Contract Law Topics 1-4 PDF

Contract law Topics 1 to 4 What is a contract?  A contract is an agreement enforceable at law between two or more parties whereby rights are acquired by one or more of the parties in return for certain acts or forbearances on the part of the other(s).  Voluntary relationship b...

Contract law Topics 1 to 4 What is a contract?  A contract is an agreement enforceable at law between two or more parties whereby rights are acquired by one or more of the parties in return for certain acts or forbearances on the part of the other(s).  Voluntary relationship between 2 or more people.  May be verbal, in writing or evidenced by conduct – depends on subject matter of agreement. Contract law addresses 4 sets of issues:  When & how a contract is formed  When may a party escape obligations of a contract  The meaning and effect to be given to the terms of a contract  Remedies for breach of contract © Katie Ridge BL What is a contract?  4 essential elements 1. The agreement is made by offer and acceptance = agreement. 2. There is a bargain, supported by consideration. 3. The parties must have an intention to create legal relations.  There must be capacity – minors contracts.  The content of the contract (terms) must clear and legal.  Some contracts must be a particular form e.g. memorandum or written contract. © Katie Ridge BL Topic 1 The Offer What is an offer? An expression of willingness to contract made with the intention that it shall become binding on the person making it as soon as it is accepted by the person to whom it is addressed.  An offer may be made to a particular person, the public at large or to a specific class of persons. (a) The offer must be clear, certain & complete Gunthing – v- Lynn 1831 ‘ I will buy your horse if I’m lucky’ - Not an offer. © Katie Ridge BL What is an offer?  An offer is not:  The mere supply of information:  Harvey v Facey 1893  The plaintiff telegraphed the defendant ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price’.  The defendant replied ‘Lowest price for Bumper Hall Pen £900’.  The plaintiff telegraphed his acceptance of the ‘offer’.  Held:  No contract had been made.  The defendants reply was a statement of his price if a sale were to be agreed.  It was not an offer that could be accepted. © Katie Ridge BL What is an offer? An offer is not An invitation to Treat: Minister for Industry & Commerce – v- Pim Bros ltd 1966 offence to offer for sale goods with credit terms. Coat in window showing cash price and hire purchase available. Held: No offer had been made. The display of goods and credit = invitation to treat.  An invitation to treat has no legal effect. It is a mere offer to receive offers, the first step in negotiations which may or may not result in the making of a firm offer. Examples include: Display of goods, Auction sales, Advertisements, Tenders © Katie Ridge BL What is an offer?  Pharmaceutical Society of Great Britain v Boots Chemists  PSGB rule that certain pharmaceutical products could only be sold 'under the supervision of a qualified pharmacist'. Plaintiffs alleged that this rule had been broken by Boots when they put these products on the open shelves in a self service shop.  Where does the sale take place?  Boots successfully argued that there was no sale until a customer brought them to the cash desk and offered to buy them. A qualified pharmacist was stationed at this point. © Katie Ridge BL Contractual offer?  You request a quotation for house double glazing. G ltd. Sends you a written quotation stating: ‘Quotation: Cost of Double glazing approximately €15,500 (plus VAT)’.  Do you consider this would be a contractual offer? © Katie Ridge BL Advertisements  General rule is advertisements are invitations to treat, not an offer for sale.  Partridge v Crittenden 1969  The plaintiff placed an advertisement in Cage & Aviary Birds journal which read ‘Bramblefinch cocks, bramble finch hens, 25s each’. Plaintiff was prosecuted for offering a wild bird for sale. Question for the court: was the advert an offer or an invitation to treat? Held:  He did not ‘offer’ the birds.  The advertisement was not an offer but an invitation to treat © Katie Ridge BL Advertisements: Exception to rule  An advertisement may constitute an offer if it was intended to bind the advertiser if persons relied on it.  Carlill v Carbolic Smoke Ball Co.  The defendant manufactured a medicinal ball to prevent flu and promised to pay £100 reward to anyone who contracted flu after using the ball correctly.  To show their sincerity, they lodged the sum of £1,000 into a bank account.  Plaintiff saw advert, purchased and used the ball correctly - caught the flu – defendants refused to pay £100 – arguing that the advertisement was not an offer and was merely an invitation to treat.  Held: The advertisement was an offer to the whole world which the plaintiff had accepted. The terms were sufficiently clear, the advert required the plaintiff to do something and the lodgement of money was a sign of their sincerity and consideration. Hence, she was entitled to the reward of £100. © Katie Ridge BL © Katie Ridge BL Termination of an offer  An offer may not continue indefinitely.  It can be terminated by:  Lapseof time (Ramsgate Victoria Hotel Co v Montefiore)  Revocation (Routledge v Grant, Billings v Arnott & Co)  Rejection/ Counter offer by offeree (Hyde v Wrench)  Death of a party  © Katie Ridge BL Termination: Lapse of Time  Where a time limit is not set for acceptance of the offer, it will remain open for a reasonable time.  Ramsgate Victoria Hotel Co v Montefiore 1866  The defendant applied for shares in the plaintiff company.  The plaintiff did not reply for five months.  When they did reply, Montefiore refused to pay for the shares arguing that his offer had expired and could no longer be accepted.  Held:  The defendants offer was for a reasonable time only and five months was longer than that.  The plaintiffs delay had caused the defendants offer to expire. © Katie Ridge BL Termination: Revocation  General rule is Offeror may revoke his offer at any time before acceptance.  Routledge v Grant 1828  The defendant offered to buy the plaintiff’s house requiring acceptance within 6 weeks. Within that time the defendant withdrew his offer.  Held: Grant was free to withdraw his offer at any time before acceptance.  © Katie Ridge BL Termination: Revocation - RULES  Revocation will only be effective if it is communicated to the offeree before acceptance either by the offeror or by a reliable third party.  Billings v Arnott & Co 1945  Defendants offered to pay employees who joined the Defence Forces half their salary (up to £2) per week.  The plaintiff informed his employers that he wanted to take up the offer but was told that he ‘could not be spared’.He signed up anyway & sued for the half salary.  Held:the offer was enforceable against the employer.  Note: A withdrawl of an offer by post will take effect from the time of receipt. © Katie Ridge BL  Topic 2 Acceptance © Katie Ridge BL Acceptance  Acceptance is a final and unqualified expression of assent to the terms of an offer.  Must correspond exactly with the offer, must be communicated to and received by the offeror.  Usually in the same form as the offer  Express or by conduct but not by silence  The Postal Rule: if acceptance must be made via letter, such acceptance is deemed to have taken place when such letter is properly posted: See Household Fire Insurance Co V Grant  Agreements which are ‘Subject to contract’  Electronic Contracts - S19 Electronic Commerce Act 2000: an acceptance of an offer may, unless otherwise agreed by the parties, be communicated by mens of electronic communication. © Katie Ridge BL Acceptance: Silence  Not open to offeror to state that silence will be taken as acceptance.  Felthouse v Bindley 1863  The plaintiff offered by letter to buy a horse and stated  ‘If I hear no more about him, I'll consider the horse mine at £30’.  No acceptance was communicated and the horse was sold.  Plaintiff argued that a contract existed between the parties.  Held: There was an offer but no acceptance. An offeror cannot impose acceptance merely because the offeree has not rejected the offer. © Katie Ridge BL Acceptance: Communication  Postal Rule  Where the use of the post is within the contemplation of both the parties, acceptance is effective as soon as a letter is posted.  Kelly v Cruise Catering  Irish employee injured on a cruise liner.  The contract of employment was drafted in Norway but was signed by the plaintiff and posted by him in Dublin.  Held: Acceptance took place in Dublin when he signed and posted the letter. © Katie Ridge BL Acceptance: Postal Rule  Household Fire & Seminal case on postal rule: Carriage Accidents Insurance Co v Grant 1879  The defendant applied for shares in the plaintiff company – he enclosed a deposit for the shares.  The company accepted his offer by posting a letter of acceptance but Grant did not receive it. When he was asked to pay the balance he refused.  Held: The defendant was bound by the plaintiff’s acceptance even though the letter was lost and was never received by the defendant. There had been a valid acceptance effective since posting. © Katie Ridge BL Acceptance: e-communications  Entores v Miles Far East Corp 1955  The plaintiffs were based in England and the defendants in The Netherlands.  The plaintiffs argued that the contract between them was made in England from where the offer was sent (by telex) and the acceptance was received; the defendants argued that the contract was made in the Netherlands where the offer was received and from where the acceptance was sent.  Held: The rule about instantaneous communications differs from the postal rule. The contract is only complete when the acceptance is received by the offeror.  E-Commerce Act 2000: provides that acceptance of an offer or any related communication, may, unless otherwise agreed, be communicated by means of electronic communication. © Katie Ridge BL  Topic 3 Consideration © Katie Ridge BL Consideration  Consideration is ‘An act or forebearance of one party, or the promise thereof, is the price for which the promise of the other is bought and the promise thus given for value is enforceable’…Dunlop v Selfridge 1915  Consideration is required for all contracts, except those made by deed.  A person cannot sue on a contract unless he can show that he gave or promised to give some advantage to the party he wishes to sue, in exchange for what that party promised in return.  The courts will not enforce a bare promise  Complete defence if a party can show that no consideration © Katie Ridge BL was given.  Consideration : RULES  1. Consideration must be of some value, but need not be adequate. Money, land, goods, services or any other undertaking which confers a benefit on one party or represents a loss to the other all = consideration.  Consideration must sufficient but not adequate. The offeree has shown consideration even if he gives something completely useless and of no value to the offeror. This is because it acts as a token.  Chappell and Co v Nestle (1960) where it was held by the Court of Appeal that 6 chocolate bar wrappers in return for a gramophone the Nestle chocolate company was offering as part of a promotion, was valid consideration for Nestle's offer. 1. Also; O’Keefe v Ryanair (2002) © Katie Ridge BL Consideration: RULES  2. Past Consideration  Past Consideration is not sufficient consideration. (This would be something done before a promise).  Re McArdle 1951  Children were entitled to the house on the death of their mother.  During the mothers life time, one of her sons (and his wife) lived in the house and made improvements.  The other children later agreed in writing to give her the sum of £488 (cost of the improvements).  When their mother died, they changed their minds and refused to pay.  Held:  At the time of the promise of £488 the improvements had already been done and were therefore past consideration. The promise of £488 was therefore not binding. © Katie Ridge BL Consideration: RULES – exception to Past Consideration  If a request is made for a service, the request may imply a promise to pay for it.  Lampleigh v Braithwait  The defendant killed a man and while in prison asked the plaintiff to obtain a pardon for him. The plaintiff went to considerable trouble to secure the pardon.  Afterwards, the defendant promised to pay £100 for his work.  Upon his release he refused to pay the £100. Held: the promise to pay the £100 was implied at the defendants initial request for help.  TheRidge © Katie promise BL was binding Consideration: RULES  3) Consideration must not be illegal. The courts will not enforce an illegal contract such as a promise to pay a reward for a criminal act.  Contrary to public policy.  4) The performance of an existing obligation imposed by law cannot be consideration: Collins v Godefroy  The defendant promised the plaintiff a sum of money for his expenses if he would act as a witness at a trial.  Later the plaintiff was sent a subpoena to attend.  Held: The plaintiff was not entitled to the money as he was already bound by the law to attend on subpoena. © Katie Ridge BL Consideration: RULES - exception re existing duty/obligation  If some extra service is given - sufficient consideration: Glasbrook Bros v Glamorgan CC1925  The owners of a mine, asked and promised to pay for a special police guard on the mine.  Later they refused to pay arguing that the police had done their public duty which they are obliged to do anyway.  Held: The police had done more than their general duty.  The extra services given were consideration for the promise to pay.  See also Ward v Byham and Harris v Sheffield United FC © Katie Ridge BL Consideration: RULES  5. A promise to do something which an existing contract already requires a person to do is no consideration.  Stilk v Myrick 1809  The plaintiff was a member of an 11 man crew of a ship and were contracted to complete the voyage.  During the voyage, 2 members deserted and the others were promised a share in the wages of the deserters if they would complete the voyage.  On completion, the crew were refused the money.  Held:  The plaintiff was already contractually bound to complete the voyage and to perform extra duties if asked.  They did not provide consideration for the promise of extra pay. © Katie Ridge BL Consideration: RULES  6. Consideration must move from the promisee:  A person can only enforce a promise if he himself provided the consideration.  Tweedle v Atkinson  The plaintiffs father and father-in-law exchanged promises to pay him a sum of money on his marriage.  His father-in-law died before making any payment and the plaintiff sued his father-in-laws estate.  Held: The plaintiff was not a party to the agreement. He provided no valuable consideration for his father-in-laws promise.  ‘Privity of contract doctrine'.  Exception – agency law, liability in Tort © Katie Ridge BL Consideration: RULES  7. Consideration must be given to enforce the waiving of a contractual obligation – The rule in Pinnel’s case  Foakes v Beer 1884  The plaintiff was obliged to pay the defendant £2,091 with interest. By a written agreement the plaintiff promised to pay by instalments and the defendant promised not to sue on the original agreement.  The defendant later sued for the interest he was owed.  Plaintiff argues agreement between parties prevents him from doing this. Held: Defendant successful as interest could be implied into agreement. No consideration had been given by the plaintiff for a waiver of any part of the defendants rights against him. © Katie Ridge BL Consideration: Exceptions to this rule  Creditoraccepts payment of a lesser amount in full settlement before the due date.  Creditor accepts something else other than money.  Part payment accepted from a 3rd party  Promissory estoppel © Katie Ridge BL Consideration: The Doctrine of Promissory Estoppel.  Doctrine provides that where a promise is made and there is reliance on it – not to enforce it would lead to unfairness.  Central London Property Trust v High Trees House 1947  In 1939 the plaintiffs let a block of flats to the defendants at an annual rent of £2,500 per year.  It was wartime and difficult to lease the flats so they accepted a reduced rent of £1,250 in January 1940.  After the war, the flats were fully let. The plaintiff looked for the full rent of £2,500, both retrospectively and for the future.  Held:  The agreement of January 1940 was temporary only and had ceased to operate in early 1945, therefore the plaintiffs were entitled to raise the rent back to £2,500. © Katie Ridge BL  Topic 4 Intention to create legal relations © Katie Ridge BL Legal relations  The parties to a contract must have intended to create a legally binding transaction before a contract can validly exist.  What matters is not whether the parties intended in their minds to be bound by what they agreed to, but the inferences that a reasonable person would draw from their words, conduct of the circumstances of the negotiations.  Commercial agreements – generally presumed intent to create legal relations – unless express statement.  Rose and Frank v Crompton & Bros  An agreement expressly stated that it was 'not subject to legal jurisdiction in the law courts'. The defendant terminated the agreement without giving the required notice.  Held: As per the express term, the general agreement was not legally binding. The parties had no intention. © Katie Ridge BL Legal relations  Presumption - social, domestic and family arrangements are not intended to be binding.  ‘… social and family matters agreements..do not give rise to legal relations because such a consequence is not the intention of the parties and in family matters, an intention to remain free of legal obligations will be readily implied’. Rogers Smith, Budd J, Supreme Court, 1970.  Balfour v Balfour  The defendant promised to pay his wife the sum of £30 while he was seconded abroad.  They later divorced and the plaintiff sued for the maintenance of £30. Held: an informal agreement of an indefinite period made between a husband and wife whose marriage was intact was not intended to be legally binding. © Katie Ridge BL Legal relations: Rebutting the intention  Merritt v Merritt 1970 The plaintiffs were separated. They met up to make an agreement re the mortgage and maintenance. The husband agreed to pay £40 per month maintenance which would include paying the mortgage.  They agreed that when the mortgage was paid off he would transfer the house into his wife’s name.  The agreement was in writing. Later he refused to transfer the house.  Held:  At the time of the agreement, they were separated and not living together, so they must have intended that the agreement be binding.  The intention was evidenced by the written agreement. © Katie Ridge BL Legal relations  De minimis non curat lex: The courts will not enforce a contract where the subject matter is trivial or of little real importance. © Katie Ridge BL