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Contract Notes

Updated Contract Notes

Contract Law Notes

Contract Law

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Contract law notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB contract law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

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Contract Law 2014-15 Words are interpreted objectively, as defined in Smith v Hughes [1871] by asking how they would appear to the reasonable person in the position of the man to whom they were spoken, rather than by looking at the speaker's actual intent. The following conditions must be necessary for the principle's application: * B must be seeking to hold A to A's apparent intent * B must actually believe that A's apparent intent represented A's actual intent (there is no need to protect B if B did not believe A was serious, * it must not be B's fault that A appeared to agree to something that he did not actually intend to * suggested by Atiyah that it should be necessary to show that B has relied in some way. Examples: Moran v University of Salford [1993] --- UoS sent M a letter offering a place, which he then accepted. UoS then claimed they did not mean to offer the place. CoA held that a contract had been formed - their apparent intent was to offer a place, and this is how M interpreted it. Raffles v Wichelhaus [1864] --- where it is not possible to work out the apparent intent of D, the objective principle does not apply and the court must look at actual intent. If these differ - no contract. Scriven v Hindley [1913] --- C selling hemp and tow at auction, but unclear which lot was which. D bid on hemp, thinking it was tow. Held no contract as apparent intent unclear, and actual intents did not match. Apply the principle of objective intention --- would it have appeared to a reasonable person that the offeree was accepting the offer? If If the offeree's statement seeks to the vary the terms of the offer, it offeree generally cannot constitute a valid rejects the acceptance. The acceptance must Types offer, this will correspond to the terms of the offer. of terminate it, so the Held in Hyde v Wench [1840] that H contract offeree cannot then terminated the original offer by Unilateral --- accept it. If the offer is making a counter offer. imposes obligations on expressed to last only a set Must the offeree know of the offer in one party e.g. I will give you period of time, it will terminate order to accept it? e.g. offering a PS100 if you run the marathon upon the expiration of this period, if reward --- required that the offeree there is no obligation to run the the period is not specified, it will knows of the reward in order to marathon, but I am bound if you do. terminate after a reasonable time --- validly accept it. Hudson/Chitty Bilateral --- imposes rights and duties on Ramsgate Victoria Hotel v Montefiore suggest that this actually creates a both parties e.g. you promise to run the Montefiore. Unclear whether the death of the unilateral contract therefore the marathon and I promise to pay you PS100, there is a party will terminate the offer. person who is unaware of the contractual obligation to run the marathon. reward should be able to claim it Is there an offer? anyway, but the counter argument is Does not matter how many people he makes the offer to e.g. Carlill v Carbolic Smoke Ball [1893] --- offered to pay PS100 to anyone who still contracted flu after using the smoke ball. Put the money in that since he did not know about it, there is no need to protect him. a bank account indicating their sincerity. Held that the reasonable person would have believed the Communication of offer company intended to be legally bound by the advert. Offer must be communicated, offeror Difference between offers and invitations to treat, the latter contemplates further negotiations taking can withdraw his offer any time place: before it is accepted. Rule in * display of goods for sale, as in Fisher v Bell [1961], held in Pharmaceutical Society of GB v Boots Chemist [1953] that a customer made an offer to buy when he presented the goods at the Dickinson v Dodds [1875] is that a counter. Winfield agrees with this, suggesting a shop is a place for bargaining, not compulsory withdrawal must be communicated to sales. the offeree before the latter accepts it * Partridge v Crittenden [1968] held that adverts are generally invitations to treat, unless it in order to be valid. Held in Grant v displays a clear intention to be bound (Carlill v Carbolic Smoke Ball, and reapplied in Bowerman v Bragg [2009] that if the offeree must ABTA [1996]). accept within the specified deadline, * Gibbons v Proctor [1891] held that an advert offering a reward to do something will constitute if there is one, to be valid. an offer. Law Revision Committee thought Tendering to auction is generally an invitation to treat, as in Spencer v Harvey [1870]. Held in that the Dickinson v Dodds allowed Harvela Investments Ltd v Royal Trust Co of Canada [1986] that D's invitation implicitly invited bids the offeror to go back on his word, of a fixed number and therefore "I bid $101,000 in excess of the highest bid" is not valid. A and Spence suggests the answer is statement involving tenders is normally an offer to just consider bids rather than an offer to accept to apply the doctrine of equitable bids - Blackpool and Fylde Aero Club Ltd v Blackpool BC [1990]. estoppel. However, courts are * Auctions --- must distinguish between 'reserve' and 'without reserve'. If a reserve price is stated, the seller is making an invitation to treat and the contract is agreed when the auctioneer brings reluctant to depart from Dickinson, down his hammer. If no reserve price is stated, it is more complicated --- suggested in Warlow v since the act of reliance means that an offeror will be unlikely to go Harrison [1859] that the auctioneer makes the offer which is accepted when the bid is made. * Thornton v Shoe Lane Parking [1971] C drove up to entrance of a garage, and after receiving the whether or not the offeree has relied ticket, drove in and parked. Lord Denning held that the offer was contained in the notice at the on it. Shuey v US --- can publish a retraction in a newspaper. entrance giving the charges, and is accepted when C takes the ticket. Supervision 1 OFFER AND ACCEPTANCE In Brinkibon v Stahag Stahl [1983] 'the general rule, it is hardly necessary to state, is that a contract is formed when acceptance of the offer is communicated by the offeree to the offeror'. Supervision 1 OFFER AND ACCEPTANCE When is an acceptance communicated? Postal acceptances General rule is that the offer is accepted when the letter is posted, not when it reaches the offeror --- Adams v Lindsell [1818] (postal rule). One of the consequences is that the offeree may have accepted the offer without the letter ever reaching the offeror. Therefore, it is the responsibility of the offeror to stipulate the way which he wishes the offer to be accepted. Henthorn v Fraser [1892] where the letter did not reach the offeror until after the deadline had passed, but had been posted hours before. CoA held that "it must be in contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of the offer, the acceptance is completed as soon as it is posted". Even if parties do contemplate the post being used, the postal rule will not always apply e.g. Holwell Securities Ltd v Hughes [1974], CoA held that where the offer requires "actual communication of the acceptance, the postal rule will not apply", where the offer does not expressly require actual communication, the court will be willing to infer such a requirement if applying the postal rule. Postal rule is seen as increasingly outdated. Held in LJ Korbetis v Transgrain that if the letter is not adequately addressed and posted, the postal rule does not apply. C A N Y O U Other forms of communication Unilateral contracts Someone who offers a unilateral contract cannot revoke it once the person has started the conduct, so the law has 2 ways to prevent it: i. offer is accepted by commencement of performance, adopted by Lord Denning in Errington v Errington [1952], or ii. offer accepted on complete performance but once you start performing, the offeror is under an obligation not to revoke. Postal rule does not apply to modern, instantaneous forms of Suggested by Harpum and communication. Where the method of communicating is instant, Lloyd-Jones (1979) that a there will be no acceptance unless and until it is communicated to collateral contract containing this the offeror. obligation is entered into when Telephone acceptances --- accepted the moment it reasonably performance is started, which appears to the offeree that the offeror has heard and understood the was the preferred approach in acceptance. Soulsbury v Soulsbury [2008]. Answerphone messages --- provided acceptance is clear, it will take effect when it would have been reasonable for the offeror to check his voicemail e.g. next working day. REVOKING AN ACCEPTANCE Faxes --- valid unless the offeree knows or should have known that What if the offeree decides he does the acceptance has not gone through properly, so he should not want to accept? If strictly reasonably be expected to resend - JSC Zestafoni Plant v Ronly applying postal rule, contract has Holdings [2004] already been formed. Emails --- acceptance should be valid unless the offeree should What if he posts then telephones realise that the email has failed to send or been received by the ahead? No English authority but offeror, and held in The Brimnes [1975] that the email should be Bramwell J's dissent in Household taken to have been read in the ordinary course of business. Fire Insurance v Grant suggests this would be valid. Hudson agrees. A C C E P T If the offeree decides to accept but does nothing to communicate this to the offeror, it does not normally constitute a valid acceptance - Felthouse v Bindley [1862], although the validity of that case is questioned, because the owner still told the auctioneer not to auction as he had agreed to sell it to his uncle, who waived the need for communication and therefore the owner did do something to indicate he was going to accept the offer. Also held in this case that you cannot impose an obligation on someone to refuse e.g. "I assume you'll pay unless you tell me otherwise". B Y S I L E N C E ? However, the offeree's conduct may indicate that he wishes to accept e.g. Nissan UK v Nissan Motor Manufacturing [1994], by starting to deliver the cars, NMM had impliedly accepted NUK's offer. Sometimes the offeree can indicate intention without conduct, usually when the parties have had dealings in the past - Rust v Abbey Life Insurance Co [1979]. Held in Powell v Lee [1908] that only the offeree or his agent can communicate acceptance and not a third party. B AT T L E O F T H E FORMS Supervision 1 Sending back and forth of offers and counter-offers upon each side's standard terms is known as the 'battle of the forms'. OFFER AND ACCEPTANCE Leading case, until recently, was Butler Machine Tool Co Ltd v Ex-cell-O (England) Ltd [1979] --- claimant sellers' offered to deliver machine tools on the terms set out in the quotation. Buyers came back new terms and conditions, with a tear-off slip for the claimant to sign. The sellers returned the completed slip with a covering letter, attempting to reinforce their own terms. CoA held that the contract had been concluded on the buyers' terms. 2 different approaches were taken in Butler Machine, from Bridge and Lawton LJJ on one side, and Lord Denning on the other. The first 2 judges took the orthodox 'last shot' approach: he who makes the last offer wins, thus by completing the tear-off slip, the sellers had accepted the buyers last terms and their attempts otherwise had not worked. Lord Denning reached the same result but he did so by considering all the documents of the transaction as a whole. There was no doubt that a contract had been formed, thus to work out what the terms of the contract were, they must look at the documents. Lord Denning decided the tear-off slip was decisive and the contract was thus on the buyers' terms. P R O B L E M S * * * * * W I T H T H E ' L A S T A P P R O A C H S H O T ' It is arbitrary, in that it focuses just on the last shot fired, rather than the whole course of dealing between the parties Until and unless the 'last shot' is accepted by the other party, there is no contract, so it may lead to no contract between the parties, meaning one party cannot recover for loss caused to him by the other party --- Ball (1983) and McKendrick (1988). It is often very difficult to tell what the 'last shot' was, giving little commercial certainty since it is difficult for the parties to work out whose standard terms they have contracted upon. It does not reflect the reasonable expectations of both parties; instead, it reflects the expectations of the party who fired the 'last shot'. It is based on the view that the parties are enemies and that negotiating a contract is some sort of battle, some disagree with the adversarial approach. A D V A N T A G E S O F D E N N I N G ' S A P P R O A C H * * * It makes it easier to find that a contract exists Gives effect to the parties' intentions. As Ball notes "in a business context (especially where neither party is at fault) the normal reactions [in the event of a problem] should be to negotiate and compromise, yet the common law is unable to do this and encourages confrontation, arbitrary results and windfalls". The CoA considered Butler and the traditional offer and acceptance approach in Tekdata Interconnections Ltd v Amphenol Ltd [2009]. The court appeared to accept that the traditional approach could be displaced if the documents passing between the parties and their other conduct indicated that the common intention was that some other terms were intended to prevail. Judges were keen to emphasise that it will 'always be difficult to displace the traditional analysis' unless there was a clear course of dealings between the parties. S u pconsideration e r v i s i and on 2 promissory estoppel What counts as consideration? Request --- the seller's promise to deliver is consideration for the buyer's promise to pay the price and vice a versa e.g. I promise to pay you PS100 if you promise to clean my windows, the promise to clean is the consideration. English courts willing to imply requests to find consideration, but only where that would be a reasonable interpretation e.g. Coombe v Coombe [1951] where Lord Denning held "I cannot find...any request by the husband, express or implied, that the wife should so forbear [on applying for maintenance]". REQUIREMENTS OF CONSIDERATION (I) Without consideration there is no binding contract --- essential feature unless the contract is made by deed. Consideration is required not just for formation, but also for alteration. Consideration must move from the promisee, even if it does not directly benefit the promisor, the promisee must do something in return to be sufficient consideration. According to Pitt v Jones [2007] this can be judge objectively. (II) Trivial consideration --- consideration need not be 'adequate' so long as it is 'sufficient'. No need to be the economic equivalent or anywhere near, as long as it is something of value --- Chappel v Nestle [1960] where chocolate bar wrappers were held to be sufficient consideration, as their object was to increase sales thus they were of value. Agreeing to drop a legal claim/compromise can amount to consideration, provided the party makes the claim in good faith and believes it to be valid. Forbearance can count as legal consideration e.g. R v A-G for England and Wales [2003] where the army promised not to dismiss a member of the SAS, which counted as sufficient consideration. (III) Any legally insufficient consideration obviously does not count as good consideration (see below) L E G A L LY I N S U F F I C I E N T C O N S I D E R AT I O N Past consideration --- Eastwood v Kenyon [1840] sacrifice made by the claimant was years before the benefit, thus it was insufficient. Roscarla v Thomas [1842] --- implied warranty of soundness of a horse was made after the sale. The promise must be coextensive with the consideration, thus it was insufficient. An exception to this is the request, if A asks B to do something and later promises to pay/do something in return, it is enforceable under Lampleigh v Braithwaite [1615], reapplied in Pao On v Lau Yiu Long [1980]. Pre-existing public duty --- if you are already under a public duty to do something, performance of it will not amount to consideration, held in Collins v Godefry [1831], unless the promisor does more than his public duty requires, which will amount to good consideration e.g. Glasbrook Bros Ltd v Glamorgan CC [1925] police provided garrison during a strike (which owner promised to pay for), held that the police had provided 'special services' beyond the duty imposed by general law, and given consideration. Also in Ward v Byham [1956] where father promised to pay PS1 a week to the mother to keep his child 'well and happy' --- held that happiness went beyond what would normally be expected and thus amounted to consideration, see also Williams v Williams [1957]. Leading case for police pre-existing duty is Leeds United FC v Chief Constable of West Yorkshire Police [2014] Pre-existing contractual duty owed to a third party --- A is in contract with B to do X, can doing X amount to consideration to support another promise made by C? Law says this is adequate consideration - Shadwell v Shadwell [1860] and The Eurymedon [1975]. Pre-existing contractual obligation --- traditionally, not good consideration as there is no legal detriment/benefit. Stilck v Myrick [1809] 2 sailors deserted on voyage to Baltic Sea and back, so captain promised to split wages between those remaining to sail back to England. On returning, he refused to pay and it was held there was no consideration since the sailor's were under a contractual obligation to sail the ship back "under all emergencies of voyage". Leading case of Williams v Roffey Bros [1990] held in genuine renegotiations, the practical benefit derived by the promisor from performance of the contract should be regarded as good consideration. Part payment of a debt --- where a debtor owes money, consideration is required if the debtor's obligation to repay the debt is varied in any way e.g. debtor agrees to pay one sum early in return for the creditor giving him more time to repay the whole = consideration. Traditional approach is Pinnel's Case [1602] where part-payment was held to be insufficient consideration. Held in Foakes v Beer [1884] that the 'practical benefit' argument (Roffey) will not extend to part-payment, reapplied in Re Selectmove [1995]. Pinnel's did make clear however, that variation in any way other than the amount to be paid, this can be sufficient consideration e.g. different currency; paying at a different time; different place. Also binding if the creditor accepts part-payment from a third party --- Hirachand Punacham v Temple [1911]. Also binding if the creditor accepts, at his request, something other than money. PROMISSORY ESTOPPEL S u pconsideration e r v i s i and on 2 promissory estoppel Williams v Roffey Bros criticisms Birks, Hanson and Chen-Wishart praised Roffey for recognising commercial reality; separating genuine renegotiations from economic duress; and moving English law away from the 'absurd' requirement of consideration in contractual variations. They suggest Roffey is just being honest about unilateral variations appearing in bilateral contracts. However, there are a number of problems with the decision: * Glidewell J referred to the promise being the practical benefit, when surely it should be the performance? * It does not encourage workmen to be upfront about their exact costs, and allows them to vary unpredictably later. * The decision is inconsistent with the rule that consideration must move from the promisee (Colman J in South Carribean Trading v Trafigura Beheever [2004]). * Roffey was a one-off performance, and the approach it advocates it far better suited to two parties with a negotiation history, or the kind of contract where variations will most likely be made - unlike the one-off job in Roffey. Promissory estoppel introduced by Lord Denning in Central London Properties v High Trees [1947] where he suggested the time had come to recognise that a promise made with the intention to be bound should be enforceable, regardless of consideration. Referred to Hughes v Metropolitan Railway [1877] which Lord Denning regarded as radical support for the proposition that unilateral variations, which, even if unsupported by consideration, could be treated as binding if acted upon and if it would be inequitable not to do so. High Trees is a weak precedent (everything was said obiter), but has been followed ever since and forms the basis of promissory estoppel. A number of elements are required: i. there must be a clear and unambiguous representation that the creditor will not insist on his legal rights, satisfying the test of certainty, ii. the promise must relate to existing legal rights - it cannot take the place of consideration where the contract is formed for the first time, only when existing rights are being varied, iii. the debtor must have relied on the promise, must be shown that the debtor acted differently than he otherwise would have done, had the representation not been made, quite a slippery concept, iv. the creditor is estopped from going back on his promise where it would be inequitable not to do so. Suspensory or extinctive? Does it extinguish the creditor's rights or merely suspend them until revived by notice? General view - suspensory - HoL in Tool Metal Manufacturing Co v Tungsten Electric Co [1955] similar situation as in High Trees except involved compensation for products sold, which was suspended during the war and then reclaimed after 1945. Held that TMM could restart compensation payments with sufficient notice after the war years, since promissory estoppel prevented them from claiming for earlier on. This, and High Trees, illustrate that promissory estoppel is part-extinctive since it was made clear that the landlord/company in both cases could not have claimed payment for the war years - for this period at least, his rights were extinguished. Therefore, we view promissory estoppel as part-suspensory, partextinctive, since it is extinctive for one-off payments and suspensory for payments over time. Sword or shield? The tenants in High Trees and Hughes were both defending claims against them by pleading promissory estoppel --- Denning confirmed in Coombe v Coombe that the High Trees principle "does not create new causes of action where none existed before". Increasing pact --- paying more for existing duty; consideration is required unless they confer a practical benefit or go above their existing contractual duty D e c r e a s i n g pact --- p a r t p a y m e n t o f a l o a n , c o n s i d e r a t i o n i s re q u i re d ( c a n b e a c h a t t e l , p a r t p a y m e n t re q u e s t e d b e f o re d u e d a t e o r t o a d i ff e re n t destination - Pinnel's case) I N T E N T I O N T O C R E AT E L E G A L R E L AT I O N S Intent judged objectively --- courts have developed presumptions re. intent: SUPERVISION 3 Privity and certainty * If agreement is in domestic/social context, there is no intent to create legal relations unless clear evidence to the contrary --- Balfour v Balfour [1919], where Atkin LJ held domestic context contracts were inappropriate for 3 reasons: (i) inappropriate for contract law to enter the domestic sphere, (ii) danger of an explosion in litigation, (iii) parties do not generally intend domestic agreements to have legal consequences. Good example is Wilson v Burnett [2007] where 3 women agreed to split bingo profits 3 ways, one of them won PS100,000 and did not split. CoA rejected the claim of the other 2 on the basis that no legal intentions were created. * If an express agreement in a commercial context, legal relations are presumed unless evidence to contrary --- established in Baird Textiles v Marks & Spencers Ltd [2002] and if this presumption applies, it is very strong and can only really be rebutted with an express clause. * If an implied agreement in a commercial context, it is for the party alleging the existence of the contract to establish legal relations --- the greater degree of precision, the more likely legal intentions will be found. * Even if certain significant terms have not been finalised, an objective appraisal of words/conduct may conclude there was an intention that these terms be a precondition to creating a legally binding contract. * If agreement lies between domestic and commercial context, the onus is again on the person claiming the contract to establish intention. insufficiently certain: * * * * agreement to agree --- held in May & Butcher Ltd v The King [1934] says this will not create a valid contract, subject to certain exceptions: i. if agreement contains criteria for determining unresolved matters, ii. if the parties clearly intend the agreement to legally bind them and have acted upon it, the courts will be willing to say that the certainty test is satisfied. agreement to negotiate --- held too uncertain to be enforced Courtney & Fairbairn Ltd v Tolani Bros [1975] but increasing willingness to distinguish Courtney if the parties resolve through a named dispute resolution procedure. agreement to negotiate in good faith --- too uncertain held in Walford v Miles [1992] unless it is a sub-clause containing an express duty. agreement to use reasonable endeavours --- willing to uphold where they can formulate criteria to judge 'reasonable', Held in Little v Courage [1994] that to use best endeavours to do something is ok, but using best endeavours to agree = not valid. A number of factors influence whether the courts will find that the presumption of no legal intentions has been rebutted --- these include: where one party has performed; where both sides have performed; the more commercial the context, the more likely the presumption rebutted.- C E R TA I N T Y Number of factors influence whether a court will be likely to fill in the ambiguities of an uncertain contract: part performance, if the agreement has been party performed by at least one party, the courts will be more willing to find sufficient certainty. Not always the case --- British Steel Corpn v Cleveland Engineering Co Ltd [1984] the fact that an agreement to manufacture and deliver steel nodes had been fully performed was insufficient to show a contract had been formed, due to a lack of agreement on a number of other matters, which indicated the parties did not intent to be legally bound. previous dealings between the parties. If the parties have made similar agreements in the past, the gaps can be filled by looking at these. standard agreements --- if the agreement is of a standard type e.g. sale, the courts will find it easier to fill in the ambiguities since the agreement is familiar, also have help of statutes e.g. Sale of Goods Act 1979. long term contracts --- the longer the period the more likely the parties will be to leave matters unresolved. machinery/criteria laid down in agreement e.g. agreement does not agree price, but does agree to the way in which the price should be calculated, and the courts will take advantage of this. Lock out agreements --- agreement that one party will not negotiate with anyone else is only valid if it specifies how long the party is not to negotiate with others, but not otherwise.

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