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Full contract law notes Contract Law [FT Law plus] (Northumbria University)

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Contract Law Revision Book WHAT IS A CONTRACT? “A contract is an agreement giving rise to obligations which are enforced or recognised by law” (TREITEL) FORMATION OF A CONTRACT: How to create rights and obligations, which will be enforced by law?  The formation of a contract, comes from the exchange of promises, this exchange alone is enough to create a contract.  The breach of a contract comes from the breaking of the promises set out in the “contract”. 3 STAGES OF FORMATION:  AGREEMENT – the agreement comes from the promise made between 2 parties (eg. Goods such as a book for money)  CONSIDERATION – the consideration comes from the talk of a price (this is the consideration)  INTENTION TO CREATE LEGAL RELATIONS PRELIMINARY RULES: Analysis of offer and acceptance – (CASE: Gibson v Manchester City Council) – Lord Denning, attempted to abandon the offer and acceptance principle and look at cases based on facts of individual cases. The case involved the sale of council houses in Manchester, the council sent brochures to all council house tenants telling them that they were thinking of selling homes for a price and to use the forms inside to enquire further. Gibson replied to find out about prices, and was told “they may be willing to sell for a price of £2,800” and told to fill out the form enclosed to proceed, Gibson filled all of the form except the price (as he had a damaged pathway), it was confirmed that this was taken to consideration with the price given, Gibson asked to proceed with the deal. However governments changed due to an election, and the sale of council houses (unless a contract had been agreed) – the court found that there was no contract - so the sale didn’t go through. HoL confirmed this and added that Lord Denning was wrong to try to abandon the principle of offer and acceptance. PRELIMINARY RULES: Objective test – what has been said and done to provide some evidence of a contract Forms of obligation: o Bilateral – exchange of promises Unilateral – two parties involve but only one party is under obligation to do something (eg. A missing cat poster)  

Offer DEFINITION: “An offer is an expression of willingness to contract on specified terms, made with the intention that is to become binding as soon as it is accepted by the person to whom it is addressed” (Treitel – the Law of Contract).  Offer has to be capable of being accepted – then this may lead to a contract  An Invitation to treat is not capable of being accepted and therefore no contract is made.  An offer can be verbal (oral), in writing (written) or may be made expressly or by conduct (eg. Actions) An offer may be made to the one person, to a group of individuals or the whole world. DISTINGUISHING BETWEEN AN OFFER OR AN INVITATION TO TREAT: 

DISPLAY OF GOODS = this is only ever a invitation to treat (CASES: FISHER v BELL, PHARMACEUTICAL SOC OF GB v BOOTS, LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS STORES. o FISHER v BELL – display of a flick knife with a price (4 schillings) – it was an offence under the Restriction of Offensive Weapons Act 1959, to offer offensive weapons to sell. The cases

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focused on whether or not this display was an offer to sell… it was decided that it was merely an invitation to treat. LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS STORES: there was an advert saying: “Saturday 9am, 1 black lapin stole worth $139.50 - $1, first come first serve” Mr Lefkowitz was first but was told that it was only intended for woman so Mr Lefkowitz wasn’t allowed to buy. S.C of Minnesota held that this was an offer and that the offer was clear, definite and with nothing left to negotiate.  1 person was to accept the offer 

There was a contract

ADVERTISMENT: the use of the word “offer” is not indicative of an actual offer - always more likely to be an invitation to treat PATRIDGE v CRITTENDEN:   

Ad saying: “Bramblefinch, cocks and hens, 25 schillings each”- it was an offence at the time to sell or offer to sell wild birds. It was decided that this was merely an invitation to treat. Lord Parker said: “I think when one is dealing with adverts and circulars, unless they indeed come from manufacturers, there is business sense in them being construed as invitations to treat and not offers to sell”.

CARLILL v CARBOLIC SMOKE BALL CO.:  

Advertised for an £100 reward for taking smoke ball as prescribed, and still contracting influenza, Mrs Carlill took it correctly (3 times a day for 14 days) and wanted her money. She approached the company but they refused to pay for Carlill getting influenza – so she sued them, they claimed it “wasn’t serious” but the money in the bank demonstrated.

Court of Appeal, said the advert was an offer, to the whole world, the language was very clear (intention to be bound – unilateral form) (AS THIS IS BASED ON A OBJECTIVE PERSON – REASONABLE PERSON UNDERSTANDING). If a lot of people can accept “an offer” then its merely an invitation to treat (otherwise the offerer would leave themselves wide open to breach of contract). The wording is key to whether or not something is an offer or just an invitation to treat. FEATURES OF AN OFFER:   

Intention to be bound – look at words and actions If intention unclear – look at surrounding circumstances and consequences of classifying as offer – see rules of law in stereotypical situations Problems of limitation (eg. Supply numbers etc)

Sufficient terms upon which to create contract require precision of language.

Acceptance DEFINITION: “a final and unequivocal expression of assent to the terms proposed” There are two essential features of any acceptance, these are:  

Facts of acceptance Communication of acceptance

FACTS OF ACCEPTANCE: 

Acceptance may be by words or conduct (for example: the use of the smoke ball in the case of Carlill v Carbolic Smoke Ball Co., this is acceptance by conduct). This means that the person accepting doesn’t have to actively communicate with words, their actions are enough (for example, petrol stations, filling up your tank – no words are needed)

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Acceptance of conduct or words must be a mirror image of what is agreed – therefore if you change the conditions/terms of an offer, you are not accepting but you are making a new offer.  Acceptance must be distinguished from a counter-offer (Hyde v Wrench) – a counter-offer is a rejection of original offer. o HYDE v WRENCH – the case involved someone who was offering to sell land to the claimant for £1,000 – claimant said they will pay £950 for the land – but the offeree rejected this – so the claimant went back and said he would pay the £1,000 but the landowner refused to sell. o It was held that the offer of £950 destroyed the original offer and made a new one, so there was no contract made as there was no acceptance, as the claimant made a counter-offer, which destroyed the original offer (which was not accepted).  Also contract counter-offers with a request for more information – STEVENSON v MCLEAN. o This case involved an offer made for an amount of iron (40 schillings, net cash per tonne) – an offeree responded: “please wire whether you would accept 40 for delivery over 2 months” – this was decided to be a request for information and NOT a counter-offer as he is still accepting the original offer, he was merely asking for more information on the offer. o It was held that there was no actual communication of acceptance therefore the horse did not belong to Mr Felthouse. 

COMMUNICATION OF ACCEPTANCE: EXTERNAL MANIFESTATION OF ASSENT BY OFFEREE OR AGENT. The general rule of the communication of acceptance is that there must be ACTUAL COMMUNICATION – (ENTORES v MILES FAR EAST CORPORATION) This means that the offerer cannot impose obligations on the offeree by the use of silence – FELTHOUSE v BINDLEY)   

The case involved Felthouse offering to buy his nephew’s horse for £30 – he added to the message “if I hear no more about him, I shall consider the horse mine” The nephew did not reply – but the horse was put up for auction. Mr Felthouse sued the auctioneer for selling what he believed to be his property.

PRESCRIBE MODE OF ACCEPTANCE: -

method of acceptance may be prescribed: either by mandatory or directory: MANDATORY = must follow the exact mode of acceptance stated DIRECTORY = If communication of acceptance is done by an equally advantageous method then the communication of acceptance is valid (As stated in the case of YATES v PULLEYN)

YATES v PULLEYN: Pulleyn owed building plots, Yates was a builder and bought some plots with the offer of buying more plots – the offer said “the option shall be exercisable by notice in writing given by Yates to Pulleyn or Pulleyn’s solicitor at any time between 6th April 1973 and 6th May 1973, such notice to be sent by registered or recorded delivery to the registered office of Pulleyn or Pulleyn’s solicitor” -

Yates sent this agreement by ordinary post on 30th April 1973 and it got there in time but they said it was incorrectly exercised. The CA had to decide whether it was an acceptance or not.

It was decided that the directions in the offer where only a directory method of acceptance and therefore there was an acceptance and a contract was therefore made. INSTANTANEOUS COMMUNICATIONS: -

Face to face, phone calls, fax, telex (type writers), emails. The general rule is that there is a need of ACTUAL COMMUNICATION (must been actually heard or received)

ENTORES v MILES FAR EAST CORP: Where a contract is made? (UK jurisdiction v DUTCH jurisdiction) – claimants = UK company – defendants were an US company (with an office in Amsterdam) – each owned a telex – offer was sent from English

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company saying they would buy 100 of cathodes for £239 per tonne. Offer was accepted by telex from Amsterdam to London. -

Question was - Where was it formed? It was held that acceptance was communicated in London and therefore made in London not Holland (as the communication of acceptance was received in London)

AN ISSUE? What if instantaneous communication is not READ immediately? – IT IS THEREFORE NOT COMMUNICATED IF NO ONE HAS READ THE ACCEPTANCE - note obiter dictum of Lord Wilberforce in the Brinkibon case (the case involved a telex being sent and received like in Yates) o “No universal rule can cover all such cases (i.e. acceptance by telex), they must be resolved by reference to the intentions of the parties by sound business practice and in some cases by a judgement of where risk lays”. MONDIAL SHIPPING v ASTARTE SHIPPING – telex communication of the withdrawal of a ship (at 23:41, Friday) – this is not business hours so it was defendant of the business practise – if in office hours then it should be deemed to have been communicated – but it wasn’t so communication of acceptance was not given. -

EXCEPTIONALLY ACCEPTANCE COMPLETE WITHOUT COMMUNICATION: -

Conduct of the offeror – ENTORES CASE – (e.g. not hearing an acceptance in a phone call– its your fault not the accepters – as there is an error in receiving an acceptance) Unilateral Contracts – CARLILL CASE – communication is not expected (e.g. missing dog poster = needs no means of communication) Non-instantaneous communication – e.g. Letters by post (Adams v Lindsell) – THE POSTAL RULE.

EXCEPTION – ACCEPTANCE BY POST - THE POSTAL RULE: -

The postal rule applies to non-instantaneous means of communication – acceptance complete on putting a letter in the post box o ADAMS v LINDSELL - principle = acceptance is complete at posting of letter o HOUSEHOLD FIRE INSURANCE v GRANT – in that case offered to buy shares at a certain price – the claimant company sent a letter of acceptance was sent by post, but it never arrived – however it was held that from the moment it was posted in the letterbox, the offer had been accepted. o Evidence of post is generally needed.

This is however, subject to a number of qualifications: - Rule may be excluded by terms of the offer – HOWELL SECURITIES v HUGHES – offer to sell a house (by the way of an option, exercisable by notice in writing) – a letter of acceptance was sent by claimant but it never arrived – question was whether there was a contract – the case then went to the court of appeal. HOWEVER, The words of the offer made it void – as it was exercisable by notice – to have notice, you must have knowledge and there was no knowledge of acceptance. Rules only applies if reasonable (HENTHORN v FRASER) – what is “reasonable” depends on the circumstances of the situation. o The case of HENTHORN v FRASER involved the claimant lived in Birkenhead and travelled to Liverpool and received an offer – he took it away with him and accepted the offer by post – the courts confirmed that it was a reasonable means of the use of post due to the inconvenience of travelling back to Liverpool. - Rules doesn’t apply if it would lead to manifest inconvenient or absurdity (Holwell Securities v Hughes) o An example of a means of post would be if an acceptance is sent at 5pm on a Monday (knowing for well there is a postage strike going on) but still thinking the post will get there the next day. Rules does not apply to communication, and revocation, of offer (Byrne v Van Tienhoven) -

UNILATERAL CONTRACTS AND THE PROBLEMS WITH THEM:  

Usually not necessary to communicate acceptance (eg. Carlill – using the smoke ball as stated is acceptance) Offers can be withdrawn BUT this leads to the issue of when is acceptance completed?

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

Can an unilateral contract be revoked once acceptance has commenced? (ERRINGTON v ERRINGTON)

ERRINGTON v ERRINGTON: The case involved a father buying a house for his son and daughter in law (subject to conditions). It was agreed that if the son and daughter in law pay the mortgage instalments, the father will change the name of the owners to them. However, before the mortgage is finished being paid by the son and daughter in law, the father dies and his wife (the widow) tried to claim the house as her own. It was held that a unilateral contract was made (“the fathers promise was a unilateral contract, the promise of the house in return for payments of instalments, it could not be revoked by the father, once the couple had started instalments…” TERMINATION OF THE OFFER: an offer may terminate in various circumstances. REVOCATION OF AN OFFER: An offer may be revoked at any time before acceptance (Payne and Cave – case of an auction, which is an invitation to treat – offers come from the floor of auctioneers – acceptance happens when the hammer is tapped.)  Offeree must be given notice of revocation – Dickinson and Dodds; The Brimnes, Byrne v Van Tienhoven; Shuey v US DICKINSON v DODDS: offeree must have notice (even if from a third party) – 10th June, Dodds made a written offer to sell premises for £800 to Dickinson (who had until 9 am on 12th June to accept). 11th June, property sold premises to someone else but Dodds didn’t tell Dickinson. 12th June – Dickinson finds out that the premises was sold but still tried to accept the offer before 9am that day. It was held that a contract was made, as he knew the offer was gone (even though he found out from a third party). 

THE BRIMNES CASE: Notice of the withdrawal of a ship – a telex was sent to give this notice – the telex was sent and received in business hours but was not read until the following day. 

Given the opening hours – the telex ought to have been read at the time of receipt of the telex – its no good claiming to have “not got” it – because you have received it and if you had done something with it when it arrived, there would have been no issue.

BYRNE v VAN TIENHOVEN: This case shows objectivity over subjectivity, it also shows that the postal rule does not apply in these circumstances (revocation) 1st October – D made an offer by letter to claimants (in NY) – asked for reply by telegraph (noninstantaneous). 11th October – the offer is received and accepted immediately. However, on 8th October – another letter was sent (withdrawing the offer) but it was not received until 20th October (subjective agreement? NO, as claimant wanted to buy – we don’t use this approach – we used the OBJECTIVE approach – and it was decided that a contract was made on 11th and the offer cannot be revoked after acceptance. WHY DOES THIS HAPPEN? It was held that it a contract was formed on 11th due to the postal rule – revocation would only be complete upon This case demonstrates the artificial rules of offer and acceptance. SHUEY v US: Deals with issues relating to unilateral contracts – it is possible to revoke an offer – make revocation in the same way as the offer is made (through the same channels they were made) - NO DIRECT AUTHORIES IN THE UK OPTIONS – DICKINSON v DODDS:  Option - an offer expressed to be open for a certain time can may be revoked unless supported by consideration  An offer made can be withdrawn - unless in the form of an option – as it is a binding promise to keep the offer open (cannot revoke because of consideration)  If there is a consideration, even if it is as small as a £1 – it is enough. Downloaded by Max Howard ([email protected])

OTHER FORMS OF TERMINATION: LAPSE OF OFFER – time limits (if you fail to meet it the contract is terminated) – if no expressed time limit – offer will remain open for a “reasonable length of time” (dependent on the circumstances) o RAMSGATE VICTORIA HOTEL v MONTEFOIRE - Offered to buy shares in a company in June 1864 – company allocated shares to D in November 1864 – defendant said No I don’t want them now – OFFER HAD LAPSED – as this is not a reasonable length of time.  REJECTION OF OFFER – saying “no” – this has the same effect as a counter offer – as it rejects the original offer.  FAILURE OF CONDITION ON WHICH OFFER IS DEPENDENT – offered health insurance, I go outside to consider the offer and fall off a cliff – can you accept it? No. DEATH – if the offeree dies – the offer lapses, no one else can accept on their behalf – if the offeror dies? Does it automatically terminate? This depends on the knowledge – if the person knows of the death, they cannot accept. (However, if in ignorance of death, the offer can accepted (if capable of being accepted. ) 

Consideration Essential for the creation of a valid and simple contract – in order to make a valid and simple contract, there needs to be consideration – consideration helps draw a line between promises or deeds and a contract – consideration is needed for the promise for it to be a contract. DEFINITION: CURRIE v MISA – lush J said: “A valuable consideration, in the sense of the law, may consist in some right, interest, profit or benefit accuring to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other” What you have to identify is the promise made, to make a promise binding you need to make a consideration – Consideration has to come from the other party (NOT THE PARTY MAKING THE OFFER) Whether it is a benefit or detriment – it doesn’t have to be both, just one will suffice THIS IS NOT A COMPLETE DEFINITION AND THEREFORE HAS PROBLEMS. NEED FOR EXCHANGE: This is the act of giving someone something for goods or services etc (eg. Money) Price paid for the promise – COMBE v COMBE – a husband and wife were separating, and he promised to pay her £100 per annum, wife decides to forbear from suing him (because of the promise he had made) – he never paid her the money as he had promised and so later the wife de...