s51 SGA 1979, where a seller wrongfully neglects or refuses to deliver the goods to
the buyer, the buyer may maintain an action against the seller for damages for non-delivery.
But such an action will not allow the seller to recover for anything more than the difference
between the market value and the contract value.

(ii) If the defendant wrongfully refuses to accept and pay for the goods, then the plaintiff can
sue for the loss of profit on that transaction in certain circumstances.
DAMAGES WHICH ARE IRRECOVERABLE
The plaintiff may be able to recover damages for injury to feelings in tort, but in contract such
damages are irrecoverable.
OTHER TYPES OF DAMAGE
(i) Discomfort, vexation and disappointment
In Jarvis v Swan Tours [1973] 2 QB 233, the plaintiff solicitor, went on a Swan Tour and sued
for damages because the hotels and buses fell short of the standards promised. It was held
that the plaintiff could recover damages for the disappointment and discomfort he had been
caused as a result.

However, there is a limit to damages for distress for breach of contract. In Bliss, Dillon LJ stated
that such damages should be confined to cases "where the contract which has been broken
was itself a contract to provide peace of mind or freedom from distress". Recently, the Court
of Appeal made it clear that they were not prepared to extend the circumstances in which
damages for distress or disappointment might be granted:

(ii) Inconvenience
a solicitor failed to take proceedings to recover his client's house for him and was held liable in
damages for the inconvenience caused by reason of the client having to live with his wife's
parents for two years.
(iii) Diminution of future prospects

an apprentice was wrongfully dismissed, but had he been allowed to complete his
apprenticeship he would have got a certificate entitling him to certain jobs at certain wages.
Without this certificate, his chances were lessened and he claimed damages for diminution of
future prospects. He was held to be entitled to damages on this basis as the object of his
apprenticeship was to enable him to get better employment.

(iv) Speculative damages

If the plaintiff's loss is the chance of doing something or benefiting from doing something, and
this contingency is outside the control of the parties, then he is entitled to damages if the
defendant's breach of contract denies him this chance.

6. LIQUIDATED DAMAGES & PENALTY CLAUSES

The parties to the contract may make a genuine assessment of the losses which are likely to
result in the event of a breach, and stipulate that such sum shall be payable in the event of a
breach. Such clauses are known as liquidated damages clauses and will be effective in the
event of a breach, and the plaintiff will not recover more than that sum. (No action for
unliquidated damages will be allowed.)
If, however, the clause is not an assessment of losses, but is intended as punishment on the
contract- breaker, then the clause is a penalty clause and is void. In an action for breach of
contract it is disregarded.
The parties may often be in dispute over whether the clause was a penalty or a liquidated
damages clause. Various rules have been formulated to deal with such contingencies.