An in depth summary of the law of contract requirements for a valid contract and contents and operation of a contract. Very helpful in studying, used them to acquire a 75%.
LU3 Requirements of a valid contract
Theme 1- Contractual capacity
Theme 2- Formalities
Theme 3- Legality
Theme 4- Possibility and certainty
LU4 Contents and operation of a contract
Theme 1- Parties to contracts
Theme 2- Obligations and terms
Theme 3- Interpretation of contracts
Possibility is a general rule for the validity of contracts as otherwise it would prevent
performance and therefore prevent obligations
For example- contracts that involve the sale of an object that ceased to exist
(Painting get destroyed at time of contract) or an object that never existed (a portion
of land that cannot be subdivided or an object that cannot be sold)
Parties that agree to the impossible have an intention to create obligations may be
under a common mistake to the circumstances concluding the contract which makes
the contract void to the possibility requirement; however, the parties are absolved
from liability.
The possibility requirement relates to performance and not to achieve some purpose
e.g. You buy a frame for a collector painting, but the painting has been destroyed by
floods, it becomes impossible to frame the painting. The impossibility did not affect
the validity of the sale of the frame, payment and delivery can still occur. Only the
purpose of framing the picture could not occur.
Subjective impossibility Objective impossibility
Performance still possible Impossible to render performance
Eg, party agrees to deliver bricks but does Eg, painting is destroyed at time of
not have enough bricks to supply. contract being concluded.
Party cannot escape liability Absolved from liability
,If performance is just difficult it doesn’t amount to objective impossibility, but
to subjective impossibility
Factual impossibility Practical impossibility
Objective impossibility practically has its Performance will be practically/
difficulties. economically impossible, so no obligation
arises
Eg. Parties enter into an agreement of
sale of plastic toys which they believe
is on a ship container. Unknown to
them the ship sinks with all the toys.
Unlike the destroyed painting the
container existed at the time of
conclusion of the contract. Its
performance is therefore not factually
impossible as the seller could still
retrieve the container. But the cost of
retrieving the toys would cost more
than the toys itself = Practically
impossible due to economic
impossibility
Legal impossibility
For a valid contract the performance must be lawful/legal
1) Difficulty arises – if at the time of conclusion of the contract, it is legally
impossible to render a performance you would need to consider
a) Is the contract void due to non-compliance with the requirement of
possibility?
b) Or it is void due to the non-compliance with the requirements of legality as
the impossibility flows from the illegality?
Wilson v Smith- the distinction can be subtle- within this case it was not legal
possible to subdivide the property as the performance promised by the seller was
illegal, yet the case dealt with as one of impossibility and not illegality
.
- Another example in law dealing with human tissue is highly restricted.
Traditionally though agreement to perform things that cannot be traded are
invalid due to non-compliance with the possibility requirement and not the
legality requirement.
, - These problems also arise in cases of supervening impossibility of
performance- the impossibility arises after the contract has been created and
it relates to some prohibition of law. There is Distinction between voidness for
illegality and voidness for impossibility.
Initial impossibility Supervening impossibility
When it is not possible to perform the The obligations cannot be performed
contract at the time of conclusion because the performance has
become objectively impossible after
the contract has been concluded
Eg. A rents the house to B but its
destroyed in a fire after the conclusion
of the contract, the obligations are
terminated
Where performance is made
impossible through the fault of the
party this is different.
Eg. A person deliberately sets fire to
the house, rendering it inhabitable,
the obligations does not terminate as
the person commits a breach of
contract and B can claim damages
and or cancel the contract
Exceptional cases- where there is liability despite impossibility
Contemplation of impossibility and the assumption of risk
In Wilson v Smith the parties entered into an agreement of sale of a portion of land
however it was not possible to subdivide the land in a way they envisaged. The
judge confirmed the principle that no obligations can arise in case of
impossibility but did not apply in all cases. Here both parties contemplated that
the contract could be executed in the normal manner so the exception would not
apply, and the contract was void. The test here deals the contemplation of
impossibility.
If only A foresaw or should have foreseen the impossibility of performance and B
suffers loss as a result, then nothing prevents B (who incurred expenses because he
believed that a contract would be concluded) from a claim for delictual damages
where A wrongfully and culpably instilled the belief.
Warranty: guaranteeing performance
A warranty is a term in a contract favouring one party to extend the liability of the
other party beyond what it normally would be.
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