Contract Law Flashcards
What is a contract?
A contract is a legally enforceable agreement.
What are two alternative definitions of contracts?
‘A contract is a legally binding agreement which is legally enforceable.’ – Poole
‘A promise or set of promises for the breach of which the law provides a remedy.’ – Restatement of Contract, Section 1 (1932)
How can a contract be negatively defined?
- A contract is not an agency
- Contract is different from Tort
- Contract is different from Criminal
Why is an agency not a contract?
A contract is not an agency – in an agency situation or relationship, strictly speaking, there is no contractual relationship between all three parties.
How is Contract different from Tort?
- First, contractual obligations are voluntary as they arise from the free will of the parties while tortious obligations arise independently of the will of the parties and are based on objective standards imposed by law.
- Second, in contract, the available remedy is intended to place the parties in the position they would have been if the contract had been performed while for tort, the relevant remedies seek to place parties in the place that they would have been if the tort did not occur.
How is Contract different from Criminal?
- First, criminal law deals with the punishment of individuals who have committed offences against the state (though the initial act may have been inflicted on another person e.g. rape or murder) while contract law deals with a range of self-imposed obligations.
- Second, the penalties for a criminal act can range from a custodial sentence (imprisonment) to a non-custodial sentence (community service). The penalty for a breach of contract would never include imprisonment.
What are the two key functions of contracts?
- Contract law ensures stability in the enforcement of promises for if a party could contract and be paid for a task which he could disregard with impunity, this would destroy the social and economic fabric of society. 2. Contracts also allow for the allocation of risk where circumstances both within and outside a party’s control may arise.
Must contracts be written?
The court permits oral contracts (in some circumstances) – the only challenge with oral contracts relates to the evidential burden.
Which case demonstrated the higher evidential burdens in cases of unwritten contracts?
This issue relating to the evidential burden was noted in the case of Joseph Constantine S. S. Line v Imperial Smelting Corporation where it was said – ‘He who alleges must prove, whether the allegation is negative or positive’.
What is the argument against written contracts?
The formality requirements of recording one’s agreement in writing are sometimes regarded as time-consuming and burdensome and thus, could make the process of contracting more onerous.
What did Davies note to be the three important functions of the formal requirement to record contracts in writing?
- The ‘evidentiary’ function: since the document will be written, it will serve as good evidence of the contract made.
- The ‘cautionary’ function: that parties may be more inclined to check the substance of the agreement as it has been formally written down.
- The ‘channelling function’: the fulfilment of the requisite formalities provides a simple, objective test of enforceability.
In what instances will contracts be considered void or unenforceable if they are not written?
- Particular categories of contract which must be in writing as a result of legislation [here, the contract is void (a void contract is treated as though it never existed)]
- Certain types of contracts which are not enforceable unless evidenced in writing [here, the contract is valid (ie. It contains all the essential elements of a contract) but is unenforceable
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How are the theories of contract divided?
It is argued that the theory of contract can be divided into ‘general’ theories and ‘meta theories’.
What are general theories of contract?
General theories explain what the rules are.
What are meta theories of contract?
‘Meta theories’, on the other hand, tell us why the rules are the way they are and why we have contracts altogether.
What are the two key theories of contract?
- Will Theory of Contract
- Reliance Theory of Contract
[Will be Essay Q so read up!!]
What is the Will Theory of contract?
The will theory is the classic/orthodox theory which states that contract law gives effect to the exercise of an individual’s free will.
Which principle develops/supports the Will Theory of contract?
One of the developments of this classical theory is Professor Fried’s ‘promise principle’ which states that binding force of contract derives from value attributed to the exercise of the will in making a promise.
What is the Reliance Theory of contract?
Professor Atiyah’s “reliance theory” notes that the binding force of contract derives from and protecting reliance on promise.
What are the four other theories which can be used to rationalise contract law?
- Deontological Theory
- Consequentialism
- Contractarianism
- Areatic Theory
What is the deontological theory of contract?
Deontological Theory - understanding contract law in light of duty and obligation as an ethical concept.
What is consequentialism as a means of rationalising contract law?
Consequentialism - the class of normative ethical theories holding that the consequences of one’s conduct are the ultimate basis for any judgment about the rightness and wrongness of that conduct.
What is contractarianism as a means of rationalising contract law?
Contractarianism - theory finds a moral sanction in agreement; thus, contractarian principles are used to discover morality.
What is the areatic theory of contract?
Areatic theory - this is referred to as an Aristotelian virtue ethics where people act not because of the consequences but because of inherent virtues within their own lives – these virtues contribute to making a person’s life a good life.
What is the classical model of contract?
This model seemingly centers around the idea that there are a set of common rules whose strict and formalistic application reduces the opportunity for judges to be flexible with their interpretation of contracts as well as creating contract sanctity.
What is the classical model of contract based upon?
It is said to be based on the will theory of contract.
How does Richard Stone explain the classical model of contract?
1) It is based on an exchange of promises.
2) It is executory - the contract is formed and obligations under it arise before either side has performed any part of it.
3) It involves an ‘exchange’: each side is giving up something in return for the other’s promise. It is the existence of this mutuality (given effect through the doctrine of ‘consideration’ which generally gives rise to enforceability).
4) The content of the contractual liability is determined by deciding what the parties have agreed or what the court, looking on as a reasonable person, objectively believes is the agreement that the parties have come to.
5) Disputes about a contract can generally be determined by asking what the parties expressly or impliedly agreed (or should be taken to have agreed) in the contract itself. This is regarded to be the ‘will theory of contract’.
6) The transaction is discrete, rather than being part of a continuing relationship.
7) The role of the court is to act as an ‘umpire’ or ‘arbiter’ giving effect to the parties’ agreement. In particular, it has no role in deciding whether or not the parties’ transactions are ‘fair’
What key concept emerges from the classical model of contract?
Freedom of contract - this is regarded as a reflection of the dominance of the laissez-faire economic attitude of the nineteenth century.
What are the two components of freedom of contract?
This includes two freedoms;
- Party freedom (freedom of each party to enter the contract willingly – a contract is a self-imposed obligation)
- Term freedom (freedom to negotiate the terms of the contract).
What did Sir Jessel MR say about the importance of freedom of contract in Printing Numerical Registering Co v Sampson?
‘if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice. Therefore, you have this paramount public policy to consider—that you are not lightly to interfere with this freedom of contract.’
What is the neo-classical model of contract?
Contrasting to the classical model, the neo-classical model contains a few key elements;
(i) the rules are treated as more broad and therefore fuzzily drawn
(ii) there is greater scope for judges to rationalise actions
What is the neo-classical model of contract based upon?
Here, reliance is seen as more important for motivating the parties’ behavior than the promise itself. Either way, under this model the philosophical motivation for enforcement is less important than the flexibility given to judges.
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What is the role of objectivity in contract law?
In contract law, the intentions of the parties are generally judged by the objective meaning of the words and conduct.
Why do the courts take an objective approach to contracts?
Many times, a person may believe that he is contracting in relation to one thing (his subjective intention) when the objective standard would regard that he has contracted in relation to another thing. To ensure that there is an objectionable basis on which the party’s dealings may be interpreted, the court will apply the objective meaning.
What did Davies say about the importance of an objective approach by the courts?
Davies notes, no one could ever act safely on a contract which he reasonably believed he had made.
What did Ashby say about the potential confusion of subjectivity in contract law?
Ashby notes that a subjective approach requires the courts to consider what the parties were thinking at the time of making the contract. This is considerably challenging where there are two conflicting subjective intentions at play: ‘the plaintiff’s’ and ‘the defendants’. This could be equally more complex where having heard the two competing subjective opinions, a judge forms his own subjective opinion.
What viewpoint do the courts adopt when judging contract cases objectively?
By adopting an objective standard, the court ensures that the parties’ dealings are judged from a ‘detached point of view’.
What authorities are there for the notion that the courts should adopt an objective approach to contract law?
- Lord Denning in Storer v Manchester City Council - In contracts you do not look into the actual intent in man’s mind. You look at what he said and did. A contract is formed when there is, to all outward appearance, a contract. A man cannot get out of a contract by saying ‘I did not intend to contract’, if by his words he has done so.
- Lord Clarke SCJ in RTS Flexible Systems Ltd v Molkerei Alois Müller Gmbh & Co KG (UK Production) - . It depends not upon their subjective state of mind, but upon consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms to which they regarded or the law requires as essential for the formation of legally binding relations.
- Lord Hoffman in the Privy Council case of Attorney-General of Belize v Belize Telecom Ltd - ‘It is the objective meaning which is conventionally called the intention of the parties.”
What actually is the objective approach adopted by the courts?
The objective approach is that of a reasonable expectation of honest men - the reasonable man test.
What authority is there for the use of the reasonable man test as an objective assessment?
- Per Steyn LJ in Trentham Limited v Archital Luxfer Limited [1993] 1 Lloyd’s Rep 25, 27: ‘the governing criterion is the reasonable expectation of honest men’
- Teare J in Dhanani v Crasniansk [2011] 2 All ER (Comm) 799 at [65] noted that the yardstick has been described as the reasonable expectations of sensible business men.
Which key case illustrated the application of the reasonable man test?
Smith v Hughes
What did Blackburn J say in the case of Smith v Hughes?
He said - ‘If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other’s terms’
What further criteria is in place when applying the reasonable man test?
The case of Destiny 1 Ltd v Lloyds TSB Bank plc saw it established that it is not just a reasonable man but rather a reasonable man in that party’s position.
Is it always a reasonable man in the relevant party’s position that is used as the objective test?
No, the case of Upton on Severn UDC v Powell illustrated that in some circumstances a standard reasonable man would suffice.
What is the standard position regarding the objective approach? Is it that set out in the Destiny Case or Upton?
The accepted view is that noted in Destiny where the proper lens is that of a detached person.
Which case demonstrated that the subjective intentions of the parties are irrelevant?
Tamplin v James - Here although the defendant purchaser was acquainted with the relevant property, he bought it believing that he was buying the whole of the property in the occupation of the tenants. Specific performance to enforce the contract for the sale of only Lot 1 and not including the two adjacent plots could be granted. His subjective intention to purchase the whole lot was irrelevant.
Are subjective considerations ever taken into account by the courts when considering contracts?
In a few circumstances the subjective intentions of the parties become relevant;
- Knowledge
- Ambiguous Facts
- Mistaken Terms
How does knowledge allow for the consideration of subjective intentions?
Subjective intentions may be considered by the courts where one party knows, or ought to know, that this is not a true expression of the other party’s will - see Hartog v Colin and Shields
[Argentine hare skins – price per piece vs price per pound]
How do ambiguous facts allow for the consideration of subjective intentions?
Subjective intentions may be considered by the courts where ambiguous facts cause even the reasonable observer to be in doubt as to what the parties mean - see Falck v Williams & Raffles v Wichelhaus.
How do mistaken terms allow for the consideration of subjective intentions?
Subjective intentions may be considered by the courts where a party is mistaken as to the terms of the agreement - see the case of Smith v Hughes (note that this case is subject to contrasting interpretations).
What did the Raffles v Wichelhaus case demonstrate?
In many cases, even the reasonable and objective bystander may not be able to determine what the parties have concluded - see very important decision of Raffles v Wichelhaus. Here it was uncertain which ship the parties had agreed on, given that there were two ‘Peerless’ ships: one which sailed in October and one which sailed in December.
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What are the two types of agreements?
- Bilateral
2. Unilateral
What are bilateral agreements?
Bilateral agreements are the most common and consist of a promise in exchange for a promise. A bilateral agreement means both parties are bound on the exchange of promises, although there has yet to be any performance of either promise.
What is an example of a bilateral agreement?
A typical sale of goods agreement is bilateral as the seller promises to sell the relevant good and the buyer promises to pay the agreed price for it.
What are unilateral agreements?
Unilateral agreements are less common and consist of a promise in exchange for an act. Unilateral agreements see only one party bound at the outset by a promise – the other has no obligation as they have made no promise, to demonstrate acceptance they must engage in the relevant performance required (but they are under no obligation to do this).
What is an example of a unilateral agreement?
An agreement over the return of a lost dog is a unilateral agreement as an individual who promises £50 for the return of said dog is bound by their promise, the other party involved makes no promise to return the dog and is under no obligation to do so. If, however, they complete the relevant action requested and return the dog they have demonstrated acceptance and are entitled to the £50.
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What are the six key steps in determining the existence of an agreement?
- Does the communication amount to an offer?
- Was the offer communicated?
- Did the offeree accept that offer or was the offer withdrawn before acceptance?
- Can the response to the offer constitute an acceptance in law?
- Was this acceptance communicated to the offeror? When was it communicated?
- Was there a communication which purported to revoke the offer and was it capable in law of acting as a revocation?
What is an offer?
An offer is a definite promise to be bound, without more, if the offeree agrees to the offer terms – it should follow from an offer that acceptance will result in an agreement.
An offer is different to an invitation to treat, what is an invitation to treat?
An invitation to treat is an invitation to others to make offers as part of the negotiating process – it should follow from an invitation to treat that the reply, at best, may be considered an offer but may be no more than another invitation to treat.
How should an invitation to treat be distinguished from an offer?
- Will a simple response of ‘yes’ to the relevant communication result in the formation of an agreement? If not, further negotiation is likely envisaged by the communicator and thus it is no more than an invitation to treat
- Was the language used sufficiently firm to constitute an offer? See the case of Gibson v Manchester City Council – ‘may be prepared to sell’ not firm enough.
Which specific circumstances are recognised as being invitations to treat rather than offer?
- Advertisements, Circulars and Brochures - Partridge v Crittenden
- Displays of goods in shop windows or on supermarket shelves - Fisher v Bell (Windows) Pharmaceutical Society of Great Britain v Boots Cash Chemists (Shelves)
- Retailers websites - Regulation 12 of E-Commerce Regulations (2002) suggest this - no definitive authority yet
- Requests for Bids or Tenders - Spencer v Harding (note there are exceptions here)
- Requests for Bids at an Auction - Harris v Nikerson (note there are some exceptions here)
What is the reasoning behind the position of the court that the given specific circumstances amount only to invitations to treat and not offers?
The thinking centres around where the control should lie when forming a contract. Given the potential issues with supply the courts generally hold that it should be the supplier that has control over the formation of the contract. Thus, Lord Herschell in the case of Grainger & Son v Gough, held that if a brochure or advertisement constituted an offer then acceptance would be the customer’s order – the supplier would then be bound to supply, something which may not necessarily be possible because of his limited stocks.
Was the offer communicated?
This is normally fairly self-evident - it will usually be obviously apparent whether this is the case and this is unlikely to cause issues as a problem here would prevent further contractual negotiations/issues to consider.
Can an offeree accept an offer they’re unaware of?
An offeree cannot accept an offer that she does not know about and she must act in response to an offer.
What hypothetical example illustrates the importance of communication and awareness of an offer before it can be effectively accepted?
For instance, if Person A sends a letter to Person B at 9am on Monday offering to sell Person B their car for £1000, and simultaneously at 9am on Monday Person B sends a letter to Person A offering to buy their car for £1000 there is no agreement because Person B was unaware of Person A’s offer at the time they made their own offer/demonstrated acceptance – the fact that the parties appear to be subjectively in agreement is insufficient.
What is important in determining whether the offer accepted the offer or if it was first withdrawn?
- What is acceptance?
- Can the response to the offer constitute an acceptance in law?
- What are the rules affecting the method/means of acceptance?
What is acceptance?
Acceptance is the final and unqualified agreement to all the terms contained in the offer.
What are the three requirements that must be satisfied for a response to constitute an acceptance in law?
- Does the response correspond exactly to the terms in the offer – the mirror-image rule
- Was the acceptance a response to the offer? Was it made with knowledge of the preceding offer?
- Does the response follow any prescribed method for acceptance laid out in the offer?
What is the mirror-image rule?
The mirror-image rule holds that in order to constitute an acceptance a response must correspond with the exact terms of an offer – introduction of any new terms or amendments to existing ones will see the acceptance become a counter-offer instead.
What is the affect of a breach of the mirror-image rule and thus a counter-offer?
As established by Hyde v Wrench, a counter-offer destroys the original offer but can be accepted by the original offeror.
What is the difference between a counter-offer and a request for further information?
A counter-offer purports to be an acceptance but has either added a new term or, more usually, amended an existing term.
A request for further information is the act of asking for more information on whether a particular means or performance will be possible before finally committing via acceptance.
What is affect of a request for further information?
The case of Stevenson, Jacques & Co v McLean illustrates that a request for further information does not destroy the original offer, nor does it enable the original offeror to accept anything with the direct effect of forming an agreement.
In which case did Lord Denning suggest alternative approaches to the mirror-image rule?
Butler Machine Tool Co Ltd v Ex-Cell-O Corporation Ltd - Lord Denning, in said case, agreed that the buyers terms prevailed (counter-offer so no agreement) but he suggested that an agreement could be formed provided the parties were ‘broadly in agreement’. To determine the specific content of the contract (terms) he suggested a number of solutions including; last-shot, first-shot etc (don’t need to know).
