Contract Law

Front 1

Valid contract

Back 1

Three essential criteria:

1. Offer and acceptance
2. Consideration
3. Intend to create a legal relationship

Front 2

Privity of contract

Back 2

Only the parties to the contract can sue or be sued under the contract.

EXCEPTIONS- set out in the Contracts (Rights to Third Parties) Act 1999.

1. A third party will be able to enforce a contract if:

— the contract expressly says that he may do this; or
— the term in question purports to confer a benefit on him.

2. Recovery of damages on behalf of a third party’s suffering: Jackson v Horizon Holidays Ltd [1975];

3. S11 Married Women’s Property Act 1882: a person who insures his life for the benefit of his spouse, civil partner, or child will create a trust in favour of intended beneficiaries of the policy. This allows the surviving spouse, civil partner, or child to sue on the policy even though he was not a party to the contract;

Front 3

Tweddle v Atkinson [1861]

Back 3

Only the parties to the contract can sue or be sued under the contract.

Court action against father in law estate failed, because he was not a party to the agreement.

Front 4

Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd [1915]

Back 4

Only the parties to the contract can sue or be sued under the contract.

Dunlop cannot sue selfridge for breach of contract as dunlop was not a party to the selfridge contract.

Front 5

Offer

Back 5

An offer is a statement of terms by which the offeror is prepared to be legally bound.

Offers must be certain or the whole contract could fail: Scammell & Nephew Ltd v Ouston [1941].

However, where the uncertainty affects only a small part of the agreement, the contract may be able to be saved: Nicolene Ltd v Simmonds [1953].

Front 6

Nicolene Ltd v Simmonds [1953]

Back 6

Where the uncertainty affects only a small part of the agreement, the contract may be able to be saved:

"The usual conditions of acceptance apply" was meaningless because there were no usual conditions of acceptance.
However the rest of the contract made sense and could be enforced.

Front 7

Scammell & Nephew Ltd v Ouston [1941]

Back 7

Offers must be certain or the whole contract could fail:

Van should be acquired "on hire purchase terms was void, because "hire purchase terms" was to vague a term to have any meaning.

Front 8

Unilateral offer

Back 8

A unilateral contract results from a unilateral offer, which is one-sided;

The offeror does not know if it will be taken up, as in Carlill v Carbolic Smoke Ball Co Ltd [1893]

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Bilateral Offer

Back 9

Exchange of promises to do something in the future.

Front 10

Making an offer

Back 10

Offers can be made:

orally, in writing or even by conduct.
to one person, a group or the “world in general”:

Carlill v Carbolic Smoke Ball Co Ltd.

To be a valid offer, the offeree must have knowledge of the offer, which means that the offer must have been communicated:

Taylor v Laird [1856]

Front 11

Carlill v Carbolic Smoke Ball Co Ltd.

Back 11

A unilateral offer becomes a contract when someone performs the condition.

Front 12

Taylor v Laird [1856]

Back 12

An offer must be successfully communicated to the offeree.

The employer was not obliged to pay for the work as the employer previously resigned from his role and did not communicate his offer to continue to work. So it could have not been accepted/rejected.

Front 13

Offer distinguished from invitation to treat

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An invitation to treat is not an offer and cannot be accepted; it is merely a request to others to make an offer:

1. the advertisement of goods, as in Partridge v Crittenden [1968]

2. the display of goods for sale in a shop window, as in Fisher v Bell [1960], or on supermarket shelves, as in Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953];

3. the sale of goods at an auction, as in British Car Auctions v Wright [1972];

4. mere statements of price, as in Clifton v Palumbo [1944] and Gibson v Manchester City Council [1979].

Front 14

Partridge v Crittenden [1968]

Back 14

The person who advertised a bird sale was not guilty offering the bird for sale, because advertisement was merely an invitation to treat.

An invitation to treat is not an offer and cannot be accepted; it is merely a request to others to make an offer:

Front 15

Fisher v Bell [1960]

Back 15

The flick knife displayed on a shop window was not "offered for sale" but it was an invitation to treat.

An invitation to treat is not an offer and cannot be accepted; it is merely a request to others to make an offer.

Front 16

Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]

Back 16

The shop was not making an offer by placing the goods on the shelve but an invitation to treat. The buyer would need to make an offer to buy the goods at the counter.

An invitation to treat is not an offer and cannot be accepted; it is merely a request to others to make an offer.

Front 17

British Car Auctions v Wright [1972]

Back 17

The auctioneer was simply making an invitation to treat. The offer to buy unroadworthy car was made by the buyer.

An invitation to treat is not an offer and cannot be accepted; it is merely a request to others to make an offer.

Front 18

Clifton v Palumbo [1944]

Back 18

" I am prepared to sell my Lytham estate for £600,000" was not an offer but a preliminary statement as to price.

Front 19

Gibson v Manchester City Council [1979]

Back 19

The letter from the council " May be prepared" to sell him his council house at a specified price, was an invitation to treat.

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Ending an offer

Back 20

1. Revocation- Payne v Cave [1789]; Dickinson v Dodds [1876]. Byrne v Van Tienhoven [1880].When the offer is unilateral, the rule is that it cannot be revoced if condition has already been started Errington v Errington [1952].

2. Rejection- counter-offer, the first offer is terminated: Hyde v Wrench [1840].

However, a mere request for information will not end the original offer: Stevenson Jacques & Co v McLean [1880].
When a “battle of the forms” situation arises, the general rule is that the last party to send its terms to the other “wins”, as each redrafted contract constitutes
a new offer which cancels out the former: Butler Machine Tool Co v ExCell-O Corp (England) Ltd [1979].

3 . Lapse of time- An offer lapses at the end of a specified period or, if no period is specified, after a “reasonable time”: Ramsgate Victoria Hotel v Montefiore [1866].

4. Acceptance

Front 21

Payne v Cave [1789]

Back 21

Revocation of the offer is possible at any time before it is accepted.

Front 22

Byrne v Van Tienhoven [1880]

Back 22

Revocation arrived after the offer was accepted and was invalid.

Front 23

Errington v Errington [1952]

Back 23

The unilateral offer can not be revoked once the offeree has started to perform the act requested in the offer.

A Promise to transfer the ownership of the house once all the mortgage instalments have been paid could not be revoked as the instalments were started to be paid(an act requested in the offer).

Front 24

Hyde v Wrench (1840)

Back 24

There was no contract as the first offer to sell the farm was rejected by a counter- offer and the second offer was not accepted.

Front 25

Stevenson Jacques & Co v McLean [1880]

Back 25

Mere request for information (if the credit facility available in the purchase of the iron) will not end an offer.

Front 26

Ramsgate Victoria Hotel v Montefiore [1866]

Back 26

An acceptance to buy the shares was received too late- lapse of time

Front 27

Acceptance of the offer

Back 27

Acceptance is a final and unconditional agreement by the offeree to all the terms of the offer.

It can be expressed orally, in writing, or can be inferred from conduct.

A response which introduces new terms is not an acceptance but a counteroffer: Hyde v Wrench.

Front 28

Communication of acceptance

Back 28

The general rule regarding acceptance is that it must be communicated to the offeror: Entores v Miles Far East Corporation [1955].

The person communicating acceptance must be an offeree or his authorised agent: Powell v Lee [1908]

Felthouse v Bindley [1862] silence does not constitute acceptance.

A method that has been stipulated by the offeror should be used (Eliason v Henshaw [1819])

Although it seems clear that a variation which does not prejudice the offeror will also suffice, as in Yates Building Co Ltd v R J Pulleyn & Sons (York) Ltd [1975].

Front 29

Entores v Miles Far East Corporation [1955]

Back 29

The general rule regarding acceptance is that it must be communicated to the offeror.

Front 30

Powell v Lee [1908]

Back 30

The person communicating acceptance must be an offeree or his authorised agent.

Front 31

Felthouse v Bindley [1862]

Back 31

Silence doesnt constitute an acceptance

Front 32

Eliason v Henshaw [1819]

Back 32

A stipulated method by an offeree, should be used to accept the the offer.

Front 33

Exceptions to the general rule on communication

Back 33

There is no need for communication of acceptance in order to form an agreement in the following situations.

1. Acceptance by conduct- for example, when the offeree supplies or receives goods on terms proposed by the offeror: Brogden v Metropolitan Railway [1877] and Pickfords Ltd v Celestica Ltd.

2. Acceptance of unilateral offers- there is no need to communicate acceptance to the offeror. Instead, acceptance is completed by performing the prescribed act, as in Carlill v Carbolic Smoke Ball Co Ltd.

3. Acceptance by post- Under the postal rule, established in Adams v Lindsell [1818] and applied in Household Fire Insurance v Grant [1879], acceptance occurs on posting,
even if the acceptance is never delivered. This rule only applies when the post is an appropriate method of communicating acceptance, where the letter has been correctly addressed, stamped and posted, and subject to agreement to the contrary, as in Holwell Securities Ltd v Hughes [1974].

Front 34

Acceptance by modern methods of communication

Back 34

Thomas v BPE Solicitors (A Firm) [2010]. Whether or not the acceptance was communicated during office hours appears to be of crucial importance.

Front 35

Brogden v Metropolitan Railway [1877]

Back 35

acceptance by conduct- the offer doesnt need to be communicated to the offeror if it is to be accepted by conduct.

Front 36

Pickfords Ltd v Celestica Ltd.

Back 36

acceptance by conduct- the offer doesnt need to be communicated to the offeror if it is to be accepted by conduct.

Front 37

Adams v Lindsell [1818]

Back 37

acceptance by post- acceptance occurs on posting,
even if the acceptance is never delivered. This rule only applies when the post is an appropriate method of communicating acceptance, where the letter has been correctly addressed, stamped and posted, and subject to agreement to the contrary.

Front 38

Consideration

Back 38

“the price paid for a promise”

executed consideration – performance of the consideration (contractual obligation) at the time of making the agreement

• executory consideration – a promise to do something in the future.

Front 39

Rules of consideration

Back 39

1. Must move from the promisee
2. must not be in the past
3. Consideration not need to be adequate
4. Consideration must be suficient

Front 40

Tweddle v Atkinson [1861]

Back 40

Consideration must move from the promisee.
Only a person who has provided consideration can sue on the contract.

Front 41

Dunlop Pneumatic Tyre Co v Selfridge & Co Ltd

Back 41

Consideration must move from the promisee.
Only a person who has provided consideration can sue on the contract.

Front 42

Roscorla v Thomas [1842]

Back 42

Consideration must not be past. If the act of consideration has already been completed prior to the agreement being entered into, then it is past consideration and not enforceable at law.

Front 43

Pao On v Lau Yiu Long [1980].

Back 43

There is an exception to the rule that consideration must not be in the past, known as the doctrine of implied assumpsit.
There has always been an implication that payment is expected, a later promise or agreement to that effect will be enforceable.

Front 44

Chappell & Co v Nestlé Co Ltd [1960]

Back 44

Consideration need not be adequate. To be valid, consideration does not need to be of equal or market value to the thing given in exchange.

Front 45

Thomas v Thomas [1842]

Back 45

Consideration must be sufficient. Anything which is recognised by law as having some value will be sufficient for consideration.

Front 46

Collins v Godefroy [1831]

Back 46

The performance of existing duties as consideration for a new contract is a special issue within the rules on sufficiency.

Doing what you are already bound to do under a PUBLIC DUTY cannot amount to valid consideration: Collins v Godefroy [1831].

Front 47

Stilk v Myrick [1809]

Back 47

The performance of existing duties as consideration for a new contract is a special issue within the rules on sufficiency. Contractual duty.

Front 48

Williams v Roffey Bros [1990]

Back 48

where a party to an existing contract agreed to pay an extra bonus in order to ensure that the other party performed his obligations under the original contract, held that such an agreement would be binding if the party agreeing to pay the bonus had:

-If the party obtained some new practical benefit, or avoided a detriment; and

-entered into the new agreement in the absence of any economic duress.

Parties can enforce the contract.

Front 49

Part payment of an existing debt

Back 49

Part payment of an existing debt cannot be valid consideration for any promise to accept it in full satisfaction of the debt, as the debtor is already
contractually bound to pay the whole debt.

Front 50

Pinnel’s Case [1602]

Back 50

The part payment will be good consideration for a
promise not to enforce the full debt if the person to whom the debt is repaid gains some additional benefit as a result.

Front 51

Merritt v Merritt [1970]

Back 51

When the relationship between the parties has already broken down in social and domestic agreements, parties will be bound.

(Intention to create legal relations)

Front 52

Parker v Clark [1960]

Back 52

One party has placed himself at a disadvantage as a result of the agreement, parties will be bound.

(Intention to create legal relations)

Front 53

Simpkins v Pays [1955]

Back 53

Payment of money took place between the parties to the agreement.

(Intention to create legal relations)

Front 54

Intention to create legal relations

Back 54

-In social and domestic agreements, there is a resumption that there was no intention to be legally bound: Balfour v Balfour [1919]

- In commercial or business agreements, there is a presumption that the parties did intend their agreement to be legally binding. Examples of when this presumption has been rebutted where:

• the promise amounts to a mere puff;
• the agreement is stated as being “binding in honour only” or contains an honour clause or honourable pledge clause: Jones v Vernon’s Pools [1938]

• the apparent agreement is, in fact, a letter of comfort.

Front 55

Term V Representation

Back 55

In order to differentiate between a term and a representation, the courts consider the following factors:

• the importance of the statement – the more important the statement is to the parties, the more likely it is to be viewed as a term: Bannerman v White [1861];

• reduction of the statement to writing – if there is a written contract, and the statement has not been included here, it is more likely to be viewed as a representation, unless the court considers the contract to have been part written and part oral: Birch v Paramount Estates Ltd [1956];

• timing – the longer the gap between the statement being made and the contract being entered into, the more likely that the statement will be viewed as a representation: Routledge v McKay [1954]; and

• special knowledge or skills – if the person making the statement has special knowledge or skills, the statement is more likely to be viewed as a term: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965]. The position is likely to be reversed if the parties’ knowledge is reversed: Oscar Chess Ltd v Williams [1957]

Front 56

L’Estrange v F Graucob Ltd [1934]

Back 56

Where the party signs a written contract, he is deemed to be bound by all terms contained in that document, whether or not it has actually been read.

Front 57

Implied Terms

Back 57

An implied term is read into the contract by:

1. statute by- Sale of Goods Act 1979 (SGA 1979); Supply of Goods and Services Act 1982 (SGSA 1982)

2. by custom- Hutton v Warren [1836].

3. by the courts- Liverpool City Council v Irwin [1976]

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A Condition

Back 58

Is a term of the contract that goes to its very root. A breach of a condition will allow the innocent party to terminate the contract.

Front 59

A warranty

Back 59

Is a term of the contract which is less fundamental and does not discharge the contract. A breach of warranty entitles the innocent party only to bring an action for damages.

Front 60

Innominate terms.

Back 60

Terms which are not clearly defined as one or the other are called innominate
terms.

Front 61

Misrepresentation

Back 61

False statement of the facts which intended to induce the other party to enter in to the contract.

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Void contract

Back 62

A contract which has never existed and which has no legal effect.

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Voidable

Back 63

A contract which is valid unless and until it is rescinded
(brought to an end).

Front 64

Pankhania v Hackney London Borough Council [2002]

Back 64

A misrepresentation is a false statement of fact (or, as in Pankhania v Hackney London Borough Council [2002], law) which is intended to, and which does, induce the other party to enter into the contract.

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Not misrepresentations

Back 65

1. statements of opinion: Bissett v Wilkinson [1927], unless the person making the statement claims to have a genuine belief in the statement: Cherrilow Ltd v Butler-Creagh [2011];

2. statements of intention;

3. extravagant claims/advertisements, also known as “mere puffs”.

Front 66

Sykes v Taylor-Rose [2004]

Back 66

Silence, or non-disclosure, is not normally a misrepresentation, because the general rule is caveat emptor (let the buyer beware): Sykes v Taylor-Rose
[2004]

Front 67

Silence- misrepresentation

Back 67

(1) where one party has told a half-truth which he knows will give a false impression to the other party: Nottingham Patent Brick & Tile Co v Butler [1886];

(2) if a true statement made during contractual negotiations becomes untrue before the contract is entered into: With v O’Flanagan [1936];

(3) where one party is in a much better position than the other to know all the material facts; for example, contracts of insurance. These are known as uberrimae fidei contracts (contracts of utmost good faith). The law in this area is soon to be altered when the Consumer Insurance (Disclosure and Representations) Act 2012 comes into force. It will remove the existing
utmost good faith requirement from all consumer insurance contracts and instead place a duty on the consumer to take reasonable care not to make a
misrepresentation to the insurer (s2(2)).

Front 68

Nottingham Patent Brick & Tile Co v Butler [1886]

Back 68

Where one party has told a half-truth which he knows will give a false impression to the other party.

Front 69

With v O’Flanagan [1936]

Back 69

If a true statement made during contractual negotiations becomes untrue before the contract is entered into.

Front 70

Misrepresentation also exists when:

Back 70

For a misrepresentation to be found, it is also necessary that:

• the claimant is aware of the existence of the false statement: Re Northumberland & Durham Banking Co [1858];

• the claimant has not checked the factual accuracy of the false statement for himself.

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Types of misrepresentation

Back 71

1. Fraudulent
2. Negligent
3. Innocent

Front 72

Fraudulent misrepresaentation

Back 72

Fraudulent misrepresentation arises where:
• a knowingly false statement is made; or
• the statement is made without belief in its truth; or
• the statement is made with reckless carelessness as to its truth: Derry v Peek [1889].

Front 73

Fraudulent misrepresentation remedies

Back 73

Rescision- Equitable remedy, Leaf v International Galleries [1950]

Damages- Awarded on a tortious basis

Front 74

Negligent Misrepresentation

Back 74

False statement made by someone who had no reasonable grounds to believe it was true at the time that it was made. s2(1) Misrepresentation Act 1967 (MA 1967).

REMEDIES

Rescision and damages (Royscot Trust Ltd v Rogerson [1991])

Front 75

Innocent misrepresenatation

Back 75

Statement is made with reasonable grounds for believing it to be true.

Remedies: either rescision or damages

Front 76

Discharge of Contracts

Back 76

Contracts can be discharged by:

1. Perfomance
2. Breach
3. Agreement
4. Frustration

Front 77

Performance of the contract

Back 77

A contract ends when both parties have done what they have promised. Part performance of a contract is generally no performance: Cutter v Powell [1795]

1. accepting partial performance
2. where there is substantial performance: Hoenig v Isaacs [1952]
3. one party prevents another willing party from fulfilling his contractual obligations: Planché v Colburn [1831]
4. where the contract may be divided into severable parts, payment can be claimed for the completed parts of the contract.

Front 78

Breach of contract

Back 78

Breach occurs when one party fails to discharge the contract as agreed. It gives rise to a claim in damages for the injured party and may also permit him to bring the contract to an end.

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Agreement to discharge the contract

Back 79

The parties to the contract may, by agreement, dispense with the requirement of performance. Each party must give consideration for the agreement, even
if it is only a promise not to enforce his legal rights. The need for accord and satisfaction is crucial where one party has already performed his part of the contract. Alternatively, they may choose to waive their legal rights to enforce the contract.

Front 80

Ending the contract by Frustration

Back 80

A contract is frustrated if its performance becomes impossible through no fault of either party:

• personal incapacity to perform a contract of personal service: Condor v The Barron Knights Ltd [1966];

• the subject-matter of the contract is destroyed: Taylor v Caldwell [1863];

• non-occurrence of an event, if it was the sole purpose of the contract: Krell v Henry [1903]

• Government intervention or supervening illegality

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Remedies for breach of contract- Damages

Back 81

Damages are a common law remedy, assessed by the courts.:

1. The contractual measure of damages: The aim of damages in contract law is to put the injured party in the position he would have been in had the contract been performed: Farley v Skinner (No. 2) [2001].

2. Main heads of damages: Pecuniary (loss of bargain), Reliance loss, Non pecuniary)

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Claiming damages

Back 82

In order to succeed in claim for damages three things have to be established:

1. Causation
2. Loss was not too remote (result reasonably foreseeable; defendant has been specifically warned by the defendant)
3. Claimant must show that he mitigated the losses.

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Equitable remedies

Back 83

1. specific performance- a court order compelling the performance of the contract.

2. injunction- a court order instructing someone not to do something.