Contract Law FAQ

What is a master services agreement (MSA)?

The main framework contract for the provision of services, typically referenced by specific terms or Order forms.

What is a statement of work / order form?

A document based upon the MSA, which contains details of the provision of services.

What does ex gratia mean?

A payment made where this is no contractual requirement to do so.

What is meant by the phrase ‘Battle of the forms’?

A battle of the forms arises when two businesses are negotiating the terms of a contract and each party wants to contract on the basis of its own terms. The paradigm battle of the forms occurs when A offers to buy goods from B on its (A’s) standard terms and B purports to accept the offer on the basis of its own standard terms. In this situation, the battle is often won by the party who fired the “last shot”, that is, the last party to put forward terms and conditions that were not explicitly rejected by the recipient.

What are the key elements for contract formation?

1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations
5. Certainty of terms

What is Rescission?

Where the contract is set aside and the parties are put back into the position in which they were before the contract was made.

What is Termination?

Unlike rescission, termination excuses all parties from further performance of their primary obligations after the termination date. Some duties survive, including the duty to pay damages for a breach already committed.

What constitutes an Assignment?

The transfer of an interest or benefit from one entity, to another. There are legal and equitable assignments. A legal assignment is where the debtor is given notice of the assignment in writing, under the Law of Property Act 1925. If the formalities under the Act are not complied with, it stands as an equitable assignment. If the assignment is equitable rather than legal, the assignor cannot enforce the assigned property in its own name and to do so must join the assignee in any action.

What is a Novation?

If you want to transfer the burden of a contract as well as the benefits under it, you have to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well. In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the contract. Consideration (the ‘price’ paid, whether financial or otherwise, by the new party in return for the contract being novated to it) must be provided for this new contract unless the novation is documented in a deed signed by all three parties.

What does Caveat emptor mean?

The onus is on the buyer to investigate the asset(s) being acquired and the seller is under a limited duty to disclose latent incumbrances and defects in title.

What is an Innominate term?

A term is an intermediate (or innominate) term if the remedy for its breach depends on the effect of the breach at the time it happens. If the effect of the breach substantially deprives the innocent party of the whole of the benefit of the contract then it will be a serious, or fundamental, breach of the term and the remedy will be for breach of condition. That is, the innocent party can terminate the contract. If this is not the case, then the remedy will be for breach of warranty.

What is a Deed?

A written document which is executed with the necessary formality (that is, more than a simple signature), and by which an interest, right or property passes or is confirmed, or an obligation binding on some person is created or confirmed. Deeds are generally enforceable despite any lack of consideration. The limitation period for actions brought under a deed is generally 12 years, although it is six years for claims for arrears of rent and arrears of interest under a mortgage (sections 8, 19 and 20, Limitation Act 1980).

What is the principle of contra proferentem?

A legal principle which states, broadly, that where there is doubt about the meaning of the contract, the words will be construed against the person who put them forward.

What is an injunction?

An equitable remedy in which a court orders a party to perform, or refrain from performing, a particular act.

What is specific performance?

An equitable remedy available for breach of contract. A decree by the court to compel a party to perform its contractual obligations. In the High Court, it may be granted in addition to or instead of damages. Unlike damages which are available as of right, specific performance is granted at the court’s discretion.

What is the principle of quantum meruit?

“The amount he deserves” or “as much as he has earned”. In most cases it denotes a claim for a reasonable sum in respect of services or goods supplied to the defendant. An action in quantum meruit is available to recover money for services or goods supplied to a defendant in circumstances where the claimant is not recompensed by performing his obligations or supplying the goods. The claimant must usually show that the defendant expressly or impliedly requested or freely accepted the services or goods in question. Depending on the facts, the claimant might find it difficult to prove how much the claimant is entitled to receive under the principle of quantum meruit. A claim for quantum meruit cannot arise if the parties have a contract to pay an agreed sum. In such circumstances, the parties’ relationship is governed by the law of contract. However, a claim for quantum meruit may arise where the parties:

• Have not agreed a contract, or there is a so-called quasi-contract. For example, the parties may have agreed some of the contractual terms, but may have failed to reach an agreement on an essential term, such as price;
• Have not fixed a price for the services or goods supplied;
• Have an agreement to pay a reasonable sum for the services or goods supplied; or
• Have agreed a scope of work under the original contract and the work carried out falls outside that scope.

What is an indemnity?

Recompense for a loss or liability. Many indemnities are created by contract, under which the paying party promises to pay an identified loss. The trigger for payment and the amount payable depend on the contract’s drafting and interpretation. The six types of indemnities:

1. Bare Indemnities – Party A indemnifies Party B for all liabilities or losses incurred in connection with specified events or circumstances, but without setting out any specific limitations. These indemnities will be silent as to whether they indemnify losses arising out of Party B’s own acts and/or omissions, and may be interpreted to have the effect of a reverse indemnity.
2. Reverse or Reflexive Indemnities – Party A indemnifies Party B against losses incurred as a result of Party B’s own acts and/or omissions (mostly Party B’s own negligence).
3. Proportionate or Limited Indemnities – These are the opposite of Reverse Indemnities. Party A indemnifies Party B against losses except those incurred as a result of Party B’s own acts and/ or omissions.
4. Third Party Indemnities – Party A indemnifies Party B against liabilities to or claims by Party C.
5. Financing Indemnities – Party A indemnifies Party B against losses incurred if Party C fails to honour the financial obligation (i.e. the primary obligation) to Party B (most often these are coupled with a guarantee).
6. Party/Party Indemnities – Each party to a contract indemnifies the other(s) for losses occasioned by the indemnifier’s breach of the contract.

What are endeavours clauses?

Contractual obligations are normally absolute and failure to satisfy an obligation will be a breach of contract. Endeavours clauses are therefore used when a party is only prepared to “try” to fulfil an obligation, rather than commit to it absolutely.

• Best endeavours require the obligor “to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take” (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335). In other words, the obligor must put himself in the shoes of the reasonable obligee.
• Reasonable endeavours is a question of “what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try” to achieve the objective (Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457).

What are endeavours clauses?

Contractual obligations are normally absolute and failure to satisfy an obligation will be a breach of contract. Endeavours clauses are therefore used when a party is only prepared to “try” to fulfil an obligation, rather than commit to it absolutely.

Obligation	Perspective	Requires expenditure?	Overview
Best endeavours	The obligation should generally be based on the position of the reasonable obligee, but might also consider the obligor’s interests.	May require significant expenditure by the obligor but not ruinously so.	Not an absolute obligation. Includes steps which a prudent, determined and reasonable obligee, acting in his own interests and desiring to achieve that result, would take. May be subject to countervailing duties on the obligor.
All reasonable endeavours	Unclear if assessed in light of the obligor’s circumstances.	May require expenditure. May or may not require the obligor to sacrifice its commercial interests.	Likely to exhibit characteristics of both best and reasonable endeavours.
Reasonable endeavours	Based on the position of a reasonable obligor in light of the actual obligor’s circumstances and interests.	May require limited expenditure, but does not require the obligor to sacrifice its commercial interests.	Involves balancing the contractual obligation against all relevant commercial considerations. The chance of achieving the result is of prime importance.