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Contract Law Lecture Notes Topic 1 Agreement Topic 2 Consideration Topic 3 payment Topic 4 Exemption clauses Topic 5 Misrepresentation Topic 6 of contract Topic 1 Agreement Generally broken down into offer and acceptance? Gibson v Manchester City Council per Lord Diplock: Lords, there may be certain...

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Contract Law Lecture Notes Topic 1 – Agreement Topic 2 – Consideration Topic 3 – Consideration/Promissory estoppel/Part payment Topic 4 – Exemption clauses Topic 5 - Misrepresentation Topic 6 – Breach/performance of contract

Topic 1 – Agreement • Generally broken down into offer and acceptance? Gibson v Manchester City Council per Lord Diplock: – “My Lords, there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance; but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another, is not one of these. I can see no reason in the instant case for departing from the conventional approach of looking at the handful of documents relied upon as constituting the contract sued upon and seeing whether upon their true construction there is to be found in them a contractual offer by the corporation to sell the house to Mr. Gibson and an acceptance of that offer by Mr. Gibson.” Objectivity in Agreement • The courts apply an objective approach to agreement. • What do we mean by objectivity? – Denning LJ in Storer v Manchester CC • “in contracts you do not look into the actual intent in a man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearances, contract. A man cannot get out of a contract by saying “I did not intend to contract”, if by his words he has done so.” Unilateral/Bilateral Contracts • A unilateral contract is a promise in exchange for an act, e.g. a reward contract. Sometimes known as “if” contracts – E.g. Carlill v Carbolic Smokeball Co. • A bilateral contract involves an exchange of promises What is an offer? • Treitel defines offer as: – “An offer is an expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed”

To whom can the offer be made? • To an individual, a specific group or the world – Carlill v Carbolic Smokeball Co. – …But it must be communicated to whom it was made – See R v Clarke and Gibbons v Proctor Invitation to Treat • An invitation to treat is an offer to receive offers or an offer to enter into negotiations. • Unlike an offer it cannot be turned into a contract by mere acceptance. Advertisements • Adverts are generally seen as ITT unless there is sufficient certainty and an intention to be bound: – Partridge v Crittenden – Cf: Carlill v Carbolic Smokeball Co. – a unilateral agreement Auctions • Advert of an auction does not bind auctioneer if lot withdrawn – Harris v Nickerson 1873 - why? • A call for bids at an auction is an ITT – Sale of Goods Act 1979 s.57 – Payne v Cave 1789 • Auctions can be with or without reserve. What is the effect of without reserve? – Warlow v Harrison 1859, obiter – Barry v Davies 2001 – What is the basis for these decisions? • Note that the auctioneer and not the owner would be liable if the goods are withdrawn from sale Termination of an offer • An offer is terminated by any of the following: – Acceptance – Rejection – Revocation – Lapse – Counter offer – Death of the offeror – Failure of a condition precedent Revocation of the offer • Offer may be revoked at any time up to acceptance but must generally be communicated to offeree – Byrne v Van Tienhoven 1880 Revocation of unilateral offers

• Is it possible to revoke a unilateral offer once the offeree has commenced performance? • No: – Errington v Errington – Daulia Ltd v Four Millbank Nominees – Soulsbury v Soulsbury • Yes???? Cf: Luxor (Eastbourne) v Cooper Counter Offer • A counter offer contains an implied rejection of the original offer – Hyde v Wrench – But a request for information about the original offer does not amount to a counter offer – Stevenson v McLean Definition of Acceptance • Anson defines as: • “Acceptance of an offer is the expression, by words or conduct, of assent to the terms of the offer in the manner prescribed or indicated by the offeror.” • Acceptance is an unequivocal assent to the terms of the offer and it must be communicated. Communication of Acceptance • General rule is that communication of acceptance must be received by the offeror • Subject to: – Requirement of communication being waived – eg unilateral contracts Carlill v Carbolic Smokeball Co. – Postal rule Topic 2 – Consideration • For the agreement to be binding there must be: – Offer – Acceptance – Intention to create legal relations – Consideration What is consideration? • For the agreement to be binding you are looking for something to be provided by each party. Gratuitous promises are not binding unless made by deed. • “…an act or forbearance of one party, or the promise thereof, being the price for which the promise of the other is bought.” – Lord Dunedin in Dunlop Pneumatic Tyre v Selfridge 1915. • Traditional approach: • Currie v Misa 1875:

• “A valuable consideration, in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other.” • I.e. promisor to suffer a detriment or to confer a benefit on the promisee. Often both will arise. Consideration must move from the promisee • A person who seeks to enforce a right under a contract must have provided consideration, subject to Contracts (Rights of Third Parties) Act 1999 – see privity lectures – Viscount Haldane LC in Dunlop Pneumatic Tyre Co. v Selfridge: – “…if a person with whom a contract has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor’s request.” Executed and Executory Consideration • Executory consideration – exchange of promises to be performed in the future, I.e. order of goods, payment on delivery • Executed consideration – promise in exchange for an act, I.e. reward contracts Consideration must be sufficient but need not be adequate • However, the consideration must be something of economic value. • The courts will not enquire into the adequacy of consideration. – Thomas v Thomas 1842 – Chappell v Nestle 1960 – Bainbridge v Furmston 1838 Consideration must be provided in exchange for the promise • The promise/act of promisor must be given in exchange for the promise/act of the promisee • A subsequent promise following a gratuitous act is not binding – therefore “past consideration” is not good consideration – Roscorla v Thomas – Coombe v Coombe Late quantification • A subsequent promise to pay can be binding where it is merely late quantification of an earlier (implied) understanding that payment would be made. – Lampleigh v Braithwaite – Re McArdle – See Lord Scarman in Pau On v Lau Yiu Long • The courts are more willing to find there was an implied promise to pay in commercial agreements: – Re Casey’s Patents [1892]

Variation to a contract • Consideration must be provided to vary a contract • Therefore cannot vary a contract without further consideration if one party has fully performed Performance of an existing duty • Recognised in the following situations: – Performance of existing public duty – Performance of contractual duty already owed to promisor – Performance of existing contractual duty owed to someone other than promisor Performance of existing public duty • Performance of an existing public duty is not sufficient consideration: – Collins v Godefroy 1831 – Performance which exceeds the public duty is sufficient consideration: – Glasbrook Bros v Glamorgan CC 1925 – Harris v Sheffield United FC 1987 Performance of an existing contractual duty owed to promisor • Performance of an existing contractual duty owed by promisee to the promisor will not be sufficient consideration – Stilk v Myrick 1809 • Performance which exceeds the existing contractual duty owed to the promisor will be sufficient consideration – Hartley v Ponsonby 1857 • Principle from Stilk v Myrick affirmed in The Atlantic Baron 1979 Performance of an existing contractual duty owed to promisor • The modern position derives from: – Williams v Roffey Bros. – performance of an existing contractual duty owed to the promisor could be good consideration for a promise to pay more if the promisor derives a practical benefit from performance to the original contract – in promising the extra payments the defendants had secured practical benefits or had obviated disbenefits which could amount to consideration for the additional sum: • The work was completed to schedule • They did not have to find another contractor to finish • The defendant avoided payment of a penalty clause under the head contract. State of the law after Williams v Roffey • Can the cases of Williams v Roffey and Stilk v Myrick be reconciled? – Stilk v Myrick is still good law – What will amount to a practical benefit?

– What if Williams refused to complete unless price increased? The law post Williams v Roffey • The approach was applied: – Anangel Atlas Compania Naviera v Ishikawajima-Harima Heavy Industries Co. 1990 – The rule was criticised: – South Caribbean Trading v Trafigura Beheer BV 2004 Performance of an existing contractual duty owed to a 3rd party • The performance of an existing contractual duty owed to a 3rd party may be good consideration for a promise where performance benefits the promisor – Scotson v Pegg – The Eurymedon 1975 – Pau On v Lau Yi Long 1980 – Shadwell v Shadwell 1860 Topic 3 – Part payment of a debt in Common Law and in equity under promissory estoppel Part payment of a debt at common law • For a variation to a contract to be binding at common law each party must provide consideration • A part payment of a debt will not usually discharge the whole debt because the party who is paying less is providing no consideration for the promise to accept less • See Pinnel’s case 1602 • Rule affirmed in HL in: • Foakes v Beer 1884 • Though see Lord Blackburn • Part payment will satisfy if additional consideration is given. The following would amount to additional consideration: – Early payment – Payment at a different location – Payment in kind – Payment by a 3rd party • What if part payment provides a (practical) benefit to the creditor? I.e can Williams v Roffey extend to part payment of a debt? • No: – Re Selectmove – Re C • This means different approaches of court in common law in respect of services and part payment of debts Part payment of a debt in equity

• It would seem that you can now rely on equity to prevent a party from resiling on a promise to accept less – Collier v P & MJ Wright [2007] EWCA Civ 1329 – see notes on promissory estoppel and part payment

Promissory Estoppel • Equity may still enforce a promise to vary your rights under a contract where there is no consideration through operation of promissory estoppel • Applies where • a party to a contract (promisor) states that he/she will not rely on their strict rights under the contract, I.e. vary the contract • The promisee acts in reliance on that promise • There is no consideration provided by the promisee • Promissory estoppel prevents the promisor going back on that promise where it would be unfair to do so Central London Property Trust v High Trees 1947 • Lord Denning extended estoppel to cover promises as to future conduct – Rent agreed at £2500 pa – Sub-tenants left due to war so owner of block of flats agreed to reduce rent to £1250 pa for whole block – By 1945 property was full again so owner sought to recover full rent • Obiter Dicta: Lord Denning stated that promissory estoppel could extinguish rights permanently and might apply to part payment of a debt – Note this is contrary to the common law position on part payment of a debt, Foakes v Beer Constituent Elements of Promissory Estoppel • Clear and unequivocal promise not to enforce existing legal rights • Promisee acted in reliance on the promise • Must be inequitable for the promisor to go back on the promise • Doctrine cannot found a cause of action 1. Clear and unequivocal promise There must be a clear and unequivocal promise not to enforce existing legal rights a. Woodhouse AC Israel Cocoa v Nigerian Produce Marketing Co. 1972 2. The Promisee must have acted in reliance on the promise • WJ Alan v El Nasr Export & Import 1972

– A party need only have acted such that it is now inequitable to allow them to go back on the promise • The Post Chaser 1982 • Collier v P & MJ Wright (Holdings) 2007 3. It must be inequitable to allow the promisor to go back on the promise  Promises secured as a result of threats are unlikely to be enforceable in equity  D & C Builders v Rees 1966 4.The doctrine cannot be found a cause of action • Combe v Combe 1951 • “The doctrine can be used as a shield and not a sword” Effect of Promissory Estoppel • Generally suspensory in nature • It may be possible to restore existing contractual rights upon giving reasonable notice – Tool Metal Manufacturing v Tungsten Electric 1955 • Though some promises may extinguish rights: – Central London Property Trust v High Trees per Lord Denning – Collier v Wright 2007 • Where it is not possible for the promissee to be restored to his original position the rights may be extinguished permanently – Ajayi v RT Briscoe (Nigeria) 1964 Promissory estoppel and part payment of a debt • At common law part payment is not good satisfaction of a debt Pinnel’s case, Foakes v Beer • However, promissory estoppel may prevent a party from going back on a promise to accept less than full payment – D & C Builders v Rees 1966 – Lord Denning – Collier v P & MJ Wright 2007 Topic 4 – Exemption Clauses • When you answer questions look at the clause and consider the following in order: – Is there any liability to exclude? – Does the exemption clause form part of the agreement? – Does the exemption clause cover the liability that has arisen? – Does the clause fall foul of the statutory rules? Is there liability to exclude? • If there is no liability to exclude then you needn’t worry about the effect of the clause – generally we’ll see contract or tort • 2 types of liability: – Strict liability – liability without fault – Negligence liability – liability where you are at fault

Incorporation of Terms Consider whether the clause has been incorporated into the contract

Incorporation by signature – Where you sign a contract you are generally bound by it • L’Estrange v Graucob 1934 – If the effect of the term is misrepresented to the party then it will not be effective • Curtis v Chemical Cleaning 1951 Incorporation through reasonable notice • A clause will also be incorporated if reasonable notice of its existence is given at or before the time of contracting. What is reasonable depends on the facts of the case.

– Have reasonable steps been taken to bring it to the notice of the contracting party? – Parker v South Eastern Rlwys 1877 • must be judged against standards of reasonable man Notice should be in a contractual document • Notice should generally be contained in a contractual document: • Chapelton v Barry UDC [1940] Incorporation • Or it could be incorporated through a course of dealing – McCutcheon v David McBrayne • Or through trade custom – British Crane Hire v Ipswich

Construction of clauses • Does the clause cover the (type of) liability that has arisen? Construe strictly and as against the party seeking to rely upon it Construction and limiting clauses • The courts will not treat limiting clauses as strictly as clauses which seek to fully exclude liability. Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd. [1983 More than one basis for liability? • Does the clause cover the type of liability that has arisen? – Strict liability? – Negligence liability? – must be clear – generally if the party may be liable in more than one way then a general exemption clause will not be effective against negligence unless it specifically refers to it Construe against party relying on clause • 3 part test to see if covers negligence: – Canada Steamship Lines v The King 1952 • White v John Warwick 1953 – Not liable “for any personal injuries to the riders of the machines hired” – “Howsoever caused” can cover negligence – Travers v Cooper Does the term fall foul of statute? • There are 2 main provisions: – Unfair Contract Terms Act 1977 – Unfair Terms in Consumer Contracts Regulations 1999 Unfair Contract Terms Act 1977

• Need to know: – S.1 business liability – S.2 negligence liability exemption – S.3 contractual liability exemption – S.11 test of reasonableness – S.12 dealing as a consumer – Schedule 2 factors – Caselaw defining reasonableness e.g. George Mitchell v Finney Lock Seeds, Smith v Eric Bush Unfair Terms in Consumer Contracts Regs 1999 • How do they differ from the UCTA? – extend to all contractual terms, not just exclusion clauses – apply only to contracts between • a seller/supplier acting in the course of his business and • a consumer (who must be a natural person (not a company) acting outside the course of their business)

UTCCR 1999 • Reg 6: – Doesn’t apply to core terms – Cannot use to challenge the adequacy of the price – Can’t challenge negotiated terms – Reg 5(1) - A term will be unfair if contrary to the requirement of good faith it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. • DGFT v First National Bank for discussion of test • Sched 2 contains indicative list of unfair terms Topic 5 – Misrepresentation Structure for Questions 1. Consider whether the representation formed a term of the contract 2. Was the representation a misrepresentation? Is it a false statement of fact which induced the party to enter into the contract? 3. If so, what type of misrepresentation was it? 4. Which remedies are available? 1. Distinguishing between Terms and Representations  The courts attempt to determine the objective intention of the parties and have developed 4 tests – no more than ½ side on this: a. When was the statement made? b. The importance of the statement

c. Was the contract reduced to writing? d. Did the maker of the statement have special knowledge? 2. What is a misrepresentation?  An actionable misrepresentation is a false statement of a material fact that induces another party to enter into a contract with the representor Misrepresentation • Which statements are capable of being misrepresentations? – There must be a false unambiguous statement of existing or past fact. A statement which amounts to mere puff or only an opinion will not be actionable. • Bisset v Wilkinson [1927] • Smith v Land & House Property Corp 1884 • Esso Petroleum v Mardon 1976 Statements of fact • A statement can be made by words or conduct. – Gordon v Selico 1986 Can silence amount to a misrepresentation? • Generally silence will not amount to misrepresentation – Keates v The Earl of Cadogan (1851) • Attempts to conceal the truth may amount to misrepresentation: – Gordon v Selico 1986 – Horsfall v Thomas (1862) Silence and half-truths • A representor makes an actionable misrepresentation where he knows that the statement will give a false impression because he suppresses important facts. – Dimmock v Hallett (1866) – Notts Patent Brick and Tile Co. v Butler (1866) – R v Lord Kylsant [1932] Silence • Where circumstances change and the statement subsequently becomes false the representor is under a continuing duty to notify the representee of the change in circumstances – With v O’Flanagan [1936] Did the misrep induce the contract? • It need not be the sole inducing factor • Edgington v Fitzmaurice 1885 • If the representee was unaware of the representation or did not rely on it it will have no effect: • Horsfall v Thomas 1862 • Smith v Chadwick 1882

Reliance • Where the representee tests the truth of the statement for himself he does not rely on the statement but on his own test: – Attwood v Small 1838 • But if the representee is given the opportunity to test the statement but fails to do so it does not prevent a claim for misrep – Redgrave v Hurd 1881 Types of misrepresentation • Fraudu...