LW11010 PLS I - Week 1 Formation of Contract PDF

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Remember to Check-In ([email protected]) On-campus attendance & engagement Open the app / Your device will find Click the ‘Check-In’ Wait until it turns calendar the beacon icon solid green Online attendance & engagement Open the app / Click the Watch link Close the View your lesson on calendar confirmation screen your normal device Formation of a Contract/Incurring Contractual Obligations PRIVATE L AW OF SCOTL AND I LW11011 WEEK 1 Contractual disputes Courts will uphold rights and enforce duties So, the possibility of legal action will provide a basis for negotiating with the other party Party raising an action is the pursuer Other party is the defender Has a contract been concluded? Sometimes answer Sometimes answer is obvious either is arguable way Has a contract been concluded? A) Frederic advertises a bike for sale at £150 in the local paper. Adham texts Frederic stating, “I’ll give you £80 for the bike.” Frederic responds by text stating, “The lowest price I’d sell for is £100.” Frederic is out when Adham calls round. Adham posts an envelope containing £100 through Frederic’s letterbox with a note that reads , “Money for the bike, will collect tomorrow, Adham ” What are your thoughts? Has a contract been concluded? B) Aurelija advertises a jacket for sale at £50 in the local paper. Nadia texts her stating, “I will buy the jacket if it fits.” When Nadia calls round to try it in, it fits perfectly but she does not like the style. As Aurelija takes a call on her mobile, Nadia just leaves the jacket and heads home. What are your thoughts? What do we need for conclusion? So normally that is agreement Agreement on the on: The nature of the contract same thing…consensus in idem The subject(s) of the contract The price or consideration Consensus? Consensus is viewed objectively What does that mean? What is the approach taken by the courts? Muirhead and Turnbull v Dickson (1905) 7F 686, 694 (W&B 2.03) Was it a contract of sale, or was it a contract of hire purchase? The Court held that they had to look NOT to what the parties thought they had said or had intended to say BUT to what had actually been said. “Commercial contracts cannot be arranged by what people think in their inmost minds. Commercial contracts are arranged by what people say.” per LP Dunedin Consensus? Mathieson Gee (Ayrshire) LTD v Quigley 1952 SC (HL) 38 Q wished to have a pond on his estate clearer of silt and mould. MG – offered to “supply the necessary mechanical plant for the excavation and removal of the mould at present deposited in your pond”. Q replied – “I have pleasure in accepting your offer to remove the silt and deposit from my pond.” MG provided the mechanical plant to Q, who refused to pay them the agreed fee. Do we have an offer and acceptance? Do we have a contract? Consensus? No consensus What do the parties appear to = no have agreed? What does the contract evidence suggest? BUT….where there has been performance that may change the outcome Conclusion: passing the stage of negotiation “An offer accepted is a contract” (Viscount Stair, Institutions 1st edn 1681, Foundation of Modern Scots law) Terminology: Party making the offer is the offeror Party to whom offer is made is the offeree When is a statement an offer? When its terms are sufficiently clear to indicate the intention of the offeror to be bound in contract on acceptance by the offeree Which of these is an offer? 01 02 03 04 05 Statement Advert: Statement Goods on Statement made to Bike for to display to other other sale £10 enquirer: with price party: party: “I “The attached “Would will sell lowest you like to you my price I’ll buy my bike for take is donkey?” £10” £900” The law 1. Philp & Co v Knoblaugh 1907 SC 994 (W&B 2.11) 2. Partridge v Crittenden 1 WLR 1204; Carlill v Carbolic Smokeball Co 1 QB 256 (W&B 2.09-2.10), Pharmaceutical Society of Great Britain v Boots 1QB 401 (see next slide) 3. Harvey v Facey AC 552 (W&B 2.11) 4. Fisher v Bell 1 QB 394; Chwee Kin Keong v Digilandmall.com Pte Ltd 2 SLR 594 (W&B 2.13-2.14) 5. McArthur v Lawson (1877) 4 R 1134 (W&B 3.10) What exactly is an invitation to treat? An invitation to treat is not an offer. It is not possible to purport to accept an invitation to treat and conclude a contract. Instead, if you respond to an invitation to treat then you are making an offer, which may then be accepted or rejected. So, an invitation to treat must always be followed by an offer before there can be acceptance and a concluded contract. Examples: Displays in shop windows and on shop shelves, quotations, price lists. Adverts - Generally regarded as invitations to treat. BUT there have been a few cases where an advert has been held to be an offer capable of acceptance Offer or Invitation to Treat? Pharmaceutical Society of Great Britain v Boots Boots operated a ‘self- service’ system. Products were being sold that contained drugs which by statute should only be sold by a registered pharmacist. A pharmacist was near the check out and would supervise the sale of any relevant drugs. Questions: When was an offer made? At what point was a contract formed? Were Boots in breach of their obligations? Offer or Invitation to Treat? Carlill v Carbolic Smokeball Co 1 QB 256 Company advertised their ‘smokeballs’ which they claimed would prevent colds and flu. They stated that if any one bought product and used as directed but still caught a cold or flu, then the company would pay them £100. Questions: Invitation to treat? Offer? Has a contract been formed? When does an offer lapse? When it is rejected When it is revoked When it is not or met by a counter- (withdrawn) by the accepted in time offer offeror The law What is the effect of a counter-offer? Hyde v Wrench (1840) 3 Beav 334; Wolf & Wolf v Forfar Potato Co 1984 SLT 100 (W&B 2.05) ‘Kills’ the original offer, rejected - no longer an offer capable of being accepted. Passage of time – what is reasonable? Wylie & Lochead v McElroy & Sons (1873) 1 R 41 (W&B) 2.22) Price of Iron was ‘fluctuating’ - 5 weeks delay? What is reasonable will depend on the circumstances. Acceptance Acceptance converts an offer into a contract Acceptance may be express or implied by action in conformity with the terms of the offer The offeror may stipulate the mode of acceptance See: Holwell Securities Ltd v Hughes 1 WLR 155 (W&B 2.27) But may not stipulate acceptance by silence. See: Felthouse v Bindley (1862) 11 CB NS 869 - the failure to respond could not be regarded as an acceptance. Yet note in Shaw CSOH 68, when one party wrote saying that they thought they had covered in their latest offer all the points with which the other had previously had issue and would assume that was the case if they had not heard back by a certain date, Lord Hodge [at 50] held that a contract existed. Communication of acceptance As in the case of an offer, communication of an acceptance is essential. General rule is that acceptance is effective on receipt It is only effective once they read the fax , or email, taken the call or listened to the message. Until that point, they can withdraw the offer. Exception = The postal acceptance rule where offer and acceptance conducted by post. Only applies to post and only applies to acceptances. The Postal Acceptance Rule Revocation of offer must be received to be effective So, where acceptance and revocation of offer cross in the post the contract is concluded See: Thomson v James (1855) 18 D 1 J wrote to T offering to purchase land, then on 1st December posted a letter to Thomson withdrawing his offer. Thomson posted a letter to James on 1st December, accepting. Both letters (offer and revocation) were received on same day. The court pointed out that while it is possible to withdraw an offer at any time before acceptance, any withdrawal must be actually communicated before it takes effect – it is not enough to put it in the post. The Postal Acceptance Rule In contrast, acceptance is effective on posting. A postal acceptance does not require to be actually communicated. Once the acceptance is posted, the contract is concluded. However, Dunlop v Higgins (1848) 6 Bell’s App 195 (W&B 2.29) appears to suggest that an acceptance can be withdrawn if the letter of withdrawal reaches the offeror before or at the same time as the letter of acceptance. It is probably better therefore to avoid the postal acceptance rule altogether by stating that your offer can only be accepted by actual communication. Contract v Promise – what is the difference? Ask yourself the following questions: Is it binding in law? Does it have to be in writing? Does there need to be an agreement? Does there need to be an acceptance? Does it need to be communicated? Can it be revoked?  Consider the following scenarios: A’s pet dog, a Doberman called Noodle, goes missing. There is a reward of £1,000 for finding the missing dog. B finds Noodle and returns him to A. C is the owner of a music shop. D is interested in a drum kit but does not have funds. C agrees to keep it reserved for two weeks until D gets paid. E indicates to church trustees that she would leave money for the church in her will (Smith v Oliver 1911 SC 103) F offers to pay certain sums of money to a Society. The Society agree to accept the sums. (Morton’s Trustees v Aged Christian Friend Society of Scotland (1899) 2 F82.) What is a promise? “A promise is that which is simple and pure, and hath not implied as a condition the acceptance of another…It is true, if he in whose favour they are made, accept not, they become void, not by the negative non-acceptance, but by the contrary rejection.” Stair, Institutions, I.10.4 James Dalrymple, Viscount Stair Institutions of the Law of Scotland 1681 Promise: Principles Unilateral obligation Must be in writing and signed by the person making the promise unless made in the course of business. See: Requirements of Writing (Scotland) Act 1995 s.1 (1) (a) (ii) Serious intention to be bound Must reach third stage of:- desire, resolution and engagement see e.g. Cawdor v Cawdor CSIH 3 - no promise had actually been made (see W&B 4.07) Must be communicated Irrevocable once made, but may be rejected Needs no acceptance but may be subject to a condition Utility of Promise Some use in commercial setting e.g. oral promise made by bank manager to lend money relied upon by client Carlyle v RBS UKSC 13 Promise to keep an offer open Littlejohn v Hadwen (1882) 20 SLR 5 (W&B 4.08) Rewards Petrie v Earl of Airlie (1834) 13 S 68 (W&B 4.09) A promised reward or did the Earl’s statement amount to an offer which was accepted by Petrie’s conduct? NEXT……. We will look at enforceability and formalities