Contract law revision - Lecture notes 1-20 PDF

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Contract Law

Revision Notes

Formation of a contract: Offer and Acceptance • A contract is only formed in law where the following can be shown to exist:  An agreement (mutuality) – valid offer followed by valid acceptance.  Consideration  Intention •

Butler Machine Tool Co: L. Denning – judges should decide whether a contract existed by examining all the evidence rather than sticking to strict offer and acceptance terms.

Offer • An unconditional statement of a person’s intention to be bound by terms of offer made. • An invitation to treat is an invitation to a part to make an offer to buy – not the same as an offer. Invitation to Treat • Goods displayed on shelves in a shop: this is not an offer, but it is an invitation to treat (invitation to the buyer to make an offer to buy).  Boots case: contract is made at the cash desk – the customer an offer to buy and it is up to the shop assistant to agree to the sale – if they do then it is an acceptance and the contract is formed.

Situations which are not Invitations to Treat • Certain wordings may be of particular significance – may change an offer to an invitation to treat and vice versa. • Advertisements involving a unilateral offer: same rule as invitation to treat applies but it will not if the advert indicates a willingness to be automatically bound to those who performs the acts stated in the advert.  Carlill case: ‘carbolic smoke ball’ designed to cure the flu. Ad stated that anyone who contracted the flu after using the smoke ball (in accordance to guidelines) would receive £100. Mrs. Carlill used it as directed, but contracted the flu. She sued the company for the £100. The company contested that the advertisement could not give rise to liability. Held that it was a valid offer as the company had intended to be bound.

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A statement of price where an offer is also intended: when other parties act on the statement in fact, it may be an offer.  Biggs: negotiations for a house. Court held that seller’s first letter of acceptance of a lower price was an offer that the seller had accepted.

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Competitive tendering: invitation to tender is an invitation to treat but if the advertisement agrees to a certain outcome, it is bound to do so.  Harvela: The claimants submitted a fixed price bid for shares in the defendant’s company. Another party made a referential bid; of a fixed amount more than any other offers. A referential bid is not binding in law, therefore the claim was accepted.

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Auctions advertised as ‘without reserve’: auctioneer is promising that no reserve price will be on the goods. The goods will be sold to the highest bona fide buyer.  Barry v Davies: there is a binding bilateral contract not to apply any reserve price, therefore to sell it to the highest bidder. Person entitled to damages.

Communicating the Offer

Contract Law •

Revision Notes

The offer must be communicated to the offeree in order to be accepted. An offeree cannot accept an offer which they know nothing about.  Taylor v Laird: Taylor was commander of ship; gave up his position and continued as a crew member back home. Wanted to claim wages. The ship owner was unaware of Taylor’s decision, and did not receive an offer from Taylor to work in another position.

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An offer can be made both to one person or the whole world: an offer an be made to any number of people; anyone who has actual notice of the offer can be classed as an offeree and can accept  Carlill: she was not a genuine offeree; no offer had been made personally, but she had accepted the offer by buying the smoke ball and then contracting the flu.

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Offeree must have knowledge of the offer: if the offeree is unaware of the offer, he cannot say to have accepted.  IRC v Fry: while an offeree can accept a unilateral offer which prescribed its manner of acceptance, by acting in that manner there had to be knowledge of the offer when act was done. IRC did not know of offer therefore there was no acceptance.

Certainty • The terms on which it is intended that the contract will be formed must be certain. If there was any doubt, the offeree would not know what he was accepting therefore there would not be a contract.  Guthing v Lynn: ‘lucky’ is a vague word – cannot be an offer.  White v Bluett: son owed father money on a promissory note; father died and executors tried to recover the money. Son claimed he had an agreement with father that the debt would be forgotten if he did not complain about father’s assets being distributed – held that the alleged promise was too vague.  Foley: where performance of the contract has already begun, the courts may be more willing to enforce the contract.

Revocation • A person making an offer may want to withdraw it – demonstration of freedom of contract. • It is possible to withdraw the offer any time before it is accepted: once acceptance occurs, the contract is formed, and revocation is not possible.  Routledge: the defendant offered his house on sale for 6-weeks; took house off before 6wk period ended. Court held that his actions were legitimate as there had been no acceptance.  Exception: where the offeree pays money to the offeror to keep the offer open.

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Withdrawal of offer must be communicated: if this is not done, it’s unfair treatment, and is invalid.  Van Tienhoven: series of negotiations took place between two parties over a 3-week period. Revocation of offer was posted on 8th of Oct, but arrived on the 20th on 11th Oct, defendants had telegraphed their acceptance. Held that the acceptance was valid as the revocation needed to be communicated to be effective, and it was too late.

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Communication of withdrawal can be made by any reliable third party: the third party must be a reliable source of information and someone who both parties can rely on.

Contract Law

Revision Notes

 Dickinson v Dodds: Dodds offered to sell houses to Dickinson until a certain date two days after. Dickinson did not accept offer immediately, and a third party informed him that Dodds had withdrawn the offer. He then sent the acceptance letter. Dickinson claimed breach of contract, but the revocation was valid because the third party was reliable.

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Unilateral offer cannot be withdrawn while the offeree is performing: wherever a continuing act amounts to the acceptance then the offeror is unable to withdraw the offer until either the act of acceptance (or contract) is complete, or there is a failure to perform by the offeree. In the unilateral contract, the offeree accepts the offer by performing his side.  Carlill: contract can be made with anyone who came forward and performed the act of accepting. Secondly, notification of acceptance was synonymous with Mrs. Carlill purchasing the smoke ball.

Termination of Offer •

An offer can be terminated by: o Acceptance of the offer by the offeree o Rejection of the offer by the offeree o Revocation of the offer by the offeree o Lapse of time: where no specific date has been set for the offer to terminate, the offer can be said to have lapsed after a reasonable time has passed (Ramsgate v Montefiore: no offer can stay open indefinitely). o Death by one of the parties: if the offeree dies, representatives cannot accept on his behalf, but may still be bound by an acceptance that is made in ignorance of the offeror’s death. o Non-fulfillment of a condition precedent: if the parties have agreed to meet certain conditions before the contract is validly formed, a failure to do so means that offer has lapsed.

Acceptance • Final and unqualified agreement to all the terms contained in the offer.  Must be a response made with knowledge of the offer  Must follow any method for acceptance which was prescribed in the offer. → Acceptance must be unconditional • The response must correspond with the exact terms of the offer (mirror-image rule: Hyde v Wrench: W offered to sell farm to H; H unconditionally rejected price and offered to pay less; W rejected. H tried to claim breach of contract. Courts rejected Hyde’s claim). These consequences will not apply if the response amounts to a request for further information (Stevenson v McLean)

→ Ancillary terms should be accepted • Jones v Daniel: Jones tried to sell some land. He sent a ‘final’ letter with additional terms (including a 10% deposit requirement). Courts held that the ancillary terms could not be contractual until the defendant had agreed to them and accepted them; they were counteroffers.

→ Mere enquires do not count as rejection •

Something that is a mere enquiry about the contract, which does not seek to vary the terms, is not a counter offer as it does not reject the terms of the offer ( Stevenson).

Contract Law

Revision Notes

→ A counter-offer can become a term of agreement if accepted •

When a counter-offer is accepted, it becomes part of the contract and the original offer is revoked (Davies & Co.)

→ Technical counter-offers will not always count as rejection of the offer if they are not important • When a discrepancy between offer and ‘flawed’ acceptance was not noticed immediately, the court may ignore the counter-offer if the parties have gone on to contract ( Brogden: coal supply. Formed contract and the claimant made some minor amendments and filled in some blanks and sent it back. D filled the document and never communicated their acceptance to the contract. Claimants continued to supply the coal. Dispute arose, and it was questioned whether in fact the written agreement was valid. Courts held written contract as valid regardless of not communicating the acceptance as they continued to supply the coal.

→ Courts will not allow a party to benefit from both counter-offer and original offer • Courts will look at true nature of negotiations, but will not allow parties to introduce meaningless counter-offers unlikely to be challenged in order to rely on both counter offer and offer. → Acceptance may be in any form as long as it is valid •

When the offeror stated in the offer that only a particular type of acceptance is appropriate, and if the offeree fails to respond in such matter, the response cannot be considered an acceptance.

Communication of Acceptance • An agreement cannot be formed without communication. → Acceptance must be communicated to the offeror •

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Powell v Lee: P applied for a job as a headmaster. A third party at the school informed P was appointed without authority. Committee later changed their mind. Court rejected claim that the school had already accepted his offer of work, as he was not in a contractual position until notified by Committee. Acceptance can be construed from the actions of the parties (Brogden).

→ Silence cannot amount to acceptance • •

Acceptance must be a positive act; acceptance cannot be taken with silence Felthouse v Bindley: P wanted to purchase a horse from his nephew, P stated: ‘If I hear no more about him, I consider the horse mine at £30 and 15s’. Nephew did not reply but told D not sell the horse; D sold the horse at auction. P did not possess a contract for horse. Silence does not amount to contact; nephew had not accepted offer to buy.

→ Acceptance can be in any form • This is unless the offeror has prescribed the method for acceptance. • Yates: Terms to purchase land stated that note had to be sent by ‘recorded or delivery post’. Court recognized that it is important to reply by the stipulated method

→ Unilateral contract does not need acceptance, just performance • •

Acceptance and performance are the same thing in a unilateral contract. Carlill: she had done everything required of her under the unilateral offer.

→ ‘Postal rule’

Contract Law •

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Revision Notes

Where the use of ordinary postal system is the normal or anticipated means of accepting the offer, the contract is formed at the time that the letter of acceptance is posted (Adams v Lindsell). Irrelevant that the acceptance letter is lost in the post (Household Fire Insurance) Possible to avoid effects if the offeror states that there will be no contract until acceptance is received (Holwell Securities Ltd.). Modern communication may have made the postal rule irrelevant (Entores: the method of communicating the contract was made in England when the telex was received, not when transmitted). Telephone and answer machines: not absolutely clear; other factors may have to be taken into account (Brinkibon: acceptance of telex received out of office hours. HoL considered all circumstances and stated that acceptance (and the contract) could only be effective once the office re-opened).

Battle of forms and associated problems •

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‘Standard forms’: used in order for the business to ensure that it is always dealing in terms that are advantageous – could create problems between two businesses (battle of the forms) – Davies & Co. Services and goods usually provided before any settled agreement is reached, therefore courts would have to find an alternative way of resolving disputes. Where parties negotiate an agreement subject to contract, and performance begins before an agreement is reached, it could be that a contract does not exist because of performance, but because of unequivocal conduct of the parties ( Muller). Judges are more likely to retain an observance of the traditional technicalities of offer and acceptance (Walford v Miles: no contract enforceable because of the comfort letter; provisional agreement between two parties was too vague).

Consideration • Dunlop v Selfridge: the price for which the other’s promise is bought. Adequacy of consideration • • • •

Consideration need not be adequate, but it must be sufficient.§ Thomas v Thomas: testator’s desire could not act as consideration White v Bluett: anything that is not expressed in economic terms (e.g. promises). Things of no worth could amount to consideration (e.g. wrappers in Chappell v Nestle). Courts do not define economic value too strictly or precisely ( Edmonds)

Consideration moving from Promise

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A person cannot sue/be sued under a contract unless he has provided consideration. Tweddle v Atkinson: Fathers of couple decided to settle some money on the couple. Bride’s father died before giving money; groom sued the executors to the estate; even though he was named in agreements, he gave no consideration for the agreement itself.

Contract Law •

Revision Notes

Still subject to certain exceptions: collateral contract. Promise is made of relevance to the contract by a person not party to it but derives some benefit. In some circumstances may sue (Shanklin)

Past Consideration • • •

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Consideration must not be past – consideration must follow the agreement. Re McArdle: improvements carried out before the promise to pay the daughter-in-law for the money taken off her. If a guarantee comes after the agreement, it did not form part of the contract and could not be relied upon (Roscorla: horse described as calm was temperamental. No consideration for the promise as question came after deal was struck). Exception: Lampleigh – man accused of murder asks L to get him a King’s pardon. L did this and the man promised to pay him £100. He never did. Because the service was requested, it was clear that both parties would have contemplated a promise even though no price was mentioned before.

Consideration and Performance of existing duties • •

Where a party does something by which he is already legally bound, it can never amount to consideration for a fresh contract. Stilk v Myrick: two sailors deserted a ship. Captain promised remaining crew that they could share the two’s wages if the ship got home. Ship owner refused to make payments; promise was not binding on him. No consideration for the captain’s promise and no contract to enforce; they were doing what they were contracted to do.

→ Exception to the rule •

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It will be consideration where what is given is more than could have been expected from performance of the duty (Glassbrook: pit owner promised to pay police for extra protection. After, he refused to pay; court found that police had provided more men than they would have normally done thus there was consideration for the promise). Also an exception when concerning a social arrangement which could be viewed as an intention to create legal relations ( Shadwell v Shadwell) Accepted when existing duty is a contracted one and one party has given more than necessary– Hartley v Posonby: similar to Stilk. However, reduction in number was greater and made voyage more dangerous; agreement to continue amounted to consideration. Promise to perform an existing obligation made to a third party can be valid consideration for a fresh agreement (Pao On).

→ Exception in ‘Williams v Roffey’ • •

Exception occurs where the party making the promise to pay extra is said to receive and extra benefit from the other party’s agreement to complete what he already was bound to do. Williams v Roffey: main contractor promised sub-contractor to pay them more money to get the sub-contract completed by original deadline. Promise was enforceable as supported by consideration; there were factual benefits to the promisor in making such promises. Clear that

Contract Law

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Revision Notes

courts do not want any promises made in business context to be broken – they will find consideration even though it seems difficult to recognize anything tangible. The case introduces a new principle of law: where a party voluntarily makes a bare promise in a commercial context on which the other party relies, the promisor should be bound.

Part payment of debt • •

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Pinnel’s Case: the payment of a smaller sum than the debt itself can never relieve the liability of the debtor to pay the whole debt D C Builders v Rees: D were owed £500 for work they had completed. They waited for months, and they were about to go out of business therefore they accepted Rees’ offer of £300. When they sued for the balance, they were successful. Foakes v Beer: Foakes owed Beer money after a court ruling. Two reached an agreement to pay in installments; later Beer demanded interest – successful due to Pinnel’s Case.

→ Exception to the rule • • •

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Two basic exceptions to the rule where the agreement to pay less than the debt can be enforced. Accord and satisfaction: there is an agreement to accept something other than money from the existing debt. Promissory estoppel: acts as a defence to a claim by a creditor for the remainder of the debt where part-payment has been accepted. Prevents claimant from going back on the promise as it would be unequitable to do so. High Trees: rent of houses during WW2 was reduced. By the end of the war, there were more tenants and claimants wanted rent returned to normal rate; sued for rent for the last two quarters. Succeeded; L. Denning, obiter: if the landlord had sued for the rent of the whole war period he would have failed. Estoppel developed in Combe v Combe: wife separated from husband, sued for promise that he would pay her £2 a week - following High Trees, lack of consideration was irrelevant and wife succeeded. o There must have been an existing contractual relationship o Claimant must have agreed to waive some rights under the contract o Claimant waived rights knowing the defendant would rely on these rights in the future. o Defendant acted in reliance of promis...