Unit 1 - Contract Law Notes PDF

**[Unit 1 -- Contract Law ]** **Contract Formation:** - Need to identify a contract. No contract, no remedy in contract law **Terms of a Contract:** - When there has been identification of a contract, one needs to determine the terms of the contract - There will be express terms as we...

**[Unit 1 -- Contract Law ]** **Contract Formation:** - Need to identify a contract. No contract, no remedy in contract law **Terms of a Contract:** - When there has been identification of a contract, one needs to determine the terms of the contract - There will be express terms as well as implied terms **Remedies:** - If terms of the contract has been breached, you may be able to receive remedies - Main remedy is damages and the aim is to compensate the innocent party for the loss of bargain **Discharge of a contract:** - Many different way that a contract may be discharged and the parties are relieved from performance, including: agreement, performance, breach and frustration **Vitiating Factors:** - Occasionally, there will be problems leading up to the formation of a contract -- misled/forced, fundamental mistake, illegal acts. Innocent party may be able to get the contract set aside - Misrepresentation - May be relevant where an oral statement which was made by a party prior to the contract and which influenced the other party to enter the contract, turns out to be false - Duress and undue influence - If a party enters a contract because of some sort of illegitimate threat or improper pressure, they should have the potential to rescind **Contract Formation:** - 3 elements of a contract: - There has to be **[agreement]** which manifests itself as an offer which has been accepted - There has to be **[consideration]** which is something given in exchange for the other party's promise - There has to be an **[intention]** that the agreement should be legally binding - Some parties do not have the capacity or power to enter contracts - Minors and people with a mental impairment (due to nervous breakdown or inebriation) have a limited capacity - Some organisation (clubs and associations) are not recognised by the law as separate legal entities capable of entering contracts - Some parties may be able to legally bind people to a contract because they have the authority to do so -- **[Agents]** (travel/ticket agents, auctioneers, etc) What is Contact law about? Contracts are really just about agreements or deals, or with bargains Two requirements for an offer - A willingness to be bound by the proposal if it is agreed to; **[Willingness to be bound]** - Putting yourself in a position where you may be bound to a contract has to be a voluntary thing - Sufficient certainty in the terms of the proposal; **[Certainty of terms]** - The agreement needs to be clear and cannot be vague - The offer needs to be complete **Acceptance**: Acceptance is "the unqualified assent to the terms of the offer" - Assent - Must be on the offerees on volition - Unqualified - If the acceptance was qualified in some way, then it would not be a complete assent to the terms of the offer at all -- if the offeree disagrees with an points of the offer, then there is no agreement - Acceptance needs to be **[communicated]** to the offeror (General Rule) **Termination of Offer** - Can rescind the offer at any point until the offer has been accepted. - **Revocation** - Offeror takes the offer off the table - Person who made the offer withdraws it - If the offer is successfully revoked, it is too late for it to be accepted - Successful revocation requires the revocation of the offer to be communicated to the offeree - Issue is what counts as communication - **Rejection** - Offeree 'sweeps' it off the table - Express rejection -- brings offer to an end, cannot change your mind later and accept it - **Counteroffer -**impliedly rejects an offer - **Request for more information** -- does not reject the offer, just asking questions - **Lapse** - Disappears from the table - Sometimes the offeror stipulates that the offers only open until a certain time -- if it passed, it just self-destructs - If it does not state anything about how long it's open, the law regards it as lapsing after "a reasonable time". Circumstances depends on particular cases **Intention to Create Legal Relations** - Commercial agreements - Agreement between businesses - Agreement between individuals and businesses - Domestic agreements - Some other relationships between the parties -- perhaps the parties are family members, or close friends, or the like **Presumptions** - Commercial agreements - Presumption of intention to create legal relations rebuttable - Domestic agreements - Presumption of no intention to create legal relations rebuttable **Consideration** - Agreed to provide "something in return" - Two main issues: - Adequacy of consideration - "adequacy" is concerned with the amount or value of the "something in return" - It must be adequate - Sufficiency of consideration -  if you think of sufficiency as concerned not with the amount of the consideration, but with the sort of thing it is.  - whether what is provided in return is the sort of thing the law regards as being the appropriate subject matter of a bargain at all. **Continuing Negotiations** - Normal for commercial businesses to negotiate the terms of their contracts -- price is the most common contention, however there are other points which they may want to negotiate - Parties may see themselves gradually building up their contract - Basic structure could be agreed, proposal is put forward and then knocked back and another one is accepted but with a qualification - A working arrangement is hammered out and before they know it, the parties are performing the contract they think they have - Sometimes transactions stop and things may go wrong -- this is when parties disagree about whether they reached a deal at all or what the terms were exactly - **Hussey v Horne-Payne (1878)** -- the parties had in correspondence apparently agreed the key terms of a deal for the sale of a property - Two letters (if taken in isolation) looked as though they constituted a contract but they had made no mention of payment by instalments -- that would not by itself have been fatal to the existence of the contract - However, it was apparent from both earlier and later in correspondence that at the time when these letters passed between them, both parties saw the issue of payment by instalments as a part of the deal still to be negotiated - On the facts of the case, the House of Lords decided that the two letters which, taken in isolation looked like a contract, **[didn't]** in fact constitute a final agreement - Must take a broad view and cannot focus on the bit of correspondence which look like a contract without regard to the rest - **Port Sudan v Chettiar** -- Lord Denning stated -- I like to examine the whole of documents in the case and decide from them whether the parties did reach an agreement upon all material terms in such circumstances that the proper inference is that they agreed to be bound by those terms from that time onwards - Better approach is to look at the correspondence as a whole with a view to finding offer and acceptance within it - This may depend on earlier or later parts of the correspondence which reveal what the intentions of the parties were at the relevant time, in doing so, we locate the formation of a contract through offer and acceptance, rather than by adopting a broad construction of the documents - On current balance of authority -- the alternative approached is likely to be limited to circumstances where the dealings between the parties simply don't reveal proposals and responses clear enough to be identified as offer and acceptance **Battle of the Forms** - Often, buyers and sellers of goods or services will wish to contract on their own terms and conditions -- each party will try to ensure that contract is on their own terms and conditions rather than those of the other side - **Leading case on battle of the forms is *Butler v Ex-Cell-O Corportation*** - Plaintiff sellers offered to deliver a machine tool for the price of £75,535 -- delivery was to be in 10 months and it was a condition that orders were accepted only on the terms set out in the quotation which were to prevail over any terms in the buyers order -- terms included a price variation (goods would be charged at prices ruling at date of delivery) - The defendant buyers replied on May 27, 1969, giving an order with differences from the sellers\' quotation and with their own terms and conditions which had no price variation clause. The order had a tear-off acknowledgment for signature and return which accepted the order "on the terms and conditions thereon." - On June 5, 1969, the sellers, after acknowledging receipt of the order on June 4, returned the acknowledgment form duly completed with a covering letter stating that delivery was to be "in accordance with our revised quotation of May 23 for delivery in... March/April 1970." - The machine was ready about September 1970, but the buyers could not accept delivery until. November 1970. The sellers invoked the price increase clause and claimed £2,892 for the increase due to the rise in costs between May 27, 1969, and April 1, 1970, when the machine should have been delivered. - **Different approaches taken by the judges in the Court of Appeal:** - Lord Justice Bridge -- case was plainly governed by the 'classical' doctrine that a counteroffer amounts to a rejection of an offer - Lord Justice Lawton -- similar view - Lord Denning -- expressed his view that the better way was to look at all the documents passing between the parties - On the facts of the case, the contrasting approaches made no different to the outcome -- all three judges found a contract on the buyers terms , formed on the basis that the seller's reply to the buys counteroffer was an acceptance of it - Provided its possible to use it, the 'classical' offer and acceptance approach more closely represents the law than the alternative, more holistic, approach **Knowledge Check** - "Any contract formed is likely to be more certain." Is this statement true of the *classical* approach? - Under the classical doctrine, the terms of the contract are likely to be more certain. The appeal of the classical doctrine is that, if a winner can be found, the contract will, everything else being equal, be on the terms and conditions of the winner.  - The winner will be the party whose terms and conditions are accepted by the other party. - "There will always be a contract on one or other party's terms." Is this statement true of the *classical* approach? - One of the problems with a battle of the forms is that you just can\'t guarantee there will be a winner. The outcome won't always be a contract on one or other party's terms.  - If your opponent knows the rules as well as you do, they won't make the mistake of accepting your offer and being saddled with a contract on your terms and conditions. The predictable result of skirmishes between two informed players is deadlock.  - Neither will ever contract on the other's set of terms and conditions. The deadlock may only be broken if the parties sit down and thrash out a negotiated agreement, precisely what the use of standard terms is designed to avoid. - "The terms of the contract are likely to be less certain, but may reflect a fairer balance." Is this statement true of the *alternative *approach? - The *alternative *approach is likely to lead to a degree of uncertainty. The court will normally have to draw *inferences *about what the parties agreed if it can't identify the complete assent of one party to the terms of the other. - And, generally, these inferences are going to be less clear than what is set out expressly in either party's terms and conditions, though it gives the court room to find a contract on terms which are less one-sided than either party's standard terms.  - "The court may end up trying to write the parties' contract for them." Is this statement true of the *alternative *approach? True False - If the court adopts the alternative approach, it may, as Lord Denning himself suggested, have to replace the conflicting terms of buyer and seller with a reasonable implication.  - But if it goes too far in this task, it may go past the point of identifying their common intention and end up trying to write their contract for them. That, of course, is not the court's job to do. **Lidl UK v Herford Foods** - More pragmatic solution to the battle of forms - Buyer's standard terms - the court surmised that the seller clearly did not intend to deal on the buyer\'s terms, and the buyer knew that. - Sellers standard terms - it surmised that the buyer didn\'t intend to deal on the seller\'s terms, and the seller knew that. - Lead to: Neither Party's standard: - Given that both parties contended that a contract had been formed, the only inference to be drawn was that they hadn't agreed to contract on either party\'s terms and conditions.  - So they must've agreed to contract on *neither *party's terms. To some extent, this is a satisfactory solution.  - Neither party got the benefit of their own terms and conditions into the contract, but neither party was burdened with the other side's terms and conditions. - Generally -- if the court finds a contract on neither party's terms, it will be the purchaser of goods or services who will be in the more comfortable position - Terms implied by law, such as the statutory implied terms in a sale of goods contract, generally provide a baseline standard of contractual performance that the seller must meet - But the seller will not have the protection of exemption clauses and other clauses which they would normally write into their contracts - One might argue that this is a good reason for inferring that sellers would not normally even intend to contract on the basis that neither party's terms and conditions applied - In other jurisdictions, and in standard terms relating to international sale contracts, there have been attempts to reach more flexible solutions than the all-or-nothing consequences of a battle of the forms. Standard terms will often include provisions to the effect that an acceptance which has only immaterial differences from the offer still counts as a sort of acceptance. **Tenders: Spencer v Harding** - Common situation: a property developer buys a site and wants to develop it. The job is put out to tender, and a main contractor wants to bid for the job -- main contractor has a problem - **Spencer v Harding** (main contractor has a problem -- stems from this case) - The case decided that soliciting a tender is, without more, a "mere proclamation" that a person is seeking offers - This means that all the trouble and expense of preparing and submitting a tender is at the main contractors own risk. As a general rule, theres no obligation on the developer to even consider the tender, or to award the contract to the cheapest tender, or for that matter, to do anything else which might make all the effort worthwhile - Activity: 1. Imply a promise by the developer to accept the best tender a. Pros: none b. Cons: no promise made by the developer 2. Get the developer to promise expressly to accept one or other tender -- say the cheapest one c. Pros: any resulting unilateral contract is binding on the developer, easy to make sufficiently certain d. Cons: developer may choose to not make any commitment 3. Imply a promise by the developer to consider conforming tenders e. Pros: may give rise to unilateral contract binding on the developer f. Cons: legally uncertain as to the existence or content of any commitment 4. Get the developer to promise expressly to consider conforming bids g. Pros: any resulting unilateral contract binding on the developer h. Cons: developer may choose not to make any commitment, not easy to make sufficiently certain, nature of commitment is limited - Pros and Cons of different suggestions (for activity above): - Suggestion 1: - The first suggestion has not got much to be said for it. The trouble with implying a promise by the developer to accept the best tender is that it really goes counter to the judgment in *Spencer v Harding* \[1870\] LR 5 CP 561 -- which, as we just saw, held that there *is* no promise to accept the best, or any other, tender, where something is simply put out to tender. - Suggestion 2: - This second suggestion is a better idea. If the developer, when seeking tenders, expressly commits to accepting one of the tenders, say, the cheapest one, then we may have a unilateral contract. These are often called 'if' contracts.  - So our contract between the developer and the tendering contractor might amount to this, if you make the cheapest tender, I promise to accept it. But of course the downside is getting the developer to make that commitment. After all, it may be reluctant to bind itself before it's had a good look at the tenders - Suggestion 3: - Could we use the third suggestion and imply a promise to *consider* conforming bids? Well, this may be possible depending on the circumstances. Indeed, this was successfully argued in the case of *Blackpool & Fylde Aero Club v Blackpool Borough Council* \[1990\] EWCA Civ 13.  - The Court of Appeal found that, having put a service out to a proper formal tender, the council had implicitly undertaken to comply with the terms of the tendering process. The Aero Club, with its conforming bid, could sue for breach of this undertaking. But it will be an ill-advised contractor who relies on an *implied* promise. - Whether such a promise can properly be implied, and what sort of commitment it involves, will always depend on the facts and circumstances of the case. Most lawyers and their clients would rather have any commitments spelled out expressly in black and white. - Suggestion 4: - What about the final suggestion, getting the developer to promise *expressly *to consider conforming bids? Well, this is certainly better than relying on any implication. If the developer seeking tenders expressly commits to considering conforming tenders, then we may again have a unilateral contract.  - But we would need to be sure that our unilateral contract is certain enough. If the promise is something like, *we promise to consider all bids*, we'd have to ask ourselves exactly what a promise to consider adds up to? This may be an obligation which is too uncertain to enforce unless we can find an objective mechanism by which to determine whether a bid *has* been properly considered or not. Better, perhaps, to set out a detailed process which the developer agrees to operate. - Not necessarily a best solution -- essentially a matter for negotiation between the parties as to whether the developer makes any sort of commitment - Occasionally our tenderer may be helped out by statute however there is a limited range of circumstances **The problem in Routledge v Grant** - Main contractor has received a satisfactory tender who has put forward a sub-contract proposal - The main contractor wont want to accept the sub-contractors proposal straight away -- but the risk for the main contractor is if it puts it big together on the strength of the proposal set out by the sub-contractor, the subcontractor may nevertheless withdraw the proposal before the amin contractor has accepted it - This stems from a fundamental and long-established principle of contract law - The case of *Routledge v Grant* decided that an offeror can withdraw the offer at any time before the acceptance -- this applies to offers stated to remain open for a given period of time, and even to offers described as irrevocable within the specified time - **Activity -- pros and cons for statements** - An express promise from the subcontractor not to revoke their offer - Pros: none - Cons: unenforceable for want of consideration - An express agreement in which the main contractor agrees to pay the sub-contractor a fee if the sub-contractor agrees to not revoke their offer - Pros: enforceable as promise is supported by consideration - Cons: leave main contractor free to decide whether it wants to accept bid, subcontractor may not want to deal on these terms - An express agreement in which the amin contractor undertakes to accept the sub-contract bid if successful on the main contract bid, so long as the subcontractor agrees not to revoke their offer - Pros: enforceable as promise is supported by consideration, sub-contractor more likely to deal on these terms - Cons: sub-contractor may not be prepared to deal on these terms, if it wins then the main contractor is then obliged to deal with the subcontractor - Suggestions for Pros and Cons above: - Suggestion 1 - An express promise not to revoke the offer will not really solve our problem. The subcontractor can promise all they like, but the law regards a bare promise to keep an offer open as unenforceable for want of consideration.  - So we can not just rely on the subcontractor's promise. - Suggestion 2 - This second suggestion is a better idea. The agreement is enforceable, as the main contractor has agreed to provide something in return for the sub-contractor's promise to keep the offer open. The promise is supported by consideration.  - This method leaves the main contractor free to decide whether in fact it does want to accept the sub-contractor's bid. But, whether the sub-contractor would be prepared to deal on these terms is quite another matter. - Suggestion 3 - In contractual terms, this last suggestion works in same sort of way as the previous example. The consideration given by the main contractor in return for the sub-contractor's commitment to keep the bid on the table is different, but it's still valid consideration.  - However, this method doesn't leave the main contractor free to decide whether, in fact, it does want to accept the sub-contractor's bid. Here, if it wins the main contract, it's obliged to deal with the subcontractor. **Test your knowledge** 1. Question 1 a. The claim will fail as the company was not obliged to consider or accept any particular tender.  b. The claim will fail as there was no guarantee that the client's tender would have been c. accepted even if it had been considered. c. The claim will fail because the invitation to tender was an invitation to treat and the client's offer had not been accepted.  d.  The client will be awarded damages for breach of a unilateral contract. e. The client will be awarded nominal damages as damages for loss of opportunity are too speculative. 2. Question 2 a. The client could sue the owner of the rug for breach of a contract. b. The client could sue the auctioneer for breach of contract and the measure of damages would be £130. c. The client could sue the auctioneer for breach of a unilateral contract. d. The client would not have an action for breach of contract as the bid was far too low. e. The client could sue the auctioneer for breach of a bilateral contract and the measure of damages would be £280.£280. 3. Question 3 a. The client has a contract with the dealer to buy the car and can sue the dealer for £2,000 representing the profit the dealer made on selling the car elsewhere. b. The dealer revoked his offer before acceptance was communicated and so there would be no contract of sale with the client. c. The client's acceptance would be deemed communicated before 2.30pm and so the dealer would be liable to pay the client damages of £5,000. d. By virtue of the postal rule acceptance was communicated at 12.55pm and so the dealer would be liable to the client for breach. e. When the dealer sold the car elsewhere he effectively revoked the offer to the client and so would not be liable for breach. 4. Question 4 a. The company would be liable for breach because a contract was formed when the client posted the letter on 16 April. b. The company would not be liable for breach of contract because the client's letter on 16 April amounted to a counter offer. c. The company would be liable for breach because a contract was formed when the client posted the letter on 16 April.The company would not be liable for breach of contract as it had no more vans available. d. The company would be liable for breach of contract as the client accepted its offer when the client rang on 22 April. e. The company would not be liable for breach of contract as the postal rule would not apply 5. Question 5 a. The contract for the supply of the stage clothes was not binding on the girl as it was a trading contract. b. The contract for the singing and dancing lessons would not be binding on the girl as it was not a contract for necessaries. c. The girl can terminate the mobile phone contract and the contract for the singing and dancing lessons. d. The girl is bound by the contracts for the clothes she sells as she needs the proceeds of sales to pay for her lessons. e. The mobile phone contract would be deemed a contract for necessaries and as such it would bind the girl but not the mobile phone company.