Contract law (law teacher notes) PDF

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30/04/2020 LAWS0001: Contract Law I

FORMATION OF A CONTRACT -

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Contract = legally binding written or oral agreement that gives way to obligations that are recognised by law and thus parties are expected to adhere to. Usually involves an exchange/transaction between two parties. Unless certain exceptions apply, parties are allowed to agree to whatever terms they want to; this is known as ‘freedom of contract’

‘Offer’ -

‘offer’ = expression of willingness to enter into a contract on specific terms, made with the intention that it is to be binding only after it has been accepted by the offeree. Courts take an objective approach when considering whether an offer has been made THE OBJECTIVITY TEST ‘on examination of the offeror’s conduct as a whole, would the reasonable person consider the offeror to have expressed willingness to contract on specified terms with the intention that it is to be binding once accepted?’ This approach does not consider the actual intentions of the offeror; it decides what the offeree was reasonably entitled to conclude. Was there a proposal made by one party (A) which was capable of being accepted by the other (B) – the correct approach is to ask whether a person in the position of B (having the knowledge of the relevant circumstances which B had), acting reasonably, would understand that A was making a proposal to which he intended to be bound in the event of an unequivocal acceptance. Functions of objectivity: 1) Consent to contract even in circumstances which the parties did not specifically envisage 2) Parties can predict with reasonable certainty how the terms will be interpreted 3) Third parties can ascertain the meaning of the contract even if they weren’t privy to negotiations 4) Lawyers and judges can ascertain the meaning without the need for extensive and expensive factual enquire

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Must be distinguished from an invitation to treat ‘invitations to treat’ are communications not intended to be open for acceptance INVITATION TO TREAT: I AM INVITING YOU TO MAKE AN OFFER, NOT MAKING AN OFFER OF MY OWN

30/04/2020 Invitation to treat (1): goods on display Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]: Court of Appeal held that the display of goods is merely an invitation to treat An offer is made when the customer takes the good to the cashier & the cashier accepts the offer by scanning the goods and requesting payment The store owner can refuse to accept for trivial reasons, such as allegiance to the wrong football team, but not on the basis of gender, sexual orientation etc legally (Sex Discrimination Act 1975) or sell alcohol to those under 18 etc. Reasons why a display of goods is an invitation to treat: If a display of goods was an offer, the acceptance would occur when the customer removes the goods from the shelves. The type of problems that may occur are:  

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The shopkeeper has no choice whether or not to sell to somebody once they have removed an item from the shelves, preventing the shopkeeper’s ability to choose their customers The acceptance has occurred at the price specified for the goods, meaning there can be no negotiation between the buyer and seller. This is not particularly relevant in most shops where negotiation is not possible, but it is still a relevant issue in some cases, and particularly if an item is mispriced A customer couldn’t choose to exchange the item for another once they have removed it from the shelf, or replace the item, as acceptance has already occurred. Otherwise, they would be in breach of contract

Invitation to treat (2): display of goods in a shop window Fisher v Bell [1961]: legal precedent that confirms the display of goods in a shop window is an invitation to treat. In this case the defendant had a knife on display with a price ticket attached, which was held to be an invitation to treat Invitation to treat (3): Advertisements As a general rule, the case of Partridge v Crittenden [1968]: The defendant advertised for sale a number of Bramblefinch cocks and hens, stating that the price was to be 25 shillings for each. Against the law to sell wild animals. Court held that the advertisement was not an ‘offer’ but an ‘invitation to treat’.

Reasons why advertisements are invitations to treat: 

The multi-acceptance rule: if an advertisement was considered an offer, theoretically, an unlimited amount of people could accept the offer which causes problems as there are a limited number of goods and the seller would be in breach of contract for each individual whom they could not provide the goods E.g. Grainger & Son v Gough [1896]: the defendant circulated a wine catalogue

30/04/2020 which contained a price list for products. Rationale appears in Grainger is that otherwise advertising parties might be exposed to a torrent of demands and they would be unable to satisfy those demands because of limited stock. Advertiser is not subject to immediate demands for acceptance.  

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The seller has no discretion of who to sell to – they may to want to sell large quantities of alcohol to young children Goods that are wrongly marketed would have to be sold at the price that they were advertised which is unfair to sellers as any typographical error/mistake could be detrimental for business

Exceptions to advertisements as invitations to treat: Unilateral contracts: formed when one party makes a promise in exchange for an act by ANY offeree. e.g. Carilill v Carbolic Smoke Ball Co [1893]: The defendant, the Carbolic Smoke Ball Company, placed an advertisement in a newspaper for their products, stating that any person who purchased and used their product but still contracted influenza despite properly following the instructions would be entitled to a £100 reward. The claimant, Mrs Carlill, thus purchased some smoke balls and, despite proper use, contracted influenza and attempted to claim the £100 reward from the defendants. Court held that the advertisement was a unilateral contract. Following, an advertisement is likely to be construed as an offer when these requirements are met

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There is a unilateral offer - the defendant has an obligation under the contract, to pay the £100 reward, any potential offeree may accept this contract Acceptance is communicated through performance - Acceptance is communicated through the performance of using the device in the specified way, and contracting influenza Clear terms and conditions (are the requirements for performance and the reward clear?) - the advertisement is very specific with regards to in what way and how frequently the device is to be used, and the £100 reward is also clear. Intention to create legal relations and be legally bound - the defendant’s argued that the advertisement was a marketing device to entice people into buying the product (the courts referred to this as a “mere puff”), and that no contractual intent could be inferred from the advertisement. However, this justification was negated by the fact the defendant explained in the advertisement that £1,000 had been deposited in a bank account specifically for the purpose of paying the rewards, which suggests a clear contractual intent Consideration (benefit and detriment to each party) - there was a benefit for the defendants created by the use of the balls, the detriment being the £100 reward. The benefit for the claimant was the £100 reward, and the detriment was spending the time and effort to use the ball, and also contracting influenza

30/04/2020 Lefkowitz v Great Minneapolis Surplus Stores [1957]: The defendant placed an advertisement in the paper for the sale of 3 fur coats, stating that it would be sold on a ‘first come first served’ basis. The claimant was the first to respond to the advertisement, but the defendant refused to sell on the basis that it was a ‘house rule’ to sell only to female customers. The claimant brought a claim for breach of contract, contending that the defendant was bound by its ‘first come first served’ promise. The courts allowed the claim and held that the defendant had a binding obligation. In this case, the advertisement was an offer that the defendant would transfer the goods to the first person to respond, and as such, its terms could not be changed once it had been accepted and the contract was formed without the agreement of the other party. The defendant therefore did not have the right to impose new conditions which were not contained in the published offer after acceptance. o This case helps solve the multi-acceptance problem as it is clear that there are only 3 of the coats available, and only the first three people to arrive at the shop would be able to accept the offer. Invitation to treat (4): Tenders -

Tenders are where an individual seeks specific goods or services and advertises their need for them. This is construed as an invitation to treat, and any response to the tender will be an offer. E.g. “I am looking to purchase a new car for around £5,000” There is clearly no contractual intent, as it is merely inviting an offer in response. Even if the price was specified as exactly £5,000, there is still no offer owing to the lack of contractual intent, the writer of the tender obviously intends to negotiate and consider his options Exceptions: Intention: If a person seeking a tender shows intention to be bound a tender can be constructed as an offer e.g. Harvela v Royal Trust of Canada [1986]: the defendants set out a tender for their sale of shares in a company. One of the details in the tender was that they would accept the highest offer.

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A person submitting the best sealed bid is entitled to receive the promised subject matter. Referential bids generally not allowed. Persons making sealed bids will be in breach of the implicit rules of fair dealing if one of them to include a referential bid, which says what ever the value of the other bids, I will bid X more, it is a form of gainsman ship. The only bid that counts will be the non-referential bid. Green light to referential bids if:  Referential bids were expressly permitted

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Referential bid does not stand alone, but is accompanied by a fixed bid made by that person. Referential bid prescribes a maximum figure.

Tenders with collateral offers: In Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990]: the council stipulated it would consider all tenders submitted before a specific date. The claimants delivered their tender before the required date, but the post wasn’t emptied by the defendant. As the defendant did not consider the claimants’ tender, the defendant had breached the collateral contract to consider all tenders submitted before the required date. This case imposes three obligations on tenders: 1) The invitor must consider each valid tenders. 2) The invitor must ignore invalid tenders. 3) The invitor must not award the tender ahead of the deadline for submission of tenders. (Shows that in this context English law explicitly recognises a principle of good faith in bargaining) The invitor is not obliged to accept any of the tenders – decided in Spencer v Harding. But each valid tender must be at least considered.

Invitation to treat (5): Auctions Auction without reserve: Where an auction is “without reserve” (i.e there is no minimum priced bid required to win the auction) each bid is an offer, and when the auctioneer ends the bidding, this is the acceptance. Therefore, each bidder may revoke their offer at any time before the end of the bidding. The auctioneer could, in theory, refuse to accept the offer, however, in the case of auctions, there is a collateral contract, this is between the auctioneer and the highest bidder, which involves the obligation to accept the highest bidder, meaning any refusal of a highest bid would amount to a breach of contract (Barry v Davies [2000] Damages for a breach of collateral contract: The court will consider the position the bidder would have been in if his bid was accepted. For example, if the auctioneer declined a highest bid of £10 for an item worth £100, the price difference between the bid and the market price of the item would be awarded – in this case, £90. Auction with reserve: Where an auction is “with reserve”, (i.e the owner of the goods has set a minimum price) the auctioneer is only obliged to accept any bids which are above the minimum price. Advertisement of an auction: An advertisement of an auction is considered to be an invitation to treat, meaning an individual who intended to bid on items cannot bring an action against the auctioneer who does not auction the item.

Revocation of an offer:

30/04/2020 Direct revocation. If the offeree knows of the offerors revocation, then he cannot accept the offer. If the revocation is direct, then the offeror has told the offeree to forget the offer. Where the revocation is direct, the question is whether the offeree has in fact discovered or had the reasonable opportunity to discover that the offer is no longer open to acceptance by him. Emailed, posted or faxed revocation, arriving within normal working hours, will be effective to preclude valid acceptance once the offeree has had a reasonable opportunity (during working hours in business see Mondial) to read the revocation.

Indirect revocation Sufficient that the offeree knows from a reliable source that the offeror no longer intends to contract with him (third-party revocation) Burden of proof on the offeree to determine whether the source is reliable.

The leading case on indirect revocation is: Dickinson v Dodds [1876)]: Offferor gave offeree till certain time to buy house. Offeree discovered that the offeror sold the relevant house to a third party. Offeror does not accept offerees offer. Relying upon the closeness of the neighbourhood, news reach the offeree that the house had been sold.

Even if the offeror does not directly communicated his revocation, if at the relevant time news reaches you that the offor has done something which is plainly inconsistent with the offer, then the offeree has no legal right to accept. Indirect revocation is sufficient.

Offeror on the facts of the case made a promise that if you come to me by a time the house will be yours. Offeror breached that promise and sold the house. The offeree would only enjoy legal protection if the offeree had a binding option. This was not a binding option but it was a bare promise. In the absence of consideration for the promise, or a properly documented deed, the offerors statement was a bare promise which the offeror could break without any legal repercussions.

Offers lapsing by passage of time

30/04/2020 An offer lapses, and so is incapable of being validly accepted, if it has not been accepted:

(a) within a specified time. Grant v Bragg [2009]

(b) within a reasonable time (a reasonable period will apply if the offer was not stated to be open for a specified period): Toulson J in LJ Korbetis v Transgrain Shipping BV [2005]

‘Acceptance’ -

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‘acceptance’ = final and unqualified expression of assent to the terms of the offer Principle 1: Acceptance must be unequivocal Offer must be accepted in accordance with the precise terms in order to form an agreement. There must be nothing left to negotiate Principle 2: acceptance must mirror the offer It must exactly match the offer and ALL terms must be accepted The offeree cannot accept an offer and then add terms A counter offer can be accepted or rejected by the original offeror or met with a further counter offer & the parties can continue to make counter offers until a consensus can be reached - Hyde v Wrench [1840] Counter offer = the offeree adding terms A request for information is not a counter offer – the original offer will still stand and the offeree has either accepted nor rejected the offer – Stevenson Jaques & Co. v McLean [1880] Principle 3: Acceptance must be communicated to the offeror Acceptance has no legal effect until it is communicated to the offeror Communication fails to take as an acceptance where it attempts to vary the terms of the original offer e.g. a counter-offer. Making a counteroffer amounts to a rejection of the original offer which cannot subsequently be restored or accepted (unless the parties agree) The postal rule

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The rule for postal communication of acceptance is that posted communication is acceptance has been communicated and is legally binding once the letter has been posted – Henthorn v Fraser [1892] Adam v Linsdell [1818] – the postal acceptance rule still applies in the event that the letter is delayed, destroyed or lost The postal rule can be excluded by the offeror – he can state that acceptance must be communicated in a specific way. The offeror can also alter the postal rule so that acceptance is only legally binding once it actually reaches them. The postal acceptance rule does not apply if the offeree has incorrectly addressed the letter of acceptance or has been careless in some other way that causes delay It must be reasonable for the offer to be accepted by post (the offeror & the offeree live at a distance from each other) Problems with the Postal Rule What happens in the event that the offeror receives the acceptance letter too late and has already sold to another party? Howell securities v Hughes [1974] the courts allowed that the postal rule can be excluded if the offeror states that they must receive acceptance in order for a contract to be formed. This resolves issues surrounding fairness.

Technological advances Entores v Miles Far East Co [1955], stated that the postal rule did not apply to instantaneous forms of communication This case establishes 3 categories of acceptance via instantaneous communication (1) – Offeree is aware that acceptance has not been received, but neither party is at fault. There is no contract because this would produce an absurd result that neither of the parties could reasonably have contemplated and should therefore not be bound to it. An example of this would be if A communicates acceptance to B over the telephone, but the line drops before he accepts. (2) – Offeree reasonably believes that acceptance has been received, although it has not, but neither party is at fault. There is no contract because an absurd result would again arise. It would not be fair to bind the parties to the agreement. (3) - Offeree reasonably believes that acceptance has been received, although it has not, and the offeror is at fault. There is a contract because the offeree should not be denied the contractual agreement simply because the offeror is at fault. An example of this would be that the telephone line is unclear, and the offeror does not hear the offeree’s acceptance, but does not ask him to repeat. It would be unfair to not hold the parties to the agreement, because the offeree could not know that the offeror did not receive the message, and the offeror is at fault for not stating as such. Brinkibon Ltd v Stahag Stahl [1983] when instantaneous communication is used, acceptance is binding when it is received. It is important to reiterate that acceptance need not actually be read or heard by the offeror – it must have arrived at his computer/answer machine. The fairness

30/04/2020 here is based on balancing the position of both offeror and offeree. It would be unfair to require that the offeror actually read or hear the acceptance, because he could fail to do so purposely if he finds another buyer, which would be unfair for the offeree. On the other hand, it would be unfair to the offeree to state that acceptance is binding once it is sent, because many different events could occur (an email could be put into offeror’s spam folder, message could bounce back, etc.) Tenax Steamship Co v Owners of the Motor Vessel Brimnes [1974] the ‘rule’ in this instance is that acceptance is b...