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Harvey v Facey [1893] UKPC 1
Offer

In order to amount to an offer it must be shown that the offeror had the intention to be bound:
Harvey sent a Telegram to Facey which stated: -

"Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid;"

Facey replied by telegram:-

"Lowest price for Bumper Hall Pen £900."

Harvey then replied:-

"We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please
send us your title deed in order that we may get early possession."

Held:

The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. There was thus no evidence of an intention that the telegram sent by Facey was to be an offer.
Carlill v Carbolic Smoke Ball co [1893] 1 QB 256
Offer

In order to amount to an offer it must be shown that the offeror had the intention to be bound:
Advertisements
Advertisements are also generally invitations to treat:
A Newspaper advert placed by the defendant stated:-

£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball...

£1000 is deposited with the Alliance Bank, shewing our sincerity in the matter."

Mrs Carlill purchased some smoke balls and used them according to the directions and caught flu. She sought to claim the stated £100 reward.

The defendant raised the following arguments in defence:

1. The advert was a sales puff and lacked intent to be an offer.
2. It is not possible to make an offer to the world.
3. There was no notification of acceptance.
4. The wording was too vague to constitute an offer since there was no stated time limit as to catching the flu.
5. There was no consideration provided since the 'offer' did not specify that the user of the balls must have purchased them.

Held:

The Court of Appeal held that Mrs Carlill was entitled to the reward as the advert constituted an offer of a unilateral contract which she had accepted by performing the conditions stated in the offer. The court rejected all the arguments put forward by the defendants for the following reasons:

1. The statement referring to the deposit of £1,000 demonstrated intent and therefore it was not a mere sales puff.
2. It is quite possible to make an offer to the world.
3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept, since acceptance is through full performance.
4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying a reasonable time limit or confining it to only those who caught flu whilst still using the balls.
5. The defendants would have value in people using the balls even if they had not been purchased by them directly.
Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401
Goods on display in shops

Goods on display in shops are generally not offers but an invitation to treat. The customer makes an offer to purchase the goods. The trader will decide whether to accept the offer:
Boots introduced the then new self service system into their shops whereby customers would pick up goods from the shelf put them in their basket and then take them to the cash till to pay. The Pharmaceutical Society of Great Britain brought an action to determine the legality of the system with regard to the sale of pharmaceutical products which were required by law to be sold in the presence of a pharmacist. The court thus needed to determine where the contract came into existence.

Held:

Goods on the shelf constitute an invitation to treat not an offer. A customer takes the goods to the till and makes an offer to purchase. The shop assistant then chooses whether to accept the offer. The contract is therefore concluded at the till in the presence of a pharmacist.
Fisher v Bell [1961] 1 QB 394
Goods on display in shops

Goods on display in shops are generally not offers but an invitation to treat. The customer makes an offer to purchase the goods. The trader will decide whether to accept the offer:
The defendant had a flick knife displayed in his shop window with a price tag on it. Statute made it a criminal offence to 'offer' such flick knives for sale. His conviction was quashed as goods on display in shops are not 'offers' in the technical sense but an invitation to treat. The court applied the literal rule of statutory interpretation.
Partridge v Crittenden (1968) 2 All ER 421
Advertisements
Advertisements are also generally invitations to treat:
The defendant placed an advert in a classified section of a magazine offering some bramble finches for sale. S.6 of the Protection of Birds Act 1954 made it an offence to offer such birds for sale. He was charged and convicted of the offence and appealed against his conviction.

Held:

The defendant's conviction was quashed. The advert was an invitation to treat not an offer. The literal rule of statutory interpretation was applied.
Spencer v Harding Law Rep. 5 C. P. 561
Contract by Tender
The request for tenders represents an invitation to treat and each tender submitted amounts to an offer unless the request specifies that it will accept the lowest or highest tender or other condition. If the request contains such a condition this will amount to an offer of a unilateral contract where acceptance takes place on performing the condition:
The defendants advertised a sale by tender of the stock in trade belonging Eilbeck & co. The advertisement specified where the goods could be viewed, the time of opening for tenders and that the goods must be paid for in cash. No reserve was stated. The claimant submitted the highest tender but the defendant refused to sell to him.

Held:

Unless the advertisement specifies that the highest tender would be accepted there was no obligation to sell to the person submitting the highest tender. The advert amounted to an invitation to treat, the tender was an offer, the defendant could choose whether to accept the offer or not.
Heathcote Ball v Barry [2000] EWCA Civ 235
Auctions
Where an auction takes place with reserve, each bid is an offer which is then accepted by the auctioneer. Where the auction takes place without reserve, the auctioneer makes a unilateral offer which is accepted by the placing of the highest bid:
The claimant had submitted the highest (and only) bids at an auction stated to be without reserve. The items were two Alan Smart engine analysers which were worth £14,000. The claimant had submitted bids of £200 each. The auctioneer refused to sell them at that price. The claimant brought an action for breach of contract claiming damages of £27,600.

Held:

The claimant was entitled to damages. Where an auction takes place without reserve the auctioneer makes a unilateral offer which is accepted by submitting the highest bid. There was thus a binding contract and the claimant entitled to damages covering the loss of bargain.
Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal
Machines
The machine represents the offer, the acceptance is inserting the money:
The claimant was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. One of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine.

Held:

The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract.
Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109
Termination of offers

An offer may be terminated by:

1. Death of offeror or offeree

2. Lapse of time

An offer will terminate after a reasonable lapse of time. What amounts to a reasonable period will depend on the circumstances.
The defendant offered to purchase shares in the claimant company at a certain price. Six months later the claimant accepted this offer by which time the value of the shares had fallen. The defendant had not withdrawn the offer but refused to go through with the sale. The claimant brought an action for specific performance of the contract.

Held:

The offer was no longer open as due to the nature of the subject matter of the contract the offer lapsed after a reasonable period of time. Therefore there was no contract and the claimant's action for specific performance was unsuccessful.
Dickinson v Dodds (1876) 2 Ch D 463
3. Revocation
An offeror may revoke an offer at any time before acceptance takes place:
The defendant offered to sell his house to the claimant and promised to keep the offer open until Friday. On the Thursday the defendant accepted an offer from a third party to purchase the house. The defendant then asked a friend to tell the claimant that the offer was withdrawn. On hearing the news, the claimant went round to the claimant's house first thing Friday morning purporting to accept the offer. He then brought an action seeking specific performance of the contract.

Held:

The offer had been effectively revoked. Therefore no contract existed between the parties. There was no obligation to keep the offer open until Friday since the claimant had provided no consideration in exchange for the promise.

The offeror is free to withdraw the offer at any time before acceptance takes place unless a deposit has been paid.
Errington v Errington Woods [1952] 1 KB 290 Court of Appeal
Revocation
An offeror may revoke an offer at any time before acceptance takes place:

This may not apply in unilateral offers where acceptance requires full performance:
A father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage instalments, the father would transfer the house to them. The father then became ill and died. The mother inherited the house. After the father's death the son went to live with his mother but the wife refused to live with the mother and continued to pay the mortgage instalments. The mother brought an action to remove the wife from the house.

Held:

The wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under normal contract principles an offer may be revoked at any time before acceptance takes place, however, with unilateral contracts acceptance takes place only on full performance. Lord Denning held that once performance had commenced the Mother was estopped from revoking the offer since it would be unconscionable for her to do so. Furthermore there was an intention to create legal relations despite it being a family agreement.
Dahlia v Four Millbank Nominees [1978] Ch 231 Court of Appeal
Revocation
An offeror may revoke an offer at any time before acceptance takes place:

This may not apply in unilateral offers where acceptance requires full performance:
The claimant wished to purchase some property from the defendant. The terms had been agreed but no written contract had been completed. The defendant promised the claimant that if he arranged for a bankers draft for the deposit to be delivered to the defendant before 10.00 am on the 22nd December he would complete the written contract. The claimant duly complied with the request but the defendant refused to complete. The claimant brought an action stating that unilateral contract existed and the defendant was thus bound by that contract to complete the written contract for the sale of the property.

Held: A unilateral contract did exist.

Goff LJ stated obiter on the issue of revocation of a unilateral offer:-

"Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer."
Hyde v Wrench (1840) 49 ER 132 Chancery Division (Decided by Lord Langdale MR)
Counter offer

A counter offer is where an offeree responds to an offer by making an offer on different terms. This has the affect of destroying the original offer so that it is no longer open for the offeree to accept.
The defendant offered to sell a farm to the claimant for £1,000. The claimant in reply offered £950 which the defendant refused. The claimant then sought to accept the original offer of £1,000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance.

Held:

There was no contract. Where a counter offer is made this destroys the original offer so that it is no longer open to the offeree to accept.
Entorres v Miles Far East [1955] 2 QB 327 Court of Appeal
Acceptance


Once valid acceptance takes place a binding contract is formed. It is therefore important to know what constitutes a valid acceptance in order to establish if the parties are bound by the agreement. There are three main rules relating to acceptance:

1. The acceptance must be communicated to the offeree.
2. The terms of the acceptance must exactly match the terms of the offer.
3. The agreement must be certain.

1. Communication

The general rule is that the offeror must receive the acceptance before it is effective:
The claimant sent a telex message from England offering to purchase 100 tons of Cathodes from the defendants in Holland. The defendant sent back a telex from Holland to the London office accepting that offer. The question for the court was at what point the contract came into existence. If the acceptance was effective from the time the telex was sent the contract was made in Holland and Dutch law would apply. If the acceptance took place when the telex was received in London then the contract would be governed by English law.

Held:

To amount to an effective acceptance the acceptance needed to be communicated to the offeree. Therefore the contract was made in England.
Felthouse v Bindley [1862] EWHC CP J35 Court of Common Pleas
The general rule is that the offeror must receive the acceptance before it is effective:
Silence will not amount to acceptance:
A nephew discussed buying a horse from his uncle. He offered to purchase the horse and said if I don't hear from you by the weekend I will consider him mine. The horse was then sold by mistake at auction. The auctioneer had been asked not to sell the horse but had forgotten. The uncle commenced proceedings against the auctioneer for conversion. The action depended upon whether a valid contract existed between the nephew and the uncle.

Held:

There was no contract. You cannot have silence as acceptance.
Brogden v Metropolitan Railway (1877) 2 App. Cas. 666
Acceptance can be through conduct:
The claimants were the suppliers of coal to the defendant railway company. They had been dealing for some years on an informal basis with no written contract. The parties agreed that it would be wise to have a formal contract written. The defendant drew up a draft contract and sent it to the claimant. The claimant made some minor amendments and filled in some blanks and sent it back to the defendant. The defendant then simply filed the document and never communicated their acceptance to the contract. Throughout this period the claimants continued to supply the coal. Subsequently a dispute arose and it was questioned whether in fact the written agreement was valid.

Held:

The written contract was valid despite no communication of the acceptance. The acceptance took place by performing the contract without any objection as to the terms.
Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401 Court of Appeal
Acceptance can be through conduct:
Ex-Cell-O wished to purchase a machine from Butler. Butler sent out a quotation of £75,535 along with a copy of their standard terms of sale. The terms included a price variation clause and a term that the seller's terms would prevail over any terms submitted by a purchaser. The machine would be delivered in 10 months. Ex-Cell-O put in an order for the machine at the stated price and sent a set of their terms which did not include the price variation clause. The order contained an acknowledgement slip which required a signature by Butler and was to be returned to Ex-Cell-O. This slip stated that the contract would be subject to the terms stated overleaf. Butler duly signed the slip and returned it. The machines were then delivered and Butler sought to enforce the price variation clause and demanded an extra £2,893. Ex-Cell-O refused to pay.

Held:

The offer to sell the machine on terms provided by Butler was destroyed by the counter offer made by Ex-Cell-O. Therefore the price variation clause was not part of the contract. The contract was concluded on Ex-Cell-O's terms since Butler signed the acknowledgement slip accepting those terms. Where there is a battle of the forms whereby each party submits their own terms the last shot rule applies whereby a contract is concluded on the terms submitted by the party who is the last to communicate those terms before performance of the contract commences.
Adams v Lindsell (1818) 106 ER 250
The postal rule

Where it is agreed that the parties will use the post as a means of communication the postal rule will apply. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box:
The defendant wrote to the claimant offering to sell them some wool and asking for a reply 'in the course of post'. The letter was delayed in the post. On receiving the letter the claimant posted a letter of acceptance the same day. However, due to the delay the defendant's had assumed the claimant was not interested in the wool and sold it on to a third party. The claimant sued for breach of contract.

Held:

There was a valid contract which came in to existence the moment the letter of acceptance was placed in the post box.

This case established the postal rule. This applies where post is the agreed form of communication between the parties and the letter of acceptance is correctly addressed and carries the right postage stamp. The acceptance then becomes effective when the letter is posted.
Hyde v Wrench (1840) 49 ER 132 Chancery Division (Decided by Lord Langdale MR)

The terms of the acceptance must exactly match the terms of the offer.



If the terms differ this will amount to a counter offer and no contract will exist:
The defendant offered to sell a farm to the claimant for £1,000. The claimant in reply offered £950 which the defendant refused. The claimant then sought to accept the original offer of £1,000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance.

Held:

There was no contract. Where a counter offer is made this destroys the original offer so that it is no longer open to the offeree to accept.
Scammell and Nephew v Ouston [1941] AC 251 House of Lords
The agreement must be certain

When viewed objectively it must be possible to determine exactly what the parties have agreed to.
The parties entered an agreement whereby Scammell were to supply a van for £286 on HP terms over 2 years and Ouston was to trade in his old van for £100. There was then some disagreement and Scammel refused to supply the van.

Held:

There was no certainty as to the terms of the agreement. Whilst there was agreement on the price there was nothing in relation to the HP terms stating whether it would be weekly or monthly instalments or how much the instalments would be.
Sudbrook Trading Estate v Eggleton [1983] AC AC 444 House of Lords
The agreement must be certain

When viewed objectively it must be possible to determine exactly what the parties have agreed to.
A lease gave the tenant an option to purchase the freehold of the property at a price to be agreed by two surveyors one appointed by the tenant and one appointed by the landlord. The tenant sought to exercise the option but the landlord refused to appoint a surveyor. The landlord claimed that the clause was too vague to be enforceable as it did not specify a price.

Held:

The clause was not too vague to be enforceable as it put in place a mechanism to ascertain the price.
Jones v Padavatton [1969] 1 WLR 328 Court of Appeal
Intention to create legal relations in social and domestic agreements
In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:
A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding.

Held:

The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.
Balfour v Balfour [1919] 2 KB 571
Intention to create legal relations in social and domestic agreements
In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:
A husband worked overseas and agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The relationship later soured and the husband stopped making the payments. The wife sought to enforce the agreement.

Held:

The agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.
Errington v Errington Woods [1952] 1 KB 290 Court of Appeal
In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:
This presumption may be rebutted by evidence to the contrary. This evidence may consist of:
A written agreement:
A father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage instalments, the father would transfer the house to them. The father then became ill and died. The mother inherited the house. After the father's death the son went to live with his mother but the wife refused to live with the mother and continued to pay the mortgage instalments. The mother brought an action to remove the wife from the house.

Held:

The wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under normal contract principles an offer may be revoked at any time before acceptance takes place, however, with unilateral contracts acceptance takes place only on full performance. Lord Denning held that once performance had commenced the Mother was estopped from revoking the offer since it would be unconscionable for her to do so. Furthermore there was an intention to create legal relations despite it being a family agreement.
Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal
In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:
This presumption may be rebutted by evidence to the contrary. This evidence may consist of:
Where the parties have separated:
A husband left his wife and went to live with another woman. There was £180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her.

Held:

The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound.
Simpkins v Pays [1955] 1 WLR 975 Queen's Bench Division
In social and domestic agreements the law raises a presumption that the parties do not intend to create legal relations:
This presumption may be rebutted by evidence to the contrary. This evidence may consist of:or where there is a 3rd party to the agreement:
A Grandmother, granddaughter and a lodger entered into a weekly competition run by the Sunday Empire News. The coupon was sent in the Grandmothers name each week and all three made forecasts and they took it in turns to pay. They had agreed that if any of them won they would share the winnings between them. The grandmother received £250 in prize money and refused to share it with the other two. The lodger brought the action to claim one third of the prize money.

Held:

There was a binding contract despite the family connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations.
Esso Petroleum v Customs & Excise [1976] 1 WLR 1 House of Lords
Intention to create legal relations in commercial agreements



Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement:
Esso ran a promotion whereby any person purchasing four gallons of petrol would get a free coin from their World Cup Coins Collection. The question for the court was whether these coins were 'produced in quantity for general resale' if so they would be subject to tax and Esso would be liable to pay £200,000. Esso argued that the coins were simply a free gift and the promotion was not intended to have legal effect and also that there was no resale.

Held: 3:2 There was an intention to create legal relations. The coins were offered in a commercial context which raised a presumption that they did intend to be bound. However, the coins were not exchanged for a money consideration and therefore the coins were not for resale.
Edwards v Skyways [1964] 1 WLR 349 Court of Appeal
Intention to create legal relations in commercial agreements



Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement:
The claimant was an airline pilot working for the defendant. He was to be made redundant. The defendants said that if he withdrew his contributions to the company pension fund, they would pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed to this and withdrew his contributions. The company then ran into further financial difficulty and went back on their promise relating to the ex gratia payment.

Held:

The agreement had been made in a business context which raised a strong presumption that the agreement is legally binding. The claimant could therefore enforce the agreement and was entitled to the money.
Rose & Frank Co v Crompton Bros [1925] AC 445 House of Lords
Intention to create legal relations in commercial agreements
Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement:Again this presumption can be rebutted by evidence to the contrary:
Binding in honour only clauses:
The claimants and defendants entered an agreement for the supply of some carbonised tissue paper. Under the agreement the claimants were to be the defendant's sole agents in the US until March 1920. The contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US. The defendants terminated the agreement early and the claimants brought an action for breach.

Held:

The honourable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal affect and was not enforceable by the courts.
Ferrera v Littlewoods Pools [1998] EWCA Civ 618 Court of Appeal
Intention to create legal relations in commercial agreements
Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement:Again this presumption can be rebutted by evidence to the contrary:
Binding in honour only clauses:
The facts were almost identical to those of Jones v Vernon Pools whereby the claimant filled in a winning entry and sent it off to Littlewoods Pools. Littlewoods disputed ever receiving the entry and denied the fact that they would be legally obliged to pay out even if they had received the entry due to the binding in honour only clause and based on the Court of Appeal precedent set in Jones v Vernon Pools. The claimant, a litigant in person, argued that the decision in Jones v Vernons was outdated and should be overruled.

Held:

Littlewoods were not bound to pay out. The court was bound by the decision in Jones v Vernon Pools the existence of the binding in honour only clause demonstrated an intention that the parties did not intend to be legally bound.
Kleinwort Benson (KB) v Malaysia Mining Corporation BHD (MMC BHD) [1989] 1 WLR 379 Court of Appeal
Intention to create legal relations in commercial agreements
Where an agreement is made in a commercial context, the law raises a presumption that the parties do intend to create legal relations by the agreement:
Although note the difference with comfort letters:
Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter.

Held:

The comfort letter had no legal effect. The fact that MMC BHD had refused to act as guarantor demonstrated they did not intend to be legally bound. The comfort letter referred to company policy at that time. There was nothing to stop the company changing its policy.
Coward v MIB [1963] 1 QB 359 Court of Appeal
The distinction between social and domestic agreements and commercial agreements can be fine.
Compare the case:
It can be seen that intention to create legal relations therefore seeks to keep agreements between family and friends outside the courts jurisdiction.
Coward was killed whilst riding pillion on a motorcycle driven by a friend and work colleague on the way to work. The collision was due to the negligence of the friend. Coward's widow sought to claim damages from the Motor Insurance Bureau since the rider's insurance did not cover pillion passengers. The Motor Insurance Bureau would only be obliged to pay if insurance for the pillion was compulsory. Insurance was only compulsory for pillions if they were carried for hire or reward. Coward paid the friend a small weekly sum to take him to and from work each day. The widow therefore argued that this was a contract for hire or reward. However, the MIB argued that to amount to a contract for hire or reward there had to be an intention to create legal relations which was absent in agreements of this nature between friends.

Held:

There was no contract of hire or reward as it was a social and domestic agreement and therefore no intention to create legal relations. The widow was therefore not entitled to compensation.
Albert v MIB [1971] 3WLR 291 House of Lords
The distinction between social and domestic agreements and commercial agreements can be fine.
Compare the case:
It can be seen that intention to create legal relations therefore seeks to keep agreements between family and friends outside the courts jurisdiction.
A docker was killed in a road collision on his way to work. He was a passenger in a car owned and driven by a work colleague. The driver gave lifts to the deceased and other dockers in return for payment. He had given lifts to different dockers over a period of eight years. A claim was made against the Motor Insurance Bureau (MIB) as the driver had no insurance cover for passengers. The MIB was only obliged to pay if there existed a contract between the docker and the driver.

Held:

The lifts were offered in a commercial context as he had given lifts to different people over a period of time. Therefore there was an intention to create a binding contract.
In contract law consideration is concerned with the bargain of the contract. A contract is based on an exchange of promises. Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffer a detriment. This benefit or detriment is referred to as consideration.
Consideration must be something of value in the eyes of the law - (Thomas v Thomas) (1842) 2 QB 851. This excludes promises of love and affection, gaming and betting etc. A one sided promise which is not supported by consideration is a gift. The law does not enforce gifts unless they are made by deed.
Whilst the common law strictly adheres to the requirement of consideration (although in some instances the courts seem to go to some lengths to invent consideration eg Ward v Byham [1956] 1 WLR 496, Williams v Roffey Bros [1990] 2 WLR 1153) equity will, in some instances, uphold promises which are not supported by consideration through the doctrine of promissory estoppel.
Rules of consideration
There are various rules governing the law of consideration:

1. The consideration must not be past.

2. The consideration must be sufficient but need not be adequate.

3. The consideration must move from the promisee.

4. An existing public duty will not amount to valid consideration.

5. An existing contractual duty will not amount to valid consideration.

6. Part payment of a debt is not valid consideration for a promise to forego the balance.
Re McArdle (1951) Ch 669 Court of Appeal
Consideration must not be past:
Majorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father who had died living the property to his wife for life and then on trust for Majorie's husband and his four siblings. After the work had been carried out the brothers and sisters signed a document stating in consideration of you carrying out the repairs we agree that the executors pay you £480 from the proceeds of sale. However, the payment was never made.

Held:

The promise to make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is not valid.
Lampleigh v Braithwaite [1615] EWHC KB J17
Consideration must not be past:
Past consideration may be valid where it was proceeded by a request:
The defendant had killed a man and was due to be hung for murder. He asked the claimant to do everything in his power to obtain a pardon from the King. The claimant went to great efforts and managed to get the pardon requested. The defendant then promised to pay him £100 for his efforts but never paid up.

Held:

Whilst the promise to make payment came after the performance and was thus past consideration, the consideration was proceeded by a request from the defendant which meant the consideration was valid. The defendant was obliged to pay the claimant £100.
Chappel v Nestle [1960] AC 87 House of Lords
Consideration must be sufficient but need not be adequate:
There is no requirement that the consideration must be market value, providing something of value is given eg £1 given in exchange for a house would be valid. The courts are not concerned with whether the parties have made a good or bad bargain:
Nestle ran a sales promotion whereby if persons sent in 3 chocolate bar wrappers and a postal order for 1 shilling 6d they would be sent a record. Chappel owned the copyright in one of the records offered and disputed the right of Nestle to offer the records and sought an injunction to prevent the sales of the records which normally retailed at 6 shillings 8d. Under s.8 of the Copyright Act 1956 retailers were protected from breach of copyright if they gave notice to the copyright holders of the ordinary retail selling price and paid them 6.25% of this. Nestle gave notice stating the ordinary selling price was the 1 shilling 6d and three chocolate bar wrappers. The question for the court was whether the chocolate bar wrappers formed part of the consideration. If they did it was impossible to ascertain the value they represented and therefore Nestle would not have complied with their obligation to give notice of the ordinary retail selling price. If the wrappers were a mere token or condition of sale rather than constituting consideration, then the notice would be valid and Nestle could sell the records.

Held:

The wrappers did form part of the consideration as the object was to increase sales and therefore provided value. The fact that the wrappers were simply to be thrown away did not detract from this. Therefore Chappel were granted the injunction and Nestle could not sell the records as they had not complied with the notice requirements under s.8.
Tweddle v Atkinson [1861] EWHC QB J57 Queen's Bench Division
Consideration must move from the promisee
If a person other than the promisee is to provide the consideration, the promisee can not enforce the agreement:
A couple were getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will.

Held:

The claim failed: The groom was not party to the agreement and the consideration did not move from him. Therefore he was not entitled to enforce the contract.
Collins v Godefrey (1831) 1 B & Ad 950 King's Bench Division
An existing public duty will not amount to valid consideration
Where a party has a public duty to act, this can not be used as consideration for a new promise:
The claimant, Collins, had been subpoenaed to attend court as a witness in separate court case involving the defendant, Godefrey. Godefrey had sued his attorney for malpractice and Collins was required by the court to attend as an expert witness. In fact Collins never gave evidence but was required to be on standby for six days in case he was called. After the trial Collins gave Godefrey an invoice to cover his time spent at court and demanded payment by the next day. Without giving him the full day to pay, Collins commenced an action to enforce payment.

Held:

Collins was under a public duty to attend court due to the subpoena. Where there exists an existing public duty this can not be used as consideration for a new promise. Godefrey was not required to pay him.
Glasbrook Bros v Glamorgan County Council [1925] AC 270 House of Lords
An existing public duty will not amount to valid consideration

Where a party has a public duty to act, this can not be used as consideration for a new promise:Unless the promisor goes beyond their duty:
The defendant owners of a colliery asked the police to provide protection during a miner's strike. The police provided the protection as requested and provided the man power as directed by the defendants although they disputed the level of protection required to keep the peace. At the end of the strike the police submitted an invoice to cover the extra costs of providing the protection. The defendants refused to pay arguing that the police were under an existing public duty to provide protection and keep the peace.

Held 3:2 decision:

In providing additional officers to that required, the police had gone beyond their existing duty. They were therefore entitled to payment.
Ward v Byham [1956] 1 WLR 496 Court of Appeal
An existing public duty will not amount to valid consideration
Where a party has a public duty to act, this can not be used as consideration for a new promise:Unless the promisor goes beyond their duty:
An unmarried couple had a child together and lived together for five years. The father then turned the mother out of the house and sent the child to live with a neighbour and the father paid the neighbour £1 per week. The mother then got a job as a live in house keeper and wished to have the daughter live with her. The father agreed to allow the daughter live with the mother and agreed to pay her £1 per week provided she ensured the child was well looked after and happy. The father made payments but then when the mother remarried he stopped making payments. The mother brought an action to enforce the agreement. The father argued that the Mother was under an existing legal duty to look after and maintain the child and therefore was not providing any consideration for the promise to make payment.

Held:

By promising to ensure the child was well looked after and happy she had gone beyond her existing legal duty and therefore had provided consideration. She was entitled to the payment.
Stilk v Myrick [1809] EWHC KB J58 King's Bench Division
An existing contractual duty will not amount to valid consideration
If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise:
The claimant was a seaman on a voyage from London to the Baltic and back. He was to be paid £5 per month. During the voyage two of the 12 crew deserted. The captain promised the remaining crew members that if they worked the ship undermanned as it was back to London he would divide the wages due to the deserters between them. The claimant agreed. The captain never made the extra payment promised.

Held:

The claimant was under an existing duty to work the ship back to London and undertook to submit to all the emergencies that entailed. Therefore he had not provided any consideration for the promise for extra money. Consequently he was entitled to nothing.
Hartley v Ponsonby [1857] 7 EB 872
An existing contractual duty will not amount to valid consideration
If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise:
Unless the party goes beyond their existing duty:
Half of a ship's crew deserted on a voyage. The captain promised the remaining crew members extra money if they worked the ship and completed the voyage. The captain then refused to pay up.

Held:

The crew were entitled to the extra payment promised on the grounds that either they had gone beyond their existing contractual duty or that the voyage had become too dangerous frustrating the original contract and leaving the crew free to negotiate a new contract.
Williams v Roffey Bros [1990] 2 WLR 1153
An existing contractual duty will not amount to valid consideration
If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise:
or if they confer a practical advantage:
The defendants were building contractors who entered an agreement with Shepherds Bush Housing Association to refurbish a block of 27 flats. This contract was subject to a liquidated damages clause if they did not complete the contract on time. The defendants engaged the claimant to do the carpentry work for an agreed price of £20,000. 6 months after commencing the work, the claimant realised he had priced the job too low and would be unable to complete at the originally agreed price. He approached the defendant who had recognised that the price was particularly low and was concerned about completing the contract on time. The defendant agreed to pay the claimant an additional £575 per flat. The claimant continued work on the flats for a further 6 weeks but only received an additional £500. He then ran out of money and refused to continue unless payment was made. The defendant engaged another carpenter to complete the contract and refused to pay the claimant the further sums promised arguing that the claimant had not provided any consideration as he was already under an existing contractual duty to complete the work.

Held:

Consideration was provided by the claimant conferring a benefit on the defendant by helping them to avoid the penalty clause. Therefore the defendant was liable to make the extra payments promised.
Scotson v Pegg [1861] EWHC Exch J2
An existing contractual duty will not amount to valid consideration
If a party has an existing contractual duty to do an act, this act can not be used as consideration for a new promise:
If the existing contractual duty is owed to a 3rd party this may be used as valid consideration for a new promise:
A purchaser of some coal paid the defendant to carry and to unload the coal. The claimant was the supplier of the coal who had also paid the defendant to carry and unload the coal. The claimant brought an action to recover the money paid arguing the defendant was already under an existing duty to carry and unload the coal and thus provided no consideration.

Held:

An existing contractual duty owed to a 3rd party to the contract can amount to valid consideration for a new promise. Consequently the claimant could not recover the sums paid and the defendant was entitled to get paid twice for doing the same thing.
Pinnel's Case 1602 5 Rep, 117 Court of Common Pleas
Part payment of a Debt
Part payment of a debt is not valid consideration for a promise to release the debt in full:
Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made:
a). before the due date
b). with a chattel
c). to a different destination
Pinnel's Case 1602 5 Rep, 117 Court of Common Pleas

The claimant was owed £8 10 shillings. The defendant paid £5 2 shillings and 2p. The claimant sued for the amount outstanding.

Held:

The claimant was entitled to the full amount even if they agreed to accept less. Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made either:

a). before the due date or
b). with a chattel or
c). to a different destination
Foakes v Beer (1883-84) LR 9 App Cas 605 House of Lords
Part payment of a debt is not valid consideration for a promise to forebear the balance unless at the promisor's request part payment is made:

a). before the due date
b). with a chattel
c). to a different destination
This rule from Pinnel's case was affirmed by the House of Lords in:
Dr Foakes owed Mrs Beer £2,000 after she had obtained judgment against him in an earlier case. Dr Foakes offered to pay £500 immediately and the rest by instalments, Mrs Beer agreed to this and agreed she would not seek enforcement of the payment provided he kept up the instalments. No mention was made in this agreement of interest although judgment debts generally incurred interest. Dr Foakes paid all the instalments as agreed and Mrs Beer then brought an action for the interest.

Held:

Dr Foakes was liable to pay the interest. The agreement reached amounted to part payment of a debt and under the rule in Pinnel's case this was not good consideration for a promise not to enforce the full amount due.
Hirachand Punamchand v Temple [1911] 2 KB 330 Court of Appeal
Part payment of a Debt
Where part payment is made by a third party:
Further exceptions to the rule in Pinnel's case:
The claimants were money lenders in India. They lent money to the defendant Lieutenant Temple who was an army officer serving in India. The claimants sought return of the money from the claimant but were unable to get any response so they contacted his father. Some correspondence went between the claimant and the father's solicitors. The claimants asked how much the father would be prepared to pay to settle the son's accounts. An amount was agreed which was a substantial, amount although not the full amount due. The claimant promised to send the promissory note relating to the son's debt to the father once they received payment. The father paid, but the claimant retained the promissory note and sued the son to enforce the balance.

Held:

The payment made by the father was sufficient to discharge the full balance. Where the person making payment in return for discharging the debt owed by another this will amount to good consideration as the existing duty to make payment was not owed by them but a third party.
Promissory estoppel
Promissory estoppel is an equitable doctrine which in some instances can stop a person going back on a promise which is not supported by consideration. Promissory estoppel was developed by an obiter statement by Denning J (as he then was) in Central London Property Trust Ltd v High Trees Ltd [1947] KB 130 (Case summary). Denning J based the doctrine on the decision in Hughes v Metropolitan Railway (1876-77) L.R. 2 App. Cas. 439 (Case summary). The House of Lords affirmed the existence of promissory estoppel in contract law in Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761 (Case summary).
Central London Property Trust v High Trees House [1947] KB 130 High Court
Promissory estoppel was developed by an obiter statement by Denning J
High Trees leased a block of flats from CLP at a ground rent of £2,500. It was a new block of flats at the time the lease was taken out in 1937. The defendant had difficulty in getting tenants for all the flats and the ground rent left High Trees with no profit. In 1940 many of the flats were still unoccupied and with the conditions of the war prevailing, it did not look as if there was to be any change to this situation in the near future. CLP agreed to reduce the rent to £1,250 during the war years. The agreement was put in writing and High Trees paid the reduced rent from 1941. When the war was over the flats became fully occupied and the claimant sought to return to the originally agreed rent.

Held:

The rent would be returned to the originally agreed price for the future only. CLP could not claim back the arrears accrued during the war years. This case is important as Denning J (as he then was) established the doctrine of promissory estoppel. Promissory estoppel prevented CLP going back on their promise to accept a lower rent despite the fact that the promise was unsupported by consideration.

Denning J "In my opinion, the time has now come for the validity of such a promise to be recognised. The logical consequence, no doubt is that a promise to accept a smaller sum in discharge of a larger sum, if acted upon, is binding notwithstanding the absence of consideration"
Hughes v Metropolitan Railway (1876-77) LR 2 App Cas 439 House of Lords
Denning J based the doctrine of promissory estoppel on the decision
A landlord gave a tenant 6 months notice to carry out repairs failure to do so would result in forfeiture of the lease. The landlord and tenant then entered into negotiations for the tenant to purchase the freehold of the property. It was thought by both parties that a conveyance of the property would take place. The tenant had not carried out the repairs as they believed they would be purchasing the freehold and the repairs required by the landlord were not essential to his use of the property. At the last minute negotiations broke down and the Landlord gave the tenant notice to quit for failure to carry out the repairs.

Held:

The time limit imposed for carrying out the repairs was suspended during the negotiations.

Lord Cairns CJ:-

"It is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results - certain penalties or legal forfeiture - afterwards by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties."
Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761 House of Lords
The House of Lords affirmed the existence of promissory estoppel in contract law
Tungsten had been infringing a patent right held by TMM. When TMM heard of this they waived all infringements in return for Tungsten paying 10% Royalty and also 30% 'compensation' if sales exceeded 50KG in any month. These sums were excessive but Tungsten agreed to pay them otherwise they would be faced with a claim for infringing the copyright. Tungsten struggled to make payments. They got into arrears during the war times and an agreement was reached to waive the 'compensation' payments during the war years.

Held:

TMM could not enforce the compensation payments during the war years but could enforce them on termination of the war. TMM were estopped from going back on their promise to waive the payments in equity. Generally promissory estoppel will merely suspend legal rights rather than extinguish them. However, where periodic payments are involved and a promise has been made to reduce the payments because of pressing circumstances which are not likely to persist, promissory estoppel can be used to extinguish legal rights.
Combe v Combe [1951] 2 KB 215 Court of Appeal
Requirements of promissory estoppel:
A pre-existing contractual or legal obligation which is then modified:
A husband promised to make maintenance payments to his estranged wife but failed to do so. The wife brought an action to enforce the promise invoking promissory estoppel.

Held:

Her action failed. There was no pre-existing agreement which was later modified by a promise. The wife sought to use promissory estoppel as sword and not a shield.
Woodhouse A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd. [1972] AC 741
Requirements of promissory estoppel:
A clear and unambiguous promise.
This may be implied through conduct:
A contract for the sale of some coffee beans was agreed to be payable in pound sterling. The sellers mistakenly sent an invoice stating price was payable in Kenyan Shillings. At the time the value of pound sterling and Kenyan shillings was equal. The buyers accepted the delivery and invoice with out objection. Subsequently the value of the pound fell quite dramatically in relation to Kenyan shillings. The buyers then sought to revert to pound sterling as stated in the contract.

Held:

The buyers conduct in accepting the invoice unquestionably amounted to an implied clear and unambiguous promise to accept on those terms.
Alan v El Nasr [1972] 2 WLR 800
Requirements of promissory estoppel:
Change of position:
By contract, the sellers agreed to sell 250 tons of coffee beans at 262 Kenyan shillings per cwt to El Nasr payable on credit. At the time of the contract the value of Kenyan shillings and pound sterling were of equal value. Whilst the contract stipulated the price payable in Kenyan shillings, the credit account referred payment in pound sterling. There were a number of other discrepancies between the credit agreement and contract such as date of shipping and the quantity to be shipped. These other discrepancies were rectified in a revised agreement however, the new agreement still referred to payment in pound sterling. The sellers accepted the first instalment of 57,000 in pound sterling without objection, however, the value of the pound dropped quite dramatically resulting in a loss of 165,530.45 shillings. The sellers then sought to revert to Kenyan shillings and demanded the further payment. The buyers raised promissory estoppel in their defence in that in accepting the instalment in pound sterling and redrafting the credit agreement without changing the currency there was an implied promise that they would not revert to Kenyan Shillings. The sellers argued that the buyers had not acted to their detriment in reliance of this promise as they had gained a benefit.

Held:

Detrimental reliance is not a requirement of promissory estoppel. It only needs to be established that the promisor has changed their position.
D & C Builders v Rees [1966] 2 WLR 28 Court of Appeal
Requirements of promissory estoppel:
It must be inequitable to allow the promisor to go back on their promise:
Mr Rees instructed the claimant to do some building work at his home to the value of £746. Mr Rees paid £250 on account and the claimant reduced the bill by £14 and there was a sum owing of £482. The claimant wrote to the defendant several times pressing for payment but was unsuccessful there had been no complaints as to the workmanship at this time. The claimant at the time was in dire financial need and the business was verging on bankruptcy a fact that Mrs Rees was aware of. The defendant telephoned the home and Mrs Rees answered she made complaints about the work and said she would give them £300 in satisfaction of the whole debt. The defendant refused and said he would take the £300 and give her a year to clear the balance. He called at the house to collect the money but Mrs Rees remained firm that she would only pay £300 and demanded that the defendant wrote on the receipt 'in completion of the account' otherwise she would pay him nothing. The defendant needed the money immediately so reluctantly agreed to write this on the receipt but stated he fully intended to pursue the balance as the money paid did not cover the costs he had incurred. He subsequently brought an action to recover the balance. The defendant sought to rely on estoppel relying on the written receipt as demonstrating a promise to accept the lesser sum.

Held:

The claimants were successful. Mrs Rees could not rely on estoppel as there was no true agreement to accept less and because Mrs Rees had taken advantage of the builder's position and mislead them as to her financial position.
Esso Petroleum v Mardon [1976] QB 801 Court of Appeal
Statements made during the course of negotiations can be classified as either:
1. An express term - if not fulfilled the innocent party may bring an action for breach of contract.
2. A representation - if not fulfilled the innocent party may bring an action for misrepresentation.
3. As part of a collateral contract - the innocent party may sue on the collateral contract. The main contract remains intact:
Mr Mardon entered a tenancy agreement with Esso Petroleum in respect of a new Petrol station. Esso's experts had estimated that the petrol station would sell 200,000 gallons of petrol. This estimate was based on figures which were prepared prior to planning application. The planning permission changed the prominence of the petrol station which would have an adverse affect on the sales rate. Esso made no amendments to the estimate. The rent under the tenancy was also based on the erroneous estimate. Consequently it became impossible for Mr Mardon to run the petrol station profitably. In fact, despite his best endeavours the petrol station only sold 78,000 gallons in the first year and made a loss of £5,800.

The Court of Appeal held that there was no action for misrepresentation as the statement was an estimate of future sales rather than a statement of fact. However, the claimant was entitled to damages based on either negligent misstatement at common law or breach of warranty of a collateral contract.
Oscar Chess Ltd v Williams [1957] 1 WLR 370 Court of Appeal
In deciding whether a statement amounts to a term or representation the courts look at four factors:
1.The parole evidence rule
Where the contract has been put into writing only the terms included in the written document are terms any verbal statements will be representations.
2.Relative expertise of the parties
Relative expertise:
If the representor has the greater knowledge, it is more likely to be a contractual term. Conversely if the representee has the greater knowledge it is more likely to be a representation:
3.Importance of the statement
The importance of the statement and reliance:
Where the representee indicates to the representor the importance of the statement, this is likely to be held to be a term:
4.Time
Timing
The longer the time lapse between making the statement and entering the contract the more likely it will be a representation:

Relative expertise:
If the representor has the greater knowledge, it is more likely to be a contractual term. Conversely if the representee has the greater knowledge it is more likely to be a representation:
Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The registration document stated it was first registered in 1948. The following year her son used the car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the purchase price of the Hillman. Without this discount Williams would not have been able to go through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and worth much less than thought. They brought an action for breach of contract arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to repudiate the contract and claim damages.

Held:

The statement relating to the age of the car was not a term but a representation. The representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better position to know the age of the manufacture than the defendant.
Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR 623 Court of Appeal
Contractual term or representation
Relative expertise:
If the representor has the greater knowledge, it is more likely to be a contractual term. Conversely if the representee has the greater knowledge it is more likely to be a representation:
Dick Bentley knew the defendant, who was a car trader specialising in the prestige market, for some time. He had asked him to look out for a well vetted Bentley car. The defendant obtained a Bentley and recommended it to the claimant. He told him that the car had been owned by a German Baron and had been fitted with a replacement engine and gearbox and had only done 20,000 miles since the replacement. Mr Bentley Purchased the car but it developed faults. The defendant had done some work under the warranty but then more faults developed. It transpired that the car had done nearer 100,000 miles since the refit. The question for the court was whether the statement amounted to a term in which case damages would payable for breach of contract, or whether the statement was a representation, in which case no damages would be payable since it was an innocent misrepresentation and the claimant has also lost his right to rescind due to lapse of time.

Held:

The statement was a term. Mr Smith as a car dealer had greater expertise and the claimant relied upon that expertise.
Bannerman v White (1861) 10 CBNS 844
Contractual term or representation
The importance of the statement and reliance:
The claimant agreed by contract to purchase some hops to be used for making beer. He asked the seller if the hops had been treated with sulphur and told him if they had he wouldn't buy them as he would not be able to use them for making beer if they had. The seller assured him that the hops had not been treated with sulphur. In fact they had been treated with sulphur.

Held:

The statement that the hops had not been treated with sulphur was a term of the contract rather than a representation as the claimant had communicated the importance of the term and relied on the statement. His action for breach of contract was successful.
Routledge v Mackay [1954] 1 WLR 615 Court of Appeal
Contractual term or representation
Timing
The longer the time lapse between making the statement and entering the contract the more likely it will be a representation:
The claimant acquired a Douglas BSA motorcycle and sidecar by exchanging another motorcycle and paying £30. The registration documents stated that it was a 1942 model and this is what the defendant stated the year of the motorcycle to be when the claimant cam to look at it. The motorcycle was in fact a 1936 model but had been modified and re-registered by a previous owner. The purchaser went away to think about it and then returned a few days later a written agreement was produced to the effect of the exchange which ended with the words "It is understood that when the £30 is paid over that this transaction is closed".

Held:

The statement was a representation and not a contractual term. The registration document was not prima facie evidence of a contractual term. Neither party was an expert, and there was a lapse of time between the making of the statement and entering the contract giving the claimant the opportunity to check the statement. Furthermore there was no mention of the date in the written agreement and the words of the agreement stating the transaction is considered closed excluded any possible collateral warranty.
Poussard v Spiers (1876) 1 QBD 410
Conditions
A condition is a major term of the contract which goes to the root of the contract. If a condition is breached the innocent party is entitled to repudiate (end) the contract and claim damages:
Madame Poussard entered a contract to perform as an opera singer for three months. She became ill five days before the opening night and was not able to perform the first four nights. Spiers then replaced her with another opera singer.

Held:

Madame Poussard was in breach of condition and Spiers were entitled to end the contract. She missed the opening night which was the most important performance as all the critics and publicity would be based on this night.
Bettini v Gye (1876) QBD 183
Warranties
Warranties are minor terms of a contract which are not central to the existence of the contract. If a warranty is breached the innocent party may claim damages but can not end the contract:
Bettini agreed by contract to perform as an opera singer for a three month period. He became ill and missed 6 days of rehearsals. The employer sacked him and replaced him with another opera singer.

Held:

Bettini was in breach of warranty and therefore the employer was not entitled to end the contract. Missing the rehearsals did not go to the root of the contract.
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26 Court of Appeal
Innominate terms
The innominate term approach was established in the case of Hong Kong Fir Shipping. Rather than classifying the terms themselves as conditions or warranties, the innominate term approach looks to the effect of the breach and questions whether the innocent party to the breach was deprived of substantially the whole benefit of the contract. Only where the innocent party was substantially deprived of the whole benefit, will they be able to treat the contract as at an end:
This approach has been criticised for sacrificing certainty. Also the innocent party may well be liable for wrongful repudiation if they treat the contract as at an end where it is found that the breach did not deprive them of substantially the whole benefit of the contract.
A ship was chartered to the defendants for a 2 year period. The agreement included a term that the ship would be seaworthy throughout the period of hire. The problems developed with the engine of the ship and the engine crew were incompetent. Consequently the ship was out of service for a 5 week period and then a further 15 week period. The defendants treated this as a breach of condition and ended the contract. The claimants brought an action for wrongful repudiation arguing the term relating to seaworthiness was not a condition of the contract.

Held:

The defendants were liable for wrongful repudiation. The court introduced the innominate term approach. Rather than seeking to classify the term itself as a condition or warranty, the court should look to the effect of the breach and ask if the breach has substantially deprived the innocent party of the whole benefit of the contract. Only where this is answered affirmatively is it to be a breach of condition. 20 weeks out of a 2 year contract period did not substantially deprive the defendants of whole benefit and therefore they were not entitled to repudiate the contract.
Schuler v Wickman Tools [1974] AC 235 House of Lords
Even where the parties have themselves classified the term as a condition the courts can hold that it was in fact only a minor term and therefore a breach of that term would not give rise to the right to repudiate the contract.
Compare the cases:
Schuler were manufacturers of certain tools and Wickman were a sales company granted the sole right to sell certain tools manufactured by Schuler. A term of the contract between the parties was described in the contract as being a condition and provided that Wickman would send a sales person to each named company once a week to solicit sales. This imposed an obligation to make 1,400 visits in total. Wickman failed to make some of the visits and Schuler terminated the contract for breach of condition.

Held:

Despite the fact the contract had expressly stated the term was a condition, the House of Lords held that it was only a warranty.
Lombard North Central v Butterworth [1987] QB 527
Even where the parties have themselves classified the term as a condition the courts can hold that it was in fact only a minor term and therefore a breach of that term would not give rise to the right to repudiate the contract.
Compare the cases:
The defendant leased a computer from the claimant. The claimant was to pay £584 by 20 instalments every 3 months. A term of the lease agreement provided that punctual payment was required and breach of this term would entitle the lessor to terminate the agreement. The defendant got into arrears with the instalments and the claimant took possession of the computer and sold it on for £175. The claimant sued the defendant claiming arrears and all future payments amounting to £6,869 in total.

Held: The term relating to prompt payment was a condition. The parties by their agreement had demonstrated that prompt payment was an essential term and the consequence of breach was clearly set out. Nicholls LJ stated that even one late payment would entitle the lessor to terminate irrespective of the effect of the breach.
The Mihalis Angelos [1970] 3 WLR 601
The need for certainty in commercial contracts:
The owners of the ship, The Mihalis Angelos, chartered the ship to the defendant to use for the carriage of some cargo. A clause in the agreement stated the ship was expected ready to load on 1st July. In fact the owners had no grounds for believing the ship would be ready to load on that date as it was in Hong Kong at the time and would not be ready until at least the 14th of July and in fact it was not ready at that date. The defendant cancelled the contract on 17th of July. The cargo that they expected to be carrying had not arrived due to the bombing of a railway in Vietnam. The ship owners brought an action against the defendants for anticipatory breach. The defendants argued that the claimant was in breach of condition of the contract by not be ready to load on the specified date.

Held:

The expected ready to load clause was a condition despite the fact it had caused no loss to the defendant. The classification as a condition was said to be because of the need for commercial certainty in shipping contracts.
Bunge Corporation v Tradax [1981] 1 WLR 711 House of Lords
The need for certainty in commercial contracts:
A contract for the sale 5,000 tons of soya beans required the buyers to give the sellers 15 days notice of readiness of loading. This term was stated as a condition. The buyers gave a shorter notice period and the sellers treated this as terminating the contract and claimed damages. The price of soya beans had dropped by over $60 per ton. The initial hearing was decide by arbitration where it was held that the sellers were entitled to end the contract and awarded $317.500 representing the decrease in value of the soya beans. The buyers appealed to the High court who reversed this decision applying the innominate term approach from Hong Kong Fir. The Court of Appeal reversed the decision and the buyers appealed to the House of Lords.

Held: the term was stated as a condition and should be treated as such. The need for certainty in commercial contracts and the fact that the innominate term approach had caused much litigation meant that it should only be used where it was impossible to classify the term as a condition or warranty by reference to the term itself.
Hutton v Warren [1836] EWHC Exch J61
Terms implied by common law
The courts are reluctant to imply terms in to a contract at common law. It is the parties' role to agree the terms of their particular agreement. It is generally not considered to be the role of the courts to rewrite a contract for the parties. Freedom of contract prevails. There are limited circumstances where the courts will imply a term into a contract at common law:
Terms implied through custom
Where a particular term is prevalent in a trade the courts may imply a term in a contract of the same type in that trade:
The claimant was a farmer who had a tenancy on the defendant's fields. The claimant had planted corn and Barley on the fields and worked the fields to ensure the crops would grow. Before the field was due to be harvested the tenancy was terminated. The claimant then submitted a bill to the defendant for the work and cost of seed spent on the field as was customary in farming tenancies. The defendant refused to pay stating there was nothing in the tenancy agreement stating that such compensation was payable.

Held:

The court implied a term into the tenancy providing for compensation for the work and expenses undertaken in growing the crops. The term was implied as it was common practice for farming tenancies to contain such a clause.
The Moorcock (1889) 14 PD 64
Terms implied by common law
The courts are reluctant to imply terms in to a contract at common law. It is the parties' role to agree the terms of their particular agreement. It is generally not considered to be the role of the courts to rewrite a contract for the parties. Freedom of contract prevails. There are limited circumstances where the courts will imply a term into a contract at common law:
Terms implied in fact
Terms implied as fact are based on the imputed intention of the parties. Two tests have developed:
1. The business efficacy test:
This asks whether the term was necessary to give the contract business efficacy ie would the contract make business sense without it? - The courts will only imply a term where it is necessary to do so.
The business efficacy test:

This asks whether the term was necessary to give the contract business efficacy ie would the contract make business sense without it? - The courts will only imply a term where it is necessary to do so.

The claimant moored his ship at the defendant's wharf on the river Thames. The river Thames is a tidal river and at times when the tide went out the ship would come into contact with the river bed. The ship became damaged due to uneven surfaces and rocks on the river bed. The claimant sought to claim damages from the defendant and the defendant argued that there was no provision in the contract warranting the condition of the river bed.

Held:

The court implied a term in fact, that the river bed would be safe for mooring. The court introduced the business efficacy test ie the term must be necessary to give the contract business effect. If the contract makes business sense without the term, the courts will not imply a term.
Shirlaw v Southern Foundries [1939] 2 KB 206 Court of Appeal
Terms implied in fact
Terms implied as fact are based on the imputed intention of the parties. Two tests have developed:
The officious bystander test:
Had an officious bystander been present at the time the contract was made and had suggested that such a term should be included, it must be obvious that both parties would have agreed to it.
The officious bystander test:

Had an officious bystander been present at the time the contract was made and had suggested that such a term should be included, it must be obvious that both parties would have agreed to it.

The claimant had been employed as a managing director of Southern Foundries the office of employment was to last for 10 years. Federated Foundries then purchased a controlling share in the company and altered the company's Articles of Association giving them the power to remove directors. They then dismissed the claimant as a director who brought an action for wrongful dismissal. There was no breach of contract for his dismissal based on the employment contract as they had not dismissed him from being a managing director but only as a director. However, if he was not a director he was not able to be a managing director. The claimant asked the court to imply a term that the defendant would not act in a way making it incapable for him to perform his contract.

Held:

The Court of Appeal applied the officious bystander test and did imply the term.

The officious bystander test:

If a third party was with the parties at the time the contract was made and had they suggested the term should be implied it would be obvious that both parties would reply with a hearty 'oh of course'.

It must be obvious that both parties would agree to the term at the time the contract was made.
Liverpool City Council v Irwin [1977] AC 239 House of Lords
Terms implied by common law
The courts are reluctant to imply terms in to a contract at common law. It is the parties' role to agree the terms of their particular agreement. It is generally not considered to be the role of the courts to rewrite a contract for the parties. Freedom of contract prevails. There are limited circumstances where the courts will imply a term into a contract at common law:
Terms implied in law
The courts may imply a term in law in contracts of a defined type eg Landlord/tenant, retailer/customer where the law generally offers some protection to the weaker party:
Liverpool city council owned a block of flats in which the defendant was a tenant. The common parts of the flats, the lifts, stair cases, rubbish chutes etc, had fallen into disrepair. A rent strike was implemented by many of the tenants including the defendant. The council sought to evict the defendant for non payment of rent and she counter claimed for breach of an obligation to repair. However, the tenancy agreement did not mention any obligation to repair. In fact the tenancy agreement only imposed obligations on the tenant with no mention of the obligations of the landlord. The defendant asked the court to imply a term that the council had an obligation to repair the common parts of the block of flats.

Held:

The courts did imply a term. The implied term arose as a legal incident in contracts of a defined type between landlord and tenant that the landlord was to take reasonable care to maintain the common parts. However, there was no breach of this duty.
Wilson v Best Travel [1993] 1 All ER 353
Terms implied in law
In addition to being a contract of a defined type, the term must be a reasonable one to include:
The claimant was injured when he fell through some glass patio doors whilst on holiday in Greece. The glass conformed to Greek safety standards but did not conform to British safety standards. The claimant brought an action against the travel agent asking for a term to be implied as a matter of law, that all accommodation offered by the defendant should conform to British safety standards.

Held:

The courts did not imply a term. Whilst this was a contract of a defined type, it was reasonable for the travel agency to ensure that all accommodation offered, no matter where in the world, conformed with British safety standards.
Rowland v Divall [1923] 2 KB 500
S. 12 implied terms as to title
S. 12 applies to all contracts for sale of goods so it will cover private sales in addition to where goods have been purchased from a shop or other business.
S.12(1) implies a term that the seller has the right to sell the goods. This covers situations where the seller is selling stolen goods (whether the actual thief or a subsequent sale in the chain). This term is a condition in all sales.
A buyer who treats the contract as repudiated is entitled to return of the full purchase price even if they have enjoyed use of the goods for some time.
The claimant, a car dealer, bought a car from the defendant for £334. He painted the car and put it in his showroom and sold it to a customer for £400. Two months later the car was impounded by the police as it had been stolen. It was then returned to the original owner. Both the claimant and defendant were unaware that the car had been stolen. The claimant returned the £400 to the customer and brought a claim against the defendant under the Sale of Goods Act.

Held:

The defendant did not have the right to sell the goods as he did not obtain good title from the thief. Ownership remained with the original owner. The defendant had 2 months use of the car which he did not have to pay for and the claimant was not entitled to any compensation for the work carried out on the car.
Niblett v Confectioners' Material [1921] 3 KB 387 Court of Appeal
In addition to applying to stolen goods s.12(1) also applies where the seller does not have the right to sell the goods where to do so would be breach of trademark, patent or copyright:
The claimant purchased 1,000 tins of condensed milk from the defendant. The tins were labelled 'Nissly'. Nestle told the claimant that if they attempted to sell these on, they would apply for an injunction to prevent the sale as the label was very similar to Nestle's labels for their condensed milk. The claimants agreed not to sell them and brought an action against the sellers.

Held:

The sellers did not have the right to sell the goods and therefore the buyers were entitled to repudiate the contract.
Microbeads v Vinhurst Road Markings [1975] 1 WLR
S.12 (2)(b) implies a term that the purchaser will enjoy quiet possession of the goods. This acts as an ongoing assurance that no one will interfere with the buyer’s right to possess or use the goods. This term is a warranty.
The claimant purchased some road marking machines from the defendant. After the purchase a third party was granted a patent right in the machines. This meant the claimant could not use the machines unless they were granted a licence to do so. There was no breach of s.12(1) as at the time of the sale the seller had the right to sell the goods. However, there was a breach of s.12(2) in that the buyer could not enjoy quiet possession of the goods.
Harlington & Leinster v Christopher Hull Fine Art [1991] 1 QB 564
S.13 sale by description
s.13(1) provides that where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond with the description.
This section applies where the sale is solely by description. If the buyer sees the actual goods before the sale then s.13 can not be relied upon:
The claimant purchased a painting from the defendant for £6,000. The painting was described in an auction catalogue as being by German impressionist artist Gabrielle Munter. Both the buyers and the sellers were London art dealers. The sellers were not experts on German paintings whilst the buyers specialised in German paintings. The purchasers sent their experts to inspect the painting before agreeing to purchase. After the sale the buyers discovered that the painting was a fake and worth less than £100. They brought an action based on s.13 Sale of Goods Act in that the painting was not as described.

Held:

By sending their experts to inspect the painting this meant the sale was no longer by description. S.13 only applies to goods sold by description and therefore the buyers had no protection.
Arcos v Ranaason [1933] AC 470 House of Lords
S.13 sale by description
s.13(1) provides that where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond wiS.13 is simply concerned with description and not quality as was made clear in:th the description.
A contract for the sale of a quantity of wooden staves for making barrels described the staves as being 1/2 an inch thick. Some of the staves delivered were not 1/2 an inch thick but very slightly out. There was nothing wrong with the quality of the wood and they could still be used for the intended purpose of making barrels. The buyer rejected the goods as the price of wood had fallen and he could purchase them cheaper elsewhere.

Held:

The purchasers were entitled to reject the goods under s.13 as they were not as described.

NB - note the position in relation to non-consumer sales has since changed. S.13 is not automatically a condition in non-consumer sales.
Re Moore & Landauer [1921] 2 KB 519 Court of Appeal
S.13 sale by description
s.13(1) provides that where there is a contract for the sale of goods by description, there is an implied term that the goods will correspond wiS.13 is simply concerned with description and not quality as was made clear in:th the description.
A contract for the sale of 3,100 tins of peaches described the tins as being packed in cases of 30. When they arrived the tins were packed in cases of 24 although the agreed overall number of tins was supplied.

Held:

The purchaser was entitled to reject the goods as they were not as described.
Stevenson v Rogers [1999] 1 All ER 613 Court of Appeal
S. 14 Implied term as to quality
S.14 only applies where the seller sells goods in the course of a business. It therefore does not apply to private sales although there may be an action for breach of an express term or misrepresentation in some circumstances.
The question of whether goods were sold in the course of a business was considered in:
The defendant was a fisherman. He sold his fishing boat to the claimant. The claimant brought an action against the defendant based on breach of S.14 of the Sale of Goods Act as the boat was not of satisfactory quality. S.14 only applies to the sale of goods sold in the course of a business. The defendant argued that the sale of the boat was not in the course of his business. His business was catching fish and selling them, he was not in the business of buying and selling fishing boats.

Held:

The sale was in the course of the business and therefore the defendant did have to ensure the boat was of satisfactory quality.
Shine v General Guarantee Corp [1988] 1 All ER 911
Liability under s.14 is strict and not dependant of proof of fault on the part of the seller.
The relevant parts of s.14 are as follows:
(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods—
(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.
Applying this section a judge would thus consider whether a reasonable person would regard the goods as of satisfactory quality looking at the stated aspects in addition to all other relevant circumstances. Looking at fitness for purpose, the judge, will consider whether the goods are fit for the purpose the goods are commonly supplied so for example if you purchase a hairdryer and use it to dry your clothes, the judge is unlikely to conclude there has been a breach as the goods were not used for their common purpose. Conversely if you purchase a pair of shoes which fall apart after a few days wear, the seller cannot simply state they were fashion shoes and not intended for wearing full time.
In addition to the statutory guidance a court applies the acceptability and usability tests to help determine if the goods in question are of satisfactory quality.
The Acceptability Test – Applies to consumer transactions
The acceptability test looks at whether a reasonable purchaser would have accepted the goods at the same price had they known of the defect:
The Acceptability Test – Applies to consumer transactions
The acceptability test looks at whether a reasonable purchaser would have accepted the goods at the same price had they known of the defect:

The claimant purchased a second hand sports car from a car dealer. The car gave him constant problems and he then discovered that the car had previously been in an accident and had been totally submerged in water. The claimant brought an action under s.14(2).

Held:

Where the contract is a consumer sale the courts apply the acceptability test. This asks would a reasonable purchaser have accepted the goods at the stated price knowing of the fault. Clearly in this case a reasonable purchaser would not have accepted the goods and therefore the seller was in breach.
Aswan Engineering v Lupdine [1987] 1 All ER 135 Court of Appeal
Liability under s.14 is strict and not dependant of proof of fault on the part of the seller.
The relevant parts of s.14 are as follows:
(2) Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality.
(2A) For the purposes of this Act, goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances.
(2B) For the purposes of this Act, the quality of goods includes their state and condition and the following (among others) are in appropriate cases aspects of the quality of goods—
(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability.
Applying this section a judge would thus consider whether a reasonable person would regard the goods as of satisfactory quality looking at the stated aspects in addition to all other relevant circumstances. Looking at fitness for purpose, the judge, will consider whether the goods are fit for the purpose the goods are commonly supplied so for example if you purchase a hairdryer and use it to dry your clothes, the judge is unlikely to conclude there has been a breach as the goods were not used for their common purpose. Conversely if you purchase a pair of shoes which fall apart after a few days wear, the seller cannot simply state they were fashion shoes and not intended for wearing full time.
In addition to the statutory guidance a court applies the acceptability and usability tests to help determine if the goods in question are of satisfactory quality.
The Usability Test – Applies to business to business transactions
The usability test is less generous than the acceptability test. This test requires the court to consider if a reasonable purchaser could have used the goods for purposes for which the goods were commonly supplied:
The Usability Test – Applies to business to business transactions

The usability test is less generous than the acceptability test. This test requires the court to consider if a reasonable purchaser could have used the goods for purposes for which the goods were commonly supplied:

The claimants purchased some liquid waterproofing from the defendant which was contained in some heavy duty plastic pails. The pails were described as being heavy duty and suitable for storage outside. The claimant stored the pails outside, but they were in Kuwait and the pails were left out in the sun in temperatures of up to 70%c. Consequently the pails melted and the liquid waterproofing was ruined.

Held:

The court applied the usability test as it was a business to business contract. This test asks if a reasonable user could have used the goods for the purposes for which they are commonly supplied. Consequently there was no breach of s.14 as it was the extreme conditions which caused the pails to melt. A reasonable user could have used the goods without incurring damage.
Bartlett v Sidney Marcus ltd [1965] 1 WLR 1013 Court of Appeal
S.14 (2C) provides certain limitations to the application of s.14(2) as follows:
(2C) The term implied by subsection (2) above does not extend to any matter making the quality of goods unsatisfactory—
(a) which is specifically drawn to the buyer's attention before the contract is made:
The claimant purchased a second hand Jaguar car from the defendant car dealer. The defendant told the claimant that the clutch was defective and that this was a minor repair costing around £2-3. He gave the claimant the choice of either taking the car as it was and knocking £25 off the stated price or he would repair it and charge the full price. The buyer chose to take it with the fault and get the discount. It then transpired that the fault would cost £84 to repair. The buyer sought to bring a claim based on s.14.

Held:

The seller had brought the defect to the attention of the buyer and therefore the buyer could not assert any rights under s.14 by virtue of s.142C. It matters not that he may have been misled.
Olley v Marlborough Court [1949] 1 KB 532
Protection at common law
Protection at common law comes in two forms. Firstly, the courts will consider if the term has been incorporated into the contract. Secondly, the courts will consider if the clause covers the loss in question.
Incorporation of unfair terms
The general rule is that the term must be brought to the attention of the contracting party before or at the time the contract was made. If the term was not brought to their attention it cannot be said that they had accepted the term. Therefore the term will not be part of the agreement between the parties:
The claimant booked into a hotel. In the hotel room on the back of the door a notice sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property. The claimant had her fur coat stolen.

Held:

The notice was ineffective. The contract had already been made by the time the claimant had seen the notice. It did not therefore form part of the contract.
Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal
Protection at common law
Protection at common law comes in two forms. Firstly, the courts will consider if the term has been incorporated into the contract. Secondly, the courts will consider if the clause covers the loss in question.
Incorporation of unfair terms
The general rule is that the term must be brought to the attention of the contracting party before or at the time the contract was made. If the term was not brought to their attention it cannot be said that they had accepted the term. Therefore the term will not be part of the agreement between the parties:
The claimant was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. One of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine.

Held:

The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract.
L'Estange v Graucob [1934] 2 KB 394 Court of Appeal
Protection at common law
Protection at common law
Protection at common law comes in two forms. Firstly, the courts will consider if the term has been incorporated into the contract. Secondly, the courts will consider if the clause covers the loss in question.
1. Incorporation of unfair terms
The general rule is that the term must be brought to the attention of the contracting party before or at the time the contract was made. If the term was not brought to their attention it cannot be said that they had accepted the term. Therefore the term will not be part of the agreement between the parties:




Protection at common law comes in two forms. Firstly, the courts will consider if the term has been incorporated into the contract. Secondly, the courts will consider if the clause covers the loss in question.
1. Incorporation of unfair terms
The general rule is that the term must be brought to the attention of the contracting party before or at the time the contract was made. If the term was not brought to their attention it cannot be said that they had accepted the term. Therefore the term will not be part of the agreement between the parties:
Where there is a written contract which is signed, a party is bound by all the terms in the contract irrespective of whether they were aware of the terms it contained:
The claimant purchased a cigarette vending machine for use in her cafe. She signed an order form which stated in small print 'Any express or implied, condition, statement of warranty, statutory or otherwise is expressly excluded'. The vending machine did not work and the claimant sought to reject it under the Sale of Goods Act for not being of merchantable quality.

Held:

In signing the order form she was bound by all the terms contained in the form irrespective of whether she had read the form or not. Consequently her claim was unsuccessful.
Curtis v Chemical Cleaning [1951] 1 KB 805 Court of Appeal
Protection at common law
Protection at common law comes in two forms. Firstly, the courts will consider if the term has been incorporated into the contract. Secondly, the courts will consider if the clause covers the loss in question.
Incorporation of unfair terms
The general rule is that the term must be brought to the attention of the contracting party before or at the time the contract was made. If the term was not brought to their attention it cannot be said that they had accepted the term. Therefore the term will not be part of the agreement between the parties:
If there has been a misrepresentation of the terms, the clause is not effective:
The claimant took her wedding dress to the cleaners. She was asked to sign a form. She asked the assistant what she was signing and the assistant told her that it excluded liability for any damage to the beads. The form in fact contained a clause excluding all liability for any damage howsoever caused. The dress was returned badly stained.

Held:

The assistant had misrepresented the effect of the clause and therefore could not rely on the clause in the form even though the claimant had signed it.
Thompson v London, Midland and Scotland Railway Co [1930] 1 KB 41 Court of Appeal
Reasonable notice of unfair terms



A party seeking to rely on an unfair term must demonstrate that they gave reasonable notice. ie they took reasonable steps to bring the term to the attention of a reasonable person:
The claimant was injured whilst stepping off a train. The railway company displayed prominent notices on the platforms excluding liability personal injury and damage to property due to negligence. The tickets also stated they were subject to terms and conditions displayed on the platform. The claimant was illiterate and could not read the signs. She argued that the exclusion clause was not incorporated into the contract as the railway company had not brought the clause to her attention at the time the contract was made.

Held:

The clause was incorporated. There is only a requirement to take reasonable steps to bring the clause to the attention of a reasonable person. There was no duty to ensure that every traveller was aware of the clause. The claimant was therefore unsuccessful in her claim for damages.
Interfoto Picture Library v Stilletto [1989] QB 433
Reasonable notice of unfair terms



A party seeking to rely on an unfair term must demonstrate that they gave reasonable notice. ie they took reasonable steps to bring the term to the attention of a reasonable person:
If a clause is particularly onerous then more steps are required to bring it to the notice of a reasonable person:
The claimants ran a photo library the defendant was in advertising. The claimants advanced some transparencies to the defendant for his perusal and he was to get back to them as to which photos he would like to use. The package of the photos contained a document stating that if any transparencies were kept longer than 14 days a £5 +VAT holding fee would be charged per photo per day. The defendant had not read this document and then forgot about the transparencies and failed to return them for 6 weeks. The claimants brought an action claiming a holding fee of £23,783 as specified in the contract.

Held:

The term was not incorporated into the contract. Where a term is particularly onerous the person seeking to rely on the term must take greater measures to bring it to the attention of the other party.