Contract Law Notes PDF

Notes on Vitiating Factors I: Misrepresentation Case Name: Dimmock v Hallett (1866) LR 2 Ch App 21 Facts: The defendant advertised land for sale, describing it as “fertile and improvable.” The defendant also stated that the land was currently let to tenants, implying on...

Notes on Vitiating Factors I: Misrepresentation Case Name: Dimmock v Hallett (1866) LR 2 Ch App 21 Facts: The defendant advertised land for sale, describing it as “fertile and improvable.” The defendant also stated that the land was currently let to tenants, implying ongoing rental income. However, the defendant failed to disclose that all the tenants had given notice to quit the land, which would impact the property's value. Rule/Principle: This is an example of a half-truth (tenants are living but did not disclose, they have given notice), which can constitute misrepresentation. Sales talk or "puffery" is generally not considered a statement of fact. Case Name: With v O'Flanagan Ch 575 ◦ Facts: Information about a medical practice's income was accurate at the time but changed significantly before the sale, and the seller did not disclose this. ◦ Rule/Principle: A change in circumstances relevant to a previous statement can create a duty to disclose. A statement that was true initially can become a misrepresentation if circumstances change Case Name: Horsfall v Thomas (1862) 2 F&F 785 Facts: Claimant failed to examine the gun on inspection, if he had done so, he could have known that it was faulty. Rule/Principle: Concealment of patent defects does not amount to fraudulent misrepresentation when the other party fails to examine the object in question, because it plays no role in inducing him/her to enter the contract Case Name: Peek v Gurney (1873) LR 6 HL 377  Facts: Directors of a company issued a prospectus containing misleading statements to attract initial subscribers for shares. The claimant purchased shares in the secondary market based on the prospectus Principle: The House of Lords ruled that the misrepresentation in the prospectus was intended to induce initial subscribers, not secondary market purchasers. Since the claimant was not part of the intended audience, the misrepresentation was not actionable in their case. Case Name: JEB Fasteners v Mark Bloom 1 AER 583 CA Facts: JEB knew there were errors in the accounts audited by MBC, but still relied on them for decision-making. Principle: The principle is that a professional is only liable if the claimant relied on their work. If the claimant would have acted the same way anyway, there’s no claim for damages. Case Name: Attwood v Small UKHL J60 ◦ Facts: A buyer of a mine relied on their own investigation rather than the seller's representations. C’s agents verified that they were true, but they were later revealed to be false. Rule/Principle: If a party conducts their own investigation, they may be deemed to have relied on their judgment rather than the representation. Case Name: Redgrave v Hurd (1881) 20 Ch D 1 ◦ Facts: A solicitor selling his practice misrepresented his income, but the buyer failed to examine the provided documents. Rule/Principle: There is no duty to investigate a representation, and failure to do so does not negate reliance.  Case Name: Long v Lloyd 1 WLR 753 Facts: C bought a lorry from D, who misrepresented its condition, speed, and fuel consumption. After the lorry broke down, D offered a repair at half price, which C accepted. Principle: Affirmation of the Contract: If a party continues with a contract after knowing about the misrepresentation, they affirm the contract and lose the right to rescind Case Name: Leaf v International Galleries 2 KB 86 Facts: D sold C a painting which it claimed was by John Constable. Five years later, C discovered that the painting was not a Constable and sought to rescind the contract on the ground of innocent misrepresentation. Rule: Time Limit for Rescission: A claim for rescission based on innocent misrepresentation is barred if there is an unreasonable delay in seeking rescission after discovering the misrepresentation. Case Name: Doyle v Olby (Ironmongers) 2 QB 158 Facts: C was fraudulently induced by D to buy an ironmonger's business for £9,500. Principle: Measure of Damages: In deceit, damages aim to compensate for all losses directly resulting from the fraud, not just those that were foreseeable. Remoteness: Consequential losses are not too remote, unless caused by the claimant's own fault. Case Name: Smith New Court Securities v Scrimgeour Vickers C bought shares from D, who fraudulently misrepresented that there were close rival bids. Rule: Damages for fraudulent misrepresentation include all direct and consequential losses resulting from the misrepresentation, regardless of foreseeability. Royscot Trust Ltd v Rogerson: When claiming damages under s2(1) of the Misrepresentation Act 1967, the rules for how much you can recover are the same as if you were suing for fraud. You can recover losses, even if they were not predictable, as long as they were a direct result of the misrepresentation (the false statement). Rescission: Setting aside the contract and restoring the parties to their pre-contractual positions12. ◦ Rescission may be lost due to factors like affirmation, lapse of time, impossibility of restitution, or rights of third parties12.... Damages: Financial compensation to the injured party13. ◦ Fraudulent Misrepresentation: All direct losses are recoverable13. ◦ Negligent Misrepresentation (s2(1) MA 1967): Assessed as if fraudulent ("fiction of fraud")13. ◦ Innocent Misrepresentation (s2(2) MA 1967): Damages may be awarded in lieu of rescissin Vitiating Factors: Duress and Undue Influence: Case Name: Universal Tankships Ltd v. International Transport Workers Federation (1968) Facts: Claimant used force majeure clause to cancel contract unless defendant paid £4500. Defendant agreed, but later deducted the amount from the price. Issue: Whether the variation was made under economic duress. Decision: Court ruled for defendant. The claimant's threat was illegitimate because they had not taken reasonable steps to avoid the strike.  Rule: Economic duress occurs when there is no reasonable alternative but to submit to the other party's demands. The threat must be legitimate and not exploit the party under pressure. Case Name: DSND Subsea Ltd v. Petroleum Geo-Services (2000) Fact Pattern: Claimant pressured defendant to vary a contract by threatening to send an empty trailer. Defendant agreed due to financial pressure. Rule: Economic duress makes a contract variation voidable if it’s made under illegitimate pressure with no reasonable alternative. Takeaway: Illegitimate pressure and no choice = voidable contract. Case Name: The Atlantic Baron (1983) Facts: Ship was blocked at UK port by union for lack of 'blue certificate.' Claimant paid to resolve issue, fearing economic loss. Later sought to void payment due to economic duress. Rule/Principle: Economic Duress: A payment made under duress can be voidable. Trade Union Immunity: Unions are immune from liability only if actions are related to employment terms under s.13 of the Trade Union and Labour Relations Act 1974. Case Name: Kolmar Group AG v Traxpo Enterprises Pvt Limited Facts:  Traxpo breached an FOB methanol contract by reducing supply and raising the price, exploiting Kolmar’s urgent need and lack of alternatives. Principles: Threats to breach a contract are illegitimate if no realistic alternatives exist. Economic duress requires coercion and lack of choice. Absence of protest doesn’t imply voluntary agreement. Case Summary: CTN Cash and Carry Ltd v Gallaher Ltd Facts: Claimant paid due to supplier's threat to revoke credit, based on an incorrect belief of an owed sum. Issue: Was the supplier’s pressure economic duress? Decision: Court of Appeal: No economic duress. o Key Factors: ▪ Good Faith: Defendant believed payment was owed. ▪ Lawful Pressure: Withholding credit was lawful. Principles: Economic Duress: Lawful pressure isn’t always duress, especially if exercised in good faith. Good Faith: Pressure in good faith is less likely to be duress. Case Card: Pakistan International Airlines Corp v Times Travel (UK) Area of Law: Economic Duress Facts: Travel agency relied on airline for ticket sales. Airline terminated contracts and demanded agents waive unpaid commissions for new contracts. Agency accepted but later sought to set it aside for economic duress. Decision: Supreme Court ruled no economic duress. Airline acted in good faith; commercial self-interest was legitimate. Principle: Lawful pressure is only illegitimate if it exploits vulnerability or involves unconscionable conduct. Economic duress requires extreme pressure, not just bad faith. Key Points: Economic Duress is rare unless pressure is unconscionable. Bad faith alone does not establish duress. Case Card: Huyton SA v Peter Cremer GmbH & Co. Facts: Buyer rejected documents due to discrepancies, incurring $500,000 demurrage.  Seller demanded payment, buyer agreed to settle under pressure. Decision: Court ruled buyer could reject documents and cancel contract due to repudiatory breach. Seller’s confusion, not duress, led to settlement. Principle: Repudiatory Breach: Buyer can cancel for significant breach. Economic Duress: Pressure isn’t duress if based on misunderstanding. Case Card: Pao On v Lau Yiu Long Facts: Pao On sold shares to Lau Yiu Long, later demanding a cancellation of an arrangement and an indemnity due to share price fluctuations, which the defendants agreed to under commercial pressure. Decision: The Privy Council ruled no economic duress, stating that commercial pressure alone doesn’t constitute illegitimate coercion. Principle: Economic duress requires illegitimate coercion or improper threats, not just commercial pressure. Case Card: North Ocean Shipping Co v Hyundai Construction Co (The Atlantic Baron) Facts: Claimant demanded 10% more after USD devaluation; defendant agreed “without prejudice” to avoid contract termination but later claimed duress. Decision:  High Court ruled no economic duress, as defendant's delay and continued performance amounted to contract affirmation, losing the right to rescind. Principle: Economic duress makes a contract voidable, but affirmation or delay in action can bar rescission. Case Card: Allcard v Skinner (1887) Facts: Claimant gave possessions to a religious sisterhood under the defendant’s influence, then sought to reclaim them after six years, claiming undue influence. Decision: Court ruled gift was made under undue influence but barred the claim due to laches (undue delay) and acquiescence (accepting the situation). Principle: Undue Influence: Presumed in dominant relationships; burden on recipient to prove voluntary gift. Laches/Acquiescence: Delay in asserting rights can bar a claim if there’s passive acceptance of the situation. Case Card: Lloyds Bank Ltd v Bundy QB 326 (Court of Appeal) Facts: Bundy guaranteed his son's company debt, relying on trust, which left him vulnerable to financial ruin. Decision: Court ruled Bundy was unduly influenced by his son, and the bank failed to rebut the presumption of undue influence, setting aside the guarantee. Legal Principles: 1. Presumption of Undue Influence: Arises in relationships of trust and reliance, shifting the burden to the other party to prove fairness. 2. Fiduciary Duty and Conflict of Interest: A fiduciary relationship and conflict of interest can strengthen the presumption of undue influence. 3. Rebutting the Presumption: The benefiting party must show the transaction was fair and informed. Case Card: R v Attorney General of England and Wales UKPC 22 (Privy Council - New Zealand) Facts: The defendant, a Gulf War veteran, was forced to sign a confidentiality agreement under threat of being returned to his unit (RTU), which would lead to punishment and exclusion, but he argued duress, undue influence, and lack of consideration. Decision: The Privy Council upheld the enforceability of the confidentiality agreement, ruling that there was no duress or undue influence, and the contract had valid consideration and public policy backing. Legal Principles: 1. Duress: Threats of lawful actions (e.g., RTU) are not considered duress unless they create pressure to act against one's will unlawfully. 2. Undue Influence: There must be unfair exploitation of a relationship of trust; no undue influence was found as the contract applied to all soldiers. 3. Consideration and Public Policy: A contract is enforceable when both parties provide consideration; military confidentiality agreements are not contrary to public policy if they protect national interests. Case Card: Goodchild v Bradbury EWCA Civ 1868 Case Name: Goodchild v Bradbury EWCA Civ 1868 Brief Facts: Goodchild, an elderly man, gifted an orchard to his great-nephew Bradbury without independent legal advice, leading to a significant reduction in the value of his property. Brief Decision: The Court of Appeal set aside the gift, finding a presumption of undue influence that Bradbury and Hillier failed to rebut. Key Principles: 1. Presumption of Undue Influence arises when the donor is vulnerable, and the transaction is unusual. 2. Rebutting the Presumption requires proof that the donor made the decision freely and with full understanding. 3. Lack of Independent Legal Advice strengthens the presumption of undue influence. Case Card: Barclays Bank Plc v O'Brien 1 AC 180 Case Name: Barclays Bank Plc v O'Brien 1 AC 180 Brief Facts: The wife signed a mortgage document for her husband's business debts, relying on his false representation about the loan’s terms. The bank was aware of the potential risks. Brief Decision: The House of Lords ruled the wife’s consent was invalid due to undue influence and misrepresentation by her husband. Barclays Bank was deemed to have constructive notice of these issues. Key Principles: 1. Undue Influence: A spouse’s consent can be invalidated if influenced by the other spouse’s wrongful conduct. 2. Constructive Notice: Third parties (like banks) may be liable if they are aware of undue influence or misrepresentation. 3. Equitable Protection: Spouses can seek protection from unfair contracts based on misrepresentation or undue influence Consideration I: An Overview Consideration is a complex legal concept that determines whether a promise is legally enforceable. The sources provide a detailed analysis of consideration, focusing on its key principles, rules, and illustrative case law. Consideration can be broadly defined as something of value given in exchange for a promise, transforming a gratuitous promise into a legally binding obligation. It represents the bargain or exchange element within a contract. This exchange can manifest as a benefit to the promisor or a detriment to the promisee. However, contract law does not concern itself with enforcing gratuitous promises or addressing whether a bargain is favorable. The core framework of consideration relies on four fundamental rules: Consideration must be sufficient but need not be adequate. Consideration must not be in the past. Consideration must move from the promisee. Performance of a pre-existing duty does not constitute valid consideration. Each rule is explained further below, with reference to relevant cases. Rule 1: Consideration must be ‘sufficient’ but need not be ‘adequate’. This rule emphasizes that for consideration to be valid, it must possess some value recognized by the law. However, the law is not concerned with the adequacy or fairness of the exchange. Case Examples: Chappell v Nestlé AC 87: Nestlé offered records at a discounted price in exchange for money and three chocolate bar wrappers. Despite having minimal economic value,  the wrappers were deemed sufficient consideration because they represented evidence of increased chocolate sales, which was Nestlé's objective. This case illustrates that the court will not assess the actual value of the consideration, as long as it holds some value for the parties involved. Thomas v Thomas (1842) 2 QB 851: A widow was promised the use of her late husband's house in return for £1. The court found that the nominal payment of £1 constituted sufficient consideration for the promise, highlighting that even a small amount can satisfy the requirement of sufficiency. White v Bluett (1853) LJ Ex 36: A father promised to discharge his son's debt if he stopped complaining. This promise was unenforceable because refraining from complaints was neither of economic value nor a right relinquished by the son. This case demonstrates that while consideration need not be substantial, it must have some legal value. Hamer v Sidway 124 N.Y. 538, 27 N.E. 256 (1891) (USA): A nephew's promise to refrain from drinking, smoking, and gambling in exchange for money from his uncle was considered sufficient consideration. By giving up these activities, the nephew sacrificed his legal right to engage in them, providing something of value in the eyes of the law. Horton v Horton (No. 2) 1 QB 215: A wife's decision to not apply for court rectification of an agreement with her husband was deemed sufficient consideration. By forbearing from this legal action, she provided something of value in exchange for the husband's promise. Rule 2: Consideration must not be in the past. This rule establishes that consideration provided before the promise is made cannot be considered given in support of the promise, rendering the promise unenforceable. This ensures that consideration is directly linked to the promise it supports. Case Examples: Re McArdle Ch 669: A promise to reimburse a relative for work already completed on a house was unenforceable as the work had been done prior to the promise, making it past consideration. Roscorla v Thomas (1842) 3 QB 234: An oral guarantee regarding the soundness of a horse, given after its sale, was unenforceable. The guarantee was given after the completion of the contract, meaning the consideration was past. Exception to the Rule: The case of Pao On v Lau Yiu Long AC 614 established a test to determine whether past consideration could be valid. This test requires: 1. A prior request for the act or service. 2. An implied promise of remuneration. Case Examples: Lampleigh v Braithwait EWHC KB J 17: Braithwait requested Lampleigh to obtain a pardon for his act of murder. Although the promise to pay Lampleigh was made after he secured the pardon, the court deemed it enforceable. Braithwait's prior request implied a promise of payment, satisfying the Pao On test. Re Casey's Patents 1 Ch 104: An employee completed work and was later promised a share of the patents he worked on. The court upheld the promise due to an implied understanding of remuneration for the employee's efforts, consistent with the Pao On test. It is important to note that in commercial transactions, the likelihood of an implied promise of remuneration for past actions is higher, suggesting a more pragmatic approach by the courts in these contexts. Rule 3: Consideration must move from the promisee (at the request of the promisor). This rule dictates that consideration must be provided by the individual who receives the promise (the promisee), not by a third party. However, the consideration does not have to directly benefit the promisor. This rule emphasizes the privity of contract, ensuring a direct link between the promise and the consideration supporting it. Case Example: Combe v Combe 2 KB 215: A husband promised to pay his wife maintenance. The wife claimed her forbearance from seeking court maintenance was consideration for the promise. The court rejected this argument, as the husband had not requested her forbearance. This case reinforces the requirement for a connection between the promise and the consideration provided. Rule 4: Performance of a pre-existing duty is not valid consideration. This rule states that performing an existing obligation, whether legal, contractual, or owed to a third party, generally does not qualify as valid consideration. This is because no new value is being provided in exchange for the promise. Types of Pre-existing Duties: 1. Legal or moral duties: Obligations imposed by law or societal norms. 2. Contractual duties: Obligations arising from a pre-existing contract. 3. Duties owed to a third party: Obligations to individuals outside the current contractual relationship. Case Examples:  Collins v Godefroy (1831) 1 B & Ad 950: A promise to pay a witness for attending trial was unenforceable. The witness was already legally obligated to attend due to a subpoena, so their attendance was not considered valid consideration. Glasbrook Brothers Ltd. v Glamorgan County Council \ UKHL 3: The provision of extra police presence during a miners' strike was deemed enforceable. The police went beyond their existing legal duty, providing additional protection that constituted valid consideration. Stilk v Myrick EWHC KB J58: Sailors deserted a ship, leading the captain to promise the remaining crew extra wages. The promise was unenforceable, as the crew was already contractually obligated to sail the ship back, even with reduced crew numbers. Performing an existing contractual duty did not amount to valid consideration. Hartley v Ponsonby 26 LJ QB 322: Extensive desertions from a ship made it unsafe to continue the voyage. The captain's promise of extra pay to the remaining crew was enforceable, as the reduced crew numbers created a dangerous situation exceeding their initial contractual obligations. This went beyond their pre-existing duty and constituted valid consideration. Shadwell v Shadwell EWHC CP J88, Scotson v Pegg (1861) 158 ER 121, and New Zealand Shipping Co. Ltd v A. M. Satterthwaite & Co. Ltd, The Eurymedon \ AC 154 demonstrate that performing a duty owed to a third party can constitute valid consideration in certain circumstances. Conclusion: Consideration is a fundamental concept in contract law, playing a crucial role in determining the enforceability of promises. The rules governing consideration are complex, with numerous exceptions and nuances. By understanding these rules and studying the relevant case law, one can gain a deeper appreciation of how courts assess the validity of consideration in contractual disputes. Detailed Notes on Modification Promises and Promissory Estoppel - Focusing on Cases Modification Promises These notes address situations where parties to an existing contract agree to change its terms. The key question is whether these changes are enforceable – whether they are supported by consideration. Type A: Promises to Pay More General Rule: Performing an existing contractual duty is not valid consideration for a promise to pay more.  Landmark Case: Stilk v Myrick (1809) - Sailors promised extra pay for bringing a ship home after desertions. The court held this promise unenforceable as they were already contractually bound to do their utmost. Exception 1: Fresh Consideration: If the party promising to do something provides something extra or goes beyond their existing duty, this can be valid consideration.  Case: Hartley v Ponsonby (1857) - Many more crew members deserted, making the remaining sailors' work far more dangerous. The court found the promise to pay more enforceable as the sailors were doing more than their original contract required. Exception 2: Practical Benefit: The promisor's promise to pay more may be enforceable if they obtain a "practical benefit" from the other party completing their existing duties, even if there's no fresh consideration.  Leading Case: Williams v Roffey Bros (1989) - A subcontractor was promised additional payment to finish work on time. The court found this enforceable, as the main contractor received practical benefits (avoiding late fees, finding a replacement, etc.).  Glidewell LJ's Criteria in Williams v Roffey for finding consideration based on practical benefit:  A contract for goods and services exists.  There's doubt about timely completion.  A promise to pay more is made.  The promisor gets a practical benefit.  There's no duress.   Consideration is otherwise valid. Controversy: Not all judges agree with the "practical benefit" exception. Some argue it weakens the basic rule of consideration.  South Caribbean Trading v Trafigura Beheer (2004) - Coleman J expressed strong disapproval of Williams v Roffey. Type B: Promises to Accept Less General Rule: Part-payment of a debt is not sufficient consideration for a promise to discharge the whole debt.  Key Case: Foakes v Beer (1884) - A creditor agreed to forgo interest on a debt if paid in installments. The court later allowed the creditor to claim the interest, as the debtor had provided no consideration for the promise to waive it. Simply paying part of what was already owed wasn't enough. Exception 1: Something Different: Providing something different alongside part- payment can be valid consideration.  Example: Paying a smaller sum earlier than the due date, or giving a non- monetary item along with the part-payment, as in Pinnel's Case. Exception 2: Practical Benefit (Unclear): Whether a practical benefit to the creditor from accepting less can be sufficient consideration is uncertain.  Re Selectmove (1995) - The court rejected applying the "practical benefit" reasoning from Williams v Roffey to part-payment cases.  MWB v Rock Advertising (2016) - The Court of Appeal initially found a practical benefit to a landlord who agreed to a revised payment schedule (tenant staying in the property, avoiding vacancy). This suggested a possible expansion of the "practical benefit" rule. However, the Supreme Court later overturned this decision on other grounds and declined to rule definitively on the practical benefit issue. Promissory Estoppel Definition: An equitable doctrine that prevents a party from going back on a promise that the other party has relied on, even if that promise lacks formal consideration. Key Case: Central London Property Trust v High Trees House (1947) - A landlord promised reduced rent during wartime. After the war, the landlord was allowed to claim the full rent again, but not for the period during the war. This established the principle of promissory estoppel. Elements 1. Clear and Unequivocal Promise - The promise must be certain. 2. Reliance - The promisee must have changed their position based on the promise.  3. Inequity - It must be unfair to allow the promisor to go back on their promise. 4. Not a Sword - It can only be used as a defense against a claim, not to create a new claim. 5. Suspends Rights - Promissory estoppel usually suspends the promisor's original rights, not extinguishes them. They might be able to enforce those rights later with reasonable notice. Case Illustrations: 0. Hughes v Metropolitan Railway Co (1877) - Negotiations over a lease led one party to believe they had more time to make repairs. The court found that the landlord was estopped from enforcing the original deadline. 1. Combe v Combe (1951) - This clarified that promissory estoppel cannot be used to create a new cause of action. 2. D & C Builders v Rees (1966) - A debtor unfairly pressured a builder into accepting less money. The court found the debtor could not rely on promissory estoppel as they acted in bad faith. 3. Collier v P & MJ Wright (Holdings) (2007) - Suggested part-payment could evidence reliance for estoppel, but later backtracked from this in MWB v Rock. 4. The Post Chaser (1982) - Highlighted that detrimental reliance is not essential for estoppel but helps to show inequity. Important Points to Remember Consideration issues often arise when a contract is modified. The "practical benefit" concept is important but can be complex and controversial. Promissory estoppel provides a way to enforce promises even without strict consideration, but it has limitations. These notes offer a concise overview of key cases and principles but should not be considered exhaustive. GIZMO NOT USED: Contractual Interpretation: Key Concepts and Cases Here are some notes on the concept of contractual interpretation and the related cases, focusing on the principles derived from each case. The objective intention of the parties is paramount: Courts strive to uphold what a reasonable person would understand the parties to have meant in their agreement. Approaches to Contractual Interpretation: Old Approach: Literal interpretation, confining analysis to the explicit terms within the contract.  Lovell & Christmas Ltd v Wall exemplifies this literalist approach. Modern Approach: A contextual and purposive approach that considers commercial common sense and the surrounding circumstances. Shift towards Contextual Interpretation: Reardon Smith Line Ltd v Yngvar Hansen-Tangen and Sanko SS & Co Ltd: Recognises the importance of understanding the context, background, and market in which the contract operates. Investors Compensation Scheme Ltd. v West Bromwich Building Society: Demonstrates a shift from a purely literal interpretation. While the specific clause in question was complex, the court considered the context and concluded that adhering to the literal meaning would lead to an absurd outcome. Lord Hoffmann's Five Principles: Principle 1: Interpretation seeks to determine the meaning a reasonable person would derive from the document, considering all relevant background knowledge available to the parties at the time of the contract. Principle 2: "The matrix of fact" encompasses a broad range of contextual information that could influence the understanding of the contract's language. Principle 3: Excludes prior negotiations and subjective intentions from consideration. Principle 4: Acknowledges that the meaning conveyed to a reasonable person might differ from a strict literal interpretation of the words. Principle 5: The "natural and ordinary meaning" of words is generally upheld, reflecting the assumption that parties don't often make linguistic errors in formal agreements. Balancing Commercial Common Sense with the Primacy of Language: Rainy Sky SA & ors v Kookmin Bank: Allows courts to favour an interpretation aligned with business common sense when faced with two possible constructions. Arnold v Britton: Emphasizes that while commercial common sense is relevant, the natural meaning of the contractual language holds primary importance.  Mere unfavorable outcomes for a party do not justify departing from the natural language. Wood v Capita Insurance Services Ltd: Reconciles textualism and contextualism as complementary tools for interpretation. The weight given to each tool depends on the specific circumstances of the agreement. Exemption Clauses: Common Law - Incorporation and Construction Key Concepts Exemption clauses aim to exclude or limit liability in contracts. They are scrutinized for fairness, unlike most contract terms. Types of exemption clauses: These can exclude or limit liability and cover specific types of liability or loss. Validity of exemption clauses: To be enforceable, an exemption clause must:  Be incorporated into the contract.  Effectively exclude liability for the specific loss.  Be valid under relevant legislation (UCTA 1977 or CRA 2015). Incorporation Methods Signature: Signing a contract generally binds the parties to its terms, including exemption clauses, regardless of whether they read them (L'Estrange v F Graucob Ltd). Notice: Exemption clauses can be incorporated by providing reasonable notice before or at the time of contracting (Olley v Marlborough Court Hotel, Thornton v Shoe Lane Parking Ltd). The notice must be in a document intended to have contractual effect (Chapelton v Barry Urban District Council). Reasonable notice considers factors like the clause's prominence and clarity (Parker v South Eastern Railway).  The "red hand rule" highlights that more onerous or unusual clauses require greater notice (J Spurling Ltd v Bradshaw). Previous Dealings or Custom: Consistent and regular use of specific terms in past dealings can incorporate an exemption clause (McCutcheon v David MacBrayne Ltd, Hollier v Rambler Motors (AMC) Ltd). Custom within a specific trade can also imply terms, including exemption clauses (British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd). Construction: Interpretation of Exemption Clauses Contra Proferentem Rule: Ambiguity in an exemption clause is resolved against the party seeking to rely on it (Houghton v Trafalgar Insurance Co. Ltd). Liability for Negligence: Excluding liability for negligence requires clear and specific wording (Canada Steamship Lines v The King). If the wording can cover both  negligent and non-negligent liability, it will usually apply only to the non-negligent liability. Key Principles from Cases L'Estrange v F Graucob Ltd: Signing a contract binds you to its terms, including exemption clauses, even if unread. Thornton v Shoe Lane Parking Ltd: Notice of exemption clauses must be given before or at the time of contracting. Onerous or unusual clauses require greater notice. Parker v South Eastern Railway: Reasonable notice of exemption clauses must be given, but actual notice is not required. Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd: Particularly onerous or unusual clauses require greater effort to draw attention to them. McCutcheon v David MacBrayne Ltd: Consistent and regular use of terms in past dealings can incorporate them into a contract. Houghton v Trafalgar Insurance Co. Ltd: Ambiguities in exemption clauses are interpreted against the party relying on them. Canada Steamship Lines v The King: Excluding liability for negligence requires clear and unambiguous language. Important Notes UCTA 1977 and CRA 2015: These statutes regulate the use of exemption clauses and impose limitations on their effectiveness, particularly in consumer contracts. They will be covered in a later lecture. Burden of Proof: The party seeking to rely on an exemption clause bears the burden of proving its validity and applicability. Canadian Approach: A different approach to signature in contracts exists in Canada, raising the question of whether English law should adopt a similar approach. This summary of the provided excerpts focuses on the key concepts and principles related to exemption clauses in English contract law. Remember to refer to the full text for complete information and context. Keywords and Key Concepts Exemption Clause: A term in a contract that seeks to exclude or limit liability for breach of contract. Unfair Term: A term in a consumer contract that causes a significant imbalance in the parties' rights and obligations, to the detriment of the consumer, contrary to the requirement of good faith. Incorporation: The process of including an exemption clause into a contract. This can be done through signature, notice, or previous dealings. Construction: The process of interpreting an exemption clause to determine its scope and effect. Reasonableness Test: A test used to determine the validity of exemption clauses in business-to-business contracts under the Unfair Contract Terms Act 1977 (UCTA). The clause must be fair and reasonable to be included, considering factors such as the bargaining power of the parties and the availability of insurance. UCTA 1977: Legislation that regulates exemption clauses in business-to-business contracts. Certain clauses are void, while others are subject to the reasonableness test. Consumer Rights Act 2015 (CRA 2015): Legislation that replaced several older laws, including the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999). It regulates both exemption clauses and unfair terms in consumer contracts. Trader: A person acting for purposes relating to their trade, business, craft, or profession. Consumer: An individual acting for purposes wholly or mainly outside their trade, business, craft, or profession. Good Faith: Fair and open dealing, requiring a clause to be expressed fully and clearly. Significant Imbalance: A clause that tilts the parties' rights and obligations significantly in favor of the party relying on the clause (the proferens), to the disadvantage of the consumer. Core Terms: Terms in a contract that define the main subject matter or the price payable. These are excluded from the assessment of fairness under the CRA 2015. Cases and Key Principles L'Estrange v Graucob 2 KB 394: A party is generally bound by the terms of a contract they have signed, even if they haven't read them. This establishes the principle of incorporation by signature.  Parker v South Eastern Railway (1877) 2 CPD 416: Reasonable notice must be given for an exemption clause to be incorporated by notice. Interfoto Picture Library v Stiletto QB 433: Particularly onerous or unusual terms require a more explicit notice - the "red hand rule". Canada Steamship Lines v The King AC 192: Clear words must be used in an exemption clause to exclude liability for negligence. Houghton v Trafalgar Insurance 1 QB 247: Exemption clauses are interpreted against the party seeking to rely on them (contra proferentem). George Mitchell Ltd v Finney Lock Seeds Ltd 2 AC 803: In assessing the reasonableness of an exemption clause under UCTA, the court considers various factors, including the availability of insurance and standard industry practice. This case highlights that a clause that is common in a trade may still be unreasonable. St Albans City and DC v International Computers Ltd EWCA Civ 1296: The resources available to a party to meet potential liability are considered when assessing reasonableness under UCTA. Photo Production Ltd v Securicor Transport Ltd UKHL 2: The ability of a party to cover themselves by insurance is considered when assessing reasonableness under UCTA. DGFT v First National Bank plc UKHL 52: Introduced the concept of "significant imbalance" and "good faith" in assessing the fairness of terms in consumer contracts (relevant to the UTCCR 1999 and now the CRA 2015). Office of Fair Trading v Abbey National plc UKSC 6: Established that core terms defining the main subject matter or price are excluded from the fairness assessment under the CRA 2015. Intention to Create Legal Relations (ITCLR): o This is a core principle in contract law. It means that for an agreement to be legally binding and enforceable as a contract, the parties involved must have intended for their agreement to have legal consequences. Objective Assessment: o The determination of ITCLR isn't based on what the parties say they intended. Instead, courts use an objective test. This means they examine the words used, the actions of the parties, and the overall context of the agreement to determine whether a reasonable person would conclude that the parties intended to create a legally binding contract. Presumptions to Guide Analysis:  o To assist in assessing ITCLR, the law uses rebuttable presumptions. These presumptions serve as starting points, and they can be overturned if sufficient evidence is presented to the contrary: o Social and Domestic Agreements: ▪ In agreements between family members or friends, the law presumes that the parties did not intend to create legal relations. This presumption reflects a policy consideration that courts generally should not interfere in personal relationships. o Commercial Agreements: ▪ In agreements made in a business or commercial context, the law presumes that the parties did intend to create legal relations. This presumption is based on the understanding that business dealings are typically intended to be legally enforceable. Rebutting the Presumptions: o While these presumptions are helpful, they are not absolute. The party seeking to establish that an agreement was intended to be legally binding, or that an agreement was not intended to be legally binding, can introduce evidence to try to rebut the applicable presumption. The evidence needed to rebut a presumption will depend on the specific facts of each case. Factors That Can Rebut Presumptions: o There are various factors that courts may consider when assessing whether a presumption has been rebutted. These might include: o The nature of the relationship between the parties ▪ (e.g., are they close family members, or are they dealing with each other at arm's length in a business capacity?) o The subject matter of the agreement ▪ (e.g., is it a trivial social arrangement, or is it a significant financial transaction?) o The language used in the agreement ▪ (e.g., was it formal and legalistic, or was it informal and casual?) o The conduct of the parties ▪ (e.g., did they take steps to document the agreement, or did they rely solely on verbal promises?) Consequences of ITCLR: o If a court finds that there was an intention to create legal relations, the agreement will be considered legally binding, and the parties can sue each other for breach of contract if the agreement is not honoured. If a court finds that there was no ITCLR, the agreement will not be enforceable as a contract. CASES o Balfour v Balfour 2 KB 571: ▪ Key point  This is the leading case that established the presumption against ITCLR in agreements made in domestic or social settings. ▪ Facts The case involved a husband who promised to pay his wife a monthly allowance while he was working abroad. When the relationship broke down, the wife tried to enforce the agreement as a legally binding contract. ▪ Held The court held that there was no enforceable contract because the parties, as husband and wife, did not intend their arrangement to have legal consequences ▪ Judgement The judgment in this case is important for its articulation of policy reasons for the presumption against ITCLR in domestic agreements. Judges were concerned that treating these kinds of arrangements as contracts would: Open the floodgates to litigation over ordinary domestic disputes. Be inconsistent with the nature of the relationship between spouses, who generally do not intend to sue each other over casual promises. ▪ o Merritt v Merritt 1 WLR 1211: ▪ Key point This case demonstrates that the presumption against ITCLR in domestic situations can be rebutted if there is sufficient evidence. ▪ Facts Here, a husband and wife made an agreement about their property after they had separated. The court distinguished this case from Balfour v Balfour, finding that the parties' separation indicated that they did intend their agreement to have legal consequences. ▪ Court reasoning The court reasoned that when spouses are separating or have already separated, it is more likely that they intend to create legally binding and enforceable agreements, as they are no longer living together in harmony and are acting independently. o Jones v Padavatton 2 All ER 616: ▪ key point  This case reinforces the principle that the presumption against ITCLR applies not just between spouses, but also in other social or family relationships. ▪ facts Mother promised her daughter to provide her with house and money from the rent while she studied for the bar Daughter did not pass the bar after 6 years and her mother sought possession of the house ▪ held Possession granted to the mother; there was no valid contract that gave the daughter possession ▪ What does this case shows? The promise was a family arrangement as per __Balfour v Balfour__ and hence not enforceable o Lens v Devonshire Club, The Times, 4 December 1914: ▪ facts The case held that the winner of a golf tournament was not entitled to sue for the prize. This was because the tournament was deemed to be a social competition, and there was no intention for participants to create legal relations. ▪ Held This case highlights how the context of an agreement can be crucial in determining whether the presumption against ITCLR should apply. Social events and competitions are generally not considered to be legally binding arrangements. ▪ o Snelling v John Snelling Ltd QB 87: ▪ facts The case likely involved a family business, suggesting that when family members enter into agreements in a business context, courts may be more likely to find that the parties intended to create legal relations. ▪ What does this case illustrates? This case illustrates that the presence of a commercial aspect to an agreement between family members can shift the analysis away from the presumption against ITCLR in domestic settings, and toward the presumption in favour of ITCLR in commercial settings. o Parker v Clark 1 WLR 286:  ▪key point the presumption against ITCLR in social or domestic agreements can be rebutted where parties have acted to their detriment in reliance on the agreement, or where the agreement has already been acted upon (executed). ▪ facts The full facts of the case are not provided in the sources, but it likely involved a situation where one party made a promise to another in a social context, and the other party took significant steps or incurred expenses in reliance on that promise. ▪ Principle The principle here is that when one party relies on a promise made by another, even in a social or domestic setting, and suffers a detriment as a result, this reliance can be evidence of an intention to create legal relations. The courts will seek to prevent unfairness and protect the party who relied on the agreement. o Simpkins v Pays 1 WLR 975: ▪ This case demonstrates that rebutting factors, such as reliance and detriment, can also apply to social arrangements. ▪ ▪ The specifics of the case are not detailed, but the reference in the source suggests that an agreement made in a social setting was found to be legally binding due to the presence of these rebutting factors. o Edwards v Skyways 1 WLR 349: ▪ o Rose and Frank Co v JR Crompton and Bros Ltd AC 445: ▪ Key point This is a key case illustrating how the presumption of ITCLR in commercial settings can be rebutted by express stipulation ▪ Facts The parties in this case included an "honourable pledge clause" in their agreement, which explicitly stated that they did not intend to create legally binding obligations. The court upheld this clause, finding that the parties had effectively rebutted the usual presumption of ITCLR in commercial arrangements. ▪ What is it highlights? This case highlights the importance of clear and unambiguous language when parties wish to avoid creating a legally binding contract. It also shows that  freedom of contract allows parties to structure their agreements as they see fit, even choosing to exclude the legal enforceability that would normally be assumed. o Blue v Ashley ▪ key point There is a no intention to create legal relations for statements made in social context, with vague language, in anger or jest ▪ facts owner of Sports Direct (D) told his investment banker (C) in a pub that he would pay him £15 million if he could get the price of shares in Sports Direct to £8 When the shares did reach £8, D refused to pay the money to C C argued that there was an contract and claimed for the sum of £15 million against D ▪ held Claim dismissed; there was no contract Even where a real offer is accepted, there is a further requirement of intention to create legal relations On the facts, no reasonable person present at the pub would have thought that the offer was intended to create a contract o Saddler v Reynolds ▪ key concepts o Invitation to Treat (ITT)  ▪ An ITT signals a willingness to negotiate or receive offers. It is not an offer itself and cannot be accepted to form a contract ▪ Key characteristics: No intention to be bound: o The person making the ITT does not intend to be legally obligated by their statement. Lack of certainty: o The terms of the ITT may be vague or incomplete. Examples o Advertisements, displays of goods, price lists, websites o Offer ▪ An offer is a clear expression of willingness to enter into a contract on specific terms. ▪ Key points: Intention to be bound o The person making the offer intends to create a legal obligation if the offer is accepted. o Objective assessment: o The court assesses the intention based on what a reasonable person would understand from the offeror's words and conduct. Certainty o The terms of the offer are sufficiently clear and complete Capable of acceptance: o The offer can be accepted without further negotiation Counter-Offer o A counter-offer is a response to an offer that changes the terms of the original offer counter-offer Effect o A counter-offer rejects the original offer and creates a new offer. The original offer is no longer available for acceptance Distinguishing from requests for information o A request for information about the offer does not reject the offer. The original offer remains open for acceptance. Acceptance o Acceptance is the unqualified assent to the terms of an offer. It means agreeing to the terms of an offer without any conditions or changes. o Requirements ▪ Unequivocal The acceptance must be clear and leave no doubt about the offeree's intention to agree to the offer. ▪ In response to an offer: The acceptance must be made in direct response to a valid offer. ▪ Matching the offer: The acceptance must mirror the terms of the offer without any changes (the "mirror image" rule). ▪ Communicated The acceptance must be communicated to the offeror. ▪ o Communication of Acceptance ▪ General rule Acceptance must be both communicated and received by the offeror ▪ Prescribed mode If the offeror specifies a particular method of acceptance, the offeree must comply with that method ▪ Silence Generally, silence cannot constitute acceptance ▪ Authorised third party: Acceptance can be communicated by a reliable and authorised third party ▪ Instantaneous Communications: Receipt rule: o Acceptance is generally effective when received by the offeror Time of receipt o The time of receipt depends on factors like office hours and the parties' conduct  No universal rule o The courts consider factors like the parties' intentions and sound business practice Postal Rule: o Acceptance by post is valid when the letter is posted, not when it is received by the offeror. o Conditions ▪ The postal rule only applies if it was reasonable for the offeree to use the post, and the offeror did not exclude the postal rule. o Ousting the rule: ▪ The offeror can specify that acceptance must be received or communicated in a particular way. o Revocation of Offer: ▪ An offer can be revoked by the offeror any time before acceptance. ▪ Exceptions Consideration for option o If the offeree provides something of value (consideration) in exchange for keeping the offer open for a certain time, the offer cannot be revoked during that time Revocation by a reliable third party: o A reliable third party can communicate the revocation to the offeree. o Cases o ITT ▪ Gibson v Manchester City Council ** 1 All ER 972* ▪ Partridge v Crittenden 1 WLR 1204:  The court ruled that an advertisement for the sale of birds was an invitation to treat, not an offer. The court reasoned that advertisements and circulars are generally understood as invitations to negotiate, not expressions of a definite intention to sell to every potential buyer. This case highlights the importance of context and business sense in determining whether a communication is an offer or an ITT. ▪ Fisher v Bell 1 QB 394: The display of a flick knife with a price tag in a shop window was held to be an invitation to treat, not an offer. The court emphasized that in everyday language, such displays might seem like offers, but legally, they only constitute invitations for customers to make offers. This case highlights that legal interpretations may differ from common perceptions ▪ Pharmaceutical Society of GB v Boots The display of medicines on a shop shelf was deemed an invitation to treat, with the offer being made by the customer at the checkout. The Court of Appeal reasoned that this approach allowed for greater flexibility in retail transactions, ensuring that shops are not bound to sell to every customer who picks up an item. ▪ o Offer ▪ Harvey v Facey AC 55: A statement providing the price of an item in response to a request for information was held not to be an offer. This case emphasizes that a valid offer must express a willingness to be bound on specific terms and not merely provide information ▪ o Counter-Offer ▪ Hyde v Wrench (1840) 3 Beav 344: This case established the principle that a counter-offer rejects the original offer, making it no longer capable of acceptance. When the plaintiff counter-offered a lower price for land, the original offer was extinguished. ▪ Stevenson, Jaques & Co v McLean 5 QBD 346: The court distinguished between a counter-offer and a request for information. A question about delivery terms did not constitute a counter-offer but a request for clarification, leaving the original offer open for  acceptance. This distinction is crucial for determining whether negotiations break down the original offer. ▪ Butler Machine Tool Co Ltd. v Ex-Cell-O Corp (England) Ltd. This case was about a "battle of the forms," where each side sent documents with different terms. The court decided on the "last shot" rule, meaning the terms in the final accepted document are the ones that apply. The seller tried to include a price change clause, but the buyer's terms overruled it because the seller agreed to them by signing and returning a confirmation slip. ▪ Brogden v. Metropolitan Railway (1877) 2 AC 666 While not directly addressing counter-offers, this case demonstrates that acceptance can be inferred through performance. This principle could apply to counter-offer situations where a party proceeds with performance based on the revised terms ▪ Tekdata v Amphenol EWCA Civ 1209: This case further illustrates the principle of acceptance by performance, which may be relevant in counter-offer scenarios where acceptance is not explicitly stated but implied through actions ▪ o Acceptance ▪ Manchester Diocesan Council for Education v Commercial & General Investments Ltd ** 1 WLR 241 This case established that if an offer prescribes a specific mode of acceptance, acceptance by any other mode will only be valid if it is no less advantageous to the offeror ▪ Tinn v Hoffman & Co. 29 LT 271 This case provided an example of a situation where acceptance by a different method than the one prescribed was valid because it was equally advantageous. Accepting by fax instead of "by return post" was considered acceptable in this instance ▪ Powell v Lee (1908) 99 LT 28: Acceptance may be communicated by a reliable and authorised third party. This case emphasizes the importance of the communicator's authority in contract formation. ▪ Felthouse v Bindley (1862) EWHC CP J 35:  This case established the principle that silence cannot constitute acceptance. The uncle's statement that he would consider the horse his if he heard no more was not a valid offer because the nephew did not communicate acceptance ▪ Re Selectmove 1 WLR 474 facts o Selectmove (S) owed tax to Inland Revenue o D proposed that the debt be paid off in instalments o The tax collector said he will check with his superiors and let S know if it was possible o S did not hear back until it received a letter from the Inland Revenue demanding immediate payment threatening a wounding up petition, which was later served o S argued that the petition should be dismissed based on earlier agreement which was binding: ▪ S had offered a promise to pay off existing liability by instalments which was good consideration ▪ The Inland Revenue seeks to gain a practical benefit as it is likely to recover more taxes by accepting instalment payments than enforcing immediate payment which would push S into liquidation held o S was liable to make immediate payment o The promise of future tax payments is not good consideration but an existing obligation under fiscal legislation ▪ Rust v Abbey Life Assurance ▪ The Brimnes EWCA Civ 15 held o In this case, the defendant should have read this Telex message, but through their own actions, this did not happen. The source notes that this case determined that if communication is sent during office hours, acceptance takes place when it arrives in the offeror's inbox not when they read it ▪ Thomas v BPE Solicitors (a firm) EWHC 30  This case shows that what constitutes 'office hours' is not rigidly defined in law. The court will consider the specific circumstances of the parties and the transaction in question to determine when acceptance took place ▪ Brinkibon v Stahag Stahl 2 AC 34 facts o Brinkibon, a company based in London, sent an offer to buy steel to Stahag Stahl, a company based in Austria. Stahag Stahl accepted the offer by telex. A dispute arose, and Brinkibon sought to argue that the contract was formed in England. held o The High Court had no jurisdiction as the contract was made in Vienna where the acceptance was received o ▪ o Revocation of Offers ▪ Routledge v Grant (1828) 4 Bing 653 This case likely establishes that an offer can be revoked at any time before acceptance. regardless of any promise by the offeror to keep the offer open ▪ Byrne & Co v Van Tien Hoven & Co 5 CPD 344 The postal rule is not applicable to a revocation of offer facts o D in Cardiff posted letter to C in New York offering to sell C 1000 boxes of tin plates on 1 Oct o Due to a rise in the price of tinplates, D sent a new letter to revoke the offer on 8 Oct o The letter to revoke was not received until 11 Oct, and C telegraphed its acceptance on same day held o There was a binding contract between the parties o The revocation of offer was not effective on 8 Oct when it was sent, only when it was received ▪ Dickinson v Dodds (1876) 2 Ch D 463 facts o Facts: Dodds offered to sell property to Dickinson, stating that the offer would be open until a specific time. However, before that time, Dickinson learned that Dodds had offered to sell the property to a third party. Dickinson then attempted to accept Dodds' original offer held  o The court held that there was no contract because Dodds' offer had been revoked before Dickinson accepted it. The revocation was effective because Dickinson had received reliable information that Dodds was no longer minded to sell the property to him key concept o This case established that an offer can be revoked by a reliable third party and that revocation is effective upon receipt o postal rule ▪ Adams v Lindsell (1818) 1 B & Ald 68 facts o Lindsell offered to sell wool to Adams, requesting a reply "in course of post". Lindsell misdirected the letter, causing a delay. Before Lindsell received Adams' acceptance, he sold the wool to a third party held o The court held that a contract was formed when Adams posted his acceptance letter. This established the "postal rule" key concept o The case established the postal rule, which means acceptance takes effect as soon as the letter is sent, as long as using the post was expected by both parties. This is an exception to the usual rule that acceptance must be communicated and received to be valid. ▪ Henthorn v Fraser 2 Ch 27 This case is important for clarifying that the postal rule doesn't apply automatically to every acceptance sent by post. It is subject to the context of the communication between the parties. ▪ Holwell Securities v Hughes 1 WLR 155 The postal rule will not apply if expressly excluded in the offer ▪ Household Fire Insurance v Grant 4 Ex D 216 D offered to buy 100 shares from C, company C sent a letter of acceptance to D but the letter was lost in the post and never arrived C sued for breach of contract after D refused to complete the purchase  D was in breach of contract; acceptance of D’s offer was effective at the time the letter of acceptance was sent Meeting of minds is that foundation of contract formation, hence the need for communication of acceptance, but the postal rule is an exception