Contract Law - Revision Notes Final PDF

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Contractual Agreements Common law remedies, equitable remedies, Terms of the Contract I: Express & Implied Terms and Categorization, Terms of the Contract II: Incorporation, Limitation, Exclusion and Penalty Clauses, Void Contracts: subject matter and incapacity of parties, Proper Ne...

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Contractual Agreements Common law remedies, equitable remedies, Terms of the Contract I: Express & Implied Terms and Categorization, Terms of the Contract II: Incorporation, Limitation, Exclusion and Penalty Clauses, Void Contracts: subject matter and incapacity of parties, Proper Negotiation of Contracts: Mistake & Misrepresentation, Formation of Contract, consideration at common law, variation of contract, discharge of obligations

Offer and Acceptance For there to be a contractual agreement there must be an Offerer and an Offeree. The offeror makes an offer and the offeree accepts the offer and together it creates a contract. In order to amount to an offer, the offeror must have an intention to be bound. - Harvey v Facey [1893] AC 552 Privy Council - Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Invitation to Treat An offer needs to be distinguished from an invitation to treat. Whereas an offer will lead to a binding contract on acceptance, an invitation to treat cannot be accepted it is merely an invitation for offers.

Goods on Display in Shops Goods on display in shops are generally not offers but an invitation to treat. The customer makes an offer to purchase the goods. The trader will decide whether to accept the offer - Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401 Court of Appeal - Fisher v Bell [1961] 1 QB 394

Advertisements Generally, advertisements are seen as invitations to treat - Partridge v Crittenden (1968) 2 All ER 421 However, some advertisements can amount to offers - Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Contracts by Tender The request for Tenders represents an invitation to treat and each tender submitted amounts to an offer unless the request specifies that it will accept the lowest or highest tender or specifies any other condition. If the request contains such a condition this will amount to an offer of a unilateral contract where acceptance takes place on performance of the condition: - Spencer v Harding Law Rep. 5 C. P. 561

Auctions Where an auction takes place with reserve, each bid is an offer which is then accepted by the auctioneer. Where the auction takes place without reserve, the auctioneer makes a unilateral offer which is accepted by the placing of the highest bid. - Heathcote Ball v Barry (2000) EWCA Civ 235

Machines The Machine Represents the Offer, the acceptance is inserting the money. Once an offer is accepted it can’t be changed e.g. having terms of the contract written on the back of the ticket is too late – it must be on a sign read before the offeree accepts the machine’s contract e.g. a parking payment machine. - Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal

Termination of Offers An offer may be terminated by:

Death of offerer or offeree Lapse of time The offer will terminate after reasonable lapse of time. What amounts to a reasonable period will depend on the circumstances. o Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109

Revocation The offerer may revoke an offer before it is acceptance takes place o Dickinson v Dodds (1876) 2 Ch D 463 This may not apply to unilateral contracts were acceptance requires the performances of an act. o Errington v Errington Woods [1952] 1 KB 290 Court of Appeal o Dahlia v Four Millbank Nominees [1978] Ch 231 Court of Appeal

Counter Offer A counter offer is where an offeree responds to an offer by making an offer on different terms. This has the affect of destroying the original offer so that it is no longer open for the offeree to accept. o Hyde v Wrench (1840) 49 ER 132 Chancery Division (Decided by Lord Langdale MR)

Acceptance Once a valid acceptances takes place, a binding contract is formed. It is therefore important to know what constitutes a valid acceptance in order to establish if the parties are bound by the agreement. There are three main rules relating to acceptance:

The Acceptance must be communicated by the Offeree. The Terms of the Acceptances must exactly match the terms of the offer. The Agreement must be certain.

1. Communication The general rule is that the offeror must receive the acceptance before it is effective: - Entorres v Miles Far East [1955] 2 QB 327 Court of Appeal Silence will generally not constitute Acceptance: - Felthouse v Bindley [1862] EWHC CP J35 Court of Common Pleas Acceptance can be through Conduct - Brogden v Metropolitan Railway (1877) 2 App. Cas. 666 - Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401 Court of Appeal The Postal Rule Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stampted the acceptance takes place when the letter is placed in the post box. - Adams v Lindsell (1818) 106 ER 250 It is relatively easy for parties to exclude the postal rule. E.g. Saying “Notice by writing” instead of “by post” makes the postal rule not apply - Holwell Securities v Hughes [1974] 1 WLR 155

2. The terms of the acceptance must exactly match the terms of the offer If the terms differ this will amount to a counter offer and no contract will exist: - Hyde v Wrench (1840) 49 ER 132

1. The Agreement must be certain when viewed objectively it must be possible to determine exactly what the parties have agreed to. - Scammell & Nephew v. Ouston [1941] AC 251 - Sudbrook Trading Estate v. Eggleton [1983] AC AC 444

Legal Intention to make a Contract The requirement of intention to create a legal relations in contract law is aimed at sifting out cases which are not really appropriate for court action. Not every agreement leads to a binding contract which can be enforced through the courts. For example you may have an agreement ot meet a friend at a pub. You may have a moral duty to honour that agreement but not a legal durty to do so. This is because in general the parties to such agreements do not intend to be legally bound and the law seeks a mirror the party's wishes. In order to determine which agreements are legally binding and have an intention to create legal relations, the law draws a distinction between social and domestic agreements and agreements made in a commercial context.

Intention to create legal relations in social and domestic agreements In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations: - Jones v Padavatton [1969] 1 WLR 328 Court of Appeal - Balfour v Balfour [1919] 2 KB 571 this presumption may be rebutted by evidence to the contrary. This evidence may consist of: - A written Agreement o Errington v Errington Woods [1952] 1 KB 290 Court of Appeal - Where the parties have separated o Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal - Where there is a third party in the agreement o Simpkins v Pays [1955] 1 WLR 975 Queen's Bench Division

Intention to create legal relations in commercial agreements Where an agreement is made in a commercial context, the law raises a presumption that the parties to intend to create legal relations by the agreement - Esso Petroleum v Customs & Excise [1976] 1 WLR 1 House of Lords - Edwards v Skyways [1964] 1 WLR 349 Court of Appeal Again, this can be rebutted with evidence to the contrary

Binding in honour only clauses: Not legally enforceable by the courts - Rose & Frank Co v Crompton Bros [1925] AC 445 House of Lords - Ferrera v Littlewoods Pools [1998] EWCA Civ 618 Court of Appeal

Consideration In contract law consideration is concerned with the bargain of the contract. A contract is based on an exchange of promises. Each party to a contract must be both a promisor and a detriment is referred to as consideration. Consideration must be something of value in the eyes of the law - (Thomas v Thomas (1842) 2 QB 851. This excludes promises of love and affection, gaming and betting etc. A one sided promise which is not supported by consideration is a gift. The law does not enforce gifts unless they are made by deed. Whilst the common law strictly adheres to the requirement of consideration (although in some instances the courts seem to go to some lengths to invent consideration e.g. Ward v Byham (1956) 1 WLR 496, Williams v Roffey Bros (1990) 2 WLR 1153; equity will, in some instances, uphold promises which are not supported by consideration through the doctrine of promissory estoppel.

Rules of Consideration There are various rules governing the law of consideration. 1. The consideration must not be past 2. The consideration must be sufficient but not adequate 3. The consideration must move from the promisee 4. An existing public duty will not amount to valid consideration 5. An existing contractual duty will not amount to valid consideration 6. Part payment of debt is not valid consideration for a promise to forego the debt

The Consideration must not be past - Re McArdle (1951) Ch 669 Court of Appeal Past consideration may be valid where it was proceeded by a request: - Lampleigh v Braithwaite [1615] EWHC KB J17 Consideration must be sufficient but not adequate There is no requirement that the consideration must be market value, providing something of value is given e.g. £1 given in exchange for a house would be valid. The courts are not concerned with whether the parties have made a good or bad bargain: - Chappel v Nestle [1960] AC 87 House of Lords - Thomas v Thomas (1842) 2 QB 851

Consideration must move from the promisee If a person other than the promisee is to provide the consideration, the promisee can not enforce the agreement: - Tweddle v Atkinson [1861] EWHC QB J57 Queen's Bench Division Existing Public duty will not amount to valid consideration Where a party has a public duty to act, this can not be used as consideration for a new promise: - Collins v Godefrey (1831) 1 B & Ad 950 King's Bench Division Unless the promisor goes above their duty: - Glasbrook Bros v Glamorgan County Council [1925] AC 270 House of Lords - Ward v Byham [1956] 1 WLR 496 Court of Appeal Existing Contractual duty will not amount to valid consideration If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise: - Stilk v Myrick [1809] EWHC KB J58 King's Bench Division Unless the party goes beyond their existing duties - Hartley v Ponsonby [1857] 7 EB 872 Or if they confer a practical advantage: - s v Roffey Bros [1990] 2 WLR 1153 If the existing contractual duty is owed to a 3rd party this may be used as valid consideration for a new promise: - Scotson v Pegg [1861] EWHC Exch J2 - New Zealand Shipping v Satterthwaite [1975] AC 154 Privy Council Part Payment of a Debt cannot be valid consideration for a promise to forego the debt Part payment of a debt is not valid consideration for a promise to release the debt in full: - Pinnel's Case 1602 5 Rep, 117 Court of Common Pleas o Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made:  a). before the due date  b). with a chattel  c). to a different destination This rule from Pinnel's case was affirmed by the House of Lord in: - Foakes v Beer (1883-84) LR 9 App Cas 605 House of Lords Further exceptions to the rule in Pinnel's case: - Where part payment is made by the third party o Hirachand Punamchand v Temple [1911] 2 KB 330 Court of Appeal - Promissory Estoppel

Promissory Estoppel Promissory Estoppel is an equitable doctrine which in some instances can stop a person going back on a promise which is supported by consideration. Promissory estoppel was developed by an obiter statement by Denning J in Central London Property Trust ltd v High Trees Ltd (1947) KB 130. Denning J based the doctrine on the decision in Hughes v Metropolitan Railway (1876-1877) L R 2 App Cas 439. The House of Lords affirmed the existence of promissory estoppel in contract law in Tool Metal Manufacturing v Tungsten (1955) 1 WLR 761).

Requirements of Promissory Estoppel 1. A pre-existing contract or legal obligation which is then modified o Combe v Combe (1951) 2. There must be a clear and unambiguous promise o This can be implied through conduct o Woodhouse A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972] AC 741 3. Change of position o Alan v El Nasr [1972] 2 WLR 800 4. It must be inequitable to allow the promisor to go back on their promise o D & C Builders v Rees [1966] 2 WLR 28 Court of Appeal

Contractual term or representation Statements made during the course of negotiations could amount to a contractual term or a representation. It is important to know whether a particular statement is a contractual term or if it is a representation as this will determine the appropriate cause of action and remedy available. If the statement amounts to a term of the contract which is not fulfilled, the innocent party may sue for breach of contract. If the statement is merely a representation which turns out to be untrue, the innocent party may bring an action for misrepresentation.

In deciding whether a statement amounts to a term or representatoin the courts look at four factors: - The Parole Evidence Rule o Where the contract has been put into writing only the terms included in the written document are terms any verbal statements will be representatoins - Relative expertise of the party o If the representor has the greater knowledge, it is more likely to be a contractual term. Conversely if the representee has the greater knowledge it is more likely to be a representation o Oscar Chess Ltd v Williams [1957] 1 WLR 370 Court of Appeal o Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR 623 Court of Appeal

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Importance of the statement o Where the represented indicates to the representor the importance of the statement, this is likely to be held to be a term: o Bannerman v White (1861) 10 CBNS 844 o Ecay v Godfrey [1947] 80 Lloyds Rep 286 Time o The longer the time lapse between making the statement and entering the contract the more likely it will be a representation: o Routledge v Mckay [1954] 1 WLR 615 Court of Appeal

Conditions, warranties and innominate clauses Contract terms can either be conditions, warranties or innominate terms/ Traditionally, contractual terms were classified as either conditions or warranties. The category of innominate terms was created in Hong Kong Fir Shipping. It is important for parties to correctly identify which terms are to be conditions and which are to be warranties. Where there has been a breach of contract, it is important to determine which type of term has been breached in order to establish the remedy available.

Conditions A condition is a major term of a contract which goes to the root of the contract. If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages: - Poussard v Spiers (1876) 1 QBD 410

Warranties Warranties are minor terms of a contract which are not central to the existance of the contract. If a warranty is breached the innocent party may claim damages but can not end the contract - Bettini v Gye (1876) QBD 183

Innominate Terms The innominate term approach was established in the case of Hong Kong Fir Shipping. Rather than classifying the terms themselves as conditions or warranties, the innominate term approach looks to the effect of the breach and questions whether the innocent party to the breach was deprived of substantially the whole benefit of the contract. Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end: - Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 Court of Appeal

This approach has been criticised for sacrificing certainty. Also the innocent party may well be liable for wrongful reprudiation if they treat the contract as at an end where it is found that the breach did not deprive them substantially the whole benefit of the contract. Even where the parties have themselves classified the term as a condition the courts can hold that it was in fact only a minor term and therefore a breach of that term would not give rise to the right to repudiate the contract -

Schuler v Wickman Tools [1974] AC 235 House of Lords

The need for certainty in commercial contracts: - The Mihalis Angelos [1970] 3 WLR 601 - Bunge Corporation v Tradax [1981] 1 WLR 711 House of Lords

Terms implied by Common Law The courts are reluctant to imply terms in to a contract at common law. See Shell UK v Lostock Garage. It is the parties' role to agree the terms of their particular agreement. It is generally not considered to be the role of the courts to rewrite a contract for the parties/ Freedom of contract prevails. There are limited circumstances where the courts will imply a term into a contract at common law: - Term implied through custom - Term implied by fact - Term implied by law

Terms implied through custom Where a particular term is prevalent in a trade the courts may imply a term in a contract of the same type in that trade - Hutton v Warren [1836] EWHC Exch J61 Terms implied through fact Terms implied as fact are based on the imputed intention of the parties. Two tests have developed: -

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The business efficacy test: o This asks whether the term was necessary to give the contract business efficacy i.e. would the contract make business sense without it? 0 The coutrts will only imply a term where it is necessary to do so. o The Moorcock (1889) 14 PD 64 The officious bystander test o Had an officious bystander been present at the time the contract aws made and had suggested that such a term should be included, it must be obvious that both parties would have agreed to it.

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Shirlaw v Southern Foundries [1939] 2 KB 206 Court of Appeal

Terms implied by law The courts may imply a term in law in contract of a defined type e.g. Landlord/tenant, retailer/customer where the law generally offers some protection to the weaker party: - Liverpool City Council v Irwin [1977] AC 239 House of Lords In addition to being a contract of a defined type, the term must be a reasonable one to include: - Wilson v Best Travel [1993] 1 All ER 353 The term must also be sufficiently certain: - Shell UK v Lostock Garage Limited [1976] 1 WLR 1187 Court of Appeal

Statutory implied terms - The Consumer Rights Act 2015, Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 In contracts for the sale of goods and supply of services certain basic provisions are implied by statute in order to provide protection to purchasers. In consumer contracts, the provisions derive from the Consumer Rights Act 2015. The Consumer Rights Act 2015 came into force on 1st October 2015 and replaced many of the provisions contained in the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 where there is consumer sale. The Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 have not been repealed and still apply to contracts for the sale of goods and the supply of services outside a consumer context (e.g. private sales and business to business transactions).The main protection offered covers where the seller does not have the right to sell the goods, where the goods are sold by description there is a n implied term that the goods will correspond to that description, business must ensure that the goods they sell are of satisfactory quality and fit for their purpose, where the goods are sold by sample there is an implied term that the goods will correspond to the sample in quality. In addition there are implied terms that the service must be carried out with reasonable care and skill, that the service will be carried out within a reasonable time and where no price is agreed a reasonable price will be paid. These protections are in the form of statutory implied terms. This means that the Consumer Rights Act or the Sale of Goods Act will put th...