Chapter 1.2 Flashcards
Analyse the legal issues that relate to the creation of commercial agreements with customers or suppliers
Name the 6 conditions required for a contract to come into being
- Offer
- Acceptance
- Consideration
- Intention to create legal relations or intention to be legally bound
- Capacity to contract
- Be legally binding
Name 2 countries with a common law legal system
UK and Australia
What does Sharia law use?
Decisions made by the courts to steer legal judgement alongside application of prevailing legislation
Name 2 countries with a civil law system
Austria and Poland
What kind of legal systems does South Africa have?
A mixed system which is a mix of civil law, legislation and common law
What are civil law countries more likely to have?
Updated regulations to take account of modern communication methods than those still basing rules of contract on case law
Name the only 2 situations where case law is updated
- When a relevant case comes to trial
- When the governing authorities specifically decide to change the law by statute, officially terminating the rules which have previously evolved
What does ITN stand for
Invitation to negotiate
What is a key element of a contract?
The concept of offer and acceptance
True or false… if there is no offer there can be no acceptance
True
Does sending out an RFQ or ITT constitute as an offer to make a purchase?
No
Is invitation to negotiate and invitation to treat the same?
Yes
What is an ITN/invitation to treat?
A seller is essentially show casing a product or service that is available for sale and inviting a buyer to submit a price
Is an invitation to treat or negotiate an offer?
No
What can represent an offer
A buyer’s responses to the invitation to treat
Name 4 common examples of invitation to treat
- Advertisement of goods or services for sale
- Displaying goods for sale in a shop, such as in a window, or on a shelf
- Auctions or e-auctions
- Online catalogues or websites
Offeror
The party making an offer
Offeree
The party receiving the offer
Define Offer
A full statement of what the offeror is willing to provide and the terms by which they are willing to provide it
Finish this statement. If something is not an offer then by definition…
It cannot be accepted, so even if an offeree appears to accept it, no contract is created
How have definitions of actions which are not offers evolved?
Through case law
Plaintiff
An individual, company or institution that brings a complaint against another individual, company or institution in a court of law
Name the 4 actions that are not offers
- Invitation to negotiate or invitation to treat
- Declaration of intention
- A ‘mere puff’
- Provision of information
Which 2 pieces of case law are relevant to invitation to negotiate/invitation to treat not constituting as an offer
- Fisher v Bell (1961)
- Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953)
Which piece of case law is relevant to declaration of intention not constituting as an offer
Harris V Nickerson (1872)
Which piece of case law is relevant to a ‘mere puff’ not constituting as an offer
Carlill V Carbolic Smoke Ball Company (1892)
Which piece of case law is relevant to the provision of information not constituting as an offer
Harvey V Facey (1893)
Describe Fisher V Bell (1961)
A flick knife was displayed in a shop window. The shopkeeper was charged with offering an offensive weapon for sale (a criminal offence). He was acquitted on the basis that the display was not an offer, but only an invitation to treat, which at the time was not an offence
Describe Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953)
They alleged that the supermarket style operation breached rules on the sale of controlled pharmacy products. It was held that the display of the products on the shelves was an invitation to treat, and the offer to buy was made when the purchaser took the products to the cash desk to pay. Provided there was a pharmacist present at the cash desk, the rules were complied with
What does invitation to treat/negotiate state?
That a person or organisation is willing to enter into discussions about the possibility of a deal, but does not confirm a willingness to be bound by any terms mentioned
What is a declaration of intention
This is defined as an aim or plan. By its nature it is not definite and cannot therefore be seen as an offer
Describe Harris V Nickerson (1872)
An auction sale was advertised, but then cancelled. The plaintiff had travelled to the sale and tried to claim his expenses. It was held that the advertisement was not an offer that he could accept by making the journey
What is a ‘mere puff’ (or boast)
This is anything which is not intended to be taken literally or too seriously, such as many advertising slogans. There is a questionable line, however, between what is merely a boast and what a reasonable person might expect to take seriously
Describe Carlill V Carbolic Smoke Ball Company (1892)
The Carbolic Smoke Ball company placed an advertisement stating that they would pay £100 to any who caught influenza after using their smoke balls, and as evidence of good faith they had placed £1000 deposit at a named bank. Mrs Carlill used the product but still caught influenza. She claimed her £100, which the company declined to pay. One of the defences put forward was that the advertisement did not constitute an offer. It was held that a reasonable person would take the promise seriously and therefore it was indeed an offer which bound the company
Describe Harvey v Facey (1893)
The plaintiff sent a telegraph asking ‘Will you sell us Bumper Hall Pen? Telegraph lowest price.’ The reply was ‘Lowest price for Bumper Hall Pen £900’. It was held that this was merely an answer to a request for information and not an offer to actually sell at that price. In essence, it was an indication simply that they would definitely not sell for any less - they could still seek to get more.
When can an offer only exist?
If it is communicated to the other party
What is the nature of an offer
That it is capable of being accepted or declined. Clearly a party cannot make that choice if they are unaware of the offer
Describe Taylor V Laird (1856)
A sea captain resigned in a foreign port and his employers were duly notified. He later worked on the ship on its return home, but the company declined to pay him. It was held that they were entitled to withhold pay, since his offer to assist had not been communicated and they had not had the option of declining
Specific performance
This is where a court orders a party in breach of contract to perform exactly what it is required to do under the contract. Specific performance might be ordered in addition to damages. The remedy exists so that parties to a contract cannot simply get out of their obligations by accepting the financial cost of damages
Name 6 ways in which an offer will end i.e. cease to be capable of being accepted
- Withdrawal
- Lapse
- Death
- Rejection
- Failure of conditionality
- Acceptance
What’s another name for withdrawal
Revocation
What is withdrawal/revocation?
The offeror can simply decide not to proceed and withdraw the offer. An offer can be withdrawn at any point up to the point of acceptance, even if there has been a promise to keep it open for a specific length of time
If the agreement to hold the offer open for a given time period is a contract in its own right, is it still possible to withdraw the offer?
Yes but doing so is likely to be a breach of contract
Routledge V Grant (1828)
Grant offered to buy Routledges house and gave him 6 weeks in which to accept. Before the period elapsed he withdrew the offer. It was held that he was entitled to do so. Like the offer itself, withdrawal must be communicated. However, that communication does not have to be direct. The communication can be by virtue of an action such s selling to someone else. It can be communicated by any reliable source
Dickinson Vs Dodds (1876)
The defendant had offered to sell the house, but before the plaintiff had accepted, he sold it to another party. The plaintiff heard of this from a friend. It was held that because the source of information was reliable, the offer had been revoked and could not now be accepted
Name 2 pieces of case law relating to withdrawal/revocation
- Routledge V Grant (1828)
- Dickinson V Dodds (1876)
Defendant
An individual, company or institution that is being sued or is accused in a court of law
Winding up
The process of liquidating a company, whereby the company will stop doing business and employing people
Describe a lapse
If a time limit is set for an acceptance and the offer is not accepted within that time it will lapse: that is, cease to be valid.
What happens where no express expiry limit is stated?
An offer will lapse after a reasonable time. What constitutes as reasonable will depend on the circumstances
What case law can be associated to lapse?
Ramsgate Victoria Hotel V Montefiore 1866
Describe Ramsgate Victoria Hotel V Montefiore 1866
Montefiore offered to buy shares in the commpany in June. He had no response to his offer until November, by which time he was no longer interested. It was held that the offer had lapsed and he was not obliged to purchase the shares
Describe death in relation to contracts
The death of either party before acceptance will terminate the offer. By analogy it is probably also true, though not actually tested in the courts, that the winding up of a company would have the same effect
Describe rejection in relation to contracts
Once a party has rejected an offer, they cannot later decide to accept it. A counter offer is a rejection. If you receive a counter after an offer you are no longer obliged to hold the original offer
Describe Hyde V Wrench 1840
There was an offer to sell a farm at £1000. A counter offer of £950 was made but it was rejected. The buyer tried to revert to the original offer of £1000 but it was held that the seller could reject this since the original offer itself had been rejected.
Describe another form of rejection
Any acceptance made subject to conditions other than those originally offered
Neal V Merrett 1930
The defendant offered to sell a parcel of land for £280. The plaintiff accepted the offer and paid £80, promising to pay the rest in £50 installments. It was held that there was no contract because the offer did not include such credit terms
Does a rejection need to be communicated?
Yes
What would happen if a rejection was sent in writing but then the party changed its mind and telephoned to accept?
Provided that the phone call was made prior to the letter arriving, the acceptance would stand.
Name 2 pieces of case laws relating to rejection
- Hyde v Wrench 2840
- Neale V Merrett 1930
Without prejudice
An expression used when negotiating a contract to enable an offer to be preserved while other discussions occur without fear of the offer being lost through an interpreted counter-offer
Express terms
Contractual terms which are specifically stated in contract documents
Implied terms
Contractual terms that exist in legislation or are common practise and are therefore given but are not written within the contractual documentationn i.e. the law of the land. By default, a contract must comply with the laws of the land to be legally binding
Diminished capacity
A persons inability to enter a contract e.g. because they are a minor, are suffering from mental health issues or are under the influence of drugs
What should you do when exploring an offer and negotiating terms?
The parties should state that discussions are taking place without prejudice
What does the phrase ‘without prejudice’ indicate?
That the offer is protected in the subsequent discussions and that the parties can return to the offer without fear of it having been revoked or lost, or deemed to have been replaced by a counter offer
What’s a failure of conditionality?
If an offer is subject to certain conditions and those conditions are not fulfilled, the offer will lapse. the conditions may be expressed terms or implied terms
Financings Ltd V Stimson 1962
Stimson offered to take a car on a hire purchase agreement. Before the offer was accepted, the car was stolen and damaged. Financings accepted the offer, but it was held that it could no longer do so, because there was an implied condition that the car being hired would be in substantially the same condition at the point of acceptance as it was when the offer was made
What case law relates to failure of conditionality
Financings Ltd V Stimson
Describe acceptance
Once an offer has been accepted it comes to an end. This may appear obvious but an offer may be made to a group of people but only be capable of being accepted by one of them. Once one person has accepted the offer, it ceases to be available to the others
Name 4 conditions that acceptance is subject to
- Acceptance can only occur whilst the offer is open
- It must be absolute and unconditional
- Acceptance must be intentional
- It cannot be made by someone with diminished capacity
Subject to contract
Heading used on letters, particularly in land transactions, to indicate that matters are still being discussed and that the letter must not be taken as a formal offer or an acceptance of any terms referred to within it
Letter of intent
Letter issued by a purchaser indicating that they intend to accept a tender, usually subject to certain preconditions having been met, such as obtaining any legal or financial consents
What are subject-to-contract letters intended to indicate?
That there is not yet a contract being created
Where are letters of intent common?
The construction industry
Is a declaration of intention sufficient to create an offer?
No
What creates the contract?
Acceptance
How should you avoid any unintended implications of the concept of ‘place’ in contractual terms?
By categorically stating within the contract terms which legal and judicial system shall apply by reference to the relevant country’s courts
What is acceptance by performance?
Acceptance does not need to be explicit but can be implied by actions
Title to goods
Legally recognised ownership
Can a buyer assume title to goods?
Not if the seller is silent about an offer made, even if the buyer has made a payment - particularly if that payment did not require action on the part of the seller
Describe Felthouse V Bindley 1862
After some ongoing negotiations about the sale of a racehorse the plaintiff eventually wrote ‘If I hear no more about him, I consider the horse mine at £30 15s’. As it turned out, he did indeed hear ‘no more’. Nevertheless and despite the fact that the seller had actually fully intended to sell at that price, it was held that there was no sale completed
When can an offer only be accepted?
If it is still open. The acceptance must be unconditional
Name the 2 rules that override the need for acceptance to be communicated
- The person making the offer can simply dispense with the need for a formal acceptance (decide they do not require it)
- The mailbox rule. This principle holds that if a letter accepting an offer has been properly posted, then it will be effective from the date of posting, even if it never arrives.
What are the 2 conditions for the mailbox rule to apply
- It must have been obvious to both parties that the acceptance would be sent in this way
- There must be evidence of posting
What does the mailbox rule only apply to?
Acceptance. It does not apply to offers or withdrawal of offers. This creates a potential problem itself
Describe Byrne & Co V Leon Van Tien Hoven & Co 1880
Involved a firm in Cardiff selling tin plate to a company in New York. The negotiations were all done by letter. Having made the offer to sell, the seller then sent another letter withdrawing it. While the second letter was in transit, the purchaser sent a letter accepting the offer. It was held that the acceptance was valid because it was sent before the withdrawal was received.
Was the postal rule ever applied to the use of telephone or telex (an early electronic form of communication)?
No
Describe Entores v Miles Far East Corporation 1955
An acceptance sent by telex from Amsterdam was held to be effective only when it arrived in London. A cynical view might be that this departure from the accepted rule - that an acceptance was valid when sent - was the result of a desire to have the acceptance take effect in London, which would bring the contract within the jurisdiction of the English courts
What piece of case law relates to the mailbox rule?
Entores v Miles Far East Corporation 1955
Does the mailbox rule apply in respect to emails?
The Law Society of England and Wales suggests it does, as an email formally implies intention and is covered by associated ecommerce legislation developed over many years
What piece of case law made electronic signatures more widely recognised?
Neocleous v Rees 2019
Does the mailbox rule apply in countries with civil law codes?
No
Vienna Convention
The United Nations Convention on the International Sale of Goods - a multilateral treaty that establishes a uniformly recognised framework for international trade
What does the Vienna Convention state?
That the postal rule does not generally apply but it does retain the part of the rule which says an offer cannot be withdrawn after an acceptance has been sent, whether or not the acceptance is received
Name 3 examples of being very clear on how acceptance of offers will be communicated by setting out deemed receipt protocols
- The tender will be accepted by an e-mail copy of a letter duly signed by the authorised signatory
- The acceptance will be effective on receipt and, in the absence of evidence of receipt, shall be deemed to have been received within one hour of being sent, unless a non-deliverable message has been received by the sender
- The original of the letter will be sent by registered mail, but for avoidance of doubt, the e-mail acceptance shall be effective irrespective of receipt or otherwise of the hard copy
Are contracts bargains?
Yes (in legal terms). One thing given in exchange for another
What is known as a consideration?
The thing given in exchange
In commercial contracts, what can the consideration be thought of?
As the payment for the goods or services being provided. It will normally be a financial payment, but in legal terms it does not have to be
Peppercorn rent
A nominal or token consideration used to form a legally binding contract. This originated from a contract to hire harbour space during the spice trades in the 17th century
Can payment in kind (in goods or services) be consideration?
Yes
What must there be for a contract to exist?
There must be consideration and it must have value but does not need to be adequate. no consideration means no contract
Name 3 things that are not classed as consideration
- Past consideration
- A promise to perform an existing obligation
- A promise given to a third party
Describe past consideration
Something which has already been done or given cannot act as consideration
Describe a promise to perform an existing obligation
If the existing obligation is a legal one, it must be performed whether or not the goods or services at issue are delivered, so it cannot be said to be in exchange for them
Describe a promise given to a third party
This is not normally a consideration, and is based on a concept known as privity of contract, namely that a contract is a private arrangement between the parties to it. Anyone who is not a party to the contract, even if they are a beneficiary of it, cannot sue if the terms of the contract are breached.
Name 2 pieces of case law relevant to past consideration
- Eastwood V Kenyon 1840
- Roscorla V Thomas 1842
Eastwood V Kenyon 1840
Eastwood had been the guardian of a young girl, spending money on her education and general wellbeing. When she came of age she promised to repay her guardian. When she married Mr Kenyon he repeated the promise. No repayment was made. It was held that Eastwood could not recover the costs because the consideration for them was in the past. Mrs Kenyon had been brought up and educated without any promise of recompense
Roscorla V Thomas 1842
Roscorla bought a horse from Thomas. After the purchase, Thomas promised that it was ‘sound and free from vice’. It turned out that the horse was vicious. Roscorla sued. He lost the case because no additional consideration had been given in exchange for the warranty that the horse was well-behaved. He had already completed the purchase in the absence of that assurance
What piece of case law is relevant to a promise to perform an existing obligation?
D & C Builder v Rees (1966)
D & C Builder v Rees (1966)
Rees owed £482 to D&C for building works, which he was refusing to pay. Eventually the builders agreed to take £300 in full payment. The courts held that they were still entitled to sue for the remaining £182 because there had been no consideration for the promise to settle for less
What piece of case law is relevant to a promise given to a third party
Tweddle v Atkinson 1861
Tweddle v Atkinson 1861
John tweddle’s son, William, was engaged to Mr Guy’s daughter. Both fathers agreed in writing between them to pay sums of money to William Tweddle. Mr Guy died before payment was made and his executors refused to pay. William Tweddle sued. It was held that because he was a third party to the original contract (between his father and Mr Guy) he had no rights to enforce it
Name 2 things that are classed as a consideration
- Implied consideration
- A promise to perform over and above an existing obligation
Describe implied consideration
If the detail of a promise to pay is expressed after the provision of goods or services, but there is an implication that such a promise would be forthcoming, this may (depending on the facts) be valid consideration
What piece of case law relates to implied consideratipn
Stewart V Casey 1892
Stewart V Casey 1892
Stewart was joint owner of some patents. he asked Casey to promote them, which he did, After the work was done, Stewart promised Casey a share in the patents in payment. It was held that this was enforceable, because the original request for the work carried an implied promise to pay for it, and a letter indicating that payment would be solely by way of shares set the detail on the payment
Describe a promise to perform over and above an existing obligation
This is a consideration. A modern analogy would be police presence inside football grounds before, during and after matches, which has to be paid for by the football clubs
What piece of case law relates to a promise to perform over and above an existing obligation
Glasbrook Bros v glamorgan county council 1925
Glasbrook Bros v glamorgan county council 1925
Glamorgan police were offered £2200 to provide a special guard for a coal mine during a strike. Glasbrook Brothers (the mine owners) then refused to pay. It was held that payment was due because the guard was over and above the police force’s normal duties to protect property
What does the law make a distinction between?
Sufficient consideration and adequate consideration
What does sufficient consideration mean?
That consideration is capable of having a monetary value and does not fall into any of the categories in table 1.9 that are defined as being ‘not’ consideration
What 6 requirements must consideration meet to the test of law?
- It must be future or present consideration
- It must be something which the provider is not already obliged to perform or provide
- It must be provided from one of the contract parties to the other
- It must have (or be capable of having) monetary value
- It does not need to be ‘adequate’
- It must be more than a vague promise
What does adequate consideration relate to?
Whether or not the payment is a reasonable or fair amount to be given in the exchange
When may governmental and legal authorities seek to intervene?
Where the balance of power is clearly not equal, particularly in contracts between large companies and individual consumers
Privity of contract
A legally binding contract between two or more parties but which is private to those parties. Being private means that other external parties cannot claim damages from the contract directly
Collateral warranty
An agreement where a subcontractor guarantees to fulfil an obligation
Deed
A deed is usually an agreement for the transfer of an asset, for example, land. It differs from a contract in that there may not be any requirement for any consideration
What has addressed the concern about the inability of beneficiaries to enforce contracts that they are not party to?
The Contract (Rights of Third Parties) Act 1999
What does the Contract (Rights of Third Parties) Act 1999 give third parties the right to?
The right to enforce a contract, if the contract itself does either of the following:
1. Gives them the right to do so
2. States that it is intended to confer a benefit on them
Which piece of case law relates to the rights of third parties
Donoghue v Stevenson 1932
Donoghue v Stevenson 1932
Where a decomposing snail was consumed from a bottle of ginger beer. This case formed the basis of negligence by an injured third party not subject to a contract with the offending manufacturer
When is collateral warranty only legally binding?
If executed as a deed
Name a major exception when consideration is not required to form a contract
Where the promise is made by way of a deed
Do collateral warranties generally involve consideration?
No - therefore they are only effective if executed as deeds
What’s a minimum consideration?
A very small amount of money
Why may some warranties introduce a minimum consideration?
To avoid the need for them to be deeds
Why may you avoid the need for warranties to be deeds?
because most contracts have a liability period of six years, but those executed as deeds carry 12 years liability
Is consideration required when the promise is made by way of a ‘deed’?
No
When is a contract a deed?
If it explicitly says it is
Intention to create legal relations/to be legally bound
Intending that an agreement should be capable of being enforced via the courts. Where possible, a demonstrable sign of intention is always preferable
What is a further requirement for a contract to exist?
That it is intended to be a contract
Do the expressions, ‘intention to create legal relations’ and ‘intention to be legally bound’ mean the same thing?
Yes - they can be used interchangeably
Are commercial arrangements generally assumed to be intended to be enforecable?
Yes
Are domestic agreements generally assumed to be intended to be enforecable?
No
What 2 pieces of case law relates to domestic agreements are generally not assumed to be intended to be enforecable.
- Balfour V Balfour 1919
- Simpkins V Pays 1955
Balfour V Balfour 1919
Mr balfour promised his wife an allowance when he left to work abroad. After a while, the payments stopped. The courts held that this was not a contract and Mrs Balfour could not insist that they be continued
Simpkins V Pays 1955
Three people shared a house: the owner, her grandaughter and a paying lodger. Every week they entered a newspaper competition. Although the entries were in the name of the house owner, all three contributed to the entries, and it was understood that they would share any winnings. When an entry did win, the house owner refused to share. The courts held that this was in the nature of a contract that was intended to be binding
What 2 pieces of case law relate to the fact that in a commercial setting, it is assumed that there is an intention to be bound, unless there is strong evidence to the contrary
- Rose and Frank V JR Crompton and Bros Ltd 1925
- Appleson V H Littlewood Ltd 1939
Rose and Frank V JR Crompton and Bros Ltd 1925
Was an agreement for an English company to use a New York firm to market its carbon paper in America. The agreement included the wording: ‘This arrangement is not entered into… as a formal or legal agreement, and shall not be subject to the legal jurisdiction in the Law Courts. When the English firm withdrew, the American company found that it could not enforce the contract
Appleson V H Littlewood Ltd 1939
Appleson claimed to have won on the football pools (a form of betting on the outcome of football matches) and sued to recover his money. The courts held that Littlewood Ltd did not have to pay because the entry form included the words ‘binding in honour only’. This meant it had a strong moral obligation to pay, but no legal obligation
Age of maturity
Depending on the legal system and context, the age of maturity can vary dramatically. For example, in English and Welsh law, a couple can use social media platforms legally from the age of 13, get married at the age of 16, and take legal responsibility of certain vehicles at 17. However, they are unable to toast their marriage in a bar or get a tattoo until they are 18.
Ultra Vires
A limitation of legal powers
What 2 things can also be referred to as ‘the capacity to contract’
- Legal capacity
- Legal competency
Name 3 categories of people who do not have the capacity to contract
- Infants/minors
- People suffering from mental health issues
- People under the influence of alcohol or drugs
If a person without capacity enters into a contract, will it be legally binding?
Not for them, however it may be binding on the other party
Do the rules regarding capacity to contract apply to people and companies?
They apply to human beings but do not apply to companies or public authorities
Are all commercial entities deemed to have a capacity to contract?
Yes
What does the latin term ultra vires mean?
Beyond powers
Articles of incorporation
The legal document creating a commercial company and setting out its purpose
Are commercial companies able to do anything beyond what is set out in their articles of incorporation?
No
Explain ultra vires in relation to the public sector
Public sector organisations often have the limits of their duties and obligations set out in law. Act of parliament, or the equivalent, will describe the following:
1. What the body is intended to do
2. What the body is required to do
3. What the body is able to do in order to meet the needs of the two points above
What is a problem with the ultra vires rule?
The second party to the contract will not necessarily know that the breach is occuring
What piece of case law relates to ultra vires
Credit Suisse v Allerdale Borough Council 1997
Credit Suisse v Allerdale Borough Council 1997
Allerdale Borough Council, a public authority, wanted to build a swimming pool for the local residents. It was unable to borrow the funds to do so. It set up a separate company to build and run the facility, and take out the necessary loan for the project. Allerdale guaranteed the loan. The company collapsed. Allerdale was able to escape having to repay the loan by arguing that its own actions in guaranteeing it were unlawful. The courts agreed, stating that the council had no power to set up the company in the first place, and that even if it had had that power, it would still not have had the power to guarantee any loans taken out by said company
Why have ultra vires rules slowly been eradicated in the UK?
Because you could enter into a contract knowing full well that it could not be held to it
Battle of the forms
A series of forms such as orders, delivery notes, etc, issued in sequence by purchaser and supplier, each containing terms that appear to override those on the previous document
Name 6 places where you may print terms and conditions
- RFQs
- Quotations submitted
- Order forms
- Delivery notes
- Goods received notes
- Invoices
What will the purchasers terms seek to do?
Limit the purchasers risk
Is each issue of a set of terms classed as a counter offer?
Yes
What piece of case law relates to battle of the forms
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation 1979
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation 1979
Ex-Cell-O placed an order using its terms (which were different from Butler’s). That order form had a tear off slip which the supplier had to return. That slip acknowledged the terms of the order. The courts held that the return of this slip was an acceptance of the terms and created the contract
Who is the battle of the forms won by?
The person who ‘fires the last shot’
Rules of interpretation
In a legal context, a set of principles which have evolved over several hundred years, which define how law courts will interpret contracts. One of the primary rules is that words will have their normal everyday meaning, unless there is a specific definition provided within the contract itself. In commercial contracts where a level of legal and/or professional knowledge can be assumed (rather than between a business and a private individual), the courts may infer what a reasonably well-informed person of a given status in a given profession would have understood by the wording
How does the court deal with any anomalies in a contract?
Anything explicit overrides anything implicit or previously agreed. The one exception to this is where terms are implied into a contract by statute law or legal regulation
What does a full agreement clause state?
That anything discussed prior to the final drafting and signature of the contract shall be ignored and that the contract itself represents the full agreement of the parties
What happens when something in one of the schedules appears to contradict the standard wording without specifically stating that it is an amendment to it?
The courts will check whether there really is an inconsistency or ambiguity. If they can come to an interpretation of the various clauses which makes all of them valid, then they will assume that such an interpretation is what was intended. If they cannot find such a position there is a general rule that specific clauses override general ones
What do hierarchy of clauses or order of precedence clause set out?
They set out which terms take the lead.
For example, it may say that in interpreting the contract, anything in the contract clauses shall take precedence over anything on drawings or schedules attached to it
What case study relates to hierarchy of clauses?
RWE Npower Renewables Ltd v J N Bentley Ltd 2014
When is the order of precedence clause taken into account?
Where the discrepancy is blatant - such as one section requiring something to be painted white and another section requiring it to be painted black
Name 3 potential problems with the order of precedence clause
- Failing to ensure placement of the clause in the right contract document, so that it does not itself become subject to a different document
- Using industry standard forms that already have such clauses which might not agree with what the parties want on this particular contract
- This is especially important with framework and call off agreements
When will the courts rely on the precedence clause?
When there is a definite conflict that cannot be resolved by any sensible reading of the contract
Which piece of case law links to a precedence clause being used
CLP Holding V Singh and Kaur 2014
CLP Holding V Singh and Kaur 2014
The contract related to the sale of a commercial property. The price was listed as £130,000 in the special conditions. The standard conditions, however, stated that all figures were exclusive of VAT and that they buyer must also pay any chargeable VAT. The contract included an ‘order of precedence’ clause that clearly stated that the special conditions took precedence. It was held that the buyer was only required to pay the £130,000. Lord Justice Kitchin reasoned that the £130,000 could not be interpreted as being exclusive of VAT when it was clear that the buyer was not aware that the price would be subject to VAT
Will a term drafted for a specific contract take precedence over a standard term?
Generally yes
Will express terms override implied terms?
Yes unless the implied term is created by a statutory regulation
What will a fairly drafted contract do?
Protect both the buyer and supplier
What does it mean to accept a suppliers terms?
Accepting a contract that is drafted entirely in the supplier’s favour.
Name 9 ways a supplier may draft a contract that is completely in their favour
- No warranty of quality of fitness for purpose
- A specification that reflects what the supplier wishes to sell, rather than what the purchaser wishes to buy
- All risks of damage in transit resting with the purchaser
- Payment terms which might result in cash flow issues for the purchaser
- Exclusion of all liability for any damage or injury casued by the goods being purchased or as a result of the services being provided
- Lack of protection against time and/or budget overruns
- Inability to change the original specification without extra costs
- Lack of protection of any of the purchasers intellectual property which might need to be deployed to make the contract function
- Inability to control any shared data, which apart from the personal impacts of a data breach, could result in significant legal penalties, particularly within the EU under new GDPR
Are oral contracts enforceable?
Yes (in principle)
When is there a problem with oral contracts?
If the contract terms have not been written down, it can be very difficult to prove what they were.
CISG
The Vienna Convention on contracts for the International sale of goods, a United Nations Treaty seeking to harmonize contract terms for the sale of goods between differeny countries
Describe a case study relating to oral contracts
In 1984 Getty Oil was ‘sold’ to Pennzoil on a handshake. Texaco made a better offer and the company was sold to it. The court upheld a claim by pennzoil that its oral contract had been undermined and it was awarded over $9bn in damages
Contracting states
Countries which have signed the Vienna convention on CISG
How many countries have signed up to the World Trade Organisation
164 countries - only 14 recognise the vienna convention
Name 3 countries that have not signed up to the world trade organisation
- North Korea
- Monaco
- Number of other small states, islands and provinces
What is the purpose of the Vienna Convention?
To set out a framework for international transactions based on a uniform approach. It tries to get around the problems created by differences in local laws
Name the only 3 situations where the Vienna Convention is applicable
- It only applies to goods, but does not include goods to be manufactured to the specifications of the buyer
- It only applies to private commercial (B2B) transactions, not to public sector contracts or sales to consumers
- It only applies where parties to the contract have their place of business in different contracting states
Name 2 parts that countries signing up to the Vienna Convention can exclude at state level
- They can exclude some of its provisions in respect of all goods
- Alternatively, they can exclude the whole of the treaty from some part of their teritory (China is a signatory to the convention but does not apply it to Hong Kong).
Which contract clause overrides or excludes the CISG rules?
States that the contract is subject to the legal systems and courts of a particular country
Will explicit terms in the contract override CISG rules?
Yes
Name 7 things that CISG does not apply to
- Distribution agreements, since these are about the organisation or transport of the goods, not the transfer of ownership
- Goods bartered for other goods or services
- Framework agreements, which are generally accepted not to be actual contracts, merely a mechanism for pre-agreeing the terms of a contract should one be created
- Franchise agreements
- The sale of ships or aircraft
- The sale of electricity. The position on the sale of gas has yet to be finalised, although one court (Austrian Supreme Court) has accepted that the rules do apply to the sale of propane gas
- Anything sold at auction. This has been related to traditional auctions which tend to be for one-off goods, and it is not clear how the rules might apply for larger scale contracts which are let via electronic reverse auctions
Name the 3 parts of the formation of a contract the Vienna Convention covers
- Offer
- Acceptance
- Consideration
Describe the rules of a contract under CISG
The offer must be addressed to a person, definitively describe the goods, quantity and price, and indicate an intention to be legally bound on acceptance
Under CISG rules, can an offer be revoked?
Yes provided that the withdrawal is received before an acceptance is sent
Describe acceptance under CISG rules
It must be explicit. Silence cannot be taken to mean an offer has been accepted. Any proposed acceptance which changes the terms of the original offer is a counter offer and therefore a rejection of the original offer
Name 2 things the CISG does not cover
- Validity of the contract
- Enforceability of the contract
Name 7 national laws used to determine validity and enforceability under CISG
- Capacity
- Illegality
- Mistake, duress, fraud
- Damages and penalty clauses
- Validity of assignments or settlements
- Retentions or deposits
- Liability for death or personal injury caused by the goods
Name one reason for the reluctance of the UK to sign up to the Vienna Convention
The general requirement is to act in good faith - it is argued that good faith cannot be adequately measured or defined
Does the Vienna Convention require contracts to be made or amended in writing?
No
What should you do when amending a contract when relying on CISG rules?
Exclude the feature of not requiring contracts to be amended in writing and explicitly state that all variations must be in writing
Incoterms
Series of commercial terms published by the International Chamber of Commerce, covering the allocation of costs and transfer of risks between buyer and seller. The various options are abbreviated to three-letter codes
Who’s duty is it to deliver the goods, provide the documents relating to them and transfer the ownership to the buyer?
The seller’s duty
Name 3 things the goods should be when sold
- Suitably packaged
- Fit for purpose
- Free from any third party claims
What is the buyers duty in relation to the sale of goods? (4)
- Take all reasonable steps to take delivery of the goods
- Examine the goods properly
- Advise of any non-conformity within a reasonable time
- Make payment
Name 3 remedies for the breach of contract
- Damages
- Specific performance
- Adjustment of price
When is the liability for breach avoided?
If the failure to perform is due to something beyond the party’s control and could not reasonably have been foreseen
If the seller has to refund the price of goods what should the refund also include?
Interest from the original date of payment
What should the buyer do if they are required to return goods
They must also make a payment representative of any value or benefit derived while they were in possession of them
Caveat Emptor
A latin principle meaning buyer beware
Force Majeure
A contract exclusion clause, limiting (or excluding) liability when a party is unable to fulfil its obligations under a contract due to genuinely unforeseen and unpreventable circumstances e.g. an earthquake or volcanic eruption. Force Majeure events are often referred to as ‘acts of God’
Misrepresentation three levels
Misrepresentation can be split into three distinct levels:
1. International - You meant to do it and understood the implications
2. Ignorant: You meant to do it, and should have realised the consequences or implications
3. Innocent: You did it but had no idea, and reasonably couldn’t have been expected to know, of the consequences
Define misrepresentation
A false statement or fact made by one of the contracting parties before, or at the time of, entering into the contract which led or encouraged the other party into contract
Name the 5 necessary conditions for misrepresentations
- There must be a statement made
- The statement must relate to fact
- The statement must be false
- The statement must be made by the contracting party
- The statement must induce the contract
Will silence normally be considered misrepresentation?
No
Name 3 cases where silence can be considered misrepresentation
- In contracts ‘of upmost good faith’ where only one party has access to information crucial to understanding the advisability of the contract
- Where what is not said deliberately creates a misleading impression
- If a party makes a true statement and the circumstances change, causing it to become false, there is a duty to update the original statement
What piece of case law relates to misrepresentation (there must be a statement made)
With v O’Flanagan 1936
With v O’Flanagan 1936
O’Flanagan told with that his medical practise earned £2000 p.a. which was true, but by the time the sale of it to with went ahead, it had been neglected for months because O’Flanagan had himself been ill and was now worthless; the failure to correct the previous statement was held to be misrepresentation
What piece of case law relates to misrepresentation (the statement must relate to fact)
Edgington v Fitzmaurice 1885
Edgington v Fitzmaurice 1885
A statement that funds raised by loans were to improve the business when the real intention was simply to pay off existing debt was held to be misrepresentation
Describe the rule misrepresentation (the statement must be made by the contracting party)
Statements made by the contracting party’s agent are treated as if made by the contracting party. A statement does not necessarily have to be made directly to the other contracting party
Describe the rule misrepresentation (The statement must induce the contract)
The statement must have direct influence on the other party’s willingness to contract. Any statement made once the contract is entered in to clearly cannot have affected the desire to enter into it, so cannot be misrepresentation
The statement must induce the contract - what 3 circumstances can the innocent party not avoid the contract
- If they knew about the falsehood (since they had the opportunity not to contract given that knowledge)
- If they did not know about the statement that was a misrepresentation (since they could not have acted on the basis of something they did not know)
- If they did not rely on the statement but carried out their own investigations
Name 3 things misrepresentation can be
- Fraudulent
- Negligent
- Innocent
What is fraudulent misrepresentation
Where the person making the statement does so knowing it to be false or is reckless in using information without taking any steps to see if t is true or not. Information which is inaccurate but was believed to be true will not be fraudulent
What is negligent misrepresentation
Occurs where the person making the statement has a duty of care and fails to take such reasonable care as to the accuracy of the statements
What is innocent misrepresentation
Where the misleading statement is neither fraudulent nor negligent because it is genuinely and reasonably held to be true by the person making it
Name 2 remedies for misrepresentation
- Damages
- Rescission of contract
Recission of contract
An equitable remedy that seeks to place both parties in their pre-contractual position, as though the contract had never existed
Is recission always an option?
no
Name 4 instances where recission is not possible?
- Where the innocent party has affirmed the contract; that is, acted in a way confirmed that they wish it to continue
- Where the claim has not been brought within a reasonable time (this is a point of general law)
- Where restitution (returning to the pre-contractual position) is impossible
- Where there has been intervention of innocent third-party rights
