Contract Law Cases

Front 1

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:

Back 1

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.

Front 2

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:

Back 2

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.

Front 3

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:

Back 3

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.

Front 4

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:

Back 4

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.

Front 5

Partridge v Crittenden (1968) 2 All ER 421
Advertisements
Advertisements are also generally invitations to treat:

Back 5

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.

Front 6

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:

Back 6

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.

Front 7

Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal
Machines
The machine represents the offer, the acceptance is inserting the money:

Back 7

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.

Front 8

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.

Back 8

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.

Front 9

Dickinson v Dodds (1876) 2 Ch D 463
3. Revocation
An offeror may revoke an offer at any time before acceptance takes place:

Back 9

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.

Front 10

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:

Back 10

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.

Front 11

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.

Back 11

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.

Front 12

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:

Back 12

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.

Front 13

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:

Back 13

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.

Front 14

Brogden v Metropolitan Railway (1877) 2 App. Cas. 666
Acceptance can be through conduct:

Back 14

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.

Front 15

Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401 Court of Appeal
Acceptance can be through conduct:

Back 15

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.

Front 16

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:

Back 16

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.

Front 17

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:

Back 17

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.

Front 18

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:

Back 18

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.

Front 19

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:

Back 19

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.

Front 20

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:

Back 20

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.

Front 21

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.

Back 21

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.

Front 22

Rules of consideration

Back 22

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.

Front 23

Lampleigh v Braithwaite [1615] EWHC KB J17
Consideration must not be past:
Past consideration may be valid where it was proceeded by a request:

Back 23

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.

Front 24

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:

Back 24

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.

Front 25

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:

Back 25

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.

Front 26

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:

Back 26

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.

Front 27

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:

Back 27

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.

Front 28

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:

Back 28

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.

Front 29

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

Back 29

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

Front 30

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:

Back 30

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.

Front 31

Promissory estoppel

Back 31

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).

Front 32

Central London Property Trust v High Trees House [1947] KB 130 High Court
Promissory estoppel was developed by an obiter statement by Denning J

Back 32

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"

Front 33

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

Back 33

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."

Front 34

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:

Back 34

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.

Front 35

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:

Back 35

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.

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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:

Back 36

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.

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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:

Back 37

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.

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Bannerman v White (1861) 10 CBNS 844
Contractual term or representation
The importance of the statement and reliance:

Back 38

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.

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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:

Back 39

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.

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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:

Back 40

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.

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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:

Back 41

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.

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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.

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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.

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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:

Back 43

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.

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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:

Back 44

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.

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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:

Back 45

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.

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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:

Back 46

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.

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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:

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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.

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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:

Back 48

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.

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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:

Back 49

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.