Agreement Notes - Contract Law PDF

Preview

Summary

Contract PreparationHow do I approach problem questions? Define all legal terminology You have consider the IRAC approach in your coursework and workshops Deal with each issue chronologically You must state clear principles of law with authority and deal with an conflicting authority Apply the law t...

Description

Contract Preparation How do I approach problem questions? 1) 2) 3) 4)

Define all legal terminology You have consider the IRAC approach in your coursework and workshops Deal with each issue chronologically You must state clear principles of law with authority and deal with an conflicting authority 5) Apply the law to the facts of your case 6) Conclude on each issue before proceeding to the next INCLUDES NOTES AND INFORMATION ON FOLLOWING 1) OBJECTIVE APPROACH - BENEFITS 2) SUBJECTIVE APPROACH - NON-BENEFITS AND UNILATERAL MISTAKES 3) OFFER AND ACCEPTANCE 4) INVITATION TO TREATS - SHOP DISPLAYS, ADVERTS, INTERNET, TENDERS, AUCTIONS 5) COUNTER OFFERS 6) REVOCATION AND REVOCATION OF UNILATERAL CONTRACT/OFFERS 7) CONSIDERATION - GROUND RULES AND SUFFICIENCY OF CONSIDERATION

Agreement For an agreement to be valid there must be: offer, acceptance, intention to be legally bound, certainty and consideration. A contract is a legally binding agreement that has a number of elements: agreement and that the agreement must be legally binding enforceable. A contract can be made by and ended by agreement between both parties. Contracts can be concluded in writing, verbally or by conduct. In order to prevent any problems from arising it is beneficial to evidence contracts in writing.

The Objective Approach The existence of agreement and whether the agreement was intended to be legally binding are not determined objectively on the basis of the impression given what he parties thought. Courts will instead look at external evidence such as what the party’s words were (what they said) and actions (did at the time). Objectively indicating the parties intentions on the basis of the evidence ask the reasonable man whether they would say that the parties were in agreement. 1) Storer v Manchester City Council [1974] 1 WLR 1403 at p 1408 Lord Denning stated: “In contracts you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, a contract. A man cannot get out of a contract by saying: ‘I did not intent to contract’, if by so his words has done so”. 2) Smith v Hughes [1987] LR 6 QB 597, at p. 607 Statement on assessment by the ‘reasonable mad’ made by Blackburn J in: “If, whatever a mans real intention may be, he so conducts himself that a reasonable man would believe he was assenting to the terms proposed by the other party and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party’s intentions”. The Courts held that regardless of the parties real intentions, if a RM would have believed the parties were assenting to the terms, the parties would be equally as bound as if they had actually intended to agree to the terms. 3) RTS Flexible Systems Ltd v Molkerei Alois Miller GmbH & Co [2010] UKSC 14, [2010] WLR 753 at [45] Lord Clarke SCJ made it clear that: What was communicated between the parties matters “by words or conduct, and whether that leads to objectively to a conclusion that they had intended to create legal relations”. 4) Centrovincial Estates plc v Merchant Investors Assurance company [1983] Com LR 158 - D mistakenly offered C a rent of £65,000 but actually intended to offer a rent of £126,000. D tried to get out of the contract so C took the case to the court. The Court held that a valid contract had been made as the reasonable man would have believed the offer of £65,000 and would have not been aware of the D’s mistake.

Benefits of the Objective Approach

 

Non-biased and prevents unfairness which Would lead to certainty because the same test is being used but results will vary as it will be different people each time.

Subjective Approach - Courts in certain circumstances will look into the subjective intentions of the parties when deciding whether the agreement has been formed. This is mainly to do with personal perspectives, opinions or feeling which may enter the process of decision making. The objective approach looks for external evidence of agreement, i.e. words and conduct of the parties. Traditionally agreement must be demonstrated b an equivocal offer made by one party (the offeror) and by complete offer and acceptance of that offer by the other party (the offeree). This approach is neat and designed to promote certainty. However, is clearly artificial and inflexible and may well ignore the reality of the situation by dictating that no agreement has been reach for purely technical reasons. As a result, there have long been instances of the courts either ‘finding’ the necessary offer and acceptance (‘reasoning backwards’), or legally the traditional approach and simply recognizing the existence of agreement by means of other external evidence. Lord Wilberforce, in New Zealand Shipping Co. Ltd v A M Satterthwaite & Co. Ltd, the Eurymedon [1975] AC 154 admitted that it was a recognized practice to seek to ‘find’ necessary offer and acceptance when he said at p.167: “English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration”. This statement was later used by Lord Denning MR to support his view, on occasion, a different approach to determining the existence of agreement was called for. In Butler Machine Tool Co. Ltd v Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 301 (COMMUNICATION), Lord Denning suggested that the circumstances as a whole (i.e. all the documents and the parties conduct) should be examined in an attempt to discover agreement. Although Lord Denning applied this approach in both Butler Machine and the COA in Gibson v Manchester City Council [1978] (look at Lord Diplock judgment) made it clear that offer and acceptance remained the normal analysis, and applied that analysis to the facts before them (involving a contract said to have been entered into a result of exchange of correspondence). 1) Subjective Approachtake: This is an error where both parties enter into a contract without fully understanding the outcomes or responsibilities implied by the contract. A Unilateral Mistake occurs when only one party is mistaken in regards to the subject matter or the terms contained in the contract agreement. This error is held by only one party and not shared by the other. Some other unilateral mistake examples include: 

Mistakes regarding the quantity of a product to be delivered (especially for large numerical values)



Misunderstandings of certain trade terms and technical phrases



Mistakes involving words that have several meanings, pronunciations, or spellings (such as "four" vs. "for")



Errors regarding the quality or description of a product

1) The case Hartog v Colin and Shields [1939] 3 All ER 566 - The Defendant (offeror) mistakenly sold hare skins to the Claimant (offeree) for 10d per pound instead of 10d per piece. It was held that on the basis of the pre-sale negotiations the C (offeree) could not reasonably have supposed that the offer contained the offeror’s true intention as to the contract terms. The contract was not binding due to the fact that the reasonable man in the C’s position (offeree’s) would not have known that the D (offeror) was mistaken as to the terms of the contract. Therefore the reasonable man would have not believed that a contract came into existence. Greater emphasis was placed on the subjective intentions of the C due to his subjective knowledge of the D’s mistake. Moreover the D’s subjective intention was upheld because he did not actually intend to sell the hare skins for 10d per pound. 2) Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWCH 2257 (Comm), [2008] 2 Llyods Rep 685, [2009] 1 All ER (Comm) 1035; Aikens J Stated, at 88: “If one party has made a mistake about a fact on which he bases his decision to enter into a contract, but the fact does not form a term of the contract itself, even if the other party knows that the first is mistaken as to this fact, the contract will be binding”. If the offeree knew the offeror had made a mistake as to the facts surrounding the offer (rather than a mistake as to the terms of the offer), the contract is still binding. 2) Subjective Approach - Offeree’s Fault: Greater emphasis (value, importance) is placed on the subjective intentions of the parties where the offeree was at fault in failing to note the offeror of their mistake regarding the terms of the offer (but the offeree may not necessarily know of the offeror’s mistake).  This could be explained using a subjective approach because the offeror didn’t substantively accept the precise terms of the offer and the offeree was subjectively at fault, therefore no contract came into existence.  However this could be explained using an objective approach because a reasonable man wouldn’t have believed that a contract had come into existence on account of the offeree’s failure to note the offeror of their mistake. Scriven Bros v Hindley [1913] 3 KB 564 - Due to Claimants misleading auction catalogue that suggested that a sale of tow also contained hemp, Defendants bid more than they should have for town in the mistake belief that it also contained hemp. Held: Contract was not binding because C (offeree) was at fault in not noting the D (offeror) that the tow did not contain hemp.  Emphasis was placed on the subjective carelessness of the C (offeree) because he shouldn’t have used the misleading auction catalogue. However, the objective



approach can be used because a reasonable man wouldn’t have believed that a contract came into existence on account of the C’s (offeree’s) carelessness. D’s (offeror’s) subjective intention was upheld because D had intended to purchase tow containing hemp rather than just a tow on its own. However, the objective approach can be used because a reasonable man would have also been misled in these circumstances.

3) Subjective Approach - Subjective Agreement: Greater emphasis may be placed on the subjective intentions of the parties where the parties have come to a subjective agreement, which would not be upheld by an objective assessment. A distinction needs to be made between contracts formed by means of an exchange of communications (usually analysed terms of an offer and a corresponding acceptance) and contracts based on conduct. Steyn LJ in Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd’s Rep 25, at p.27 considered that the traditional analysis would apply ‘in the vast majority of cases’ and specifically gave a contract alleged to be made by exchange of correspondence as an example of the application of this approach. However he added that this ‘is not necessarily so in the case of a contract alleged to have come into existence during and as a result of performance’. Non-benefits of Subjective Approach  Leads to uncertainty as it is based on the intention of the parties.  You cannot truly assess someone. Class Exercise A  Arthur says to Barry: “I am willing to let you rent my apartment in Manchester for August this summer for £400”.  Barry says “Yes I agree”.  Arthur actually owns a property in Whalley Range, Manchester, UK, and intended that this property should form the subject if the agreement.  Barry knows that Arthur spends some time in America so assumes that Arthur must mean Manchester, New Hampshire, America. 1) Apply a purely subjective approach to the above conversation. Is there an agreement? Hint: remember that for an agreement you are looking for an offer and acceptance offer. What is each party actually thinking/intending? - No, because their intentions were different Arthur was offering in the UK and Berry thinks that Arthur meant in the USA. Cross purposes and the intentions weren’t the same. 2) Apply an objective approach to the above conversation. Is there an agreement? Hint: would the reasonable person think that there is an agreement and if so would the agreement be for a property in the UK or USA? - Yes, because an agreement was made and Berry accepted Arthur’s offer. The parties do not seem confused. The reasonable person would come to a conclusion thinking they are both talking about the UK (offer made in pounds). BREACH OF CONTRACT is important because if any party is in breach of contract they will be liable for any financial loss occurred.

Class Exercise B Explain the reasons and authority whether an agreement has been formed in the following situation: Kim is a keen amateur photographer and she is looking to buy a new digital SLR camera. She enters her local camera shop and is served by a young part time member of staff. She sees a Canon EOS 600D Digital SLR camera with a price tag of £46. She has previously seen the camera in Boots and Jessops for £460. She immediately approaches the member of staff who tells her that there’s been a bit of a rush on sales of that one and he’ll have to order more from the supplier on Monday because she could order now at £46. She pays £46 with her credit card. On Monday, Kim receives a telephone call from the manager of the shop saying that there has been a mistake and the correct price for the camera is £460. She is told she can still have one if she pays the outstanding balance of £414, or, she can have a refund. Kim insists on completing the purchase for £46. Identify whether a binding agreement has been formed: - Yes there is a binding contract due to the fact that Kim had already spoken to the young part time member of staff who had told her that there was a mistake due to rush on sales. And she is aware that the camera is pricey. Case Law: 1) Smith v Hughes (1871) LR 6 QB 597 Facts: The Claimant had purchased a quantity of what he thought was old oats having been shown a sample. In fact the oats were new oats. The claimant wanted the oats for horse feed and new oats were of no use to him. The seller was aware of the mistake of the claimant but said nothing. The claimant brought an action against the seller based on mistake and misrepresentation. Held: Both actions failed. The action based on misrepresentation failed as you cannot have silence as a misrepresentation. The defendant had not mislead the claimant to believe they were old oats. The action based on mistake failed as the mistake was not as to the fundamental terms of the contract but only a mistake as to quality. 2) Centrovincial Estates plc v Merchant Investors Assurance company [1983] Com LR 158 Facts: D mistakenly offered C a rent of £65,000 but actually intended to offer a rent of £126,000. D tried to get out of the contract so C took the case to the court. The Court held that a valid contract had been made as the reasonable man would have believed the offer of £65,000 and would have not been aware of the D’s mistake.

Offer and Acceptance Offer + Acceptance = Agreement

 

Offeror = The party making the offer Offeree = The party accepting the offer.

Anson defines Acceptance as:  “Acceptance of an offer is the expression, by words of conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offeror”.  Acceptance is an unequivocal assent to the terms of the offer and it must be communicated. Communication of acceptance  General rule is that communication of acceptance must be received by the offeror  Subject to: - Requirement of communication being waived e.g. unilateral contracts: Carlill v. Carbolic Smokeball Co. - Postal Rule Ingredients of an offer: 1) Clear display of contractual intent - The offeror must display clear intention to be bound in a legal relationship if the offeror lacks this necessary contractual intent then the court will not the constitute relevant statement as an offer and instead will interpret the relevant statement as a near ‘invitation to treat’. ITT is nearly a declaration that the party is open to the negotiation process such a statement lacks the necessary contractual intent to constitute an offer. This negotiation process may autumnally lead to the formation of a contract but only once the courts are able to identify clear exchange of offer and acceptance. ITT usually lacks in the necessary ingredients as mentioned and ITT lacks contractual intent and such statements are quiet vague so that no reasonable person would presume that they displayed an intention to create legal relations. It is not possible to accept an ITT and so no contractual obligations form from a mere ITT, when determining whether an agreement has been formed is being able to distinguish an offer from an ITT. The distinction will return on an assessment of contractual intent. 2) Terms that are fixed and terms that are certain 3 and 4) Once accepted binds both parties into an agreement If these are found courts will fine an offer.  An offer is an expression of willingness to contract on specified terms without further negotiation  There needs to be a definite offer made either to a particular person or the public at large. In order to amount to an offer it must be shown that the offeror had the intention to be bound: 1) Harvey v Facey (1893) Facts: Harvey sent a Telegram to Facey which stated: "Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid;"

Facey replied by telegram:"Lowest price for Bumper Hall Pen £900." Harvey then replied:"We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession." Held: The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. There was thus no evidence of an intention that the telegram sent by Facey was to be an offer. 2) Carlill v Carbolic Smoke Ball co (1893) Facts: A Newspaper advert placed by the defendant stated:“£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball... £1000 is deposited with the Alliance Bank, shewing our sincerity in the matter." Mrs Carlill purchased some smoke balls and used them according to the directions and caught flu. She sought to claim the stated £100 reward. The defendant raised the following arguments to demonstrate the advertisement was a mere invitation to treat rather than an offer: 1. The advert was a sales puff and lacked intent to be an offer. 2. It is not possible to make an offer to the world. 3. There was no notification of acceptance. 4. The wording was too vague to constitute an offer since there was no stated time limit as to catching the flu. 5. There was no consideration provided since the 'offer' did not specify that the user of the balls must have purchased them. Held: The COA held that Mrs Carlill was entitled to the reward as the advert constituted an offer of a unilateral contract which she had accepted by performing the conditions stated in the offer. The court rejected all the arguments put forward by the defendants for the following reasons: 1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff. 2. It is quite possible to make an offer to the world. 3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance. 4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls.

5. The defendants would have value in people using the balls even if they had not been purchased by them directly.

Invitations To Treat It is important to distinguish an offer from an ITT. An offer displays a clear intention to be bound as such only an offer is capable of being accepted giving ar...