Legal Resources

Contract Law

 

Contracts are part of our daily lives, and we all have a need for them. The thing is, Contract Law is complex.

 

What Is Contract Law?

 

If you’re employed, you will no doubt have a contract. When you buy life insurance, or buy a house, there will be a contract. Even buying a bottle of milk, or a newspaper from the local shop will be governed by the Law of Contract.

In essence, any agreement that is enforceable in a court of law is a contract. English Contract Law attempts to adhere to a simple principle: that you can only be bound to a contract when you have been given all of the correct information pertaining to the contract and have given your consent.

The main areas under Contract Law include:

  • Formation of contract (offer, acceptance, consideration, intention)
  • Capacity to form contract
  • Contents (terms, exclusions, privity)
  • Vitiating factors (misrepresentation, mistake, duress, illegality, etc.)
  • Discharge (performance agreement, breach, frustration); and
  • Remedies (damages, performance, injunction, etc).

As you can see, it’s quite a detailed area of law. And because of its complexity, it is usually dealt with by qualified solicitors, specialist lawyers (in every law you can possibly imagine), or by legal executives.

 

How Is A Contract Formed?

 

Formation And Capacity

 

The usual way a contract is formed is when one party makes an offer, which is accepted by another party by performing the offer’s terms or communicating their approval. Furthermore, if the terms are certain, and the two parties can be presumed from their behaviour and actions to have intended that the terms are binding, then the agreement is (generally) enforceable.

Some contracts, for example, the sale of land, or other particularly large transactions, also require the formalities of signatures and witnesses (sometimes in the form of a deed). English Contract Law requires all people, known as ‘parties’, to bring something of value, known as ‘consideration’, to a bargain as a precondition to enforce it.

 

The Content Of Contract

 

The terms in a contractual agreement are incorporated through definitive promises by reference to other terms or through a course of dealing between two people. English Contract Law allows lots of freedom for people to agree the terms and content of a deal.

A good example of contract law at its best is a shareholder agreement as in this case an agreement is performed and resorting to the courts is never needed because each party knows their rights and duties.

 

Vitiating Factors, Discharge And Remedy

 

If an event occurs which was unforeseen and could make an agreement impossible to perform (or the agreement can be considered ‘very hard’) the courts might decide that the parties involved would have wanted to release themselves from their agreement obligations. Sometimes, it may be fairly straightforward in that one party breaches a contract’s terms.

If you are the innocent party of a contract that has not been substantially performed, then you would be entitled to cease your own performance….that is to stop doing whatever your side of the contract says you should be doing! In addition to this you would also be able to sue for damages so that you may put yourself in the position that you would have been in as if the contract had been performed fully.

However, as the innocent party, you are under a duty to reduce the severity of your losses (this is known as ‘mitigating your losses’) and you cannot claim for harm that was a remote consequence of the contractual breach.

Regardless, remedies in English Contract Law are such that full compensation for all losses (whether money-related or not) should be realised. For example, in exceptional circumstances, if your wrongdoer breaches the terms of the contract, the courts may demand ‘specific performance’ of the agreement by the wrongdoer rather than monetary compensation to you.

Also, depending on the specific type of your contract, it is possible that your contract is cancelled or invalidated if one of you failed to make adequate disclosure, or if either of you made misrepresentations during your negotiations.

 

You can get out of unreasonable agreements if:

  • You were under duress
  • You were under undue influence
  • Your vulnerability was being exploited at the time when you agreed to a deal
  • The transactions in relation to the agreement are considered illegal

Consumer Protection From Unfair Trading Regulations 2008

 

Many companies use underhand tactics to get a sale, from special offers that don’t exist to closing down sales that run for months and months.

The Consumer Protection from Unfair Trading Regulations provides consumer protection from unfair or misleading trading practices, misleading omissions and aggressive sales tactics. As of 1 October 2014 new amendments have been made to the Consumer Protection from Unfair Trading Regulations which give you new rights to redress if you’ve been the victim of misleading actions or aggressive selling.

 

Basic Rules Consumer Protection Rules

 

There are three main sections in the Consumer Protection from Unfair Trading Regulations. These are as follows:

 

  • The general ban on unfair commercial practices
  • Misleading and aggressive practices which are assessed in light of the effect they have, or are likely to have, on the average consumer
  • The Black List which contains the list of those practices which are unfair and thus banned

 

Misleading Actions

 

Companies are not allowed to use misleading or underhand tactics to get you to part with your cash. Misleading actions can include advertising goods that don’t exist, or offering just a few items at the advertised price with no hope of meeting large demand.

If a trader has signed up to a code of practice, then if it fails to follow this code, it could be a breach of the Consumer Protection from Unfair Trading Regulations.

For example, if a garage has signed up to the Motor Industry Code of Practice for Service and Repair, failing to follow it could constitute a breach of the Consumer Protection from Unfair Trading Regulations.

Traders are also banned from lying about goods or passing them off as another product to give them credibility.

For example ‘we only fit genuine, branded parts’, when in reality they are fitting non-branded parts to your car.

 

Misleading Omissions

 

Sometimes it’s not what’s actually said that’s the problem. Sometimes its what’s been left out that’s the issue. For example in the case of timeshare, a sales person may omit that maintenance fees will rise at more than the rate of inflation.

The Consumer Protection from Unfair Trading Regulations offer protection against traders who are economical with the truth, or miss out key information that you might need to make an informed decision.

Traders must make sure the information is provided in a timely manner – and not so late that it’s of no use to you.

It’s considered misleading if a trader does any of the following:

 

  • omits material information that the average consumer needs, according to the context, to make an informed transactional decision
  • hides or provide material information in an unclear, unintelligible, ambiguous or untimely manner
  • fails to identify the commercial intent of the commercial practice if not already apparent from the context

 

And information must also be displayed clearly – obscure presentation is tantamount to an omission.

 

Sales Tactics

Sales tactics can greatly influence a consumer’s decision. Traders who fail to take no for an answer, refuse to leave until a contract is signed or use threatening behaviour will be committing an offence.

A practice is considered aggressive if the average consumer’s freedom of choice or conduct is significantly impaired.

The legislation contains a list of criteria to help determine whether a commercial practice uses harassment, coercion, including physical force, or undue influence.

Undue influence is categorised by something that applies pressure ‘even without using or threatening to use physical force, in a way which significantly limits the consumer’s ability to make an informed decision.’

 

In Practice

 

If a trader is accused of misleading consumers or acting aggressively, it’s not enough to simply demonstrate the activity.

It also has to be shown that the practice influenced the consumer’s decision.

This doesn’t necessarily mean that the consumer has to have entered into a contract, just that their actions were influenced in some way.

It could be enough that the consumer phoned the trader or decided to go into their shop.

Limitation Act 1980

 

The Limitation Act 1980 is a British Act of Parliament applicable only to England and Wales. It is a statute of limitations, which provides timescales within which action may be taken (by issuing a claim form) for breaches of the law. For example it provides that breaches of an ordinary contract are actionable for six years after the event whereas breaches of a deed are actionable for twelve years after the event. In most cases, after the expiry of the time periods specified in the Act the remedies available for breaches are extinguished and no action may be taken in the courts in respect of those breaches.

EU Directive 2008/122/EC

 

The Timeshare, Long-Term Holiday Product, Resale and Exchange Contracts Directive 2008/122/EC (the Directive) was adopted in February 2009. This Directive was designed to contribute to the important objectives of boosting consumer confidence in the timeshare industry and to eliminate the operations of rogue traders, which bring legitimate traders into disrepute and causes considerable problems for consumers.

As a “maximum harmonisation” Directive, member States were obliged to implement its provisions in national law in a way that accurately reflects, does not exceed, or fall below the requirements in the areas it covers.

The Directive addresses shortfalls in consumer protection in relation to timeshare, long term holiday products, resale and exchange contracts. Intervention at European level was necessary because of the cross-border nature of the sale of these products and the nature of the exposure to detriment which consumers face in this market. The Directive replaces Directive 94/47/EC, which provided for the protection of consumers in respect of the sale of timeshare in real property. Given the minimum harmonisation nature of the Directive, a number of States, including the UK, adopted national provisions that went beyond the level of consumer protection required by Directive 94/47/EC.

Unfair Contract Terms Act 1977

 

The Unfair Contract Terms Act 1977 (c 50) is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.

The Act renders terms excluding or limiting liability ineffective or subject to reasonableness, depending on the nature of the obligation purported to be excluded and whether the party purporting to exclude or limit business liability, acting against a consumer.

It is normally used in conjunction with the Unfair Terms in Consumer Contracts Regulations 1999 (Statutory Instrument 1999 No. 2083),[1] as well as the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.

Misrepresentation Act 1967

 

The Misrepresentation Act exists to protect consumers from false or fraudulent claims that induce you into buying something, or entering into a contract and allows you to claim damages in the case of fraudulent misrepresentation.

 

Types Of Misrepresentation

 

A misrepresentation is a statement of fact (it is not an opinion), which is made by the seller before the contract is made.

If your decision in buying the purchase was dependant on the statements made by the seller, and the purchase turns out to be different than promised, then you can claim compensation.

Your right to claim will depend upon the 3 different types of misrepresentation outlined below:

 

  • if the false statement was made fraudulently
  • if the false statement was made negligently
  • if the false statement was made innocently

 

Fraudulent Misrepresentation

 

A fraudulent misrepresentation can be determined if someone makes a statement that –

 

  • they know to be untrue, or,
  • they make without believing it is true, or,
  • they make recklessly

 

If you have entered into a contract as a result of a fraudulent misrepresentation, then you have grounds to cancel the contract, claim damages, or both.

The Misrepresentation Act 1967 allows you to base your claim on negligence or on the fraud. In addition, when a misrepresentation claim is based on negligence, the law states that the person who made the misrepresentation has to disprove the negligence. In other words, they must prove that they had reasonable grounds to believe the statement, and that they believed the facts represented were true.

 

Negligent Misrepresentation

 

This is a misrepresentation under the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.

 

Innocent Misrepresentation

 

This is where one of the parties, when entering into a contract, had reasonable grounds for believing that his or her false statement was true. In other words, it is made entirely without fault. This type of misrepresentation primarily allows for the contract to be cancelled. The purpose of this is to place you and the other party in the same position before the contract had taken place.

However, under Section 2(2) Misrepresentation Act 1967 the court has discretion to award damages instead of allowing you to end the contract if it deems it appropriate. It cannot award both. This would be judged on both the nature of the innocent misrepresentation and the losses suffered by the victim of the misrepresentation.

 

Damages Or Rescission?

 

Once it has been established that there as been a misrepresentation and what type it is, then the remedies available can be determined.
There are two types of remedy:

 

  • Damages – Financial compensation which is designed to compensate the victim of a misrepresentation act for the financial damages impacted.
  • Rescission – The ability to end a contract and where both parties are treated as though the contract never existed.

 

The type of misrepresentation suffered by the buyer will determine the end solution. Claiming for an act of misrepresentation can only be done within six years after realising that misrepresentation has occurred.

The Consumer Rights Act (CRA) 2015

 

New legislation has recently come into effect (1st October 2015), which has been intended to give the Consumer more rights against the Seller.

The Consumer Rights Act (CRA) 2015 now affects everything you buy as a consumer, whether the purchases you made were online or in a place of trade and includes any purchase that requires you signing a contract.

The aim of the Consumer Rights Act is to consolidate several separate pieces of legislation into one, which covers all aspects of this area to clear up its original complexities.

The major pieces of legislation that have been combined into the Consumer Rights Act are as follows:

 

  • The Sale of Goods Act
  • The Supply of Goods and Services Act
  • Unfair Terms in Consumer Contracts Regulations
  • Unfair Contract Terms Act.

 

Terms which were frequently hidden in the small print of contracts has now been banned and all contracts must now clearly state the key components of the deal and state the price and any hidden costs in a clear and concise manner.

 

The Sale Of Goods

 

The Act requires that goods sold must be:

 

  • Of satisfactory quality
  • Fit for a particular purpose
  • As described

 

Goods that failed to conform to the contract had to be rejected within a ‘reasonable timeframe’ before the act, but consumers now have a minimum of 30 days in which they can reject defective goods.

 

How Do The Changes Affect Timeshare Consumers?

 

Most applicable to Timeshare Consumers are the changes made to the legislation pertaining to the sale of services, as outlined below:

 

The Sale Of Services

 

This Act ensures that any statement a vendor makes when a consumer is either deciding to enter into the contract or making a decision about the service after entering into the contract is now a binding contractual term. Previously such terms may only have given rise to an action in the tort of misrepresentation but now a claim may be brought for breach of contract.

This means that a claimant’s case will generally be easier to prove and expectation damages may be awarded rather than compensation based on the principle of restitutio ad integrum.

These changes mean a big triumph for timeshare consumers as all future contracts made have to be much more concise and transparent, meaning there is no hidden catch in the small print. The future for Timeshare should now see a decrease in the amount of people signing contracts that have been mis-sold and should see a decrease in claims against resorts for misrepresentation.

 

Unfair Terms

 

The definition of an ‘unfair term’ remains the same as that originally outlined in the Unfair Contract Terms Act 1977; for example, a term is unfair if, “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.” However, terms that express the main subject matter of the contract are not subject to this fairness test provided such terms are both transparent and prominent in the contract.

The Act also adds to the so-called ‘grey list’ that lists a non-exhaustive range of terms which are, in most cases, likely to be considered unfair by the courts. These include:

 

  • Extortionate charges when a consumer decides to cancel a contract.
  • Allowing the trader to make decisions about the characteristics of the subject matter after the contract had been concluded.
  • Giving the trader a mandate to vary the price after the consumer is already bound.

 

The CRA applies to contracts and notices between a “trader” and a “consumer” in relation to goods or services purchased on or after October 1, 2015. It is important to remember that service contracts signed before this date will adhere to The Supply of Goods and Services Act 1982.