Chapter 2 - Essential Elements of Contract Flashcards

Question 1

Q

Form or lack of writing

Answer

A

Only certain contracts must be in writing:

contracts for the sale of land
contracts for marine insurance
contracts of guarantee

Question 2

Q

Offer

Answer

A

Is a proposal or promise to be bound on specified terms.

Question 3

Q

Offer Requirements

Case: Gunthing v Lynn

Answer

A

a) certainty - it can’t be vague, there must be definite intention to adhere to terms
Case: Gunthing v Lynn
offer to pay if horse was lucky was deemed to be too ‘vague’ to constitute legal offer.

b) must be distinguished from: preliminary information or invitation to treat

Question 4

Q

Offer or preliminary information

Case: Harvey v Facey

Answer

A

Case: Harvey v Facey
Claimant telegraphed ‘Will you sell us Bumper Hall Pen? What is lowest cash price?’
Defendant replied it was £900, and claimant saw this as offer, but defendant didn’t reply further.
Held: defendants reply was just supply of preliminary information. There was no contract.

Question 5

Q

Offer or invitation to treat?
Case: Pharmaceutical Society of Great Britain v Boots
Chemists (1953)
Case: Fisher v Bell (1960)

Case: Partridge v Crittenden (1968)

Answer

A

Invitation to treat is an invitation for offer to be made.

Case: Pharmaceutical Society of Great Britain v Boots Chemists (1953)
Boots sold items listed under the Poisons Act 1933, and Pharmaceutical Society sued that they were not supervised by a registered Pharmacist.
Held: display of goods was not an offer, but an invitation to treat. Offer was made at cash desk where there was a registered Pharmacist.

Case: Fisher v Bell
Bell displayed a flick-knife with price tag. He was charged with having a weapon for sale.
Held: this was just an invitation to treat.

Case: Partridge v Crittenden (1968)
P placed advertisement selling Bramblefinch cocks and hens, and was charged for selling birds contrary to the provisions of the Protections of Birds Act 1954.
Held: It was not an offer, but merely an invitation to treat.

Not all ads or displayed items are invitations to treat. Exception, self-service stations

Question 6

Q

Invitation to treat (exception in the case of ads)

Case: Carlill V Carbolic Smokeball (1893)

Answer

A

If an ad is accompanied by a statement of terms containing a promise that is specifically worded, it will become a binding offer.

Case: Carlill V Carbolic Smokeball (1893)
Carbolic advertised Smokeball as preventative against influenza, and that they would pay £100 who caught flu after using the Smokeball as prescribed. They also stated they had deposited £1000 to show their sincerity in the matter.
Mrs Carlill caught the flu after using the Smokeball and claimed.
The company argued it was just an ad.
Held: offer was binding, primarily because there was a reward promise, which was even supported by evidence that they had made a deposit for that purpose.

This case is an example of a Unilateral Contract, and shows that an offer can be made to the whole world.

Question 7

Q

Communication of offer

Case: Taylor v Laird (1856)

Case: Clifton v Palumbo (1944)

Case: Gibson v Manchester City Council (1979)

Answer

A

Offer must be communicated to be binding. In reward cases, it can only be claimed if the claimant was made aware of it.

Case: Taylor v Laird (1856)
Captain of ship retired from his post while the ship was abroad, but didn’t inform owners. He continued working as normal until the ship returned home.
Held: he claimed for extra payment for the extra services, but was not awarded, because the ship owners hadn’t been informed.

Case: Clifton v Palumbo (1944)
Sale of large estate, the plaintiff wrote to defendants saying he was prepared to offer his estate for £600,000, and agreed to allow enough time for completion.
Held: this was merely a preliminary statement as to price, and didn’t amount to firm offer to sell. It merely allowed negotiations to complete.

Case: Gibson v Manchester City Council (1979)
In 1970, Council adopted a policy of selling its council houses, Treasurer wrote to Mr Gibson saying they ‘may be prepared to sell’ is council house to him and told him to make a formal application, which he did. In May 1971, Council changed from Tory to Labour, who reversed this policy.
Held: Letter was merely an invitation to treat. Mr Gibson’s was the offer which than the new Council didn’t accept.

Question 8

Q

Termination of Offer

Death of offeror or offeree before acceptance

Answer

A

This only applies to personal contracts (such as employment contracts).
In non=personal contracts, such as purchase of land, contract remains binding on the representatives of the deceased.

Question 9

Q

Termination of Offer
Revocation

Case: Routledge v Grant (1828)

Answer

A

Offer can be revoked at any time before it’s accepted.

Case: Routledge v Grant (1828)
A said he would buy house from B, but acceptance had to be done within 6 weeks, after which offered would be revoked,
Held: A could revoke, as it had not yet been accepted.

Question 10

Q

Termination of Offer
Revocation, Communication to offeree

Case: Byrne v Van Tienhoven

Case: P
ayne v Cave (1789)

Answer

A

Revocation is only effective if communicated to offeree.

Case: Byrne v Van Tienhoven
Offeror posted letter to offeree in New York making offer, but then sent another revoking it. However, the offeree accepted the offer the day they received the letter. By the time they received the revocation letter, the goods had already been resold.
Held: Revocation letter couldn’t take effect, because offer had already been accepted. Act of posting didn’t matter.

Case: Payne v Cave (1789)
where it was established that person in auction can revoke the offer at any point before the hammer falls.

Question 11

Q

Termination of Offer
Revocation, Communication by a 3rd Party

Case: Dickenson v Dodds (1876)

Answer

A

Revocation doesn’t need to be made by offeror personally. Third party can do so, provided they are reliable.

Case: Dickenson v Dodds (1876)
Defendant offered to sell property on a Wednesday, the offer to be left open till Friday. On Thursday, offeree was informed by Mr Berry that owner had sold to a 3rd party. He still sent a letter accepting the offer, which was delivered within the correct time.
Held: Mr Berry was a reliable source and informed correctly that property was no longer for sale.

Offer can be revoked at any time before acceptance, unless some consideration was given to keep it open (a deposit).

An offer to enter a unilateral contract can’t be revoked once the offeree has started performance (case Carlill v Smokeball)

Question 12

Q

Refusal or rejection of offer

Answer

A

Refusal or rejection ends offer.

This includes counter-offer.

Question 13

Q

Lapse of offer

Case: Ramsgate Victoria Hotel v Montefiore (1866)

Case: Financings Ltd v Stimson (1962)

Answer

A

Offer will lapse after reasonable time has passed.
Reasonable time depends on the circumstances and the subject matter.

Case: Ramsgate Victoria Hotel v Montefiore (1866)
Offer to buy shares in June was accepted in November.
Held: Offer lapsed, because of unreasonable delay for acceptance.

Case: Financings Ltd v Stimson (1962)
Offer to buy car, but car was badly damaged before acceptance.
Held: offer to buy car lapsed

Last case shows that if a condition or state of affairs ceases to exist, offer lapses.

Question 14

Q

Counter-Offer

Case: Hyde v Wrench (1840)

Answer

A

Counter-offer terminates the original offer.
Original offer can consequently no longer be accepted.

Case: Hyde v Wrench (1840)
W offered H a farm for £1,000, H said he would buy it for £950. W rejected the counter-offer, so H said he would accept original offer.
Held: Original offer was terminated by counter-offer and could no longer be accepted.

Question 15

Q

Counter-offer or request for more information?

Case: Stevenson v McLean (1880)

Answer

A

Case: Stevenson v McLean (1880)
D offered to sell a quantity of iron to C for cash. C asked for credit, but instead of replying sold to a 3rd party, without C’s knowledge.
When C got no reply, he accepted original offer.
Held: request for credit didn’t amount to counter-offer, it was merely a request for more information. This means D breached the contract.

Question 16

Q

Acceptance

Requirements

Answer

A

form of acceptance
must be made while offer is still in force
must accept the entire offer
must be absolute and unqualified
communication to the offeror
implication of acceptance

Question 17

Q

Form of Acceptance

Case: Yates Building Company v Pulleyn (1975)

Answer

A

the form of acceptance should be specified in the offer (eg. in writing).

Case: Yates Building Company v Pulleyn (1975)
Vendors of a piece of land stated acceptance should be made in writing and sent by registered or recorded delivery, but it was sent in regular post.
Held: this form of acceptance, even though it wasn’t completely as requested, didn’t disadvantage the vendor, therefore there was a binding contract.

Question 18

Q

Acceptance must be made while offer is still in force

Answer

A

If accepted after agreed time or reasonable time, offer is lapsed.

Question 19

Q

Non-acceptance of a condition

Case: Neale v Merrett (1930)

Answer

A

In order for offer to be accepted, it must be accepted in full and completely.

Case: Neale v Merrett (1930)
D offered to sell land to C for £280. C accepted, and sent a cheque for £80 and promised to pay the rest in amounts of £50.
Held: there was no contract, as acceptance introduced credit terms, which the seller didn’t want.

Question 20

Q

Acceptance must be absolute and unqualified

Case: Hyde v Wrench (1840)

Answer

A

Making a counter-offer doesn’t amount to acceptance.

Case: Hyde v Wrench (1840)
W offered H a farm for £1,000, H said he would buy it for £950. W rejected the counter-offer, so H said he would accept original offer.
Held: Original offer was terminated by counter-offer and could no longer be accepted.

Question 21

Q

Battle of the forms

Case: Butler Machine Tool v Ex-cell-o Corporation (1979)

Answer

A

Case: Butler Machine Tool v Ex-cell-o Corporation (1979)

C offered to sell machine to D and sent printed copy of its terms. D accepted but enclosed their own standard terms. Acceptance was sent by signing the tear-off slip of D’s copy.
Held: D’s ‘acceptance’ was actually a counter-offer. But because they signed D’s terms, this was seen as agreeing to D’s terms.

Question 22

Q

Effect of ‘subject to contract’

Case: Branca v Cobarro (1947)

Answer

A

Including terms ‘subject to contract’ is usually enough for a party to ensure there is no implied acceptance on their part. But preliminary contracts remain binding, until replaced by final version of contract.

Case: Branca v Cobarro (1947)
Vendor agreed to sell mushroom farm. Document read ‘this is a provision agreement until a fully legalised agreement is drawn up’.
Held: parties were bound by this, until another contract was drawn up.

Question 23

Q

Implication of acceptance

Case: Brogden v Metropolitan Railway Company (1977)

Answer

A

When notification of acceptance is not required by the offer, as acceptance may lie in the conduct of parties (example Carlill v Carbolic Smokeball

Case: Brogden v Metropolitan Railway Company (1977)
Brogden supplied coal to the Railway Company for years, but had no written agreement. He asked company to send him a draft and he added amendments. But company never returned any documents for signing, but the supplying continued, but later Company denied there was a contract.
Held: there was implied contract when Company ordered coal and there was a supply after the return of the draft; or when coal first was supplied under those terms.

Question 24

Q

Implied acceptance by silence?

Case: Felthouse v Bindley (1862)

Case: Rust v Abbey Life (1979)

Answer

A

Silence of offeree does not constitute acceptance.

Case: Felthouse v Bindley (1862)
Negotiations for sale of a horse. Offer of £30.75 was made, and added ‘if I don’t hear any further, I will consider the horse mine at that price’. There was a misunderstanding and horse was sold to someone else.
Held: silence doesn’t amount to acceptance, so there as no contract

Case: Rust v Abbey Life (1979)
Mrs Bond applied for property bonds, which Abbey issued and sent her. After 7 months it was unprofitable, so Mrs Rust asked for her money back, saying she never contracted those bonds.
Held: Court of Appeal rejected the her argument, her application constituted offer, and the sending of the bonds acceptance. If sending of bonds was seen as counter-offer, Mrs Rust’s silence acceptance. Her application showed there was no forcing contract on an unwilling party.

Question 25

Q

Communication to the offeror

Answer

A

General rule is that communication must be made to the offeror

Question 26

Q

Acceptance by post - ‘the postal rule’

Case: K&R Adams v Lindsell (1818)

Case: Household Fire Insurance v Grant (1879)

Answer

A

The Postal Rule is an exception to the general rule, because it is effective from the moment of posting, even if it never reaches the offeror.

Case: K&R Adams v Lindsell (1818)
D made offer and asked for C to accept on the post. The offer was misdirected and delayed. But C accepted the same day they received the letter.
D resold to another party, due to response.
Held: acceptance was made in the course of the post and was effective when posted.

Case: Household Fire Insurance v Grant (1879)
D applied for shares at c’s company. Shares were allocated, but the letter was never received by D/ C went into liquidation, and liquidator claimed balance from D. D claimed he wasn’t a shareholder, as he never received acceptance.
Held: Acceptance of C was completed when posted, despite the non=arrival

Question 27

Q

Requirements for postal rule

Answer

A

letter is intended as acceptance of previous valid offer
ordinary post system can be anticipated by both parties
proof of posting must be available
envelop must be correctly stamped and addressed

Question 28

Q

Authorised acceptance

Case: Powell v Lee (1908)

Case: Inland Revenue Commissioners v Fry (2001)

Answer

A

Whilst revocation can be communicated a 3rd party, acceptance can’t.

Case: Powell v Lee (1908)
P applied to be headmaster and school managers appointed him. One of the managers told him, unofficially, but then they managers changed their mind.
Held: There was no contract, because acceptance was never communicated.

Case: Inland Revenue Commissioners v Fry (2001)
Fry owed £113,000 to Inland Revenue and sent a cheque of £10,000 with a letter stating she couldn’t pay the debt and this would be her settlement. Inland Revenue cashed the cheque and chased her for the rest.
Held: cashing the cheque didn’t amount to acceptance, furthermore continuing to chase the debt made it clear offer was not accepted.

Question 29

Q

Dispensation with communication of acceptance

Case: Inland Revenue Commissioners v Fry (2001)

Answer

A

Offeror may state communication of acceptance is not required, as long as offeree indicates that by carrying out their side of the bargain, which is what happened in Carlill v Smokeball and

Case: Inland Revenue Commissioners v Fry (2001)
Bank guaranteed clients’ cheques up to the sum of £50. This is an unilateral contract, which required acceptance by conduct or commencement of performance. to become binding.

Question 30

Q

Options to Purchase

Case: Holwell Securities v Hughes (1974)

Answer

A

This is an exception to the postal rule.

Case: Holwell Securities v Hughes (1974)
A granted B option to purchase land by ‘notice in writing’. The letter giving notice was lost on the post.
Held: no contract, because the exercise of option needs to be communicated and received by offeror.

Question 31

Q

Instantaneous Communication

Case: Entores v Miles Far East Corporation (1955)

Answer

A

Postal rule only applies to the normal post facilities.

Case: Entores v Miles Far East Corporation (1955)
C, in London, made offer to D, in Amsterdam, by telex. D accepted also by telex. C said D broke the contract, and wanted to issue a writ (which he could, if it were in England)
Held: Telex works as if parties were in each others presence. They could, as the offer was made in London and then also received in London.

Question 32

Q

Instantaneous Communication

Answer

A

Telephone, fax, email, text.

Acceptance is not effective and contract is not in place until the other party receives it. Because it is impossible to prove when the offeror actually receives it.

Voicemail messages work the same way, acceptance is only effective when recipient receives it.

Emails are not as instantaneous, as there are delays that may occur (system errors, delays, etc)

Question 33

Q

Acceptance in Unilateral Contracts

Answer

A

Rewards
Tenders
Standing Offers

Question 34

Q

Acceptance in Unilateral Contracts
Rewards

Case: R v Clarke (1927)

Answer

A

Person who was not aware of unilateral offer at the time they performed, cannot accept the offer, particularly if there is a reward.

Case: R v Clarke (1927)
Reward was offered to whoever provided information on the killing 2 policemen. C supplied information and had seen the information for reward, but admitted she had forgotten about it when she supplied the information.
Held: claim failed, as reward was not in C’s mind when she provided the information. Supplying information didn’t amount to offer.

Question 35

Q

Acceptance in Unilateral Contract

Tenders

Answer

A

Public authorities often invite tenders to carry out capital works. Those who wish to carry out the work ‘tender’ for the contract by making an offer. It will be a contract if the tender is accepted by the authority.

Question 36

Q

Acceptance in Unilateral Contract

Standing Offers

Answer

A

Offer to supply something on a regular basis.
It will not be converted to a contract until acceptance is signified by the placing of an order. If supplier refuses to supply, they will be breaching contract

Question 37

Q

Intention to create legal relations

Legal Presumptions

Answer

A

Domestic and Commercial agreements

Question 38

Q

Intention to create legal relations
Legal Presumptions
Domestic, social and family agreements

Case: Balfour v Balfour (1919)
Case: Albert v Motor Insurers Bureau (1971)

Answer

A

There is a strong legal presumption that there was no intention to create legal relationship.

Case: Balfour v Balfour (1919)
Husband promised his wife maintenance before leaving to work abroad. He stopped, she sued.
Held: this wasn’t seen as binding, merely a domestic arrangement

Case: Albert v Motor Insurers Bureau (1971)
Employer in a company gave lifts to other workers, in exchange for payment.
Held: lifts were regular and to several different colleagues, and because there was payment, there was intention to create a legally binding relationship.

Question 39

Q

Rebutting the presumption

Case: Merritt v Merritt (1970)

Case: Simpkins v Pays (1955)

Case: Wilson and Anor v Burnett (2007)

Answer

A

Presumption of acceptance will not be made if there is evidence of the opposite.

Case: Merritt v Merritt (1970)
Husband left home to live with another woman. He agreed to pay her £40 a month to keep mortgage payments. He also agreed to transfer the house to her name after mortgage was paid. But after it was repaid, he refused to transfer it to her name.
Held: There was intention to create legally binding agreement, which was shown by his actions.

Case: Simpkins v Pays (1955)
Owner, granddaughter and lodger shared house. They entered a newspaper competition regularly. Entries were made in the grandmother’s name, but they all shared the entry fee. When they won, she refused to share with the others.
Held: They were entitled to share, implied actions showed intention of legally binding arrangement.

Case: Wilson and Anor v Burnett (2007)
Defendant was taken out to bingo by work colleagues, she won £101,354. Claimants stated at the beginning of the night that any winning over £10 would be shared amongst all of them.
Court held that the initial discussion was not intention to create legal relations.
They appeal, and it was dismissed, as there wasn’t enough evidence of any clear agreement

If, as the case above, this was a regular competition they entered, it would have had a different outcome. Neither did they pay an join fee to enter.

Question 40

Q

Intention to Create Legal Relations
2. Commercial agreements

Case: Edwards v Skyways (1964)

Answer

A

The presumption here is the opposite that the agreement is intended to be binding. Same principle as in Carlill v Smokeball

Case: Edwards v Skyways (1964)
Employee was made redundant, employer said they would make him an ex gratia payment without admission of precious liability.
Held: company was liable. Presumption that intention was legally binding.

Question 41

Q

Intention to Create Legal Relations
2. Commercial agreements

Case: Judge v Crown Leisure Limited (2005)

Answer

A

The context where promise is made may indicate it wasn’t intended to be liable.

Case: Judge v Crown Leisure Limited (2005)
Employee was transferred to Crown Leisure from a sister company at a higher salary than the Judge, though they had similar roles. Judge raised this with manager at the office Christmas Party, and then claimed the manager promised he would raise his salary to the same amount.
Held: Judge resigned 2 years later and stated he was owed that raise which never happened, and that it was breach of contract they hadn’t done so. Complaint was rejected, as party was not a business environment and discussed would therefore not amount to any contractual obligation.

Question 42

Q

Rebutting the presumption

Case: Rose and Frank v Crompton Brothers (1925)

Answer

A

Presumption is also capable of being rebutted, but strong evidence is required.

Case: Rose and Frank v Crompton Brothers (1925)
Agreement between parties stated ‘it would be subject to any legal jurisdiction and that they honourably pledged so themselves.’
Held: ‘honour clause’ not enough to rebut presumption.

Question 43

Q

Exceptional situations where commercial arrangements are presumed not to be binding
Collective agreements

Answer

A

Collective agreements: made between employers and trade unions (unless written and stated to be legally binding)

Question 44

Q

Exceptional situations where commercial arrangements are presumed not to be binding
Letters of Comfort

Case: Keliwort Benson v Malaysian mining Corporation (1989)

Answer

A

Supplied by 3rd party to a creditor expressing concern debtor should meet their obligations.

Case: Keliwort Benson v Malaysian mining Corporation (1989)
carefully drafted letter was found to be legally binding comfort letter. It stated: ‘ it’s our policy to ensure that the business is at all times in position to meet liability to you’.

Question 45

Q

Exceptional situations where commercial arrangements are presumed not to be binding
Letters of Intent

Answer

A

Body indicates it wishes to place a contract with another, but is not yet in position to do so. Common between contractor and subcontractor.

Question 46

Q

Exceptional situations where commercial arrangements are presumed not to be binding
Advertisements

Answer

A

Usually too vague to constitute intention to create legal relations. However Carliss case shows that if there is money deposited for the alleged purpose, it makes it binding.

Question 47

Q

Consideration

Answer

A

This is an essential element of a contract. Each party must provide consideration for an agreement to become legally binding, unless it is made in form of a deed.

It is something given, promised or done in exchange.

Consideration ensures that rash informal ‘gratuitous’ promises are not legally binding.

Question 48

Q

Deed

Answer

A

Is a document signed by the person making the promise.

It must be clear in its intentions and how it will operate and needs to have a witnessed signature.

Question 49

Q

Types of consideration

Answer

A

Executory consideration
Executed consideration
Past consideration (not a valid consideration)

Question 50

Q

Types of consideration

Executory consideration

Answer

A

This is a promise yet to be fulfilled. This is how most contracts start.

Question 51

Q

Types of consideration

Executed consideration

Answer

A

is the completed performance of one side of the bargain
(for instance, fixing someone’s fence)
This type of consideration usually happens in unilateral contracts.

Question 52

Q

Executed consideration
Past consideration

Case: McArdle (1951)

Answer

A

Something already done or completed by someone at the time the other party makes the promise.

(example would be, someone fixed another person’s fence without being asked to do so)

Case: McArdle (1951)
Will stated house was to remain in the interest of the house, after which it was to go to the children.
Widow was still living there when one of the sons and his wife moved in. Wife made improvements to the property and the sons agreed to reimburse her when estate was finally distributed, but they then refused to pay.
Held: promise was made after the work was done, which amounts to past consideration.

Question 53

Q

Exceptions to the rule that past consideration is invalid

Answer

A

Bills of Exchange
Implied promises to pay
Acknowledging debts before limitation period expires

Question 54

Q

Exceptions to the rule that past consideration is invalid

Bills of Exchange

Answer

A

Past consideration will create liability on a Bill of Exchange, as these are used to pay existing business debts.

Question 55

Q

Exceptions to the rule that past consideration is invalid
Implied promises to pay

Case: Casey’s Patents; Stewart v Casey (1892)

Answer

A

If implied promise was by conduct from the start, which will not make it past consideration. It conforms the original promise.

Case: Casey’s Patents; Stewart v Casey (1892)
Stewart co-owned some patents and asked Casey to promote them. After Casey has, Stewart promised him some shares on them.
Held: There was an implied promise to pay Casey for the request. Therefore consideration was not past, and the shares would constitute that consideration

Question 56

Q

Exceptions to the rule that past consideration is invalid

Acknowledging debts before limitation period expires

Answer

A

In the case of a debt, limitation period for recovery may be extended, if defendant acknowledges the debt or pays part of it, before it expires. Limitation period starts again from the date it was acknowledged or part paid.

Acknowledgement of debt must be in writing and signed.

Question 57

Q

What constitutes sufficient consideration?

Case: Chappell and Co v Nestlé (1960)

Case: Thomas v Thomas (1842)

Case: White v Bluett (1853)

Answer

A

Consideration is enough as long as it has some value, even if only nominal

Case: Chappell and Co v Nestlé (1960)
Nestlé offered a supply of music records to anyone who sent a postal order, one shilling and sixpence and 3 wrappers from six-penny bars of chocolate made by Nestlé.
Held: wrappers, even though of no economic value to Nestlé, were sufficient consideration, as they had economic value.

Case: Thomas v Thomas (1842)
After her husband die, Mrs Thomas agreed to pay a nominal rent of £1 to continue living in the family house.
Held: it was sufficient consideration

Case: White v Bluett (1853)
Father promised not to enforce payment, if son promised not to bother him with complaints.
Held: consideration had no economic value to make father’s promise binding.

Question 58

Q

Consideration from third parties

Case: Pao On v Yiu Long (1979)

Answer

A

General rule is that person who has given enough consideration can enforce a contract.
If party takes additional responsibilities as a result of a promise made by a third party outside the contract, the promise may be enforceable on the third party.

Case: Pao On v Yiu Long (1979)
Defendants gave Pao On a guarantee as consideration if Pao On promised to carry out a contract that Pao On had with Fu Chip Ltd.
Held: Pao On’s promise was good consideration for the giving of the guarantee.

Question 59

Q

Promises to perform pre-existing duties

Answer

A

A promise to perform pre-existing duties doesn’t constitute consideration, because promisor is only giving what they are already bound to give.

There are:

Promises to perform existing public duties
Promises to perform existing contractual duties

Question 60

Q

Promises to perform existing public duties

Case: Collins v Godefroy (1831)

Case: Glasbrook Brothers v Glamorgan County Council (1925)
Case: Sheffield United FC v Harris

Answer

A

Case: Collins v Godefroy (1831)
Agreement to appear as witness in court didn’t amount to consideration and party was not obliged to appear.

However, a promise to do more than the required by the existing public duty will amount to consideration and will be enforceable.

Case: Glasbrook Brothers v Glamorgan County Council (1925)
Police were offered £2,000 to provide special guard for coalmine during a strike.
Held: they could recover this amount, as they went beyond their ordinary police duty.

Case: Sheffield United FC v Harris
Police were entitled to payment for providing officers inside the ground.

Question 61

Q

Promises to perform existing contractual duties

Answer

A

A promise to perform existing contractual duties doesn’t amount to enough consideration.

Agreements to pay more for a service
(where a party offers to £6 for fixing a gate, if other party had already accepted £5)

Agreements to pay less for a service
(party accepts £4, even though other party had offered £5)

Question 62

Q

Agreements to pay more for a service

Case: Stilk v Myrick (1809)

Case: Hartley v Ponsonby (1857)

Answer

A

These agreements are not legally binding, unless supported by further consideration.

Case: Stilk v Myrick
2 members of the crew of a ship deserted, and master wasn’t able to hired substitutes and promised the remainder staff a share of the deserters wages, if they completed the voyage back home. Ship owners refused to carry out promise on return.
Held: Crew didn’t have to perform any extra tasks, which means there was no consideration for the extra pay. Therefore promise was not binding.

Case: Hartley v Ponsonby (1857)
Almost half of the crew deserted, which would make the return very hazardous. They were offered £40 extra to perform the voyage.
Held: the hazardous return discharged them from the original contract and left them free to negotiate new one. Ship owners were bound to pay the extra £40.

Question 63

Q

Qualification: Practical benefit

Case: Williams v Roffey Brothers (1990)

Answer

A

Practical benefit is sufficient to constitute consideration.

Case: Williams v Roffey Brothers (1990)
A carpenter was hired to do work for £20,000 for the defendant builders. Later it became clear that carpenter wouldn’t be able to complete job on time at this price. Builders would lose badly if carpenter defaulted, they therefore promise more payment.
Held: Even though carpenter was just completing contract obligations, the builders’ promise was binding, because builders would receive benefit from this promise.

Question 64

Q

Qualification: Practical benefit

Case: Selectmove Ltd (1995)

Answer

A

Case: Selectmove Ltd (1995)
Organisation was in financial difficulties, so they proposed to the Inland Revenue that they would pay all their obligations on the due date from that point onwards and replay the accrued arrears to the National Insurance at £1,000 a month. IR declined and issued a winding-up petition. Company cited Williams v Roffey as IR would have practical benefit on their proposal.
Held: Court of Appeal disagreed, as tax payment was an existing commitment that they were merely fulfilling

Answer 65

A

This will make the the extra payment not legally binding.

Case: D & C Builders v Rees (1966)
The Rees family owed £482 to D & C Builders for work already carried out, and refused to pay.
Builders needed money urgently, so they put undue pressure on them by saying they would settle for £300. And the builders eventually agreed.
Held: they were still entitled to the remaining £182, as they had to settle under duress.

Answer 66

A

These agreements are generally not binding.

Case: Foakes v Beer (1884)
Mrs Beer got judgement against Mr Foakes for £2,090. He asked for time to pay. She agreed to payment by instalments in writing. After payment was completed, she claimed for interest.
Held: Judgement debts carry interest, so she was entitled to it.

Answer 67

A

Composition arrangements
Arrangements by third parties
Payment conditions amended at creditor's request
Promissory Estoppel (or 'equitable estoppel')

Answer 68

A

If the debtor arranges with creditor that each will accept part payment in settlement, this will bind the creditors.
This principle prevents one creditor to sue for full amount, it would amount to fraud on the remaining creditors.

Answer 69

A

If a third party agrees to part pay on behalf of the creditor on condition that the debtor is fully released of the debt. If creditor accepts, this will be binding on the creditor.

Answer 70

A

If creditor, for instance, says they will accept less if debtor pays earlier, this is legally binding.

Pinnel case shows this

Other options are different payment method, place, payment in kind.

Answer 71

A

This is a very important exception to the consideration requirement

Case: Central London Property v High Trees House (1947)
Lease of flats became unprofitable to the tenant, because of war. Landlord made a written promise to reduce rent while the war lasted. After he withdrew promise and charged full rent again.
Held: Landlord was entitled to charge full rent again, but was not entitled to claim full rent for the period the war lasted, as tenant relied on landlord’s promise.

Answer 72

A

Promissory Estoppel is a defense to avoid the unjust or unequitable, where a waiver that was voluntarily promised was made.

Answer 73

A

Case: Baird Textile Holdings v M & S (2002)
claimant had been supplying garments to M & S for 30 years under a flexible arrangement, with no written contract. M & S suddenly terminated the arrangement.. This threatened the survival Baird and its employees jobs. B argued the flexible agreement prevented (estopped) M & S from stopping the relationship without a reasonable notice period (they wanted 3 years).
Held: Court of Appeal confirmed this didn’t give rise to promissory estoppel

Case: Collier v P&MJ Wright (2007)
Creditor obtained £46,000 judgement against 3 partners for the repayment of a loan and they were ordered to pay £600 a month. Mr Collier paid £200, the others paid less and then stopped paying altogether, and soon became bankrupt. Mr Collier agreed with creditor to continue paying his £200 and he wouldn’t be liable for the others debt. After he paid his 3rd, creditor issued statutory demand against him then.
Held: statutory demand stood, as there was nothing in writing.
Court of Appeal then decided the Promisory Estoppel stood, because Mr Collier continued paying and relied on the promise that they would waive is liability to the others’ debt,

Answer 74

A

Only person that is party to a contact can sue and be sued

Case: Dunlop Pneumatic v Selfridges and Co
Dunlop supplied tyres to a distributor, but they couldn’t be sold for less than the retail price; if they resold to trade customers, they wre to follow the same. Distributor resold to Selfridges, who were to pay Selfridges £5 per tyre they sold for under retail price, Selfridges sold 2 like that.
Held: Dunlop tried to sue Selfridges, but couldn’t because Selfridges weren’t part of the original contract.

Answer 75

A

Case: Tweddle v Atkinson (1861)
Future father-in-law exchange contractual promised to pay the claimant a particular sum of money after wedding took place. The purpose was to financially benefit their children. Father in law died before paying, so claimant sued his executors.
Held: actioned failed, he was not a party to the contract and had given no consideration.

Answer 76

A

Trusts
Agency
Statutory Exceptions
Guarantees
Voluntary Assignment
Involuntary Assignment by operation of law
The contracts (Rights of Third Parties)

Answer 77

A

Property is given to a trustee on trust of a beneficiary. Beneficiary can sue the trustee, for not carrying out their duties, even though they are not party to the original contract.

Answer 78

A

Under the rules of principal and agent

Answer 79

A

Relate to insurance matters.

Ex. Road accidents claim against insurance companies

Answer 80

A

Guarantees, commercial credits and performance bonds given by banks in favour of third parties. There is no privity between bank and third party, but is is enforceable.

Answer 81

A

Benefit of contract can be transferred into a third party, but not the burden of contract, unless the other party agrees.
This must be done in writing and signed, and notice given to other party.

Contractual rights that can’t be assigned:

right to sue for damages for breach of contract
right of personal nature, which would change if a third party were assigned (personal services, a footballer couldn’t assign his contract with a football club to a third party)

Answer 82

A

In case of death or bankruptcy of a party to a contract, party’s rights will be transferred to a representative third party or a trustee in a bankruptcy.

Case: Beswick v Beswick (1968)
Coal merchant sold his business to his nephew. Nephew was to pay uncle £6.50 a week for life, and after his death, £5 to his widow.
Nephew stopped payments after uncle died, widowed sued for arrears and future payments, on her own account and as her husband’s representative of his estate.
Held: she was not successful sueing on her account, as she was not party/privy to the contract; but she was successful in recovering arrears and obtaining equitable order for future performance, as representative of his estate.

Answer 83

A

This Act allows parties to enforce rights under contracts where this is expressed or implied intention of the parties to the contract. it doesn’t impose burden or liabilities on them.

Answer 84

A

Section 1 (1)(a) when contracting parties provide express that third party can enforce a term of a contract.

Answer 85

A

Section 1 (1)(b) when terms of the contract 'purport to confer a benefit' on the third party.
When contract is designed to to benefit third party directly, they may subsequently be able to enforce contract, even if not expressed directly in contract.

This doesn’t apply if it appears that parties did not intend the term to be enforceable. They can even expressly state it in contract.

Answer 86

A

Benefit can be any performance due under the contract, such as: payment, property transfer or rendering of service. Act provides that third parties are able to rely upon exclusion or limitation clauses which are intended to cover them.

The term must expressly say it will confer benefit to the third party.

Answer 87

A

Third party doesn’t need to be specifically named.

S1(3) states the third party must be specifically named by name, member of a class or having a particular description (tenants, subcontractors. successors in title, future owners or occupiers.

It also adds named third party must be in existence at the time of the contract.

Case: Avraanides v Colwill (2006)
Dissatisfied customer of failing company wanted to claim damages for poor workmanship, Colwill had since bought the assets of company on the conditions that seller would complete its customer orders and settle liabilities. Customer tried to sue Colwill (in lieu of the original company)
Held: Court of appeal under Section1(3) of the Act the transfer agreement would have needed to identify the third parties by name, class or description, and that hadn’t happened in this case.

Answer 88

A

Third Parties have the same remedies as would be available for them if they were contracting parties (damages or specific performance).

There can’t be double liability for promisor, so any recovery by contracting parties would have the effect of reducing the award made to the third party.

Answer 89

A

Contract must be made with a legal purpose.

Anything illegal is deemed void.

Parties must possess legal capacity to contract.
Note that children and people who are mentally impaired may have limited capacity, because they are seen as in need of law’s protection.

Answer 90

A

‘void’ contract: invalid and of no legal effect in terms of benefit or enforcement

‘voidable’ contract: valid contract avoided by a party entitled to do so. Future activities are not required by the avoiding party

Answer 91

A

Contracts entered with children are governed by the rules of common law and the Sale of Goods Act 1979, as amended by the Minors Contracts Act 1987.
They are people under the age of 18.

they are usually not bound by their contracts, and damages will not be awarded to them. That is, the rules are designed to protect the child.

Exceptions that made contracts binding on children:

Contracts for the supply of necessary goods and services including legal and professional advice.
This is regulated by Section 3 of the Sale of Goods Act 1979.

Answer 92

A

Necessary goods and services are those that are suitable to the condition in life of the child and their actual requirements.

The 2 criteria are suitability and need.
Suitability: reference to the living standards to which the child is accustomed.
Need: personal needs of the child.

Case: Nash v Inman (1908)
Child ordered expensive clothes from a tailor, which included 11 fancy waistcoats. He argued that this was suitable for the child’s station of life, as he was the child of a prosperous architect.
Held: Not necessities, as he was already well supplied with clothes.

Answer 93

A

Trading contracts don’t fall within the definition of contracts for the supply of necessary goods, so supply of tools of trade are not binding on the child.

Case: Cowern v Nield (1912)
Minor was hay and straw merchant was not liable to repay the price of goods, which he failed to deliver.

Case: Mercantile Union Corporation v Ball (1937)
Minor haulage contractor purchased a lorry on HP, was not liable for arrears of instalments. The lorry was required for business use.

However, a child can recover damages from an adult who breaks contract with them.

Answer 94

A

As these are for the child’s benefit, they will be binding when taken as a whole.

Case: Doyle v White City Stadium (1935)
Child boxer was held bound by a clause the provided forfeiture of his prize money in the event of disqualification.
Held: Boxing within the rules was of his own benefit.

Case: Roberts v Gray (1913)
Professional billiards player agreed to take minor defendant with him on a world tour. There was a lot of money spent on organising and booking, but minor changes his mind and didn’t want to go. Plaintiff sued for breach of contract.
Held: this was a contract for tuition, which would benefit the child. Plaintiff succeeded.

Case: Proform Sports Management v Pro-active sports management (2007)
Rooney was in contract with Everton, but entered into a ‘representation agreement’ with the claimant and gave them right to represent him for a period of time in any transfer negotiations. During this period Rooney was approached by the defendants persuading him to enter an exclusive transfer agreement.
Claimant sued defendant.
Held: there was no breach of contract, as representation agreement was a voidable agreement.
It was not a for necessary services, apprenticeship or education to be binding on the minor. Rooney could avoid at any time.

Answer 95

A

There are special rules for certain contracts with minors, agreed with the minor and lasting until they are 18:

Leases
partnerships
shares in companies

These can be avoided while still a child or within reasonable time after becoming adult.
If contract is avoided, any payments made can’t be recovered, unless there has been total failure on consideration, that is, if no benefits at all have been accrued to the child.

Case: Steinberg v Scala (1923)
Party paid for shares and then avoided contract.
Held: She couldn’t recover the amounts paid, because she temporarily enjoyed the position of being a shareholder.

Case: Valentini v Canali (1889)
Minor leased house and agreed to buy some furniture, paying part of the purchase price. He then repudiated.
Held: He couldn’t recover the money, because he had had the benefit of using it and living in the property.

After minor becomes adult, contract becomes enforceable.

Answer 96

A

Section 3 of Minors Contracts Act 1987, the court has discretion, if just and equitable, to require a child to restore to the other party any property acquired under the avoided contract.

In case Nash and Inman, judge may have asked for waistcoats to ne recovered.

Section 2 confirms adult can give an enforceable guarantee in a contract with a minor, even if minor later avoids contract.

Answer 97

A

Person with mental health can form contracts, and will be held to them, if at the time of the contract they understood the general nature and effect of what they were doing (Mental Capacity Act 2005).
If it is established that mental capacity was absent. Contract can be avoided, unless it was for necessary goods or services. If that is the case, the contract price must be paid.

Their affairs may also be administered on their behalf by a receiver.

Incapacitated by alcohol at the time of contracting, may be obvious to the other party, if so contract is voidable. But it can be ratified when person is sober again. As above, if necessary goods, contract price must be paid.
Same applied for persons who are under the influence of drugs.

Answer 98

A

Company that has been created by registration under one of the Companies Acts. It has a legal personality of its own, it can sue and be sued.

There may be limits to its powers in its Articles of Association, so shareholders can restrain directors.

Company has no contractual capacity before it’s formed. A Person dealing on behalf of the company before it is formed is personally liable on the contract.

Case: Kelner v Baxter (1866)
Promoters of a company bought goods on behalf of the company before it was incorporated. It was expected the company would ratify (accept) the contract.
Held: not possible, promoters were personally liable

Answer 99

A

LLPs were formed by a 2000 Act of the same name.

Can sue and be sued.
It’s liability goes to the extent of the partnership wealth and the individual partners’ investments.
Partners have no other liabilities.

Answer 100

A

Most registered unincorporated associations are partnerships regulated by the Partnership Act 1890.
Each partner is jointly liable on any contract entered on behalf of the partnership.
Each partner is personally liable

Answer 101

A

Groups of people who combine to further a common interest: sporting, social or political clubs.
They are not recognised as separate legal entities. Any property belongs to the members jointly and not to the association.

If there are trustees, they can become legal owners.

There is a committee, and its members are liable for any acts done with their authority.

Answer 102

A

Royal Charter gave some towns this status.

Local authorities since 1974 owe their existence to the Local Government Act 1972.

Have a separate legal entity to their members.

Ultra Vires doctrine: they are subject to it. So if they exceed or abuse their authority, the action is question may be declared void.

Answer 103

A

It can be difficult to determine which statements are terms or if they were just used to persuade to enter contract.

Representations: statements that aren’t part of the contract.

Answer 104

A

If the person who makes the statement has knowledge or skills in the area, then it’s more likely that the statement is a term, because the person will be in a position to make a promise.

Case: Dick Bentley v Harold Smith (1965)
D, a car dealer, sold a Bentley to C. He stated it had done 20,000 miles since a replacement engine. It had actually done 100,000 since then.
Held: statement was a term, because D, as a dealer, was in a better position to know the mileage.

Case: Oscar Chess v Williams (1957)
D sold car to C, a car dealer. D said it was a 1948 Morris 10 and sold it for £280; he honestly believed this to be true. But was actually a 1939 model worth £175. C sued D for breaking a term in the contract.
Held: D’s statement was not a term, as he had no special knowledge of cars. When he bought car, he had been given a forged logbook.

Answer 105

A

The time at which statement was made is important.
The closer the time to the making of the statement and the conclusion of the contract, the more likely it is that the court will think it was intended as a term. The longer the period between statement and contract, the more likely it was meant as a representation.

Case: Routledge v McKay (1954)
Party put motorcycle on sale and sold purchaser it was a 1942 model. Sale was conclude a week later and no mention was made of the model
Held: time lag means parties didn’t mean the model to be a term.

Answer 106

A

The more important for the parties, the more likely the statement it is to be a term.

Case: Bannerman v White (1861)
White was considering buying hops from Bannerman, and asked if they had been treated with sulphur. He reinforced he wouldn’t even want to know the price, if they had. Bannerman said they hadn’t, and he believed that was the truth. After the contract was made, it was discovered that some had. When Bannerman sued for the price, White claimed Bannerman’s statement was a term and that it had been broken.
Held: It was a breach of contract and Bannerman was not entitled to be paid.

Answer 107

A

If person adds ‘to the best of my knowledge’ it;s likely to be a mere representation

Answer 108

A

Conditions: are major terms that go to the heart of the contract.

Warranties: minor terms, if broken, they don’t make the contract unworkable.

Innominate: terms that give the courts more flexibility; in between warranties and terms.

Case: The Hansa Nord (1975)
Clause in contract citrus pulp sale stipulated the shipment had to be made ‘in good condition’. First part arrived in Rotterdam in a damaged condition and buyers rejected the whole cargo. The damage wasn’t too severe, because buyers bought the save cargo for a lower price later, and used it for their original purpose.
Held: Court of Appeal stated clause in question was an ‘innominate’ term, and breach was not so serious that it entitled the buyers to reject, but damages could be claimed. Therefore it was treated as a breach of a warranty.

Answer 109

A

A contract is only binding, if it is complete in all its terms.

Term is only enforceable, if sufficiently certain.

Case: Scammel v Ouston (1941)
Agreement for the purchase of a van said balance needed to be paid over 2 years, in HP terms.
Held: This term was too vague, as it was not certain what ‘payment terms’ meant. Therefore it was not enforceable.

Parties can have a term that is stipulated by something outside the contract, i.e. ‘the current market price’.

Case: Hillas v Arcos (1932)
Contract for the supply of timber in 1930 contained option for buyer to buy another load of timber in 1931, but didn’t state the price.
Held: missing term of the 1931 option could be deduced from the 1930 price, which was from an official price list.

Case: Nicolene v Simmonds (1953)
Contract said ‘the usual conditions of acceptance apply’. But there weren’t any,
Held: the phrase was meaningless and could be ignored.

Answer 110

A

Party can only rely on a term if it’s incorporated in the contract.

Answer 111

A

Case: L’Estrange v Graucob (1934)
Miss L’Estrange signed a contract to buy an automatic machine. Document said that aside from the terms in the document itself, ‘any express or implied conditions, statements or warranty is hereby excluded’.
She didn’t read this as it was in small print.
Held: She was bound to this clause, because she signed the document.

Answer 112

A

Misleading information as to the effect of a term, may make the term non-binding.

Case: Curtis v Chemical Cleaning Company (1951)
Customer took dress to dry cleaners and was handed a receipt which excluded ‘any damage however arising’. Customer asked what was excluded and staff member said it was liability for damage to the beads and sequins of the gown. Gown was badly stained, and company wanted to rely on the clause.
Held: customer allowed damages, because the assistant’s explanation was a misrepresentation, though given innocently.

Answer 113

A

A term will only be treated as part of the contract, if there were steps taken to bring it to the other’s party notice.

Answer 114

A

Term cannot be incorporated in the contract, unless it has been put forward before the contract was made (except if both parties agree otherwise).

Case: Olley v Malborough Court (1949)
Couple booked a hotel and paid at the reception. Bedroom showed notice disclaiming non-liability for any loss of valuables in the hotel premises. Couple’s suitcases were left in the room, when they came back, expensive furs had been stolen. The hotel wanted to rely on the disclaimer.
Held: Contract was made before the disclaimer was made aware to the couple. Disclaimer had therefore no effect.

Terms on printed tickets on automatic machines in car parks work the same way, if payment is made before the ticket is issued.

Case: Thornton v Shoe Lane Parking Ltd (1971)
Ticket conditions were only displayed after entering the car park and could be seen after entry
Held: Mr Thornton was not bound to the conditions

Answer 115

A

There is an exception when parties deal regularly with each other over the course of business.
In this case no prior notice is required, if previous documents contained similar terms

Case: Spurling V Bradshaw (1956)
B deposited barrels of orange juice with S, a warehouse firm. Parties had dealt with each other over the years and the warehouse always excluded liability for negligence. On this occasion, the document with the exclusion only arrived a few days after the contract.
Held: clause was implied, as parties had dealt with each other before on this basis. Even though B said he had never read that clause.

Case: Chapelton v Barry (1940)the
C hired a deckchair and was injured when it collapsed. The ticket he received when he paid contained an exclusion clause for liability. C didn’t read it.
Held: C was entitled to think a ticket was merely a receipt, so the disclaimer in the ticket was ineffective.

Answer 116

A

If a term is particularly unusual, it must be brought to the attention of the other party.

Case: Interfoto V Stilletto (1988)
Defendant hired 47 photographic transparencies for 14 days. Delivery note stated an unusual high penalty of £5 per transparency per day, if goods were returned late. Bill ended up being £3,783
Held: plaintiff hadn’t done anything reasonable to make the hirer aware of this. Court ignored this clause and analysed damages on a fairer basis.

Case: Middleton v Wiggins (1995)
Claimant owed landfill where waste was disposed. This produced gases, and explosion, which destroyed a nearby house. Claimants were obliged to pay compensation to the house owner and they claimed that cost to insurance. Insurance company refused to pay stating its liability was excluded for ‘loss of arising from the disposal of waste material’.
Held: Insurers were liable, because the incident happen due to the disposal of waste, but due to the unforeseen gas escape.

Answer 117

A

Exclusion clauses exclude legal liability of one party. If it was included in the contract, the court will consider whether it has a meaning that covers the breach at the centre of the dispute. This is the Contra Preferentem Rule.

Contra Preferentem states if clause is ambiguous or vague, courts will interpret its meaning in the manner that is the least favourable to the party that wrote it.

Case: Hollier v Rambler Motors (1972)
Plaintiff agreed to have his car towed to the defendants garage for repairs. Car was destroyed in fire, as a result of defendant’s negligence. Contract had a clause stating ‘the company is not responsible for damage caused by fire on the premises’.
Held: Defendants couldn’t rely in this clause, because it was ambiguous, it was implied that this clause wouldn’t include their lack of negligence.

Case: Houghton v Trafalgar Insurance (1954)
Issue over the extent of the cover on a car policy. There has been an accident and the policy excluded the insurer’s liability, if car was carrying an ‘excessive load’. There were 6 passengers at the time of the accident, but it’s a 5 seater car.
Insurers argued this was an ‘excessive load’.
Held: Contra Preferentem rule stated that ‘load’ should have a narrow meaning, as in goods carried in the car, not the number of passengers.

Answer 118

A

Rule applies to exemption clauses, excluding liability of contractual duties only.
Court won’t regard vague or badly written clauses. Plaintiff may have rights to tort.
One aspect about tort is negligence. Defendant should therefore express exemption clause in the widest terms possible, so liability in tort is also covered. But it needs to be done so in very specific language, otherwise it will see as ambiguous.

Case: White v John Warwick (1953)
Plaintiff hired car from defendant. While he was riding, seat tipped forward and he was injured. Hire contract stated ‘nothing in this contract shall render the owner liable for any personal injury’.
Held: clause was sufficient to exclude liability in contract for supplying defective bicycle, but not sufficient to exclude negligence.

Today this case would be dealt under Unfair Contract Terms Act 1977. which regards any attempt to exclude liability for personal injuries from negligence as void and unenforceable.

Case: Alderslade v Hendon Laundry (1945)
Articles sent to laundry were lost. There was an exemption clause stating non-liability for ‘lost or damaged articles’.
Held: wording was clear, so they were exempt

Case: Ailsa Craig Fishing v Malvern Fishing (1983)
Contract in place with Securicor and Aberdeen Fishing. Securicor were to provide security cover in the harbour where vessels were. AS a result of negligence, vessels sunk. Contract stated that in the event of negligence or breach, Securicor would not be liable for any amount exceeding £1,000 in one claim, or more than £10,000 over a 12 month period.
Held: Securicor could rely on it. House of Lords stated that limitation clauses don’t need to be as strictly construed as exclusion clauses. Limitations clauses are more likely to express genuine intentions of the parties, than exclusion clauses.

Answer 119

A

3 groups of implied terms:

Terms implied by trade, custom or usage

Terms implied by statute

Terms implied by the court

Answer 120

A

Implied on the basis of established usage of a particular market, trade or custom.
Both parties are meant to understand the terms that regulate their bargain, but it now clearly stated in contract.

Case: Hutton v Warren (1836)
Agricultural tenant claimed right to an allowance growing crops, even though there was no reference to this in the contract.
Held: tenant was entitled to allowance, as this was the local custom.

Express clause in contract takes precedence over a trade custom, as established in case: Les Alfreteurs v Walford (1919).

Case Reigate v Scrutton (1918) stated that a term can only be implied if it is necessary in the business, in order to give effectiveness to the contract

Answer 121

A

Terms implied into contracts by statute are exemplefied in sales of goods for the protection of purchasers, SOGA 1979.

Unfair Contract Terms Act 1977 also implies terms into contracts by placing restriction on clauses excluding liability in contract or negligence.

Answer 122

A

It regulates business, not consumer liability, and makes some types of exclusion automatically void.
It also adds they need to be reasonable in their effect, in order to be enforceable.

Answer 123

A

Under Section 2(1). a clause restricting liability for death or personal injury is void.

Liability for any other type of damage caused by negligence can only be restricted if it is reasonable.

Answer 124

A

A party’s standard contract terms can never exclude them or restrict their liability for their own breach of contract, unless the clause is held reasonable.

‘Written contracts’ are usually done by the strongest party. However, the other party needs to be made aware of any unusual terms or clauses. The more onerous the clause, the more notification is required.

Consumer contracts are made by private individuals for the purchase of goods or services. Goods need to be purchased for own personal use, and not for business purposes.

Answer 125

A

There is no ‘guarantee’ that can restrict liability for defects in goods supplied for consumer use.

Answer 126

A

Schedule 2 contains guidelines to determine what is reasonable:

relative bargaining strength of both parties
whether customer was given an inducement such as a reduction in the price to agree terms
whether the customer should have known of the existence and extent of the exemption clause
whether is was reasonable to expect compliance with any conditions (ex. complaints must be made within so many days)
whether the goods were made to the customer’s special order

Answer 127

A

Case: Mitchell v Finney Lock Seeds (1983)
Farmer bought cabbage seeds from a supplier. Cabbage grew at inferior quality and it was the wrong type. Seller relied on clause to exclude their liability.
Held: unreasonable therefore not enforceable. The purchaser had no means of knowing the crop was defective until it grew.

Case: RW Green v Vase Brothers Farm (1978)
Farmer bought seed potatoes from supplier. Contract stated complaints could only be made within 3 days of delivery.
Held: unreasonable, as defect could only become apparent until seed had time to grow.

Answer 128

A

Case: St Albans City v International Computers (1996)
Defendants provided computer software and database to local authority. It was defective and a large amount of money was lost. A clause limited liability to £100,000. Defendants were insured for £50,000.
Held: clause was unreasonable, because defendants had resources and adequate insurance.

Case: Phillips Products v Hyland (1987)
Claimant hired defendant a digging machine with driver. Driver’s negligence caused damage to claimants property. The relied on exclusion clause, under which the claimant was responsible for any damage caused by digger.
Held: unreasonable, because claimant didn’t regularly hire digging machinery, so would be unfamiliar with the terms. It was also a short notice hiring, with no time to negotiate terms. Claimant didn’t choose driver ands knew nothing about operating the machine.

Answer 129

A

Case: Britvic Soft Drinks v Messer Uk (2002)
Defendants supplied liquid carbon monoxide (CO2) to the claimants for manufacturing of carbonated soft and alcoholic drinks. Contract stated that CO2 complied with the BS 4105. It was contaminated with benzene and the claimants decided to recall all the drinks above a certain level of contamination.
Defendants wanted to rely on the limitation of liability clause.
Parties had equal bargaining power, as claimants could have used other suppliers, but limitation of liability clause was never discussed, it was there as it was part of the defendant’s standard provisions.
Defendant was liable for breach of Section 14 of the Sales of Goods Act 1979.

Case: Smith v Eric Bush (1990)
Surveyor attempted to limit his liability for an inaccurate report on the claimant’s house. Each party had insurance, and court considered the difficulty of the task.
Held: surveying an ordinary house shouldn’t be particularly difficult, which made it unreasonable for surveyor to limit his liability.

Answer 130

A

Case: Watford Electronics v Sanderson (2001)
Special designed computer software package was provided by defendant under a special contract that excluded liability for indirect and consequential losses and limited liability to the value of the contract (£104,600). There were defects in the software and claimant suffered loss of £4.5m from profits, replacing the system and increased working costs.
Held: Court of Appeal said exclusion and limitation provisions were reasonable. Parties both had experience. Unless one party was clearly taking unfair advantage of the other, and the terms would be so unreasonable that it could not be properly understood, then court should not interfere.

Answer 131

A

Case: Regus UK v Epcot Solutions (2008)

Epcot were IT trainers and rented accomodation from Regus to run courses. Air conditioning broke down, making working conditions impossible.
Regus never sorted it out, despite many requests from Epcot, who then refused to pay the rent.
Regus claimed they were protected by a clause which stated they ‘weren’t liable in any circumstances’ for any loss of business or profits, third party claims or consequential loss. It added as well that in the event of losses, they would be limited to 125% of the fees or £50,000 whichever was higher.

High Court established breach of contract by Regus, as the clause was unreasonable under Section 3 of the Unfair Contract Terms Act 1977

Court of Appeal stated clause was not unreasonable, because it didn’t leave Epcot without a remedy, as they could still claim for diminution in value of the services provided.
‘In any circumstances’ couldn’t be interpreted as excluding liability for fraud or reckless malicious damage.
Epcot should have made their own arrangements to prevent business losses.

Answer 132

A

contracts of land
insurance
company promotions, shares or debentures
patents

Answer 133

A

They reflect an EC Directive and work alongside the Unfair Contract Terms Act 1977 to provide extra layer of protection.
Prevailing law for contract dated October 2015 and after is contained in the Consumer Rights Act 2015.

Answer 134

A

Apply to contract from before September 2015 between a seller or supplier and a consumer.
Focuses on terms that are agreed by both parties, even though not individually negotiated between parties.

Terms negotiated by both parties aren’t covered by these regulations.

These regulations imply a test of ‘unfairness’ into every non-negotiated contract term imposed on a consumer.

Answer 135

A

A contract will be deemed unfair if there was no good faith.
Additionally terms need to be in expressed in intelligible language, with no room for doubt, otherwise the interpretation that is the most favourable to the customer will prevail.

Parties need to deal honestly and openly

Answer 136

A

Indicates what terms are deemed unfair in effect:

terms excluding or limiting liability of seller/supplier for death or personal injury, from an omission act;
terms obliging consumer to fulfil their obligations, if they don’t fulfil theirs;
terms requiring consumer who fails to meet their obligations to pay a disproportionately high sum compensation;
terms excluding or hindering the consumer’s rights to take legal action

Any unfair terms will be void and struck out.

Answer 137

A

Case: Director General of Fair Trading v First National Bank (2000)
A term in bank loan allowed bank to claim interest on judgements. Bank argued the term didn’t fall within the scope of the Regulations.
Court of Appeal disagreed, because into would only come to effect if borrower defaulted.

Answer 138

A

Case: Office of Fair Trading v Abbey National (2008)
Bank considered OFT Regulations upon the terms on unarranged overdrafts. Banks saw ‘charges’ as a ‘price’.
Held: High Court deemed them to be clear, intelligible and fair.

Case: Evans v Cherry Tree Finance (2008)
Evans obtained loan from Cherry Tree Finance to pay his mortgage, which was also used for business purposes, and to comply with divorce settlement. Loan agreement contained an early redemption penalty.
Evans defaulted and the company sold the property and took the remainder owned from the penalty sum. the company argued he was not a consumer, because he was using property for business.
Held: Court of Appeal affirmed the High Court by stating the size of the penalty was unfair and void and that Evans was a consumer for the purposes of this transaction. Paperwork details stated it was a residential property and the fact that business was also conducted there was incidental.

Answer 139

A

Case: Newham London Borough v Khatun and others (2004)
Court of Appeal held terms of a policy which required a homeless applicant for permanent housing to accept an offer of accommodation without viewing it, on pain of losing his current bed and breakfast if he refuses, to be ‘oppressive, perverse and disproportionate’.

Case: Murkenbeck & Marshall v Michael Harold (2005)
Terms on architectural contract were deemed unfair and not binding. They were onerous and not been drawn to consumer’s attention before agreed.

Answer 140

A

Competition and Markets Authority (CMA) ivestigates unfair terms; previously it was the OFT

Answer 141

A

Terms cannot restrict liability for breach of contract for negligence; 1999 Regulations adds any non-negotiated terms in a business contract can be deemed void, if consumer was put in disadvantage
1977 Act protects consumers and businesses; 1999 Regulations only protects consumers.
1977 Act exclusions for death or personal injury are automatically ineffective; 1999 Regulations and unfair terms is one that doesn’t show good faith and causes significant imbalance in power.
1977 Act burden of proof is upon the seller to show an exclusion is reasonable; 1999 Regulations burden of proof is on the buyer to show it was unfair.

Neither 1977 Act or 1999 Regulations apply to B2C contracts after October 2015.

Answer 142

A

These are terms the court assumes should have been in place and considered to be reasonably agreed upon by the parties.

Case: The Moorcock (1999)
Owner of wharf contracted to provide a berth for a ship. Ship was damaged while attempting to access the berth.
Court established there was no express condition that the access was suitable, but it was implied it should be, so ship owner could recover damages.

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Chapter 2 - Essential Elements of Contract Flashcards

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