1. Formation Flashcards
What are the four essential elements of a binding contract?
Agreement, intention to create legal relations, consideration and certainty and completeness of terms
In order for parties to reach an agreement, what must happen between parties?
One party must make an offer (offeror) that is accepted by the other (offeree)
What is the definition of an ‘offer’ in the eyes of the law?
“An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed” (Treitel, The Law of Contract, 14th edn (2015), p.10)
In terms of Treitel’s definition of an ‘offer’, what is meant by the term ‘expression’?
Something (e.g. a letter, advertisement, email, text message or conduct) that communicates the basis on which the offeror is prepared to contract
In terms of Treitel’s definition of an ‘offer’, what is meant by the term ‘intention’?
Does not have to mean the offeror’s actual intention.
Courts adopt an objective approach to deciding if there was an agreement between parties - they look at what was said and done, from the point of view of a ‘reasonable person’, and try to decide what a reasonable person would have thought was going on.
This is in contrast to a subjective approach (believing what the parties say their intention was)
What is meant by an ‘invitation to treat’?
An expression of willingness to enter into negotiations which is hoped will lead to the conclusion of a contract at a later date. I.e. Preliminary statement that ‘tests the water’ for a potential agreement.
For example: ‘I am thinking of selling my car, potentially for £7000, are you interested?’
Are goods on display considered an offer or an invitation to treat?
An invitation to treat. At the checkout, you offer to buy the goods and it is up to the cashier to decide whether, or not, to accept that offer.
Is an advert of a reward treated as an offer or an invitation to treat?
Traditionally, they have been treated as offers (namely definite promises to pay the reward if the specified condition (e.g. supply of information) is satisfied
What is the difference between a unilateral and bilateral contract?
In a unilateral contract, only the offeror has an obligation. In a bilateral contract, both parties agree to an obligation. Typically, bilateral contracts involve equal obligation from the offeror and the offeree.
I.e. Bilateral contracts are those involving promises made by all parties, whereas unilateral contracts involve promises made by only one of the parties.
Which case demonstrates the formation of a unilateral contract?
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 (CA)
Company offered £100 to anyone who used the remedy and contracted flu. They confirmed they had £1000 in an account ready to make payments. Customers were tempted to buy the product based on their show of confidence. Mrs. Carlill contracted flu after completing the prescribed course, and sued. The court held that the company’s promise to pay £100 was an offer of a unilateral contract (i.e. a promise in return for the specified act that Mrs. Carlill performed). Consideration was inconvenience on behalf of the claimant and the promotion of their product for the defendants
When is an offer accepted when considering auctions? What is the auctioneer doing when asking for bids?
When the gavel goes down (British Car Auctions Ltd v Wright [1972] 1 WLR 1519); that is the acceptance of the last bid, which was the offer. The bidder may withdraw his offer any time up to the hammer falling (Sale of Goods Act (SGA) 1979, s 57(2)).
The auctioneer inviting bids is an invitation to treat (Harris v Nickerson (1873) LR 8 QB 286)
What is a reserve price in an auction?
A price (agreed by the owner and auctioneer) below which the auctioneer will not sell the property
What is the significance of Barry v Davies [2000] 1 WLR 1962 in terms of buying items without reserve at an auction?
The auctioneer did not accept the offer made by a bidder (on machines put up for sale by Customs and Excise, without reserve), because he knew he could get a higher price for it elsewhere. Mr. Barry successfully sued the auctioneer for breach of a unilateral contract (because only one party had made a promise, the auctioneer. He had promised to sell the machines to the highest bidder). The Court of Appeal held that the holding of an auction sale without reserve is an offer by the auctioneer to sell to the highest bidder so that the auctioneer was indeed contractually bound to sell to the claimant. It would have been pointless to try and sue the owner of the machine because the auctioneer had not accepted his bid and so there was no contract of sale with the owner.
Which case is pertinent when considering a company that offers a unilateral contract and becomes liable for breach of contract (tendors and airport)?
Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195 (CA).
The former had a number of concessions to operate pleasure flights from Blackpool airport. When the last one was nearing expiry, the council sent invitations to the claimant (and six others) to submit tenders no later than noon on 17 March 1983. The Aero Club posted its tender in a letter box at 11am on the 17th - but the box was not emptied at noon that particular day. The claimant’s tender was recorded as late and not considered.
The Aero Club successfully sue for breach of an implied promise that a tender, returned on time, would at least be considered. The council was in breach of an implied unilateral contract and was liable to the Aero Club for loss of opportunity
What is the first constituent of agreement?
Offer; typically must be in the form whereby a simple assent to it is enough to lead to agreement
What is acceptance defined as?
An unqualified expression of assent to the terms of an offer
What is ‘expression of assent’?
Generally speaking, acceptance must be communicated and it must be communicated by the offeree or their authorised agent (by words or conduct). Acceptance of an offer of a unilateral contract will always be conduct of some sort.
Can silence ever amount to acceptance?
If coupled with conduct that clearly signifies acceptance when viewed objectively, then yes. However, as a general rule an offerer cannot bind the other party to a contract by silence per se
What does it mean for an expression to be ‘unqualified’?
A conditional response cannnot amount to acceptance and create a contract
What is the legal terminology for a conditional response to an offer?
A counter-offer, which effectively destroys the original offer and represents a new offer that the other party is free to reject or accept
What is the postal rule?
A letter of acceptance will be effective when posted even if the letter is lost in the post
Would the postal rule be excluded if, for example, the offeror had stipulated or implied that they needed to be notified in writing or ‘told’ of any acceptance? Which case is an example of this?
Yes, it would be excluded.
Holwell Securities Ltd v Hughes [1974] 1 WLR 155 (CA): The defendant granted the claimant an option to buy a house expressed as being ‘exercisable by notice in writing to [the defendant]’. The claimant wrote to the defendant purporting to exercise the option but the letter never arrived. The offer said ‘notice in writing to [the defendant]’ and the court held that, by using the word ‘notice’, the offeror had impliedly excluded the postal rule. So whilst it might have been appropriate to accept by post, the acceptance actually had to arrive with the defendant to be effective
Can an offer be accepted once it has been terminated?
No
In what ways can an offer be terminated?
- Rejection by the offeree
- Revocation (i.e. withdrawal) by the offeror
- Lapse of time
Generally, an offer may be revoked any time before acceptance (even if the offeror promised to keep the offer open for a certain period of time). What is the only exception to this?
If the offeree gave something in return for the promise to keep the offer open, then the offer would have to be kept open for the agreed time
An offeree gave £1 in return for an offer to be kept open for a certain period of time. What case illustrates this scenario?
Mountford v Scott [1975] 1 All ER 198:
The claimant paid £1 for the option to buy V’s house for £10,000. The option was exercisable within 6 months. V purported to revoke the offer. The claimant subsequently sought to exercise the option. The court held that the offer was irrevocable as the claimant had paid for the option. In paying £1, the claimant had given consideration for the offeror’s promise to leave the offer open for 6 months
Consider notice of revocation by email. When do you think that would be effectively communicated?
Rather than when it was sent or when it was actually read, notice of revocation by email is considered effectively communicated when it should have been read
Notice of revocation can be given either by the offeror or a reliable third party. In what 2 ways is this different to communication of acceptance?
- Acceptance must be communicated by the offeree or an authorised agent
- The postal rule does not apply to notices of revocation
How is it decided when parties have reached an agreement?
Generally judged objectively, but the facts have to be judged in context. E.g.:
- Whether the parties are in the same trade
- Trade usage
- Whether the arrangement has been acted on for any length of time
- Whether there is an objective mechanism for resolving any uncertainty, such as an arbitration clause
How does the law decide whether an agreement is legally binding?
Depends on whether the parties had an intention to create legal relations. To help the law decide if they did, the law operates on the basis of rebuttable presumptions, which differ according to whether the agreement is to be regarded as ‘commercial’ or ‘domestic’
What’s the difference between commercial and domestic agreements?
With commercial agreements, there is a very strong presumption that the parties intended to have legal consequences; whereas with domestic agreements the presumption is that the parties did not intend to create legal relations. Both presumptions may be rebutted (i.e. they will apply unless the facts show otherwise)
What is a commercial agreement?
Agreements either between businesses and businesses, or businesses and individuals
Can a domestic agreement have intent to create legal relations?
Yes, if the facts show it, the presumption of no legal relations would be rebutted
What is meant by the term ‘consideration’?
In order to be able to hold the other party to a promise, you must have agreed to provide ‘something in return’ for that promise. It is this ‘something in return’ that lawyers call ‘consideration’
What types of consideration are there?
The consideration may be a promise (called executory consideration) or an act (executed consideration)
B_______ contracts by their nature involve an exchange of promises, whereas an u_______ contract comprises a promise in return for an act
Bilateral; unilateral
What is adequacy of consideration?
Concerned with the amount or value of the ‘somthing in return’. It simply has to have some value, and doesn’t have to be equal in value to what is being promised in return (i.e. not adequate consideration)
What is sufficiency of consideration?
Sufficiency is concerned not with the amount of consideration but with the sort of thing it is. It must be the sort of thing the law regards as being appropriate subject matter for a bargain. There are very few cases where the law has not regarded consideration as the right sort of thing
What is considered by ‘past consideration is not good consideration’?
What was done or promised was not done or promised in return for anything at all. It had been gratuitous - therefore cannot be used as consideration in the future
What conditions need to be met in order for an exception to ‘past consideration is not good consideration’ to apply? What case are these determined from?
From Pao On v Lau Yiu Long [1980] AC 614.
- The past act/promise was done at the promisor’s request
- There was a mutual understanding between the parties that the act/promise would be compensated for in some way
- Had the promise been made in advance it would have been legally enforceable (often hinges on whether there was necessary intention to create legal relations)
Describe Re Casey’s Patents [1892]. Why did the courts argue against past consideration?
Re Casey’s Patents [1892] 1 Ch 669. A manager was asked to promote a particular invention for the owner of the patent rights for a 2 year period. Afterwards, the owners promised him a share in those rights in consideration for what he had done. It was alleged that the promise was unenforceable as being supported only by past consideration. In finding the promise to be enforceable the court said there was an implied promise to pay and that the manager must always have assumed that he would be rewarded in some way
In general, what are the 4 consideration requirements?
- Consideration may be a promise or an act given in return
- Consideration need not be adequate
- Consideration must be sufficient
- Consideration must not be past
If the parties involved wish to vary a contract, what needs to occur for it to be legally binding?
The same requirements as the initial contract needed to have - agreement, intention to create legal relations and consideration.
What is often the stumbling block when two parties are seeking to vary a contract?
Consideration - for some reason, the variation is one-sided. Only one party is suffering a detriment, or otherwise conferring a benefit to the other party
What are the two ‘upward’ variations often encountered when two parties seek to vary a contract?
- Alteration promises to pay more
2. Alteration promises to pay less
When a contract is being varied by two parties, what is meant by ‘alteration promises to pay more’?
The general rule is that simply performing an existing contractual duty owed to the other party will not be consideration in exchange for a promise by the other party to pay more money.
However, if a party exceeds a contractual obligation owed to the other party in return for a promise of extra money then there is a detriment to the promisee and a benefit to the promisor; so it will be consideration for the promise of extra money
When varying a contract, the general rule used to be that simply performing an existing contractual duty owed to the other party will not be consideration in exchange for a promise by the other party to pay more money.
What case modified this general rule?
(I.e. What case highlights consideration and the promise to perform, or performance of, a pre-existing duty?)
Case where more is promised for a pre-existing duty
Williams v Roffey Bros & Nicholls [1991] 1 QB 1. The case involved a contract to refurbish a block of flats. The defendants were the main contractors, and they subcontracted the carpentry work to the claimants for £20,000. Part way through, the claimants realised they had underestimated the cost. The defendants (mindful of the fact that if the work was not completed on time they would have to pay compensation) promised to pay an extra £575 per flat. They continued work, but were not paid the extra money and sued. One of the grounds on which the defendants denied the existence of a liability to pay was that there was no consideration for the promise of extra payment and that, according to Stilk v Myrick, did not constitute good consideration. The main issue before the Court of Appeal was what, if any, consideration the claimants had given in return for the promise of additional money. The court held on the facts that the practical benefit per se (i.e. avoiding liability under the compensation clause in the main contract and the cost of finding other carpenters to finish the job) was consideration.
Nb: In Re Selectmove [1995]] 1 WLR 474, the judge stated that the practical benefit here only applied where work was done or goods supplied
What steps are involved when determining whether a variation in contract (when the alteration promises to pay more) is binding?
If the performance of an existing contractual duty owed to the other party is NOT good consideration then the law needs to consider whether the promise exceeds their contractual duty. If so, then yes, it is a good consideration and the variation is binding.
If not, did the promisee confer a practical benefit? If not, the variation is not binding. If yes, it can be consideration, however is duress present? If it is, the variation is voidable. If not, the variation is binding.
When a contract is being varied by two parties, what is and example of ‘alteration promises to pay less’? What is ‘rule in Pinnel’s Case’?
An example would be an undisputed debt where there is an agreement between a creditor and a debtor that the creditor will simply accept part payment in full and final settlement of the full amount.
This is not binding on the creditor. This is the so-called ‘rule in Pinnel’s Case’
Describe Foakes v Beer (1884) 9 App Cas 605 and its importance.
Case that highlights consideration and the promise to perform a pre-existing duty under a contract with the promisor (promising to accept less than a pre-existing duty)
Foakes v Beer (1884) 9 App Cas 605 (which upholds Pinnel’s Case). Dr Foakes owed Mrs Beer a fixed sum of money on which she was legally entitled to be paid interest. In consideration of Dr Foakes paying off the capital by installments, Mrs Beer agreed to forgo the interest. She later changed her mind and sued for it. The question for the court was, had Dr Foakes given any consideration for her promise to forgo the interest? The answer was ‘no’ because no new consideration had been given by Dr Foakes for her promise to let him off the interest. Payment of the capital in installments was only satisfying part of his debt, so Mrs Beer was entitled to change her mind and sue him for the interest
This case expressly said that a practical benefit was not good consideration in law (excluding for work done and goods supplied, as found in Williams v Roffey Bros & Nicholls (Contractors ) Ltd [1991] 1 QB 1
What is Pinnel’s case?
Pinnel’s Case (1602) 5 Co Rep 117. Whether part payment of a debt can be good consideration.
The defendant, Cole, owed the plaintiff, Pinnel, the sum of £8 10s. Pinnel sued Cole for recovery of the debt. Cole had, at Pinnel’s request, paid £5 2s 6d one month before the debt was due to be paid and stated that they had an agreement that this part payment would discharge the entire debt.
The court confirmed the general rule that part payment of a debt cannot be satisfaction for the whole. However, since the payment had been made early this was sufficient to discharge the debt. Lord Coke said: ‘Payment of a lesser sum on the day in satisfaction of a greater sum cannot be any satisfaction of the whole… but the gift of a horse, hawk, or robe etc. in satisfaction is good. For it shall be intended that a hawk, horse, or robe, etc. might be more beneficial to the plaintiff than the money’
Therefore, by paying some money early the defendant had provided the plaintiff with a further benefit and had not just repaid the money which he already owed
What is promissory estoppel?
Under this doctrine, a creditor may be prevented (‘estopped’) from going back on a promise to accept part payment (even if the promise is not supported by consideration) if in all the circumstances it would be unfair for the creditor to do so.
If you have made a promise not to enforce your legal rights and someone has relied on that promise (even though they have not provided anything in return) then if you try to enforce your legal rights you will be ‘estopped’ if it would be inequitable (unfair) in all the circumstances to do so
Describe the case of Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. Why is it important?
A lease was entered into in 1937 - annual ground rent of £2500 (payable quarterly). January 1940 - agreement by landlord to accept £1250 per annum (due to very low level of letting because of the wartime conditions). Not determined how long this would last for. The defendants paid the reduced rent throughout the war. By June 1945 the flats were fully let. In 1946 the landlord sought to recover back rent for the last two quarters of 1945 and full rent for the future.
The defendants argued that the agreement to pay the rent at a reduced rate applied to the whole term of the lease. They argued that the plaintiffs were estopped from claiming that the rent should be higher.
Three periods to consider: 1. Unclaimed rent from the beginning of the war until the flats were fully let. 2. Unclaimed rent for the last 2 quarters of 1945 after the war had ended and 3. Claiming reinstatement of full rent for the future.
The defendants argued that the plaintiffs were estopped from claiming that the rent should be higher.
The court said obiter that the unclaimed rent for period 1 was not recoverable (‘estoppel’), but held that as the concession had come to an end by early 1945 the unclaimed rent for the other two periods was recoverable
It is important because it lays down and applies the doctrine of promissory estoppel
What are 5 limitations to the doctrine of promissory estoppel?
- It can only be used as a defence when a party brings an action at common law to enforce his legal rights
- There must have been a promise to waive strict legal rights
- The promisee (usually a debtor) must have acted on the promise but not necessarily to his detriment (e.g. The debtor in High Trees simply paid half rent)
- With ongoing payments (such as rent) the doctrine operates to suspend the strict legal right, which means the creditor can resume his right to full payment going forward giving reasonable notice. The creditor cannot claim any back payments for the concessionary period
- To use any equitable doctrine a party must have ‘clean hands’. So in a case where the debtor sought to take advantage of the creditor’s financial difficulties he was unable to use promissory estoppel as a defence to the creditor’s common law action for the balance owed
Why is it important to determine who the parties are to a transaction?
Only the contracting parties can have rights and liabilities under it
Who can sue for breach of a contract?
A contracting party (i.e. someone who is privy to the contract) can sue for breach of contract or otherwise be liable for breach
What is privity of contract?
Only the actual parties to a contract are bound by it and therefore have rights and obligations under it
If a contract has been made for the benefit of a third party, do they have any rights under it? What case illustrates this?
The privity rule states that no, they won’t.
Tweddle v Atkinson (1861) 1 B & S 393. The claimant was engaged to be married and his father and future father-in-law made a contract providing that each of them would give a certain sum of money to the claimant. Even though the contract expressly provided that he was to be entitled to enforce it, the court held that he could not do so
What’s the main exception to the privity of contract law?
Contracts (Rights of Third Parties) Act 1999
C(RTP)A 1999
Under the C(RTP)A 1999, how can a third party acquire rights in a contract?
- The contract expressly provides that they may acquire a benefit (s 1(1)(a))
- The term purports to confer a benefit on them (s 1(1)(b))
When does subsection (1)(b) of the C(RTP)A 1999 not apply?
If on a true construction of the contract it was not intended that the term be enforceable by a third party (s 1(2)). For a third party to enforce a term of the contract in their own right, they must be expressly identified in the contract by name or as a member of a class (e.g. ‘employees’) or answering a particular description
Explain how the C(RTP)A 1999 affects the purchase of Christmas gifts and the type of receipt you get
Shops will often ask if you would like a gift receipt for the goods you are buying. If you say you are buying the goods for a friend of family member you thereby confer direct contractual rights on the recipient so if something happens to be wrong the recipient (rather than you) can take them back to the shop and seek a remedy
What do agents all have in common?
They are all persons who have the ability or power to change the legal relations of the person for whom they are the agent
In terms of agency, who is the principle and who is the third party?
The principle is the person whom the agent is acting on behalf of. The person with whom the agent contracts, on behalf of the principle, is called the third party
How does the usage of the term ‘third party’ differ when used in the context of agency?
When we use the term ‘third party’ in the law of agency, we are referring to someone who is a third party to the relationship of agency between the principle and the agent.
A third party in the context of agency is therefore not standing outside the contract formed with the principle; the whole point is that they are party to the contract with the principle.
Name some examples of agents
Travel agents Insurance brokers Ticket agents Shop assistants Auctioneers Company directors
NOT estate agents (who have authority to advertise and facilitate the reaching of an agreement)
What is the difference between actual and apparent authority in the context of agency law?
Actual authority depends upon the agreement between the principal and the agent, whereas apparent authority depends upon the representation made by the principal to the third party (and does not require an official granting of power)
What are the 3 main categories whose capacity to enter contracts is limited?
Minors, people with a mental incapacity and corporations
Can anyone be sued when an individual (an adult) enters a contract with a minor?
Yes, whilst the minor cannot be held to the contract, the adult is bound and can be sued
Generally, minors cannot be bound to the terms of a contract. What is the exception to this?
When the contract is for ‘necessaries’. These include not just the supply of necessary goods and services, but also contracts of service for a minors benefit
What does the SGA 1979 define ‘necessaries’ as?
Goods ‘suitable in life of the minor and to his actual requirements at the time of sale and delivery
Are minors bound to contracts of employment?
Generally yes, minors are bound to contracts under which they gain training and experience (e.g. an apprenticeship) as long as, on balance, the contract is more favourable than not to the minor
Which case illustrates whether minors are bound to contracts or not
Proform Sports Management Ltd v Proactive Sports Management [2006] EWHC 2903 (Ch) a.k.a the ‘Wayne Rooney case’. When Rooney, aged 15 years, was playing for Everton FC, he entered into a 2 year contract with Proform to act as his agent. Before the end of the contract he terminated it. The court held he was entitled to do so as the contract with Proform (unlike his contract with Everton FC) was not a contract for necessaries
Are contracts made with people with a mental incapacity valid?
Generally, they will be valid unless at the time the contract was made the person was incapable of understanding the nature of the transaction and the other party knew that to be the case - the contract is thus voidable, which means that it is binding unless the person suffering terminates it
What is a corporation?
When two or more people form themselves into an association for the purpose of some concerted enterprise (e.g. a club or trading company), the association is, in some cases, regarded by the law as being an independent person called a corporation
Is a corporation considered to have the same legal identity as the persons who constitute it?
No, a corporation is treated by the law as having a separate legal identity from the persons who constitute it
Are all associations considered corporations?
No, only if they have been incorporated by the state
Is an unincorporated association a competent contracting party?
No. If a contract is made on its behalf no individual member can be sued except the person who actually made it and any other members who authorised them to do so
What are the 3 main types of corporation?
Registered companies, statutory corporations and limited liability partnerships
What is a memorandum of association?
Most companies are registered under the Companies Act 2006. When applying for registration, companies must supply a document called a memorandum of association, which sets out the range of activities in which the company will be allowed to engage
If a company enters a contract that is outside the range of activities laid out by their memorandum of association, what happens?
The contract would be called ‘ultra vires’ and void. Since the introduction of the Companies Act 2006, however, a company can be bound by an ultra vires contract provided the other party acted in good faith
How are statutory corporations created? What do they include?
By statute, and they include local authorities
When considering a contract entered in by a statutory corporation, what determines whether it is ultra vires?
The statute creating the corporation
What creates a limited liability partnership, and what kind of capacity do they benefit from?
The Limited Liability Partnerships Act 2000. These partnerships benefit from unlimited capacity
What is a definition for a simple contract?
A legally binding agreement. Treitel on the Law of Conduct (14th edn, 2015) at 1-001 begins: ‘A contract is an agreement giving rise to obligations which are enforced or recognised by law’
What is a bilateral contract?
Each party is making a promise and each party is therefore bound to perform
What is a unilateral contract?
Only one party is making a promise and only one party is therefore bound to perform
What’s the difference between a simple contract and a deed?
Deeds are distinct from contracts as they are usually enforceable despite a lack of consideration
Which case illustrates an invitation to treat (selling council properties)?
Gibson v Manchester City Council [1978] 1 WLR 520 (CA); [1979] 1 WLR 294 (HL). Claimant was sent a brochure by the council about buying his home, and completed the form and returned it. The council said that the ‘council may be prepared to sell the house’ and to complete a further form. He left the price blank, because he wanted to know if the council would fix his path. The council said the price was fixed considering the state of the property. Mr Gibson accepted and asked them to proceed. The council stopped maintaining the house. The Labour party gained control of the council and discontinued the policy of selling off houses. The trial judge and Court of Appeal held that a contract had been concluded. The House of Lords disagreed, stating that the council ‘may’ have been prepared to sell, which was an expression of their willingness to enter negotiations. This was further evidence by the formal application Gibson was asked to complete, not to signify his agreement to the stated terms
What case shows that the display of goods in a shop window is an invitation to treat rather than an offer (knife for sale)?
Fisher v Bell [1961] 1 QB 394. Defendant was charged with the offence of ‘offering for sale’ a flick knife, contrary to s 1(1) of the Restriction of Offensive Weapons Act 1959. He had displayed it in his shop window with a ticket saying ‘Ejector knife - 4s’. On appeal by the police to the Divisional Court, it was held that the display was an invitation to treat, not an offer for sale.
What authority can be adduced for treating a display of goods as an offer?
Chapleton v Barry UDC [1940] 1 KB 532. It was held that the display of deck chairs for hire on a beach was an offer that was accepted by a customer taking a chair from the stack (see Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 as well)
Is a newspaper advertisement an invitation to treat or an offer? What case shows this?
The general rule is that it is an invitation to treat.
Partridge v Crttenden [1968] 1 WLR 1204. The appellant advertised Bramblefinch cocks and hens for sale. He was charged, in a prosecution brought by RSPCA, with the offence of ‘offering for sale’ wild live birds contrary to the Protection of Birds Act 1954. It was held that an advertisement was an invitation to treat and not an offer, so the appellant was acquitted
What is the classic case showing that an advertisement can be interpreted as an offer rather than an invitation to treat?
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The defendants offered to pay £100 to anyone who caught flu after using one of their smoke balls, depositing £1000 in the bank to show their good faith. The claimant caught flu after using the ball in the specified manner and sued for £100. It was held that the advertisement was not an invitation to treat but an offer to the whole world, and a contract was made with those persons who performed the condition ‘on the faith of the advertisement’.
A more modern application of the rule: Bowerman v Association of British Travel Agents Ltd [1996] CLC 451
What case illustrates an invitation to treat (Jamaica property)?
Harvey v Facey [1893] AC 552, Privy Council. The claimants sent a telegram to the defendants saying ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price’. Bumper Hall Pen was a property in Jamaica. Facey replied ‘Lowest price £900’. In reply, the claimants telegraphed ‘ We agree to buy Bumper Hall Pen for £900’. Facey made no reply to that. It was held by the Privy Council that there was no contract for sale (it was an invitation to treat)
What case shows that the display of goods in a shop window is an invitation to treat rather than an offer (medicines)?
Pharmaceutical Society of GB v Boots Cash Chemists [1953] 1 QB 401. The defendants organised their shop on a self-service basis. They were charged with a breach of s 18(1) of the Pharmacy and Poisons Act 1933, which required that a sale of drugs take place under the supervision of a registered pharmacist. There was no pharmacists close to the shelves, but there was one at the cash desk and was authorised to prevent a customer from purchasing a drug if he thought fit to do so. It was held that the sale took place at the cash desk and the display of the goods was simply an invitation to treat and therefore had been no breach of the Act
What case illustrates submitting tenders and being bound to the offers made (shares)?
Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] AC 207. The defendants owned a block of shares in a company. They invited the claimants and a second defendant (Sir Leonard Outerbridge) to make offers by sealed tender for the shares. They said that they ‘bind themselves to accept [the highest] offer’. Harvela’s offer was $2,175,000 and Sir Leonard’s was ‘$2,100,000 or $101,000 in excess of any other offer’. The first defendants accepted the latter. The claimants brought a claim stating that Sir Leonard’s ‘referential bid’ was invalid, so theirs was the highest bid. The House of Lords hed that it was invalid and the defendants were bound to accept the only valid offer made. It was held that the invitation to tender was an offer of a unilateral contract to sell the shares to the highest bidder
What case shows that an offer for tenders is an invitation to treat, in absence of language such as ‘and we undertake to sell to the highest bidder’?
Spencer v Harding (1870) LR 5 CP 561. Defendants sent out circular inviting tenders to be submitted for the purchase of stock. The claimants had submitted the highest tender and alleged that, in refusing to sell the goods to them, the defendants were in breach of contract. The case established that an offer inviting tenders did not amount to an offer capable of acceptance to sell that stock, but rather amounted to an invitation to treat.
What are 2 general cases highlighting offers and invitations to treat?
Harvey v Facey [1893] AC 552
Gibson v Manchester City Council [1979] 1 WLR 294
What are 2 cases that highlight the issues of offers and invitations to treat in terms of goods for sale?
Fisher v Bell [1961] 1 QB 394
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401
What are 2 cases that highlight the issues of offers and invitations to treat in terms of advertisements?
Partridge v Crittenden [1968] 1 WLR 1204
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
What’s a prominent case that highlights the issues of offers and invitations to treat in terms of auctions?
Barry v Davies [2000] 1 WLR 1962
What are 3 cases that highlight the issues of offers and invitation to treat in terms of tenders?
Spencer v Harding (1870) LR 5 CP 561
Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] AC 207
Blackpool and Fylde Aeroclub Ltd v Blackpool Borough Council [1990] 1 WLR 1195
What case illustrates a prescribed mode of acceptance?
Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1969] 3 All ER 1593. The claimant decided to sell property by tender and inserted a clause stating that the person whose big was accepted would be informed by means of a letter sent to the address given in the tender. The defendant completed the form of tender, and the claimant sent a letter to the defendants surveyor (not the address on the tender). It was held that communication of acceptance to the specified address was not the sole permitted means of communication and that therefore a valid contract had been concluded. The defendant was not disadvantaged in any way
What is the principal authority regarding acceptance by silence?
Felthouse v Bindley (1892) 11 CB (NS) 869. The claimant and his nephew entered into negotiations for the sale of the nephew’s horse. The claimant stated that if he heard nothing from his nephew then he considered the horse his (the uncles) for £30 15s. The nephew didn’t respond. The nephew told the defendant auctioneer not to sell the horse, but he did anyway so the claimant sued the auctioneer in conversion. It was held that although the nephew had intended to accept the offer, he had not actually done so and therefore the horse did not belong to the uncle. The uncle had no right to impose a condition that the offer was accepted unless communicated otherwise - silence cannot constitute acceptance
True or false: in exceptional cases, the law recognises acceptance of an offer by silence
True. Rust v Abbey Life Insurance Co Ltd [1979] 2 Lloyd’s Rep 334
Are there exceptions to the general rule that acceptance must be communicated to the offeror?
Yes, e.g. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
What case highlights the fact that a contract has been concluded because the acceptance takes effect when it is posted (not when it reaches the offeror)?
Household Fire Insurance v Grant (1879) 4 Ex D 217. The defendant offered to buy 100 shares from the claimant, who sent a letter of acceptance - which got lost in the post. The liquidator of the claimant sued the defendant for the money owing for the shares. The trial judge found that a contract had been formed. The majority of the Court of Appeal held that acceptance by post is valid when sent
What cases show the willingness of the courts to imply an obligation not to ‘prevent the condition becoming satisfied’ in regards to accepting unilateral contracts?
Errington v Errington [1952] 1 KB 290. A father bough a house for his son and daughter-in-law. The father remained contractually liable to repay the mortgage installments, but he told his daughter-in-law that the house would be theirs if they paid off the mortgage. The father died while a good deal remained left to pay. In his will he left the house to his widow and she brought an action against the daughter-in-law (who had since split with the son). The Court of Appeal rejected the claim, holding that the father’s offer of a unilateral contract could not be revoked after the couple had started to pay off the installments (it would cease to bind the father if they left it incomplete and unperformed)
Soulsbury v Soulsbury [2007] EQCA Cuv 969, [2008] Fam 1. The deceased former husband of the claimant promised her she would receive £100,000 on his death if she did not enforce an order for periodical payments in favour against him or seek any other order for ancillary relief against him. Classic unilateral contract. As soon as the promisee doesn’t sue for maintenance, the promisor cannot revoke his offer. Facts are analogous to Errington v Errington.
What is the principal case in acceptance of an offer by conduct?
Brogden v Metropolitan Railway Co (1877) 2 App Cas 666. For 2 years, Brogden had supplied the claimant railway company with coal (no formal contract). Both parties wishing to formalise the situation, a contract was sent to Brogden. Brogden added the name of an arbitrator to settle differences and marked it ‘approved’. The manager then ordered, and was supplied with, coal in accordance with the terms of the draft for 2 years. Then Brogden denied it was bound to supply coal ordered and the claimant sued Brogden for breach of contract. House of Lords held that there had been acceptance by conduct of an offer so that Borgden’s argument that there was no contract for the supply of coal should be rejected
What was the case nicknamed ‘Battle of the Forms’?
Butler Machine Tool Co Ltd vs Ex-Cell-O Corporation (England) Ltd [1979] 1 WLR 401. The claimants (sellers) offered to sell a machine to the defendants. The offer was stated to be subject to certain terms/conditions that ‘shall prevail over any terms and conditions in the buyer’s order’. The seller’s conditions included a price variation clause (any increase in the cost of manufacture will be added to the cost). The buyers replied ordering a machine. The order was stated to be subject to the buyers’ own terms/conditions, which didn’t include a price variation clause. There was a tear-off slip reading ‘We accept your terms and conditions’. The sellers signed and returned this slip. They then claimed that, in accordance with the price variation clause, the price had increased, and sued when the buyers refused to pay the difference. The Court of Appeal determined that a contract had been concluded on the buyers terms and therefore they were not bound to pay any increase in price
What is the general rule in the communication of acceptance?
Acceptance must be received by offeror
What is an exception to the general rule in the communication of acceptance?
Acceptance by post
What case illustrates the general rule of the communication of acceptance?
Entores Ltd v Miles Far East Corporation [1955] 2 QB 327. The claimants, in London, telexed an offer to agents of an American company who resided in Holland. The agents sent their acceptance by telex, which was received in London. The claimants sought leave to serve notice of a writ on the defendant (in New York) claiming damages for breach of contract. Whether that leave could be granted depended on whether the contract was made in England. The Court of Appeal, dismissing the defendants appeal, held that the contract is made at the place where the acceptance is received.
How does where the contract is made differ between instantaneous and postal methods of acceptance?
Instantaneous acceptance: the contract is made where the acceptance was received
Postal: the acceptance is complete when the letter is put in the post box, and that is the place where the contract is made
What case illustrates acceptance in ignorance of an offer?
R v Clarke (1927) 40 CLR 227 (High Court of Australia). A reward was offered for information leading to the conviction of persons who murdered 2 police officers. Clarke did not commit the murder, but was arrested and charged. He then protected himself by giving information that led to the conviction of the real murderers. He accepted that he was not thinking about the reward albeit that he did know about it. He sued the Crown for the reward. It was held that he had not accepted the offer because he had given the information without relying on the offer of reward
Does the postal rule apply to revocation by post?
To be effective the withdrawal must be drawn to the attention of the other party and, for this purpose, the postal rule does not apply, so that the revocation only takes effect when it actually reaches the other party
What case illustrates that there is no requirement that the offeror himself must be the one to bring the withdrawal to the attention of the offeree?
Dickinson v Dodds (1876) 2 Ch D 463. 10th of June the defendant delivered to the claimant a written offer to sell a house to the claimant for £800, the offer to be left open until the 12th. On the afternoon of the 11th, the defendant sold the house to a 3rd party, and the claimant was informed of this by another 3rd party. Nevertheless, the claimant sent the defendant his letter of acceptance on the 12th (on time). It was held that no contract had been concluded between the parties because the offer had been withdrawn before it was accepted. There was no consideration given for the promise to keep the property unsold until the morning of the 12th.
When can an offer be revoked?
Any time before it has been accepted
What must happen for revocation to be effective?
It must be communicated to (i.e. received by) the offeree
What case highlights the odd effects of the rule that the withdrawal must be brought to the attention of the offeree in relation to offers sent through the post?
Bryne v Van Tienhoven (1880) 5 CPD 344. The defendants sent the claimants an offer on the 1st of October 1879. The offer was received by the claimants on the 11th of October, and they sent off an immediate response. In the meantime, the defendants had sent, on the 8th of October, a letter revoking their offer, which reached the claimants on the 20th. It was held that a contract was concluded between the parties on the 11th (when the acceptance was sent). To be effective the withdrawal must be drawn to the attention of the other party and, for this purpose, the postal rule does not apply, so that the revocation only takes effect when it actually reaches the other party
What 2 cases illustrate the termination of a contract by revocation?
Bryne & Co v Van Tienhoven & Co (1880) 5 CPD 344
Dickinson v Dodds (1876) 2 Ch D 463
What 2 cases illustrate the termination of a contract by rejection?
Hyde v Wrench (1840) 3 Beav 334
Stevenson, Jaques & Co v McLean (1880) 5 QBD 346
What case shows that a counter-offer ‘kills’ the original offer (involves the rejection of an offer)?
Hyde v Wrench (1840) 3 Beav 334. Wrench offered to sell his farm to Hyde for £1000. Hyde responded by saying that he would give £950 for it. Wrench wrote refusing to accept. Hyde then wrote to say that he accepted the original offer. Hyde brought an action against Wrench for specific performance, but this failed. It was held that no contract had come into existence: once Hyde had made the counter-offer, that put an end to Wrench’s offer which could not therefore be accepted later
What case shows that an inquiry does not count as a rejection of an offer?
Stevenson, Jacques & Co v Mc Lean (1880) 5 QBD 346. The defendant wrote to the claimants stating that he was willing to sell iron for 40 s per ton and that the offer was open until the following Monday. Monday morning, the claimants telegraphed ‘please wire whether you would accept 40 for delivery over 2 months, or if not, the longest limit’. After receiving it, the defendant sold the iron to a 3rd party. At 1.25pm on Monday he told the claimants it had been sold. Before that telegram arrived at 1.46pm, the claimants (at 1.34pm) telegraphed accepting the offer to sell at 40s cash. The claimants sued the defendant for breach of contract. It was held that a valid contract had been formed because the claimants earlier telegram was a mere inquiry and not a counter-offer (so did not kill the original offer)
Offer and acceptance is almost always a rational way to determine whether or not an agreement has been made. However, this traditional approach has been criticised. What case shows that this traditional way can be problematic?
The Satanita [1895] P 248. The claimant and the defendant (the owner of The Satanita) entered their yachts into a race. In doing so, each agreed that if the owner of a yacht broke a rule he would be liable for ‘all damages arising thereunder’. The defendant’s yacht, while in breach of a rule, collided with, and sank, the claimant’s yacht. The Cou rt of Appeal held that there was a contract and the defendant was liable for the full loss, thereby displacing the default position, laid down in statute, whereby the defendant’s liability would have been limited
What 2 cases outline the issue of vagueness?
Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503
Scammell and Nephew Ltd v Ouston [1941] 1 AC 251
Describe the Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503 case and what it highlighted
Vagueness nearly resulting in uncertainty.
On May 1930, the claimants agreed to buy 22,000 standards of softwood goods subject to certain conditions. Clause 9 gave them an option to buy a further 100,000 standards during the season 1931 at 5% below the list price. The claimants tried to exercise this in Dec 1930, but the defendants could not perform as they had already sold their supply. The claimants sued for damages for breach of contract. The defendants argued that the option agreement was too uncertain to be binding (it did not sufficiently describe the goods and contemplates a future agreement). The House of Lords allowed the claimant’s appeal and said the words could be given reasonable meaning, so the defendants were bound by the claimants’ exercise of the option
What case (based on the exchange of vans) highlights the detriment of using uncertain (vague) terms in a contract? What did it result in?
Vagueness resulting in uncertainty
Scammell and Nephew Ltd v Ouston [1941] 1 AC 251. The claimants wished to acquire a new van from the defendants, giving an old van in part exchange. They agreed the price and how much would be allowed for the old van but in their order the claimants stipulated that the balance of the purchase price should be ‘on hire-purchase terms’ over 2 years. The House of Lords, allowing the defendants’ appeal, held that that phrase was too vague for there to be an enforceable contract
If the price of goods in a contract of sale is not determined by the contract, what option is available to the court?
Supply of Goods and Services Act 1982, s 15(1) where ‘the buyer must pay a reasonable price’. This only comes into play where the contract is silent as to the price
What 2 cases can be used to highlight uncertainty resulting from an unfixed price?
May and Butcher Ltd v R [1934] 2 KB 17n
Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444
Describe May and Butcher Ltd v R [1934] 2 KB 17n and what it highlights in terms of certainty
It highlights an unfixed price, which results in uncertainty.
The parties entered into a written agreement under which the government was to sell tentage to the claimant, and the agreement was that the price and date of payment ‘shall be agreed upon from time to time’. It was held that no contract had been concluded because, according to Lord Buckmaster: ‘an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all’
Describe Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444 and what it means in terms of uncertainty
Unfixed price led to uncertainty.
Under each of 4 leases, lessees were given an option to purchase the reversion ‘at such price, not being less than £12,000 as may be agreed upon by 2 valuers one to be nominated by the Lessor and one by the Lessees or in default of such an agreement by an Umpire appointed by the said valuers.’ When the lessees sought to exercise the options, the lessor claimed the option clauses were void for uncertainty and refused to appoint a valuer. The House of Lords, reversing the Court of Appeal, held that the contracts were sufficiently certain as the court itself could ascertain the fair value of the reversions by ordering an inquiry. As the options had been exercised by the lessees, specific performance of the contract of sale was ordered against the lessor
What’s the significance of Sudbrook Estates Ltd v Eggleton [1983] 1 AC 444?
There are a variety of ways the court can deal with incompleteness. Some can refer to the SGSA 1982 (the buyer must pay a reasonable price) or sometimes the parties have agreed criteria by which an incomplete matter can be resolved. Thirdly, the contract itself may provide for machinery to resolve the dispute, and it is possible for this to be provided by one of the parties (May and Butcher: ‘with regard to price it is a perfectly good contract to say that the price is to be settled by the buyer’). Difficulties emerge where machinery has failed to come into effect. It was once thought that such a failure was fatal to the existence of an enforceable contract because the court would not substitute its own different machinery for that agreed by the parties. This view was rejected by Sudbrook v Eggleton, where an inquiry was ordered into what was the fair value of the premises
What’s a ‘lock-out’ agreement?
The party will terminate negotiations with any 3rd party or consideration of any alternative with a view to concluding agreements
What is a ‘lock-in’ agreement?
The party will continue to negotiate in good faith
What case highlights the uncertain nature of lock-in and lock-out agreements? What relation does this have to uncertainty?
Walford v Miles [1992] 2 AC 128. The defendants owned a company they wanted to sell. A 3rd party maid an offer of £1.9m. The claimants also entered into negotiations and an agreement was agreed in principal for £2m. The claimants promised to provide a ‘comfort letter’ (from the bank confirming they would provide the finance). In turn for receiving the letter that day, the defendants agreed to both lock-in and lock-out agreements. They then sold to the original 3rd party. The House of Lords upheld the Court of Appeal decision and determined that the lock-in and -out agreements were too uncertain to be enforceable
Is an agreement to negotiate recognised as an enforceable contract?
No
What does a lock-out agreement have to contain for it to be enforceable?
A period of time over which it lasts
What case outlines the issues that can arise when a contract is not concluded and there is uncertainty regarding a non-contractual solution?
Uncertainty arising from a non-contractual solution
British Steel Corp v Cleveland Bridge and Engineering Co Ltd [1984] 1 All ER 504. The defendants asked the claimants to produce a variety of steel nodes (in a letter of intent). They had not finalised the contract but they asked the claimants to start manufacturing straight away. The nodes were delivered to the defendants. The parties were unable to agree on some key terms of the contract (inc. price and progress payments and liability for loss arising from late delivery). The defendants refused to pay on the basis that they had a counterclaim for damages for late delivery, which exceeded the price. The claimants sued, arguing that while there was no concluded contract, they had a non-contractual restitutionary claim (a quantum meruit) for the value of the work done. The defendants argued there was a concluded contract under which they were entitled the damages. The court held that no contract had been formed however, the claimants were entitled to recover a reasonable sum for the work they had done
What 4 cases can be used to illustrate the intention to create legal relations?
Blue v Ashley [2017] EWHC 1928 (Comm)
Balfour v Balfour [1919] 2 KB 571
Jones v Padavatton [1969] 1 WLR 328
Esso Petroleum Co Ltd v Commissioners of Customs and Excise [1976] 1 WLR 1
What case resulted in the presumption that parties to a domestic agreement do not intend to create legal relations?
Balfour v Balfour [1919] 2 KB 571
What 3 factors are among the most important when considering whether or not the presumption of legal relations (or not) has been rebutted?
- Context. E.g. Where family members enter into a business agreement or where a husband and wife are about to separate (the parties ‘bargain keenly’ and do not rely on ‘honourable understandings’
- Reliance placed on the agreement. E.g. Where 1 party has acted to his detriment on the faith of the agreement or an agreement between workmates under which one is to provide the other with a lift to work in return for a contribution towards petrol
- Certainty. E.g. a promise by a husband to allow his deserted wife to stay in the home did not have contractual force because of its vagueness (how long, under what conditions, etc.) See: Vaughan v Vaughan [1953] 1 QB 762
Summarise the case of Blue v Ashley [2017] EWHC 1928 (Comm) and state its significance
In a pub, Ashley said to Blue that he would pay him £15m if Blue could get the price of shares in Sports Direct (which Ashley owned) to £8. Blue alleged that that was a binding offer of a unilateral contract and that, when the shares did reach £8, Ashley had broken the contract by refusing to pay. The courts held there was no binding contract.
Significance: shows the lack of intention to create legal relations
What is the final thing needed for a contract to be legally binding?
Certainty and completeness of terms. Vagueness in what is said or omission of important terms may be grounds for concluding that no agreement has been reached at all (or for concluding that, although an agreement has been reached, it is not intended to be legally binding).
But certainty and completeness is also an independent requirement of a contract. Thus, even where it is apparent that the parties have made an agreement which is intended to be legally binding, the court may conclude that it is too uncertain or incomplete to be legally enforceable
Describe the case of Balfour v Balfour [1919] 2 KB 571 and state its importance
The defendant was a civil servant stationed in Ceylon. He came to England for a period of leave with his wife, the claimant. When he had to return, the wife was advised to stay in England temporarily because of ill health. The husband promised to pay her £30 a month. 2 years later (still living apart) the wife sued to enforce the promise. Allowing the husband’s appeal, the Court of Appeal held that there was no binding contract.
The rule laid down in this case has been interpreted as a presumption that parties to a domestic agreement do not intend to create legal relations
Describe the case where a mother promised money in return for her daughter reading for the Bar (why is it significant?)
Jones v Padavatton [1969] 1 WLR 328. A mother agreed with her daughter, a secretary in Washington DC, that if she would give up her job and read for the Bar in England the mother would provide maintenance for her. The daughter came to England and began to study. The mother provided monthly payments and then a house where she could live and rent out. They quarreled (it was 6 years later and the daughter had failed the Bar on more than 1 occasion) and so the mother brought an action for possession of the home. The Court of Appeals ruled that the mother was entitled to possession (there was no valid contract because the parties had no intention to create legal relations)
What case (which involves coins) highlights intention for legal relations in a commercial setting?
Esso Petroleum Co Ltd v Commissioners of Customs and Excise [1976] 1 WLR 1. Esso offered a world cup coin for every 4 gallons of fuel bought. The House of Lords ruled that they were given under a contractual obligation and that there was intention to create legal relations
What is the classic definition of consideration, and where was it defined?
Currie v Misa (1875) LR 10 Ex 153.
‘A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other’
Note that the detriment to the promisee must be requested by the promisor
What is meant by ‘the consideration must be sufficient but it need not be adequate?
The courts will not enforce a promise unless something of value is given in return for the promise - the consideration must be sufficient. However, the courts do not, in general, ask whether adequate value has been given in return for the promise or whether the agreement is harsh/one-sided
What case shows that the intangible return of ‘natural affection of itself is not sufficient consideration’?
White v Bluett (1853) 23. A son’s promise not to bore his father with complaints about his distribution of his property among his children was held to not be good consideration for the father’s promise not to sue to son on a debt owed by the son to the father
What are the two attacks on the decision made in White v Bluett (1853)?
- It ignored the ‘practical benefit’ which the father obtained in being freed from the complaints of his son (see Pitt v PHH Asset Management Ltd [1994] 1 WLR 327)
- The son did act to his detriment in refraining from making complaints (he had a ‘right’ to complain and in giving up that right he provided consideration)
What case highlights the issue of intangible returns when considering consideration?
Pitt v PHH Asset Management Ltd [1994] 1 WLR 327. (Shows that the practical benefit to a party can be considered consideration). The claimant and Miss Buckle were interested in buying a property. The claimant made a bid of £200,000 which the defendants accepted ‘subject to contract’. Then Miss Buckle increased her offer to £210,000. The claimant threatened to seek an injunction to halt the sale to Miss Buckle and also said he would inform her of his loss of interest so that she would be free to lower her offer. It was agreed that the property was to be sold to the claimant and that the vendors would not consider any further offers, provided that the claimants agreed to exchange contracts within 2 weeks. In breach of agreement, they sold to Miss Buckle, and the claimant sued. One of the defences was that the claimant did not provide any consideration for the promise not to consider other offers. The Court of Appeal held that he had. He had agreed not to apply for an injunction, freeing the defendants from the ‘nuisance value’ of having to defend such a claim. Secondly, consideration was provided when he agreed to not carry out his threat to make trouble with Miss Buckle - the removal of that nuisance provided some consideration
Describe Ward v Byham [1956] 1 WLR 496 and why it’s significant.
Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 held that performance of an existing contractual duty owed to the promisor could constitute good consideration. The rule prior to this could be argued to ignore real benefits obtained by the promisor or real detriments incurred by the promisee. The leading case here highlights consideration and the promise to perform a pre-existing duty imposed by general law (e.g. a non-contractual duty):
Ward v Byham [1956] 1 WLR 496. The father of an illegitimate child promised to pay the mother £1 per week provided that the child looked well and happy. The mother was under a legal duty to look after the child. The mother sued when the father stopped paying. The father argued that the mother had not provided any consideration for his promise. The judge rejected this argument. He held that the father benefited by the mother’s promise, just as he would have benefited if a neighbour had promised to look after the child for a reward. It is possible that the mother promised to do more than her legal duty by promising to keep the child ‘happy’ (problem: natural affection of itself is not consideration) and by promising to allow the child to decide for herself where she should live. The father also obtained a practical benefit from the mother looking after the child, whilst the mother did more than she was legally obliged to do. It was a unilateral contract: a promise by the father to pay £1 a week in return for the mother to look after the child. Once the mother embarked on the task of looking after the child, it was a binding contract
What things should be taken into account when considering the scope of rule that consideration must be sufficient but that it need not be adequate?
Trivial acts
Intangible returns
Compromise and forbearance to sue
Performance of a duty imposed by law
Performance of a contractual duty owed to the promisor/Practical benefit
Consideration and duress
Part payment of a debt
Performance of a duty imposed by contract with a third party
What case highlights compromise and forbearance to sue when considering consideration?
Cook v Wright (1861) 1 B & S 559. The claimants honestly believed that the defendant was under a statutory obligation to reimburse them in respect of certain expenditures which they had incurred in word on their street. He promised to pay a reduced sum after he was threatened with litigation. When he found out that he was not obliged to pay, he refused to honour his promise. He maintained that his promise was not supported by consideration because he had been given nothing in return. The court held that it was, and he was liable to pay. The claimants had given up an invalid claim and in doing so had suffered no detriment and the defendant was not benefited in any way by their promise to accept the reduced sum in full satisfaction of their invalid claim. It could be argued that the claimant’s honest belief in the validity of the claim provided consideration - the consideration must actually be of value in the eyes of law. Nevertheless, although it had turned out that the defendant had not been originally liable to contribute, the claimant had bona fide believed that he was. Giving up a worthless claim which one bona fide believes to be valid is good consideration, therefore the defendant was contractually obliged to pay (The rule only applies if the person bona fide believes his claim is valid. See Wade v Simeon (1846) 2 CB 548, in which the court held that the claimant knew that he had no valid claim)
What case originated the general (unpopular) rule that the performance of an existing contractual duty owed to a promisor was no consideration for a fresh promise given by that promisor?
Case where more is promised for a pre-existing duty
Stilk v Myrick (1809) 2 Camp 317 and 6 Esp 129. Stilk agreed to sail to the Baltic and back at a rate of £5 per month. Originally there were 11 men in the crew but 2 deserted during the voyage. The master was unable to find replacements so agreed to share the wages of the deserters between them if they would work the ship back to London. At London, Stilk demanded his share but the master refused to pay. Stilk sued but was unsuccessful. There is little doubt that the master of the ship was benefited by Stilk’s promise to work the ship back home, yet the court concluded that no consideration had been provided.
Defenders of this orthodox interpretation of consideration assert that it is legal benefit or legal detriment which is important and not factual benefit or factual detriment (but why?)
What case can be used to rebut Stilk v Myrick (1809) 2 Camp 317 and 6 Esp 129?
Raggow v Scougall & Co (1915) 31 TLR 564. The claimant was employed by the defendants for 2 years at a certain salary. During this period, war broke out and the parties decided that the claimant will work at a lower salary until the end of the war. The claimant accept this for a while, then brought an action claiming his salary at the old rate, arguing that the defendants had provided no consideration for him promise to accept a lower salary. The judge held that the agreement was supported by consideration. He held that the parties had torn up the old agreement and made a new one by mutual consent
How can Williams v Roffey Bros be reconciled with Stilk vs Myrick?
- Stilk v Myrick was a duress case. ‘There were strong public policy grounds at that time to protect the master and owners of a ship from being held to ransom by disaffected crews’
However, the contract was concluded onshore, not the high seas.
Solution could be that Stilk v Myrick had a contract that was initially concluded (there was consideration) but that contract was then set aside on the ground of duress exerted by Silk, which prevented him from enforcing the contract
What case highlights the fact that consideration need not be adequate?
Chappell & Co v Nestle [1960] AC 87. The claimants owned the copyright to to a piece of music. Nestle offered for sale gramophone records in return for 1s 6d and 3 wrappers from their chocolate bars. Secontion 8 of the Copyright Act 1956 permitted the making of records for sale provided notice was given a royalty was paid of 6 1/4% of the ‘ordinary retail selling price’. A notice was given stating that this price was 1s 6d. The claimants refused this and sought an injunction restraining the ‘sale’ of the records. In determining whether Section 8 had been infringed, the question at issue was whether the wrappers were part of the consideration. The House of Lords held that the wrappers themselves, although of trivial economic value, were part of the consideration and the claimant’s appeal (against overturning the injunction) was allowed
How could Stilk v Myrick be affected by Watkin & Son Inc v Carrig (1941) 21 A 2d 591? What difficult question is raised?
In Watkin & Son Inc v Carrig, the parties entered into a written contract where the claimant agreed to excavate a cellar for a fixed price. They discovered solid rock in the area shortly after. The defendant agreed to pay 9 times the amount of the original price. The claimant did the work and then sued to recover the sum. The defendant argued that there was no consideration to support to promise to pay the additional sum. The argument was rejected. THe judge found that the written contract between the parties had been abandoned with consideration and superseded by a new agreement with consideration.
Applying this to Stilk v Myrick, if Stilk had been able to show that the original contract had been abandoned by mutual agreement, then that abandonment would have been supported by consideration, and the agreement to pay the higher price would have been enforceable.
How do the courts decide whether there is a variation of 1 contract or a replacement of a contract by another? (Depends on the intention of the parties)
Using the concept of unilateral contracts, what is one reason why the claimant in Williams v Roffey Bros was only paid for the work done and not for the work which had been promised but remained undone?
The original bilateral contract between the claimant and the defendants was supplemented by a ‘collateral unilateral contract to pay more (or accept less) if actual performance is rendered’. Here, there is a unilateral offer by the promisor to pay more or to accept less, which is only binding when the other party accepts by actually performing the obligation. If the unilateral offer is not made binding by the acceptance of completed performance, then the original contract has full force. But, if the stipulated performance is completed, then the unilateral collateral contract can prevail over or qualify the original contract
What pertinent case(s) highlights part payment when considering consideration?
Pinnel’s Case (1602), which was upheld by Foakes v Beer (1884)
Payment of part of a debt to discharge the entire debt was rejected in Foakes v Beer (1884). But what else can count in place of money?
Practical benefits are capable of amounting to the provision of consideration
What case is the authority for practical benefits (other than money) amounting to the provision of consideration?
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2016] EWCA Civ 553; [2016] 3 WLR 1519. Here, a licensee of premises, who had fallen into arrears in the payment of licence fees, entered into an agreement with the licensor under which it was agreed to re-schedule the fee payments on the basis that the licensee would pay less than the full licence fee in the early months and repay the outstanding balance as its business developed. The licensor denied that the agreement was legally effective as no consideration had been supplied. The Court of Appeal held that the landlord had obtained a practical benefit which ‘went beyond the advantage of receiving prompt payment of part of the arrears’. The landlord was not left with an empty premises (no loss of income) and the problem of finding another licensee to occupy it
What cases highlight consideration and the promise to perform, or performance of, a pre-existing duty under a contract with a 3rd party?
The performance of a contractual duty owed to a 3rd party has been clearly recognised as good consideration for a long time (unlike performance of an existing contractual duty owed to a promisor).
Shadwell v Shadwell (1860) 9 CB (NS) 159
Scotson v Pegg (1861) 6 H & N 295
Pao On v Lau Yiu Long [1980] AC 614
Why is Shadwell v Shadwell (1860) 9 CB (NS) 159 an important case? Describe it.
It highlights consideration and the promise to perform, or performance of, a pre-existing duty under a contract with a 3rd party.
Shadwell v Shadwell (1860) 9 CB (NS) 159. The claimant, who was engaged, received a letter from his uncle, in which the uncle promised to pay him £150 per year after he was married. The claimant sued to enforce the promise upon the uncle’s death and it was held that he could do so because he had provided consideration for his uncle’s promise by marrying his fiancee.
Why is Scotson v Pegg (1861) 6 H & N 295 an important case? Describe it.
It highlights consideration and the promise to perform, or performance of, a pre-existing duty under a contract with a 3rd party
The claimants had entered into a contract with a 3rd party for the sale and delivery of coal. Under the contract, the claimants agreed to deliver the coal to the 3rd party or to anyone nominated by the 3rd party. The 3rd party sold the coal to the defendants and instructed the claimants to deliver it to them. The defendant then agreed that ‘in consideration’ of the claimants delivering the coal to them, they would unload it at a stated rate. The defendants failed to unload the coal at the stated rate, which resulted in the claimant’s ship being delayed for 5 days. It was held that that was good consideration so that claim succeeded
What is the fatal objection that past consideration raises?
There is no reciprocity; the promisee does not give anything in return for the promise of the promisor.
As a general rule, if 2 parties have already made a binding contract and 1 of them subsequently promises to confer an additional benefit on the other party to the contract, that promise is not binding because the promisee’s consideration, which is his entry into the original contract, is past
Describe Eastwood v Kenyon (1840) 11 A & E 438 and why it is important.
Eastwood v Kenyon (1840) 11 A & E 438 shows that past consideration does not count.
The guardian of a young girl took out a loan from a 3rd party to educate her. Upon her marriage, her husband (the defendant) promised the claimant to pay off the debt to the 3rd party. When he failed to do so, the claimant sued him. It was held that the guardian was unable to enforce this promise because the consideration, which was bringing up and educating the girl, was past. The court conceded that the husband might be under a moral obligation to pay, but that cannot be converted into a legal one because of the absence of consideration
Describe Pao On v Lau Yiu Long [1980] and how it is relevant to past consideration
The claimants owned shares in a private company. The defendants were the majority shareholders in a public company. In Feb. 1973, the claimants agreed to sell their shares to the public company. In return, the public company would issue the claimant’s shares in the public company (4.2 million shares of $1 each). The defendants were concerned that this would depress the public company’s share price, so they agreed with the claimants that the claimants would retain 60% of the shares issued until the 30th of April 1974. The claimants wanted protection against any fall in share price until then (as they wouldn’t be able to sell). The parties made a subsidiary agreement whereby the defendant would buy 60% of the claimant’s shares on or before 30th April 1974 at a set price.
The claimants later realised that this arrangement would deprive them of profit if the value of the shares went up. They refused to complete the contract unless the defendant agreed to cancel the subsidiary agreement and instead agree to an indemnity of the share price (there is a guarantee agreement dated 4 May 1973 that acts to indemnify the claimants for any loss suffered if the shares fall below $2.50. The share prices dropped and the defendants refused to honour the indemnity. The claimants sued them for breach of contract. The defendants responded saying that the indemnity was unenforceable because the consideration was past, the promise to indemnify was not supported by consideration because the claimants were under a pre-existing contractual duty to a 3rd party (Fu Chip) not to sell 60% of the shares and that the agreement had been induced by economic duress.
The Privy Council rejected each argument and held that it was enforceable.
The first 2 conditions for the past consideration objection were satisfied because the earlier promise made by the claimants to Fu Chip not to sell the shares were made at the defendants’ request, and it was understood throughout that, in return for their promise not to sell, the claimants would be protected in some way by the defendants against a drop in share price
What are the 4 main cases when looking at consideration and the promise to perform, or performance of, a pre-existing duty that is imposed by the General Law (i.e. non-contractual)?
Collins v Godefroy (1831) 1 B & Ad 950
Glasbrook Brothers Ltd v Glamorgan County Council [1925] AC 270
Ward v Byham [1956] 1 WLR 496
Williams v Williams [1957] 1 WLR 148
Describe Collins v Godefroy (1831) 1 B & Ad 950 and why it’s important.
Shows a pre-existing duty imposed by the General Law, thus there is no consideration.
In a trial of a civil action brought by Godefroy against a 3rd party, he had Collins subpoenaed to attend to give evidence as a witness and promised to pay him a guinea a day as his fee for attending. Collins brought an action against Godefroy claiming 6 guineas for his 6 days attendance. The claim failed on the basis that there was no consideration for the promise because Collins was bound by the general law to attend
Describe Williams v Williams [1957] 1 WLR 148 and its importance.
Highlights the consideration and the promise to perform a pre-existing duty imposed by the General Law.
A wife deserted her husband. A few months later they both agreed that the husband would pay the wife £1 10s a week for their joint lives so long as she led a chaste life. The wife promised to use that sum for her maintenance and agreed not to pledge her husband’s credit. The wife sued when he stopped paying. He argued that there was no consideration because a wife who deserts her husband is not entitled to be maintained by him or to pledge his credit. The Court of Appeal rejected his argument.
The judge argued that he saved himself hassle, because if she had pledged his credit the tradesmen could have taken him to court. This is good consideration for his promise.
Describe Re Selectmove Ltd [1995] 1 WLR 474 and state its importance.
Case that highlights consideration and the promise to perform a pre-existing duty under a contract with the promisor (promising to accept less than a pre-existing duty)
In Jul 1991 Selectmove Ltd owed the IRS substantial sums. At a meeting between Mr ffooks, managing director of Selectmove and Mr Polland, a collector of taxes. Mr ffooks proposed that future tax would be paid off as due and that the arrears would be paid off £1000 a month. Mr Polland said he would seek approval from his supervisors and let them know if it was unacceptable. They didn’t hear back from him. In Oct 1991 the IRS wrote demanding payment of the full arrears, threatening a winding-up petition (which was made in Sep 1992). The company argued that it should be dismissed based on the agreement made with Mr Polland. The Court of Appeal rejected the argument, stating that no agreement had been reached (because Mr Polland had not bound the Inland Revenue) and, in any event, there was no consideration to support the agreement anyway
State the 2 cases that are important for consideration and the promise to perform a pre-existing duty under a contract with the promisor (promising to accept less than a pre-existing duty)
Foakes v Beer (1884) 9 App Cas 605
Re Selectmove Ltd [1995] 1 WLR 474
What is the relationship between Re Selectmove Ltd [1995] 1 WLR 474, Foakes v Beer (1884) 9 App Cas 605 and Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1?
Selectmove, who owed a large amount of money to the IRS, argued that, within Williams v Roffey Bros [1991] if an agreement was varied (as they thought it had been) there would be good consideration if the other party obtained some practical benefit from the new arrangement. It was held that Williams v Roffey [1991] Bros only applied to cases where work was done or goods supplied. To extend it to debts would go against Foakes v Beer (1883), which expressly said that a practical benefit was not good consideration in law
What are the 2 extremes of the estoppel spectrum?
Estoppel can be used as a shield to defend a claim but it cannot be used to create a cause of action where none existed apart from the estoppel. Estoppel must relate to the existing legal rights of the promisor (there must be a preexisting legal relationship between the parties under which the promisor promises to give up some of his rights under that relationship). The effect of the estoppel is then to prevent the promisor from going back on his promise where the promisee has acted upon it to his detriment
What is the basic principle of estoppel?
A person who makes a representation of existing fact which induces the other party to act to his detriment in reliance on the representation will not be permitted subsequently to act inconsistently with that representation
Describe a case that highlights the use of the doctrine of a waiver
Hickman v Haynes (1875) LR 10 CP 598.
The parties entered into a contract for the sale of goods. The buyer then requested the seller to delay the delivery of the goods. The seller agreed and delivered on a later date, but the buyer refused to accept it. The seller brought an action for damages. The buyer argued that the seller could not succeed because he was in breach of contract in failing to deliver on time. The court held that the buyer had waived his right to demand delivery on time and he could not reverse it without giving reasonable notice
What is the leading case on promissory estoppel?
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439. Oct 1874, the claimant landlord gave the tenant 6 months notice to repair the premises. The landlord was entitled to the forfeit of the lease if the notice was not complied with. The tenant agreed, but asked if the landlord would like to buy the defendant’s interest in the property and that he would defer any repairs until he has heard back. By Dec 31st, negotiations about the price had broken down and the tenant told the landlord he would start the repairs. The landlord sought to forfeit the lease because the tenant had not carried out the repairs within 6 months of his original notice. The House of Lords held that the tenant was entitled to equitable relief against forfeiture of the lease on the ground that the running of the 6 month period was suspended during the negotiations to purchase the leads and did not recommence until the negotiations broke down.
Why is this promissory estoppel? It was held that the landlord had led the tenant by his conduct to believe that the landlord would not enforce forfeiture
What is promissory estoppel?
The legal principle that a promise is enforceable by law, even if made without formal consideration when a promisor has made a promise to a promisee who then relies on that promise to his subsequent detriment
In Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130, what is the given definition of promissory estoppel?
Denning J:
‘where, by words or conduct, a person makes an unambiguous representation as to his future conduct, intending the representation to to be relied on and to affect the legal relations between the parties, and the represented alters his position in reliance on it, the representor will be unable to act inconsistently with the representation if by so doing the representee would be prejudiced’
What 3 cases highlight the emergence of promissory estoppel?
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130
Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643
Describe Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329 and state why it is important
It was 1 of the cases in the emergence of promissory estoppel.
Collier and 2 business partners were loaned money by Wright (Holdings Ltd). That debt was to be paid off in monthly installments. After 18 months, Wright allegedly told Collier that, if he carried on paying, he would be considered a separate debtor and they would go after his business partners separately. Collier continued to pay off a 1/3 share. As his partners had become bankrupt, Wright demanded the full balance (plus interest) from Collier. The Court of Appeal held that although applying Foakes v Beer and Re Selectmove there was no consideration provided by Collier for the promise made by Wright, Collier had a real chance of establishing that promissory estoppel operated to distinguish Wright’s right to the balance. The demand was thus set aside
What are the issues raised by Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ 1329, [2008] 1 WLR 643?
Arden LJ argues that a debtor who pays (as distinct from one who merely promises to pay) the promised part of the debt will now be able to rely upon promissory estoppel in order to defeat a claim brought by the creditor to recover the balance of the debt. Care must be taken to ensure that creditors do not inadvertently lose their rights to recover the full value (a concern that is raised more clearly by Longmore LJ)
What are the 5 conditions that need to explored in terms of promissory estoppel?
- Promissory estoppel is not a cause of action
- Does promissory estoppel require reliance or detrimental reliance?
- Promissory estoppel cannot be founded on a promise induced by the promisee’s inequitable conduct
- Does promissory estoppel extinguish or suspend rights?
What cases highlight that, where there is no pre-existing legal relationship, invoking estoppel would create a new cause of action and therefore cannot be done
Combe v Combe [1951] 2 KB 215
What case is the first to make clear that promissory estoppel does not create a cause of action? It is a pre-existing contractual or legal obligation which is then modified.
Combe v Combe [1951] 2 KB 215
Shows that the High Trees principle does not create a cause of action.
On a divorce, the husband (defendant) agreed to pay his wife £100 per annum. He made no payments. Several years later she sued for the arrears (£675). She was time-barred beyond 6 years, but was entitled to 6 years (£600). Although she had provided no consideration for the promise, the High Trees principle applied. The decision was overturned by the Court of Appeal, who held that the High Trees principle does not create a cause of action - so it relied on whether the wife had provided consideration and made it an enforceable agreement, which she had not
What is the leading authority where the effect of estoppel by convention may be to create a cause of action?
Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84. The claimant requested the defendant to make a loan to AIP’s subsidiary (ANPP) in the Bahamas. AIP agreed with the bank, under a guarantee, that it would pay on demand all moneys owed by ANPP. No loan was directly made under that arrangement but $3,250,000 was loaned at a later date. AIP and the bank assumed that the guarantee applied. When the bank sought to enforce the guarantee (by withholding other monies) in respect to non-payment of the ANPP loan, AIP argued it was not liable. It was held that, while as a matter of interpretation of the contract the guarantee did not apply, AIP was estopped from denying that it did so apply. Thus stated, is it not the estoppel that creates the cause of action?
That said, the generally accepted view seems to be that estoppel by convention cannot create a cause of action
What does Thorner v Major [2009] UKHL 18; [2009] 1 WLR 776 tell us about proprietary estoppel?
That the 3 ingredients are:
- A representation or assurance made to the claimant relating to the acquisition of an interest in property
- Reliance on that representation or assurance by the claimant (that must link to number 1)
- Detriment to the claimant in consequence of his (reasonable) reliance on that representation or assurance
Describe Pascoe v Turner [1979] 1 WLR 431 and state why it is an important case
The claimant and defendant lived together. The claimant left, but told the defendant that the house and everything in it were hers. She then spent £230 in repairs. The claimant decided he wanted the house and sued. The defendant counterclaimed for a declaration that everything in the house, and the house itself, was hers. Her claim succeeded. Even though she had not provided any consideration, she had acted to her detriment in reliance upon his promise.
It is important because the effect of the estoppel was clearly to create a new cause of action. There was no preexisting legal relationship and yet the promise of the claimant was enforced, despite the absence of consideration
What case exhaustively analysed the relationship between estoppel and consideration?
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Maher owned property and was negotiating with Waltons Stores for a lease, where the latter wanted an existing building demolished and a new one built. Maher relied on these representations (no contract was signed) demolished the building and began building a new one. Waltons Stores instructed its lawyers to slow the deal but allowed Maher to continue to believe a deal would be struck. Waltons Stores called off the deal, Maher sought to enforce the agreement. The High Court held that Maher was permitted to believe that any formal contracts were formalities and they could rely on promissory estoppel (to create a cause of action)
Describe Crabb v Arun District Council [1976] Ch 179 and state why it is an important case
Shows that that proprietary estoppel can create a cause of action.
The claimant owned land along the side of which was a road owned by the defendant. The claimant had a right of access to the road at point A and a right of way over the road. He wished to divide his land, but would need another right of access at point B. At a meeting between the claimant, his architect and the defendant’s representative, an agreement in principle was reached that the 2nd access point would be given. The defendant put gates at points A and B, set up a boundary fence and sold off part of the land that needed access from point A. The defendant then fenced off point B and refused access until the claimant paid for it. The claimant brought an action seeking, first, a declaration that he had a right of access at B and then an injunction restraining the defendant from interfering with those rights. The Court of Appeal, applying as a cause of action a form of estoppel (proprietary) held that th`e action should succeed
Mere reliance upon a promise will not suffice to bring promissory estoppel into play; something more must be established. What did Waltons Stores v Maher hold that that ‘something more’ could be?
‘Found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party’
What is the problem with enforcing a remedy in estoppel cases?
Whether the remedy should protect the expectation or reliance interest. If it is the latter, there is a conflict with the doctrine of consideration
What case looks at whether promissory estoppel extinguishes or suspends rights?
Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761. Tool Metal (TMMC) owned the patents over certain hard metal alloys. By a contract made in 1938 they granted the defendants (TECO) a licence until 1947 to deal in those alloys. If TECO’s use in any month exceeded a quota, TECO was to pay TMMC compensation. In 1942, triggered by the war, TMMC agreed to suspend payment of compensation until a new agreement was reached. The draft of an agreement, which contained a provision for the revival of compensation, was rejected by TECO. In 1945 TECO brought an action against TMMC for breach of contract and fraudulent misrepresentation in relation to the 1938 agreement. TMMC counterclaimed for the compensation payable in respect of use of the alloys after 1 Jun 1945. This failed on the basis that, while TMMC had promised only to suspend the payment of compensation, it was binding in equity until terminated by reasonable notice, which wasn’t given. TMMC commenced a new action in 1950 claiming compensation as from Jan 1947, arguing that the making of the counterclaim in Mar 1946 constituted reasonable notice. The House of Lords held that that argument should succeed.
TMMC could not enforce the compensation payments during the war years but could enforce them on termination of the war. They were estopped form going back on their promise to waive the payments in equity. Generally promissory estoppel will merely suspend rights rather than extinguish them. However, where periodic payments are involved and a promise has been made to reduce the payments because of pressing circumstances which are not likely to persist, promissory estoppel can be used to extinguish legal rights
What cases highlight that promissory estoppel is not a cause of action?
Combe v Combe [1951] 2 KB 215
Baird Textiles Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737
What cases highlight that promissory estoppel is a cause of action?
Crabb v Arun District Council [1976] Ch 179
Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
What case highlights that promissory estoppel cannot impose positive obligations? I.e. it cannot be used to create a positive cause of action, it can only be used as a defence?
Baird Textiles Holdings Ltd v Marks & Spencer plc [2001] EWCA Civ 274, [2002] 1 All ER (Comm) 737.
The defendant gave notice that, from the end of the current production season, they would not require garments from the claimant. Baird sued based on: 1. There was an ongoing contract that contained an implied term that reasonable notice was required to terminate - so M&S was in breach of contract. That was resolved in the defendant’s favour, as the contract was too uncertain. The alternative argument was that M&S was estopped from terminating without reasonable notice. The court noted here that even if there was an estoppel, it would not held Baird, who needed to establish that M&S were bound to keep acquiring clothing from them. However, promissory estoppel cannot establish positive obligations
To found a promissory estoppel there has to be a clear and unequivocal promise/representation as to the intended actions of the defendant. What case highlights this?
Woodhouse AC Israel Cocoa SA v Nigerian Produce Marketing Co Ltd [1972] AC 941. The defendant sellers and the claimant buyers had entered into a contract for the sale of cocoa. This provided for payment in Nigerian pounds in Lagos. The buyers asked if the sellers would be prepared to accept payment of sterling instead. The defendant sellers agreed in a letter. Sterling was then devalued so that it was worth 14-15% less than the Nigerian pound. The buyers argued that they were entitled to pay at the rate of 1 pound sterling for 1 Nigerian pound, which would have meant the sellers bore the loss in value. The buyers based their argument on the letter being either a variation of the contract supported by consideration or as founding a promissory estoppel. In dismissing the buyer’s appeal, the House of Lords held that both arguments failed because it was not clear that the promise to accept sterling meant to refer to measurement of the amount owing as opposed to the currency in which payment should be made
What is detrimental reliance?
When a party is ‘induced’ to rely on another’s promise or commitment resulting in a detrimental outcome to the party
What is reliance?
If a party changes his position in reliance on the other’s statement, claim or promise then the person upon whom the actor relied is entitled to contend there is a contract he/she can enforce
What case shows that there was no reliance (and therefore no promissory estoppel)?
Société Italo-Belge Pour le Commerce et l’Industrie S.A. v Palm and Vegetable Oils (Malaysia) Sdn Bhd, The Post Chaser [1981] 2 Lloyd’s Rep 695.
The claimant sellers contracted to sell palm oil to the defendant buyers. Under the contract, the sellers were to give notice to the buyers of the ship’s sailing - but, in breach of contract, they were a month late in doing so. The buyers made no protest and requested the sellers to transfer the documents to sub-buyers. Two days later, the sub-buyers and buyers rejected the documents because of the late notification. The sellers were therefore had to sell the oil elsewhere at a lower price. In an action for damages by the sellers, they had argued that the buyers had waived their right to reject the documents.
Although Goff decided that the buyers had made an unequivocal representation that they were waiving their rights to insist on a prompt notification, he held that the sellers had not suffered any prejudice by reliance on that representation, so the buyers could go back on it. I.e. Société Italo-Belge did represent that they were waiving their right to reject the tender, but in order for Palm and Vegetable Oils to use estoppel, they would have had to rely on that representation in a way which would render it inequitable for Société Italo-Belge to enforce their rights. Referring to W. J. Alan & Co v El Nasr Export & Import Co. and the principle that detrimental reliance is not necessary, Goff found nothing on the evidence that there was any change in actions by the sellers which would make enforcement of the buyer’s rights inequitable. As there was no reliance interest, the complete elements of promissory estoppel were absent and thus he found for the Société Italo-Belge
What case shows that detrimental reliance is not an essential element of promissory estoppel?
W.J. Alan & Co. v El Nasr Export & Import Co. [1972] 2 QB 189. The sellers (WJ Alan) were Kenyan producers of coffee. They contracted to sell coffee to the buyers (El Nasr Export) at 262 Kenyan shillings per hundredweight. There were to be 2 shipments and payment was to be made by letter of credit in Kenyan shillings. In fact, the letter of credit opened by the buyers was for payment in sterling instead. The sellers made no objection to this and presented invoices in sterling. At the time of the 1st shipment this made no difference. However, after the sellers had presented an invoice for the 2nd shipment, sterling was devalued. Payment under the credit was made in sterling but the sellers claimed an additional sum to bring it up to 262 Kenyan shillings per hundredweight. El Nasr raised promissory estoppel in their defence in that accepting the instalment in pound sterling and redrafting the credit agreement without changing currency there was an implied promise that they would not revert to Kenyan shillings. W. J. Alan argued that El Nasr had not acted to their detriment in reliance of this promise as they had gained a benefit.
The appeal was allowed. Megaw held that there had been a variation and that W. J. Alan had waived their right to be paid in shillings. Denning agreed. W. J. Alan could not withdraw this waiver. On the subject of detriment, there was no support in the case law for that requirement, simply that the other party had relied on the decision and altered their position
Can promissory estoppel be founded on a promise induced by the promisee’s inequitable conduct? What case highlights this?
No, it cannot. D & C Builders Ltd v Rees [1966] 2 QB 617. The claimants were a small firm of builders that were engaged to do some work for Mr and Mrs Rees. The defendants paid £250, leaving £483 left to pay. The claimants requested the money several times, with no reply, and were now in dire financial straits (which the defendants knew). Mrs Rees said they were only going to pay £300 in full settlement, or nothing. Saying that they had no choice, the claimants accepted this and signed something saying that it ‘satisfied the debt’. Then they sued for the remainder of the balance. D & C were successful at trial (because the defendants made a threat to break the contract (by paying nothing)).
I.e. the test for promissory estoppel is: a promise, that is both intended to be and actually is acted upon. If in negotiations D & C make a promise to accept less for immediate payment (a promise/accord), that was intended to be acted on (by Mrs Rees) and she did indeed pay (acted on the promise) then all elements of promissory estoppel are present (for Mrs. Rees). However, the court says theirs was no real accord because she used economic duress.
