Contracts - Notes PDF

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Contract Formation1. OFFEROffer: willingness to contract on certain terms, made with the intention that it shall be legally binding once it is accepted by the person it is addressed to.Offeror: the party making the offerOfferee: the party to whom the offer has been madeMust be unconditional, clear a...

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CONTRACTS Contract Formation

1. OFFER Offer: willingness to contract on certain terms, made with the intention that it shall be legally binding once it is accepted by the person it is addressed to. Offeror: the party making the offer Offeree: the party to whom the offer has been made Must be unconditional, clear and ambiguous Storer v Manchester City Council

Consensus ad idem: meeting of minds Two types of offer: 1. Bilateral offers – made to one person or group and only they can accept. These require verbal or written acceptance 2. Unilateral offers – made to ‘the whole world’ or general public. This is seen in cases of advertisements or cases of reward Carlill v Carbolic Smoke Ball Co (1893) Anyone can make an offer – individual, partnership, limited company, organisation. This can also be made through a machine or notice Thornton v Shoe Lane Parking (1971) Offers may be conditional to another contract being made Hoover Free Flights Communication needed to accept offer Taylor v Laird (1856) + Exact timing may be critical Stevenson v Mclean (1880)

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Do not confuse with enquiry for more information!

INVITATION TO TREAT? an indication of a contract Includes:  Displays in window Fisher v Bell (1961)  Advertisements of goods or services Partridge v Crittenden (1968)  Auction lots – allowed under S57 Sale Of Goods Act 1979 British Car Auctions v Wright (1972)

CONTRACTS

ENDING AN OFFER 1. Acceptance When the offeree accepts the offer unconditionally, then the offer and a contract is formed. 2. Rejection If the offeree rejects or refuses the offer, then offer ends. 3. Counter-offer - A response to an offer which may mean changing elements of the original offer. - If counter-offer is rejected by the offeror, the offeree has no obligation to sell as the original offer is now terminated - Hyde v Wrench (1840) 4. Lapse of time Offer can end if it was only open for a limited time (can be stated within the terms) or if too much time as passed - Ramsgate Hotel v Montefoire (1866) 5. Death Offers of personal nature end if offeror dies but if general, estate can honour it Bradbury v Morgan (1862) 6. Revocation - Offeror can withdraw but only if it has not been accepted yet Rule is found in Byrne v Van Tein Hoven (1880) - Even if offer states the time it will remain open - Routeledge v Grant (1828) - 3rd party can also revoke the offer - Dickinson v Dodds (1876) - If on-going act, revocation is not allowed - Errington v Errington (1952) - Revocation must be given same notoriety as original offer. Eg. If offer was put in newspaper, revocation must also be put in newspaper Shuey v US (1875)

2. ACCEPTANCE

CONTRACTS A valid and unconditional agreement to all terms of an offer by words or conduct

Mirror image rule: acceptance must be communicated in positive and unqualified way so acceptance is acknowledged – a positive act Offeror may state form of type of acceptance required so this must be compiled with Yates v Pulleyn (1975) Silence is never accepted - Felthouse v Bindly (1863)  Offeree must check if offeror has received their acceptance this burden of communicating acceptance is with the offeree - Acceptance is effective as soon as it is received Entores v Miles Far East Corp (1955)

Waiver: acceptance does not need to be communicated; it can be expressed or implied - By conduct: the job proceeds before the formal contract is agreed in all its detail Reveille Independent LLC v Anotech International (UK) Ltd (2016) Machines can also make offers and accept (eg. Vending/ car park ticket machines) Thornton v Shoe Lane Parking (1971)

STATUTORY PROTECTION The Unsolicited Goods and Services Act 1971 - This ensures that contracts are not imposed on unsuspecting people Consumer Contracts Regs 2013 - This states that unsolicited goods that are sent to consumers can be treated as an unconditional gift. - Goods sent by mistake are not unsolicited goods and remain the property of the sender.

THE POSTAL RULE Developed in 19th century Letters become property of Her Majesty (Royal Mail) once it is in the box. Postal rule was set out in Adams v Lindsell (1818) The post should be used if:  Offer was made by post  Offeror specifies acceptance can be by post  Previous dealings between parties has been via post The post may not be acceptable if:  Offer was made in direct way (fax, word of mouth)  Awareness of some delay by post (eg. Strikes)  Offeror has stated (specifically or implied) that it will not apply in terms and conditions Holwell v Hughes (1974) Acceptance is valid as soon as the letter is posted. - Is this fair? How does the offeror know there has been acceptance? Household Fire Ins v Grant (1879)

OTHER METHODS OF COMMUNICATION

CONTRACTS Phone calls are instantaneous so acceptance will take place when received or heard. Explained by Lord Denning in Entores Ltd v Miles Far East Corp (1955) Out-of-hours messages are only effective once the office reopens - Brinkibon Ltd v Stahag Stahl (1983) However, this is not a clear cut rule. The outcome will depend on the context and intentions of each involved parties. Thomas v BPE Solicitors (2010) – 6pm is not outside working hours for the particular transaction

DISTANCE/INTERNET SELLING Phone, fax, mail order, catalogue or online shopping Old law: Consumer Protection (Distance Selling) Regulations 2000 New law: Consumer Contracts Regulations 2013 This states the seller must give buyer 14 days to allow for any change of mind

The Electronic Commerce Regulations 2002  Regulation 12 states that display of items on the internet is an invitation to treat  This states that the buyer makes the offer and they give consent through technological means (clicking an icon). The contract is made when buyer receives receipt from seller.  Seller makes acceptance but this only takes place when seller dispatches goods.

3. CONSIDERATION Courts take a ‘laissez faire’ approach – freedom to contract

CONTRACTS Definitions:  ‘a benefit to one party and a detriment to the other’ Currie v Misa (1875)  ‘the claimant must show that he has bought the defendant’s promise by doing/giving/promising something in return for it’ Dunlop v Selfridge (1915) Promisor: a person who makes a promise to another Promisee: the person to whom the promise is made  In a bilateral contract, each party is both the promisor and promise  In a unilateral contract, one party makes the promise, the other acts Two types of consideration: 1. Executed consideration – the act has been carried out 2. Executory consideration – the act promised has not yet been done

RULES Under common law

1. Must be adequate but no need to be sufficient - Adequacy: generous enough to be a fair bargain Idea of this is that parties themselves agree on the accepted value of the things being exchanged does not have to be good or bad – means that courts are only interested in whether a bargain exists. Thomas v Thomas (1842) and Chappell v Nestle Co. Ltd (1960) - Sufficiency: must be real, tangible and have some actual value. Love and affection is not considered to have any value – White v Bluett (1853) However, Ward v Byham (1956) – ‘keep child happy’ but payments being made to do this resulted in a legal obligation 2. Must not be in the past - ‘past consideration is no consideration’ - This means that consideration has no value where it has already been completed before the agreement was made Leading case: Re McArdle (1951) - Exception to this rule: an act done in the past will be valid consideration if payment was expressed or implied all along - mutual understanding. Lampleigh v Braithwaite (1615) and Re Casey’s Patent (1892) 3. Must not be a pre-existing duty - If a person is required to do something already (by law or contract), they cannot claim that this is a duty under consideration - Unless: they go beyond their legal obligations and do something extra - Legal duty cases: Collins v Godefroy (1831) and Glasbrook Bros v Glamorgan CC (1925) - Contractual duty cases: Stilk v Myrick (1809) and Hartley v Ponsonby (1857) - More modern case: Williams v Roffey (1990) states an exception whereby the party making a promise to pay extra is said to receive an extra benefit from the other party to complete a pre-existing duty. (consideration after agreement – allowed) 4. Consideration must move from the Promisee - This means that a person cannot sue or be sued unless consideration has been provided - Tweedle v Atkinson (1861)

CONTRACTS

5. A promise to accept part payment of a debt is not consideration - Rule arises from Pinnel’s Case (1602) - Payment of a lesser sum on the day a debt is due cannot be in satisfaction of a greater debt – this means creditor is able to claim whole debt - Foakes v Beer (1884) - 2 exceptions to this rule:  Accord and Satisfaction: where there is an agreement (accord) and voluntary consideration (satisfaction) There may be acceptance of something other than money for whole debt, even if it not equal value to debt. This must be done at the request of creditor, not debtor  Promissory Estoppel: an equitable doctrine which can prevent a person going back on an agreement (after altering an existing contract via promise) Central London Property Trust Ltd v High Trees House Ltd (1947) However, there are limitations of Promissory Estoppel: - It can only be used to defend an existing claim, not new contract - Promisee must have relied to detriment on the promise - It may only suspend rights but not extinguish promisor rights - Anyone seeking to rely on this principle must show they behaved equitably as seen in D and C Builders v Rees (1965)

4. PRIVITY Third Party Rights

CONTRACTS Privity of contract: only those who are parties to a contract are bound by it and can benefit from it. Both parties must have provided consideration. Third Party: a person who was not involved nor is a party to the contract and has not provided consideration but has an interest in the performance of the contract. - They cannot sue nor be sued even where contract was made for their benefit Price v Easton (1833) The Doctrine of Privity was established through the repeated application of legal precedents. Dunlop Pneumatic Tyre Co. Ltd v Selfridge (1915)

EXCEPTIONS TO THE RULE OF PRIVITY Agency: it allows a person to authorise another to make a contract on their behalf so party will be bound to contract even if they did not make it themselves. Collateral contracts:  Collateral means additional/ secondary  Courts may be able to find a separate contract running alongside the main agreement. EG. Someone may be employed as a barista but is also a team leader once a week This is seen in Shanklin Pier v Detel Products (1951) Restrictive Covenants:  Covenant = an agreement  Within this agreement, there may be a clause that restricts a person from doing something. This is the restrictive covenant. Tulk v Moxhay (1948) Holiday Cases:  Only the parent/guardian who booked the holiday has a contract – so only them who can sue or be sued.  Leading case: Jackson v Horizon Holidays Ltd (1975) Statutory Exceptions:  Law of Property Act – allows assignment of life policies  The Married Women’s Property Act 1882 – allows spouse to sue as a direct party upon the life policy of their deceased partner  The Road Traffic Act 1930 – allows a victim of physical injury to sue the insurance company directly and to recover from the policy between driver and insurer

CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 Applies to consumer contracts where goods are bought for someone else This Act enables parties to enforce contractual terms even where they are not a party, provided:  S1 states where party may benefit from contract to which they were not a direct party - S1(1) (a): if contract expressly says that they may do so – Tweddle v Atkinson - S1(1) (b): if the contract appears to discuss an intended benefit on them Nisshin Shipping v Cleaves (2003) 

S1(3): requires 3rd party to be expressly identified - No need for 3rd party to be in existence at time of contract. So unborn person or unincorporated company could see using this Act.

CONTRACTS

S1(5) states that where a benefit has been discussed on 3rd party, they have to be treated as though they had been included when contract was made. Leading case: Beswick v Beswick (1967) 

5. INTENTION TO CREATE LEGAL RELATIONS (ITCLR) the parties to a contract expressly or impliedly agree that the contract is legally binding and enforceable

Two Assumptions: these are rebuttable

CONTRACTS 1. Social or domestic agreement: presumes that ITCLR not enforceable in law 2. Commercial or business agreement: presumes that ITCLR is enforceable so is legally binding

Rebuttable: oppose idea by contrary evidence/proof that suggests otherwise Business or domestic? ‘halfway house’ case: Sadler v Reynolds (2005)

SOCIAL/DOMESTIC AGREEMENTS These are made between family members or between friends. Starting point = assume there was no intention to be legally bound.

Between husband and wife (cohabitees): - Balfour v Balfour (1919): was not legally binding because agreement made when they were happily married - Merritt v Merritt (1970): parties had separated and there was written agreement so legally binding - Darke v Strout (2003): husband wrote terms in letter so legally binding Between parent and child: - Courts will examine real purpose of agreement – social or legal matter? - Jones v Padavatton (1969): vague family agreement so not binding Where financial security is put at risk: - Will likely rebut the presumption and ITCLR will be found - Parker v Clarke (1960)  Lottery/Bingo cases: - Not legally binding - Written agreements may rebut this - Peck v Lateu (1973) - Wilson v Burnett (2007)  Sharing petrol costs: - Issue surrounding giving lifts to friends and families and sharing the costs - Coward v Motor Insurers’ Bureau (1963) - Albert v MIB (1971)

COMMERCIAL/BUSINESS AGREEMENTS Parties intend to be legally binding and evidence to suggest otherwise may be difficult to prove Courts aim is to protect the individual citizen from larger businesses  Especially with gifts from businesses which are legally binding.  Esso v Commissioners of Customs & Excise (1976)  McGowan v Radio Buxton (2001) Edwards v Skyways (1964) states that the burden of proof is on the person seeking to establish that the presumption has been rebutted – party that is fighting against presumption

Exceptions to the commercial presumption:  Where words of a contract suggest ITCLR were not intended - ‘in honour’ or ‘Gentleman’s’ agreements as illustrated in Jones v Vernons Pools (1938)  Mere puffs: statements that are not to be taken seriously

CONTRACTS

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- Weeks v Tybald (1605) Contracts that are ‘subject to contract’: no contract yet so no intention - Confetti Records v Warner Music (2003) Letter of Comfort: written assurance by parent company who has no obligation to act - Kleinwort Benson Ltd v Malaysian Mining Corporation (1989): moral obligation, not legal

Contract Terms

CLASSIFICATION OF EXPRESS TERMS Three types:

CONTRACTS 1. Condition 2. Warranties 3. Innominate terms

Conditions: a central term in the contract, breach of this may allow the repudiation  Repudiation: the ending of a contract Poussard v Spiers (1876) Warranties: minor term, breach of this will only allow for damages to be claimed  Contract does not end  Main purpose of the contract can continue to be performed Bettini v Gye (1876) Innominate Terms: a term in a contract that is not clearly a condition or warranty  This depends on the severity of the consequences of breach Hong Kong Fir Shipping Co. Ltd v Kawasaki Kisen Kaisha Ltd (1962)

EXPRESSED AND IMPLIED Terms represent the obligations of what the parties have agreed to or to give under the contract.

Two types of terms: 1. Expressed – specific terms agreed on from parties. 2. Implied – what should be in a contract as decided by the law Contracts can be made  Written – easy to establish terms  Verbal – issue with evidence: what aspects of verbal negotiations represent terms? Any statement made by parties in pre-contractual stage are described as ‘representations’ – significance of these may determine outcome of contract

TYPES OF REPRESENTATION AND CONSEQUENCES Statements made at time of contract formation or negotiations leading up to formation = no liability and so no legal significance.

Trade Puffs: mere boasts or unsubstantial claims  Commonly made by advertisers  Exaggerated claim – ‘catchy gimmick’  Legal maxim applied – ‘simplex commendationon obligat’ - A simple recommendation does not impose liability  The closer the statement is to appearing as a fact, the more risk of the puff having legal significance EG. Ribena’s ‘toothkind’ statement is believable But Red Bull’s ‘it gives you wings’ statement is not believable Mere Opinion:  Not fact so do not hold any weight  Other party should not rely on it  Do not carry liability

CONTRACTS Mere representations:  Term must be observed as there could be a claim for breach of contract  Difficulty in determining whether what was said was a term or mere representation  The courts will take into account: - The importance attached to the representation - Specialist knowledge or skill of the person making the statement - Any time lag between making statement and making contract - Whether there is a written contract

EXPRESS TERMS These are terms agreed upon by the involved parties at time of contract formation – subject to some form of legal action if breached.

Process of incorporating express terms:  Simple if in writing  Verbal is difficult: - Objective analysis - Decision based on what a reasonable man would consider was in the mind of the parties during contract formation - Both parties interpret terms differently Factors relevant to incorporating terms:  Developed by judges in case law – consistent approach 1. Importance attached to representation: - If party relied on statement to the extent where it may have been a reason for them entering a contract, it will be accepted as a term Couchman v Hill 2. Special knowledge or skill affecting the equality of bargaining strength: - Statements made by parties with specific expertise can be relied upon - If statement made without particular expertise to back it up, less likely to be considered a term Oscar Chess v Williams: statement was representation Dick Bentley Productions v Harold Smith (Motors): statement was contract term 3. Time between making statement and contract formation: - The longer time difference between the two, less likely to support a claim that the statement was incorporated Routeledge v McKay 4. Reducing the agreement, including statement, to writing: - Written evidence is more powerful and convincing - If spoken, courts will generally infer that it was not intended to form part of contract Routeledge v Mckay: no mention of age in written agreement so was not important enough to be a term.

IMPLIED TERMS These are terms implied into a contract even though they do not appear in a written agreement.

Two reasons for implied terms:

CONTRACTS 1. By fact: courts try to find intention of contract formation 2. By law: terms that are demanded to be included irrespective of whether the parties have agreed on them

Efficacy: ability to produce a desired or intended result Terms implied by fact:  Courts try to find intention 

Officious bystander test: set out in Shirlaw v Southern Foundries - states that a really obvious term should have been in the contract from the beginning

 Terms will not be implied if parties would never have agreed to it Shell UK Ltd v Lostock Garage Ltd (1977)  These are what a reasonable person would have understood to be the intention of both parties in...