PART 1 - OVERVIEW OF THE ELEMENTS OF LAW OF CONTRACT

INTRODUCTION AND GENERAL PRINCIPLES

ELEMENTS OF LAW OF CONTRACT

REQUIREMENT FOR MAKING A CONTRACT

OFFER AND ACCEPTANCE MCK C3 pp 33-44 Poole C2 pp 17.34

• The law of contract is about enforcement of promises.
• To say that we have a contract means that the parties have voluntarily assumed liabilities with regard to each other.

Offer and acceptance

• For a contract to be form the offer must be voluntarily accepted
• The law imposes various requirements as to the communication of the offer and the acceptance.
• Once there has been a valid communication of the acceptance, the law requires that certain other elements to be present
• In the absence of a contract neither parties will be bound to the tentative promises or agreement made
• It is not the subjective intention of the parties that determine the legal effect of their words or actions but the objective inference from them. i.e. offer is interpreted according to an objective intention. That is crucial in answering the basic question ‘what is an offer’ See Centroviancial Estate v Merchant Investors Assurance Company (1983) regarding the objective requirement.
• An offer is an expression of willingness to contract on certain terms. It must be made with the intention that it will be binding upon acceptance.
• There must be no further negotiations or discussions required (Storer v Manchester City Council (1974) offer to sell council flats to sitting tenants – the court of appeal found a binding contract – All Storer has to do was to sign the document and return. Gibson v Manchester City (1979) – The Council made an offer to Gibson that it might be prepared to sell. Gibson signed it and returned. The Court ruled that there had not been contract concluded because the Council has not made an offer capable of being accepted. An important distinction between the two is agreement as to price Statement of intention is different from offer, where it clearly stated what one would do.
• Harris v Nickerson (1973) the Auctioneers advertisement is a statement of intent Supply of Information – one party supply information which is not intended to be acted upon (Harvey v Facey (1893) where a party telegraphed was the lowest point it would accept for a property Where communication is not an offer but an intention to treat – Display of goods Pharmaceutical Society v Boots (1953) Rationale behind treating the display as invitation to treat rather than treat (Fisher v Bell 1961).
• Where the display is made by machine it will be an offer Thornton v Shoe Lane Parking (1971) An advertisement is an intention to treat – Partridrige v Crittendden (1968).
• The advertisement is a bilateral contract. The form of contract will give rise to different result. Carlill v Carbolic Smoke Ball Company (1893) decided that an advertisement was a unilateral offer. A request for tenders is an invitation to treat and the tender is an offer – Harvela Investments Ltd v Royal Trust Co. of Canada Ltd (1985).
• An invitation to treat may contain an implied undertaking to consider all conforming offer – Blackpool and Fylder Aero Club Ltd v Blackpool Borough Council (1990)
• An auctioneer’s request is an invitation to treat. Warlow v Harrison (1959); Barry v Davies (2000)

COMMUNICATION OF AN OFFER

• To be effective an offer must be communicated to put in another way, there can be no acceptance without the knowledge of such offer
• An acceptance cannot mirror an offer if the acceptance is made in ignorance of the offer Gilbbons v Proctor (1891) a policeman was allowed to recover a reward when he sent information in ignorance of the offer of the reward.
• Australian Case R v Clarke (1927) - there cannot be consent without the knowledge of an offer; and ignorance of an offer is the same thing as never hearing of it or forgetting it after hearing. The case of Tinn v Hoofman (1873) deals with the problem of cross-offers
• ACCEPTANCE OF AN OFFER MCK
• For a contract to be formed there must be an acceptance of an offer. The acceptance can be by words or conducts (Brogden v Metropolitan Railway Station (1871) where the offeree accepted the offer by performance.
• Confetti Records v Warner Music UK Ltd (2003) (where confetti records send Warner Music a track and an invoice. Warner accepted the offer by producing an album with the track in it.
• Day Morris Associate v Voyce (2003) ECWA. An estate agent offer to market a property has been accepted as by the conduct of the client. The client conduct was allowing the agent to advertise the property and show large numbers of people around it.
• Acceptance occurs was the offeree’s word or conduct give rise to the objective inference that the offeree assent to the offer terms
• If the offeree attempt to add other terms this is a counter offer and not acceptance. A counter offer implies a rejection of the original offer, which is hereby destroyed and cannot subsequently be accepted
• Where the offeree queries an offer or seek more information, this is nether acceptance or rejection and the original offer stands – Stevenson Jaques & Co v Mclean (1880)
• Battle of forms. Offers and Counter offers, the Appeal court rules that the last shot won the battle of forms – Butler Machine Tool v Ex-cell-o (1979)

COMMUNICATION OF ACCEPTANCE

• The general rule is that acceptance is not effective until it is communicated to the offeror. This is sometimes expressed by acceptance cannot be made through consent – Felthouse v Bindley (1962).
• The offeror cannot waive communication if that would be to the detriment of the offeree
• Unilateral Contract is one where one party makes an offer of the other party does something, but the other party need not agree to do that thing. e.g. offering reward for information about contract.
• Carlill v Carbolic Smoke Ball Company (1983) establish that performance is the acceptance and there is no need to convey acceptance

EXCEPTION TO THE NEED FOR COMMUNICATION OF ACCEPTANCE

• The principal exception is the postal rule (the acceptance is complete when posted – Adams v Lindsell (1818) and Household Fire Insurance v Grant (1879)
• This rule is exception and will only prevailed where it is generally understood that the acceptance is to be posted.
• Because of these problem and technological advances the post is no longer a crucial communication device (Howell Securities v Hughes (1974).
• In early case court accepted Telegram Bruner v Moore (1903). In later cases the court refused to extend communication to telexes (Entores v Miller Far East Corp (1955) and Brinkibon Ltd v Stahag Stahl (1982)
• Summary – for a contract to be formed the acceptance of an offer must be communicated\ to the offeror
  Where the offeror has waived the need for communication Carlill v Carbolic Smoke Ball Company (1983). This is however of limited application where there is a bilateral contract

• METHOD OF ACCEPTANCE
• The offeror may stipulate that acceptance is to be communicated using a specific method Eliason v Henshaw (1819) and Manchester Diocesan Council for Education v Commercial and General Investments (1970)e method of
• If offeror stipules a method of acceptance an offeree can use another method provided the other method is no less disadvantageous than the original method stipulated. There is no legal commitment until a contract has been concluded by the acceptance of an offer

END OF AN UNACCEPTED OFFER

• Change of mind – either party may change their made and withdraw from negotiations before a contract is formed. Offord v Davies (1862) and Routledge v Grant (1828)
• For revocation to be effective there must be actual communication of that revocation – Byrne v van Tienhoven (1880)
• It is not necessary for the revocation to the communicated by the offerror, communication by a reliable source is adequate – Dikkinson v Dodds (1876)
• By what process must an offeror of unilateral contract withdraw the offer. No answer in English law – Shue v USA (1875)
• If an offeree reject an offer that is the end – Hude v Wrench (1840)
  Problems arise when offeree change is mind after posting a letter accepting and calling to reject. Lack of English cases – Dunmore v Alexander (1830) Scotland; Wenhkeim v Arndt (1873) New Zealand. Very low persuasive authority
• If a condition of an offer is not fulfilled the offer terminates – Financings Ltd v Stimson (1962). The offeror purported to purchase a car after it has been badly damaged
• Death – If an offeror dies, the offer may lapse. Cases divide Brandbury v Morgan (1862) the held that deceased estate was liable. Obiter dicta Dickinson v Dodds – death of either party terminates a contract.
• A person cannot accept an offer once notified of the death of the offeror, He may however accept in ignorance.
  Lapse of an offer – Time limit for the acceptance of an offer (offord v Davies (1862
• An offeree cannot make an offeror wait forever. A reply is expected within a reasonable time. Reasonable time depend on circumstances Ramsgate Victoria Hotel v Mantefiore (1866)

• CONSIDERATION
• The concept of consideration is the way in which English court determine whether an agreement that resulted from the exchange of offer and acceptance should be legally enforceable
• Intention to create legal contract is crucial in consideration
• Exception include reasonable reliance often relied to as doctrine of promissory estoppel, which apply to the variation of existing legal obligations.
• The function of consideration is to give badge of enforceability to an agreement according to Mckendrick
• A promise to make a gift at some time in future will only be enforceable in English law if put in special form ‘deed’. Where a promise for the future is not put in a special form then consideration becomes normal form of enforceability.
• Definition
• A promise cannot be a detriment to the person making it (a benefit to whom it is made) unless it is enforceable.
• It will only be enforceable unless if it constitutes such a detriment.
• Doctrine of consideration as requiring mutuality in agreements

CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT BE ADEQUATE-

• What is being put forward must be considered by the court will recognised as legal capable of constituting consideration. The fact of not being adequate is because the court is not interest in if there is a match of value in what is being exchanged. Thomas v Thomas (1842) £1 per annum rent was considered adequate to live in a house what is being exchange has having value. Chappell v Nestle (1960) freedom of contract.
• It is sometimes suggested that consideration will not be adequate if it has no economic value White v Bluett (1853) where a son promise to stop complaining about the distribution of his father’s property was held as incapable of amounting to consideration.

EXISTING OBLIGATIONS AS GOOD CONSIDERATION

• Obligation which arise under the law independent of any contract; obligations which are owed under a contract with a third party; obligation which exist under a contract with a person who has made a new contract for which existing obligation is alleged to provide good consideration. Public official no payment for normal duty, where officials does more that is required under existing obligation then promise of payment is enforceable Glassbrook Bros Ltd v Glamorgan CC (1925). Fulfilling promised to marry (Shadwell v Shadwell (1860)
• Williams v Roffey + Stilk v Myrick. Consideration for extra work. No duress in Williams v Roffey, but there is duress in the other case.
• Read about practical benefit approach Williams v Roffey + Stilk v Myrick Williams. The sailor’s contract obliged them to take the ship back to London
• The promise to perform the existing obligations as well as its actual performance can constitute good consideration was Council Pao On v Yiu Long (1980)
• Past consideration – A further rule of sufficiency of consideration states that generally the consideration must be given after the promise which is to make it enforceable.
• A consideration given after the alleged promise has been completed is unenforceable Re McArdle (1951)
• PAST CONSIDERATION
• Past consideration is no consideration
• Exceptions – the act must have been done at the promisor’s request (Lampleigh v Braithwaith (1615); the parties must have understood that the work was to be paid for either in cash or kind (Re Casey Patents 1892); the promised would be enforceable had it been made prior to the act constituting consideration

• PROMISSORY ESOPPEL
• The doctrine of Estoppel is primarily concerned with the modification of existing contract. Such consideration will only be binding if consideration was supplied.
  The giving up of rights under the first agreement by both parties would have sufficient mutuality about it to satisfy the doctrine of consideration. Case Dennis J. Central London property Trust Ltd v High Trees House Ltd (1974)
• A promise intended to be binding, intended to be acted upon, indeed acted on, is binding so far as its terms properly applied.
• Law recognises the concepts of Estoppel by representation in relation to an existing facts rather a promise as to future action – Jorden v Money (1854)
• The concept of waiver has been recognised by common law and equity as means by which certain rights can be suspended then revived by appropriate notice – Hickman v Haynes (1875) – Rickards v Oppenheim (1950); Hugbes v Metropolitan Railway (1877). This was the case in which Denning placed considerable reliance on High Trees). It has never been applied to part payment of debts. However, under the modern law the concept of waiver has been effectively subsumed within the promissory estoppel.
• Limitations of promissory estoppel
• Need for existing legal relationship. Exception Lord Denning Evenden v Guildford City FC (1975) rule that it could apply without exiting legal relationship.
• Need for reliance - The Promisee has relied on the promise W J Alan & Co v El Nasr (1972)
• A shield not a sword – Combe v Combe (1951). Wife and former husband for maintenance. Its principal use was to provide protection for the promisee. Consideration remains a cardinal necessity for the formation of a contract, though not of its modification or discharge.
• Must not be inequitable for the promisor to go back on the promise. It has its origin in equitable waiver i.e. equitable doctrine. A judge is not expected to apply it automatically. Inequitable cover situation where the promisee extract the promise by taking undue advantage of the promisor D & C Builders v Rees (1966). Impropriety is not necessary where promise was withdrawn so quickly that the other party suffered no disadvantages from their reliance on it – The Post Chaser (1982)
• Doctrine is generally suspensory – Contract modification which is supported by consideration will generally be of permanent effect, lasting for the duration of the contract, the same is not true of promissory estoppel. Sometimes the promise itself will be time limited.
• Where promise is prohibited by legislation – Evan v Amicus Healthcare Ltd (2003) concern the use of embryos created by IVF prior to the breakdown of couples relationship
• The doctrine of Promissory estoppel provides that in certain circumstances a promise may be binding even it is not supported by consideration
• OTHER FORMATIVE REQUIREMENTS – INTENTION, CERTAINTY AND COMPLETENESS
• Basic requirements necessary for the formation of a contract – offer, acceptance and consideration – parties intended to create legal relationship; the terms of agreement are certain and not vague and their agreement is complete agreement and does not need further development or clarification. Once these are there, the court will recognise the existence of a contract in the absence of any vitiating element.
• For a statement to be an offer it must be with intention that it will be binding upon acceptance. The parties intended that legal consequences attach to their agreement.
  Necessity for intention is most evidence in domestic agreements
• Agreement between friends and
• In domestic and social agreement it is presumed that there is not an intention to create legal relations.
  The determination of whether or not the parties intended to enter into legally binding relationship is an objective and context is all-important. What this mean is the court will examine the state of mind of mind of the parties to the agreement (subjective approach) but will ask whether or not reasonable parties to such an agreement would possess an intention to create legal agreement Edmonds v Lawson (2000)
• The objective approach applies irrespective of the type of contract
• Social and domestic agreements - Husband promise to pay his wife monthly allowance Balfour v Balfour (1919) must be seen a case which establishes rebuttable presumption that domestic agreements are not intended - , Jones v Padavatton (1969) agreement between mother and her adult contract; Coward v MIB (1962) agreement to take a friend to work in exchange for petrol money
• Increasingly in the modern world, domestic arrangement are beginning to take on a basis in contract law
• Rebuttable presumption is a presumption made by the courts as to the certain states of fact until the contrary is proven (Merrit v Merrit 1970) couple already separated and agreement intended to create legal relations. Darke v Strout (2003) agreement for child maintenance; Simpkins v Pays (1955) there was a contract where three co-habitees enter a competition
• Commercial agreement – court will presume that an intention to create legal relation exists in commercial agreement Esso Petroleum Ltd v Commissioner of Customs & Exercise. Exceptionally the fact may disprove such intention example in sale of land agreement are made subject to contract; this wording expressly displaces any presumption of contractual intention.
• In other situations courts have found out that specific wording of the agreement in question displayed contractual intention – comfort letter Kleinworth Benson Ltd v Malaysia Mining Corporation Berhad (1989); Rose and Frank Company v J. R. Crompton and Brothers Ltd (1925)
  In most cases where the parties deals at arm length the court will find a contractual intention Edmunds v Lawson (2000)
• CERTAINTY OF TERMS AND VAGUENESS
• An enforceable contract requires certainty of terms. That is to say for an agreement to be a contract it must be apparent what the terms of the contract are. If an important term is not settled, the agreement is not a contract. Scannel v Ouston (1941) C
• Consensus ad idem – agreement on identical terms
• If the term cannot be determined with certainty, there is no contract for the court to interpret – for this would impose a contract on the parties
• In some instances where the parties have relied on an agreement, court will readily infers or infer a term – Hilas v Arcos (1932). Interest set at 1% above Bank of England’s base rate on a certain date. Where the terms are meaningless, it can be ignored leaving the whole contract unenforceable.
  Nicolene Ltd v Simmonds (1953)
• A COMPLETE AGREEMENT MCK C4 pp 65-67 Poole pp 62-723
• to create an enforceable agreement the parties must reach agreement on all Major elements of their contract, there must be nothing left to be agreed upon
• Completeness is an aspect of certainty of terms There is nothing like agreement to agree – Courtney and Fairbain Ltd Tolani Brothers Hotels Ltd (1975) it was held that there was no contract where the parties simply agreed to negotiate.
• In some instances legislation and case law will enable the court to add necessary terms to the agreement i.e. s 15(2) of sale of Goods where which provides that where the prices of a contract for the sale of goods has not been determined the buyer must pay a reasonable price.
  Court will not create contract between parties
• In other instance where parties relied on what might be considered incomplete terms, court have found that they were able to imply necessary terms Foley v Classical Coaches Ltd (1934) and British Bank for Foreign Trade Ltd v Novinex Ltd (1949)
• The Courts are protecting parties reasonable reliance on agreement
  It is easier to imply with certainty what the parties would have agreed upon as Essential terms
• TERMS OF CONTRACT
• Issues examined – whether particular statement made or assurance given in the course of negotiation forms part of the contract; how terms can be implied either by operation of a statute or common law; and an why major or essential undertakings are distinguished from the minor or inessential ones
• Essential Readings MCK C8 181-187; C9 187-189; Poole C6 179-197
• Those statements that form path of the contract are terms – breach of terms gives right to damages or termination
• Representations are statement that do not form part of a contract (mere puff no legal significance)
  Warranty a term of a contract, or a separate collateral
• If representations are false there is no action for breach of contract. Possible action will only apply if there is misrepresentation or meet separate criteria for actionability (Misrepresentation Act 1967; tort of negligent misstatement in Hedly Byrne & Co Ltd v Heller & Partner Ltd 1964) misrepresentation has to be fraudulent for injured party to receive damages
• Finding the intention of the parties – the basic criterion is set out by the House of Lords in the case of Heilbut Symons & Co. v Buckleton (1913);
• Criteria: importance of the statement; where one party is relying on the other; and the relative knowledge of the party
• Terms of collateral contract - term of separate contract collateral to the main contract. It is actionable as a branch if the collateral term is improperly warranted - Heilbut Symons & Co. v Buckleton (1913) and Esso Petroleum Co. Ltd v Mardon 1976
• Parole evidence rule – when parties decide to commit the terms of their contract to a written agreement, they cannot come later to seek to establish that the are terms outside the written agreement. There are many exceptions to this rule. Sources of contractual terms
• The Use of implied terms – in certain terms the court will imply terms into a contract s.14(2A) of the sale of Sales of Goods Act 1979
• Courts are generally reluctant to imply terms into a contract. They generally consider their role to be that of interpreter rather than maker.
  Courts will imply terms under the following conditions – where there is established trade usage; relationship between parties (Malik v BCCI (1997), Liverpool City Council v Irwin (1976) and Equitable Life Assurance Society v Hyman (2002) ; effect to unexpressed intentions (MacKinnon Lj in Shirlaw v Southern Foundries (1926) Ltd (1939): Officious bystander suggestion and operation of statute (s14 of Sale of Goods Act 1979 amended by Sale and Supply of Goods Act 1994 (goods must be sold in satisfactory quality (new s.14(2A), quality listed s.14(2B) defect revealed s.14(2C) restriction of buyers right to reject s.14(2D), title s.12, description s.13 and Sample s.15). It is open to the parties to defeat implied terms. There are limits to which parties can defeat terms implied by statutes (Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999). S.14(3) Slater v Finnings (1996) 3 All ER 393) Supply of Goods and Services Act 1982. Stevenson v Rogers (1999) – Useful reading Ansn pp 150-156