Contract LAW EXAM Notes PDF

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CONTRACT LAW EXAM NOTES1) OFFER & ACCEPTANCEThe Offer  Definition An offer is an expression, by words or conduct, of a willingness to be bound by specific terms as soon as there is acceptance by the person to whom the offer is made.  There must be sufficient certainty of terms.  The disc...

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CONTRACT LAW EXAM NOTES 1) OFFER & ACCEPTANCE The Offer  Definition  An offer is an expression, by words or conduct, of a willingness to be bound by specific terms as soon as there is acceptance by the person to whom the offer is made.  There must be sufficient certainty of terms.  The discussion/communication MUST show an intention to be bound by the terms of the offer.  Contractual Intention: o Carlil v Carbolic Smoke Ball Company (1893)  CSBC advert to pay anyone £100 who used the smoke ball x3/day for 2 weeks as directed, and still caught the flu.  To show sincerity, CSBC deposited £1,000 with Alliance Bank.  Carlil bought a smoke ball, used as directed and still caught the flu.  CSBC argued that the advert did not show sufficiently serious intent to be bound by the statement and could not be taken to be an offer.  Court of Appeal held: Although this advert in different facts might just be seen as advertising blurb, this particular one demonstrated a serious intention to be bound.  REASONING:  The contractual intention was found in the fact that the terms of the offer were clear and very specific (if Mrs C used the smoke ball as directed and still caught flu whilst she was using it, then she could claim £100 – no ambiguity there).  It showed serious contractual intent when the company said they had deposited the money with their bank to be used for the “reward”. o Blue v Ashley (2017)  Leggatt J held that there was no contract: Mr Ashley was not required to make the £15million payment.  “They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds:” Per Leggatt J, para.142.  Why was there no contract here?  B claim failed on the point of contractual intention. Before an offer and the agreement resulting from acceptance can amount to a valid contract, the parties must intent to create legally enforceable rights.  Mr Ashley did not make a serious offer in that pub meeting on 24 January 2013 that expressed a willingness to be bound. How was this conclusion reached?  REASONING o Purpose: The occasion was not for Mr Ashley to make a contract with Mr Blue, but to meet the others. o Although it is possible for contracts to be formed in social occasions (see MacInnes v Gross [2017] EWHC 46), the pub/drinking context and jokey banter, all suggested that 1

there was no serious intent to be bound on the part of Mr Ashley. o The terms were too vague and did not specify what Mr Blue had to do in terms of work involved and there were no performance measurement standards o The amount of £15million was fixed arbitrarily and casually – no business person could be expected to act this way. It was obviously a joke. o There was no commercial sense to the offer – far too high for the work involved. Mr Blue could not be expected to bring about such a change in the share price. A reasonable business person would have confirmed the arrangement, e.g. in writing. 

Request for information o Definition  A request for information and a response do not have legal effect. o Harvey v Facey

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Why was there no contract here? o Facey had not made an offer here that showed a serious intention to be bound to sell. o He was only responding to a request for further information. Therefore, because Facey had made no offer, Harvey’s final response “agreeing” to buy could not be a legal acceptance. There was not legal offer for him to accept. No offer and acceptance = NO CONTRACT. BTW: If any offer had been made, it was Harvey’s final communication saying that he would buy the land for £900. But because there were no further communications between the parties, it had not been “accepted”.

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Distinguish between offer and invitation to treat (I.T.T.)  I.T.T. A communication might be an invitation to treat, i.e. something not definite enough to be an offer, but only an opening gambit in negotiations or willingness to receive offers (e.g. advert) o Adverts  Adverts in magazines etc not normally interpreted as contractual offers.  Partridge v Crittenden [1968]  Advert in magazine for sale of birds. He did not specifically say “offer for sale”  Had it been construed as an offer, there could have been large numbers of people “accepting”  commercially unworkable.  Lefkowitz v Great Minneapolis Surplus Store Inc. (1957) 251 Minn. 188, 86 N.W.2d 689 (Supreme Court of Minnesota)  Advert: “3 fur coats for $1 each: first come – first served”.  This was an offer. The terms were certain and potential acceptances (i.e. contracts) were limited to the first three customers. o Displays in a shop – generally held to be invitations to treat  Boots case  Items were displayed on the shelves of the shop. It was argued that this is an “offer”. However, it wasn’t. The display is only an invitation to treat.  When the customer presented the item at the till, this was the “offer”. Cashier could have refused sale at this point.  Offer was “accepted” when the cashier rung through the sale. See also Fisher v Bell [1961] 1 QB 394

Responses to an offer 

Rejection: An offer is “dead” if rejected. It can no longer be accepted. o EXAMPLE: A-B: “I offer to sell you my car for £1,000.” B-A: “No thank you”. The offer is now DEAD and cannot be accepted by B saying “actually… I’ve changed my mind”.

 Counter-offer: “The offeree changes the terms of the offer and bounces it back for the

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offeror to accept.” o Hyde v Wrench (1840)  W offered to sell his farm to H for £1,000.  H responded to this offer by offering to pay £950.  Did this counter-offer reject the original offer, i.e. could the offeree make a counter-offer but still reserve his ability to accept the original offer?  HELD: A counter-offer kills the original offer and it cannot later be accepted. A counter-offer should be distinguished from a mere request for information, which does not kill the original offer. The offeree can still accept it. 3

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Acceptance o Definition an absolute, unconditional and unequivocal assent to the terms of the offer. Acceptance must be a “mirror image” of the offer o Butler Machine  See McKendrick

 Communication of acceptance o In order to make a binding contract it is necessary for acceptance to be notified to the offeror: Carlill v Carbolic Smoke Ball Company (1893)

o The courts have developed rules to determine whether an acceptance has been communicated. 1. Instantaneous communication. 2. Non-instantaneous communication. o Instantaneous  Acceptance occurs at the point it is received by the offeror  Entores Ltd v Miles Far East Corporation  The complainants, Entores, were a company that was based in London. They had sent an offer to purchase 100 tons of copper cathodes to the defendants, Miles Far East Corp. Their company was based in Amsterdam and this offer was communicated by Telex, a form of instantaneous communication. The Dutch company sent an acceptance of this offer by Telex to the complainants. When the contract was not fulfilled, the complainants tried to sue the defendants for damages.  HELD: The court held that the contract and damages were to be decided by English law.  RULE: Communication of acceptance takes place at the time it is received  Electronic communications: Denning LJ said that generally acceptance is communication when the telex or fax is received 

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What if the offeror claims that he did not receive it until the following morning or later? The Brimnes (1975)  Acceptance send by telex and printed out on D’c machine at 5.45pm.  Acceptance communicated effectively at 5.45p.  D left early without checking the machine Thomas v BPE Solicitors (a firm)  Email was an effective communication of acceptance even though it had not been read by the C  HELD: The email acceptance of a solicitor’s undertaking sent at 6.00p on Friday evening was effective upon its receipt soon afterwards. In the context of a corporate transaction, 6.00p was not outside working hours and the email was available to be read then despite the fact that the recipient had gone home 4

o Non-instantaneous  Postal rule: Acceptance is communicated at the point of posting the letter. The offeror does not have to receive the letter or read it.  Adams v Lindsell  Offeror excludes postal rule and requires notice of acceptance  Holwell Securities Ltd. v Hughes o Offer stated o Accepted by “notice in writing”  The postal rule will not apply where it would lead to “manifest inconvenience or absurdity”  Holwell Securities Ltd. v Hughes  Brinkibon Ltd. v Stahag Stahl o The mode of acceptance: The offeror can stipulate the method of acceptance (e.g. “Please reply by email”)  Acceptance by conduct  Brogden v Metropolitan Railway Co. o No formal acceptance of offer for sale of coal o Coal and delivered in accordance with the terms of the agreement. o Acceptance was implied by this course of conduct of the parties.  Acceptance by silence  An offer cannot impose a contract by saying that silence is aceptance  Felthouse v Bindley  Re Selectmove Ltd [1995] o Silence may exceptionally amount to an acceptance where there is an agreement to that effect or established practice between the parties. o The Court of Appeal thought that it may be possible for an offeree to use silence, e.g. “if you don’t hear from me by Friday assume that I accept.”

Death of an offer i)

Revocation  An offer can be revoked at any time before it has been accepted.  This means that no contract is entered into (should an attempted acceptance follow).  If an offeror attempts to revoke an offer after it has been accepted, the revocation is ineffective.  BUT: Like acceptance, revocation must be communicated: A revocation can be communicated via a third party. Dickinson v Dodds (1876): Deals with a lot of points on revocation  The offeree found out through a third party that the property they had been offered had been sold.  This was held to be an effective communication of revocation of the offer.

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What if there is a promise to keep the offer open, e.g. “until Friday”? Can an offer be revoked before Friday despite such a promise? YES: A promise to keep an offer open is not enforceable in the absence of a deed (a specific formal document) or consideration (something for value given in return for the promise).

NB: Postal rule does not apply to revocation of an offer: Henthorn v Fraser [1892] ii) Time lapse: If an offer prescribes a time limit for acceptance, the offer lapses if not accepted by the time stipulated. If there is no set time limit, offer lapses after a reasonable time: Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109. iii) Rejection: An offer comes to an end when it is rejected.

Meeting of the Mind (consensus ad idem) 

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The parties must be agreeing to the same thing, since there may be “confusion between what a party meant and what [they] actually said”. o Smith v Hughes (1871) LR 6 QB 597  Seller was negotiating for sale of oats with buyer (who was a racehorse trainer and wanted oats for his horses).  Seller gave a sample of the oats to the buyer  The oats in the sample were “new oats” (cheaper).  However, the buyer didn’t look at the sample and made the assumption that the oats he was buying were “old oats”.  The buyer refused to pay because he said he was contracting to buy old oats.  The seller wanted to get the contract price on the basis that the contract was for new oats.  Courts applied the objective test  APPLICATION: A sample of the oats had been given by the seller and the buyer agreed to purchase the oats after having had the sample for two days.  HELD: The reasonable person who observed this would conclude that the agreement had been for new oats. Therefore, a contract would be upheld. Objective test applied in Centrovincial Estates plc v Merchant Investors Assurance Co. Ltd. [1983]  See mistakes notes

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2) CONSIDERATION Intention to create legal relations  Must be intention to create legal relations  Basic Rules o Commercial agreements  Law presumes the parties DID intend to create legal relations o Domestic/social agreements Law presumes the parties DID NOT intent to create legal relations (e.g. agt between family) o Both can be displaced by evidence of the contrary  Domestic/Social o Balfour v Balfour (1919)  Husband and wife  Wife alleged that the husband made an oral agreement promising to pay her £30/month until she returned to Ceylon.  Husband suggested living apart  Wife sought to enforce the monthly payment  On appeal, husband held not liable to make payments  Warrington LJ: Merely domestic arrangement, NO BARGAIN element from wife  Atkin LJ: Example of ordinary circumstance where nobody would suggest that those agreements result in a contract REBUTALL o Merritt v Merritt (1970)  Presumption where domestic partners have separated the courts presume an intention to create legal relations  CA held that an agreement between husband and wife who has separated was enforceable as a contract  Lord Denning: “Would a reasonable person regard the agreement as intended to be binding?”  Commercial o Attrill v Dresdner Kleinwort Ltd (2013)  Elias LJ held that the employers were liable to pay the employees the full promised bonus payment rather than the reduction.  The court held that if a recipient of a unilateral promise reasonably understood the promise to be legally enforceable, then the other party should be held liable, particularly in a pre-existing contractual relationship. Legally Sufficient Consideration  A contract cannot be enforced unless there is “consideration” coming from both sides  Need to identify what is legally sufficient consideration  Definition “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit r benefit accruing to the other party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”: Currie v Misa (1875)  Consideration does not depend on whether it is a fair exchange for the other party’s promise o Chappell & Co Ltd Nestle Co. 7

 HELD: Good consideration  In favour of the defendant who advertised the sale of records at a discounted price to those who mailed wrappers from the chocolate bars.  Since Nestlé greatly benefited from the sale of the chocolate, the exchange constituted good consideration  

Consideration MUST be of some economic value. Consideration MUST be legally sufficient, the courts will not look into whether it represents a fair exchange  “Consideration must be sufficient but need to be adequate” o White v Bluett (1853)  Son was upset about his father’s distribution of property amongst his children and complained to his father  Father agreed to forgive debt owed if the son would stop complaining  HELD: Ceasing to complain could not be good consideration for the promise to forgive debt b/c the son did not have a right to complain  Giving up rights CAN be legally sufficient but giving up something you have no right to do in the first place cannot. o Hamer v Sidway (1891)  Uncle promise to pay his nephew £5k in return for his nephew giving up tobacco, drink, and gambling.  Court of Appeal thought that the nephew had a right to these things and his decision to forgo them constitutes consideration for the promise.

Executed and executor contracts  An executory contract is an exchange of promises to do things in the future – STILL VALID  Bilateral  Double or two-way bargain exchange  Unilateral  Single bargain or exchange The bargain element  CONSIDERATION  Something offered or given in exchange for something else. The promise must be motivated by the price and the price by the promise. The thing must be requested.  ‘Price paid for the promise’ to emphasize the bargain element. o Combe v Combe (1951)  Wife promised not to sue husband for maintenance  Husband promised his wife some money  The detriment was not given for her husbands promise  No bargain / promises were made independently

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o Dunlop v Selfridge (1915)  Lord Dunedin ‘The price for which the promise of the other is bought’  The courts look for a request b/c this shows that the promisor intended to get something in return for his promise and tat he intended to create a bargain. Past consideration  Not sufficient consideration  It is when the promise comes AFTER the act = NO BARGAIN o Re McArdle (1951)  McArdle has carried out improvements to a house belonging to another  After all improvements were complete, the owner put in writing that they would pay her £488 “in consideration of her carrying out certain alts and improvements”  Mc tried to claim payment but it was unenforceable  Consideration was wholly past = NO BARGAIN  The work was not requested and the promise had not been made in return for the work PAST CONSIDERATION (I drive you to X)

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ALLEGED CONTRACT FORMED (Promise to pay)

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ENFORCEMENT (Attempt to sue will fail)

EXCEPTION   

Before concluding past consideration, make sure to determine whether you can deduce an unexpressed bargain. An act is requested by the other party but payment was not discussed/expressed If the act would not normally be a gift (i.e. someone you hardly know,), then it carries an implication that payment would be made for the act. o Re Casey’s Patents (1892) [IMPLIED PROMISE]  Stewart performed unrequested work, which fell within a business context where Casey would normally pay him.  Stewart assumed he would be paid for the work.  HELD: Payment enforced on the grounds of an implied promise. o Lampleigh v Braithwait (1615) [REQUEST FROM THE PARTY]  Braithwait was convicted on killing a man and wanted Lampleigh to get him a pardon from the King, which L did.  B promised to give L £100 but then refused to pay.  There appears to be a past act  Pardon BEFORE promise to pay.  HELD: Promised payment was enforceable. L obtained a pardon at the request of B, which carried the understanding, unspoken at the time, that payment would be made for his service. o Pao On v Lau Yiu Long (1980)  D claimed that the consideration for the indemnity agreement was past consideration and had only been agreed to under duress.  HELD: Favour of the plaintiffs. Applied the exception to the doctrine of past consideration in Lampleigh v Braithwaite (1615) 9

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Lord Scarman said “an act done before a promise was made was good consideration for that promise if it was done at the promisor’s request and the parties understood the act was to be paid later, and the payment or benefit would have been enforceable had it been promised in advance.”

Consideration and the performance of existing duties  Existing public duty  NOT good consideration  Performance of an existing duty (something you are already legally obliged to do) is not good consideration unless the claimants performance offers something extra and goes beyond the existing duty o Collins v Godefroy (1831)  The promise to pay a witness who was already under a public duty to give evidence lacked consideration.  The witness did nothing above what he was already obliged to do, therefore he did not receive or incur a legal benefit or detriment in return for the promised payment. CONTRAST

o Glasbrook Brothers Ltd v Glamorgan CC (1925)  The owner of a colliery promised to pay the police if they provided security during a miner’s strike.

 Courts accepted that the mere performance of general public duty of police to protect them could not form good consideration.

 On the facts, HELD that police had gone beyond this duty by providing

more protection than they were obliged too  Exceeding their public duty t/f provided a benefit and incurred a detriment = GOOD CONSIDERATION

o Harris v Sheffield United Fo...