Contract Law Flashcards
1
Q
What is a contract?
A
A contract is a legally enforceable agreement.
2
Q
What are two alternative definitions of contracts?
A
‘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)
3
Q
How can a contract be negatively defined?
A
- A contract is not an agency
- Contract is different from Tort
- Contract is different from Criminal
4
Q
Why is an agency not a contract?
A
A contract is not an agency – in an agency situation or relationship, strictly speaking, there is no contractual relationship between all three parties.
5
Q
How is Contract different from Tort?
A
- 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.
6
Q
How is Contract different from Criminal?
A
- 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.
7
Q
What are the two key functions of contracts?
A
- 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.
8
Q
Must contracts be written?
A
The court permits oral contracts (in some circumstances) – the only challenge with oral contracts relates to the evidential burden.
9
Q
Which case demonstrated the higher evidential burdens in cases of unwritten contracts?
A
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’.
10
Q
What is the argument against written contracts?
A
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.
11
Q
What did Davies note to be the three important functions of the formal requirement to record contracts in writing?
A
- 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.
12
Q
In what instances will contracts be considered void or unenforceable if they are not written?
A
- 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
13
Q
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A
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14
Q
How are the theories of contract divided?
A
It is argued that the theory of contract can be divided into ‘general’ theories and ‘meta theories’.
15
Q
What are general theories of contract?
A
General theories explain what the rules are.
16
Q
What are meta theories of contract?
A
‘Meta theories’, on the other hand, tell us why the rules are the way they are and why we have contracts altogether.
17
Q
What are the two key theories of contract?
A
- Will Theory of Contract
- Reliance Theory of Contract
[Will be Essay Q so read up!!]
18
Q
What is the Will Theory of contract?
A
The will theory is the classic/orthodox theory which states that contract law gives effect to the exercise of an individual’s free will.
19
Q
Which principle develops/supports the Will Theory of contract?
A
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.
20
Q
What is the Reliance Theory of contract?
A
Professor Atiyah’s “reliance theory” notes that the binding force of contract derives from and protecting reliance on promise.
21
Q
What are the four other theories which can be used to rationalise contract law?
A
- Deontological Theory
- Consequentialism
- Contractarianism
- Areatic Theory
22
Q
What is the deontological theory of contract?
A
Deontological Theory - understanding contract law in light of duty and obligation as an ethical concept.
23
Q
What is consequentialism as a means of rationalising contract law?
A
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.
24
Q
What is contractarianism as a means of rationalising contract law?
A
Contractarianism - theory finds a moral sanction in agreement; thus, contractarian principles are used to discover morality.
25
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.
26
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.
27
What is the classical model of contract based upon?
It is said to be based on the will theory of contract.
28
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’
29
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.
30
What are the two components of freedom of contract?
This includes two freedoms;
1. Party freedom (freedom of each party to enter the contract willingly – a contract is a self-imposed obligation)
2. Term freedom (freedom to negotiate the terms of the contract).
31
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.’
32
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
33
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.
34
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35
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.
36
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.
37
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.
38
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.
39
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’.
40
What authorities are there for the notion that the courts should adopt an objective approach to contract law?
1. 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.
2. 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.
3. - 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.”
41
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.
42
What authority is there for the use of the reasonable man test as an objective assessment?
1. 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’
2. 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.
43
Which key case illustrated the application of the reasonable man test?
Smith v Hughes
44
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'
45
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.
46
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.
47
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.
48
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.
49
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;
1. Knowledge
2. Ambiguous Facts
3. Mistaken Terms
50
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]
51
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.
52
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).
53
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.
54
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55
What are the two types of agreements?
1. Bilateral
| 2. Unilateral
56
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.
57
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.
58
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).
59
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.
60
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61
What are the six key steps in determining the existence of an agreement?
1. Does the communication amount to an offer?
2. Was the offer communicated?
3. Did the offeree accept that offer or was the offer withdrawn before acceptance?
4. Can the response to the offer constitute an acceptance in law?
5. Was this acceptance communicated to the offeror? When was it communicated?
6. Was there a communication which purported to revoke the offer and was it capable in law of acting as a revocation?
62
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.
63
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.
64
How should an invitation to treat be distinguished from an offer?
1. 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
2. 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.
65
Which specific circumstances are recognised as being invitations to treat rather than offer?
1. Advertisements, Circulars and Brochures - Partridge v Crittenden
2. Displays of goods in shop windows or on supermarket shelves - Fisher v Bell (Windows) Pharmaceutical Society of Great Britain v Boots Cash Chemists (Shelves)
3. Retailers websites - Regulation 12 of E-Commerce Regulations (2002) suggest this - no definitive authority yet
4. Requests for Bids or Tenders - Spencer v Harding (note there are exceptions here)
5. Requests for Bids at an Auction - Harris v Nikerson (note there are some exceptions here)
66
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.
67
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.
68
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.
69
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.
70
What is important in determining whether the offer accepted the offer or if it was first withdrawn?
1. What is acceptance?
2. Can the response to the offer constitute an acceptance in law?
3. What are the rules affecting the method/means of acceptance?
71
What is acceptance?
Acceptance is the final and unqualified agreement to all the terms contained in the offer.
72
What are the three requirements that must be satisfied for a response to constitute an acceptance in law?
1. Does the response correspond exactly to the terms in the offer – the mirror-image rule
2. Was the acceptance a response to the offer? Was it made with knowledge of the preceding offer?
3. Does the response follow any prescribed method for acceptance laid out in the offer?
73
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.
74
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.
75
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.
76
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.
77
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).
78
What was the issue with the approach suggested by Lord Denning in Butler Machine Tool Co Ltd v Ex-Cell-O Corporation Ltd?
The issue with this approach is that it destroys the mirror-image rule as a requirement for the existence of acceptance.
79
Following a counter-offer (perhaps through an unintentional breach of the mirror-image rule) how may acceptance of said counter-offer be completed?
1. Explicit agreement to the terms and conditions – see Butler Machine Tool Co Ltd v Ex-Cell-O Corporation Ltd
2. By conduct – see Brogden v Metropolitan Railway Co
80
What is the importance of the acceptance being in response to a relevant offer?
Acceptance must be made in response to the offer, thus with knowledge of it – cross-offers cannot result in agreement, see the case of Tinn v Hoffman & Co.
81
What is the potential impact of mandatory prescriptions of acceptance methods?
If there is a mandatory method prescribed in the offer then it must be complied with in order the acceptance to count or be considered effective.
82
How can a mandatory prescription of acceptance be established?
To establish a mandatory form of acceptance, however, an offer must do more than merely prescribe a particular method – it must make clear that no other method of acceptance will be permitted as acceptable.
83
What is the position if there is a prescribed means of acceptance but it is not mandatory?
If there is a prescribed method of acceptance but it is not mandatory any other method will suffice as long as it fulfils the purpose behind the prescribed method – it should be no less advantageous to the offeror.
84
What should be considered when judging what other methods of acceptance fulfil the purpose of the non-mandatory method prescribed?
1. What was the purpose in prescribing the given method?
2. Was the purpose requested by, and designed to benefit, the offeror or the offeree?
3. If the prescribed method was in favour of the offeree - the benefit of the stipulation can be waived by the offeree – Yates Building Co Ltd v Pulleyn & Sons Ltd
4. Was the actual method used no less advantageous in fulfilling the purpose behind prescribing the method of acceptance? See the case of Manchester Diocesan Council for Education v Commercial & General Investments Ltd
85
What is the rule regarding communication of acceptance to the offeror?
The general rule is that acceptance of an offer needs to be ‘actually communicated’ to the offeror – the actual meaning of this is slightly tricky.
86
What are the two rules of communication of acceptance?
1. The receipt rule
| 2. The dispatch rule
87
What is the receipt rule?
One rule of communication of acceptance is that the offeror must have received the acceptance – the receipt rule.
88
Under the receipt rule what is the effect of silence?
Under the receipt rule, an offeror in a bilateral contract cannot (as a general rule) stipulate that silence from the offeree will constitute acceptance. Indeed, generally silence is insufficient to constitute acceptance – see the case of Felthouse v Bindley.
89
To which type of communications does the receipt rule apply?
The actual communication or receipt rule applies to instantaneous methods of communication, which are treated as if they were made face-face – see the case of Entores Ltd v Miles Far East Corporation.
90
How are problems in the process of communicating using instantaneous means viewed/approached by the law?
Denning LJ, in the case of Entores Ltd v Miles Far East Corporation, emphasised the importance of fault.
91
What three different positions did Denning LJ delineate in the case of Entores Ltd v Miles Far East Corporation in regards to issues with communication?
1. Communicator Fault – where the telephone line goes dead or some other issue occurs the offeree seeking to communicate acceptance will know the message will need to be repeated to ensure it is received.
2. Recipient Fault – where the offeror or recipient is aware that a message is being sent to him but has not received it, and the communicator mistakenly believes the message has been communicated, it is the recipient who must ask for the message to be repeated. Failure to do so will see the recipient estopped from denying the communication was not effectively received.
3. No Fault – where a communication does not reach the recipient but the communicator reasonably believed it to, and the recipient is unaware that any message has been sent, there has been no effective communication of the acceptance and therefore there is no contract.
92
When does actual communication of acceptance occur? Can actual communication be said to have occurred upon the delivery of a message to some sort of machine (e.g. answering machine) or is it only communicated upon being read by the offeror?
The position on the issue was laid down by Lord Wilberforce in Brinkibon Ltd v Stahag Stahl GmbH where he said – ‘No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risk should lie.’ Further case law provides more specific guidance.
93
Can communications sent to a business within office hours, when it might be reasonably expected that the message be read, constitute actual communication?
Yes, in such a case communication to the machine is actual communication because the communicator has done all he could reasonably have been expected to do – see the case of The Brimnes, Tenax Steamship Co Ltd v The Brimnes
94
What extra reasoning/justification is there for the position laid out in The Brimnes, Tenax Steamship Co Ltd v The Brimnes?
Lord Fraser in Brinkibon Ltd v Stahag Stahl GmbH stated that it was the recipients fault if he failed to monitor his machines during that period – messages sent during working hours are at the recipient risk.
95
What is the position regarding communications sent outside office hours where it is clear the message will not be read until the next working day?
In such a case, communication to the machine will not constitute actual communication. Actual communication will only occur on the next working day when the message may reasonably be expected to be read – see the case of Mondial Shipping and Chartering BV v Astarte Shipping Ltd (based on commercial common sense).
96
What is the key concept/phrase in regards to actual communication to machines?
The important concept is that of ‘ordinary office hours’ – what constitutes ordinary business hours will normally be provided in the Q.
97
Is it possible for standard/ordinary office/working hours to in some circumstances be extended?
Yes, in the case of Lehman Brothers International (Europe) (In Administration) v Exxonmobil Financial Services BV Blair J held that in some specific circumstances standard working hours may be extended – depending on the evidence/context.
98
What is the general rule regarding expectations and understandings of typical working practices?
As a general rule for communications objective knowledge (of the working practices of the recipient) will be assumed but matters which depend on subjective knowledge of business practices of the particular firm may not be – in such cases the onus is on the business recipient to make clear their working practices.
99
Does communication to an answering machine constitute instantaneous communication - in which case the receipt rule applies?
While there is no case law on whether communication to an answering machine constitutes actual communication the mere operation of an answering machine seemingly suggests that the communication is not instantaneous and thus the principles discussed in Entores should be applied. The communicator should keep repeating the message until it is listened to.
100
Is the receipt rule applicable to website trading?
In regards to Website Trading, Electronic Commerce Regulation 2002 applies indicating that generally the receipt rule is applicable to such communications.
101
Are emails considered instantaneous and thus subject to the receipt rule?
Contracts or communications via the exchange of emails are excluded from the EC Regulation 2002.
102
Which cases argued that the receipt rule should apply to emails?
Obiter in the case of Thomas v BFE Solicitors (a firm) Blair J suggested the receipt rule should apply to emails – this was reinforced by Andrews J in the case of Greenclose Ltd v National Westminster Bank plc.
103
What is the dispatch rule?
Another rule of communication of acceptance is that acceptance is completed as soon as a letter (or other non-instantaneous form of communication) is posted to the offeror – the dispatch rule.
104
What is the wider significance of the dispatch rule?
The dispatch rule is integral to a broader rule in regards to acceptance – the postal rule.
105
What is the postal rule?
This rule represents an exception to the receipt rule, acceptance of an offer can occur as soon as a letter is posted – see the case of Adams v Lindsell.
106
In what situations would postal acceptance be suitable?
The case of Henthron v Fraser established that postal acceptance is one possible method of acceptance for parties at a distance, provided the circumstances don’t indicate a need for a quick response.
107
What are the implications of the letter communicating acceptance getting lost or never arriving under the postal rule?
The case of Household Fire and Carriage Accident Insurance Co Ltd v Grant illustrates that it is irrelevant, to the acceptance, if the letter is lost in the post or never arrives. Indeed, where the postal rule applies the risk of the letter never arriving lies on the offeror – it is therefore in their interest to avoid application of the postal rule, this can be done expressly.
108
Can the application of the postal rule be prevented?
Yes, some offers that allow for acceptance by post may expressly exclude the application of the postal rule – this can be done by explicitly stating the need for ‘actual communication of acceptance’ – see the case of Holwell Securities Ltd v Hughes.
109
In what circumstances would the postal rule be inapplicable?
1. A postal response is out of line with the general context for contracting – e.g. known that quick response is required
2. Given the circumstances the parties cannot have intended to be bound until receipt of any acceptance – application of the postal rule would lead to ‘manifest inconvenience and absurdity’ - Lawton LJ in Holwell Securities Ltd v Hughes.
110
Can a postal communication be overtaken or undone? What happens if a phone call is made revoking acceptance made via post which is yet to receive the offeror?
There are two key arguments/approaches to this issue;
1. The postal rule cannot be undone or overtaken as this would be to give the offeree the best of both worlds, protection against revocation on posting but the ability to revoke if market conditions made acceptance less palatable.
2. The postal rule can be undone or overtaken - if another means of communication overtakes the postal acceptance and informs the offeror of the offerees decision not to accept the offer, this places the offeror at no disadvantage, in fact it is arguable that in some instances he will be disadvantaged by the postal rule prevailing.
111
What does case law indicate in regards to whether postal acceptance can be undone or overtaken?
The case law on the issue is somewhat equivocal – Countess of Dunmore v Alexander may support the overtaking of postal communications (though this is unlikely). Dicta in the case of Wenkheim v Arndt perhaps suggests it is not possible.
112
What impact may revocation of an offer have on the ability for it to be accepted and an offer formed?
Revocation may prevent effective acceptance of an offer and thus prevent the formation of an effective/enforceable contract, however, revocation is only possible at any point prior to acceptance.
113
Which case demonstrated that revocation can only occur prior to acceptance?
The case of Payne v Cave establishes that once acceptance has occurred a purported revocation of the offer will be too late.
114
What is the position where the offeree has made a promise to keep a given offer open for a specific length of time?
Even in cases where the offeror has previously promised to keep an offer open for a given period of time this can be curtailed and the offer revoked provided the offeree has not had to provide anything in exchange for the promise to keep open the offer – see the case of Routledge v Grant.
115
Does revocation always need to be communicated to the offeror himself?
Revocation need not be communicated to the offeror himself, effective revocation may occur through a third party – see the case of Dickinson v Dodds.
116
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117
In regards to unilateral contracts specifically what key issues and principles are more likely to arise here?
1. Unilateral advertisements are offers rather than invitations to treat
2. Acceptance of a unilateral offer must be in response to said offer and with knowledge of it
3. There is an implied waiver of the need to communicate acceptance of a unilateral offer
4. Special principles apply to the revocation of unilateral offers
118
What is the legal status of a unilateral advertisement?
A unilateral advertisement – a promise in exchange for an act – is an offer – see the case of Carlill v Carbolic Smoke Ball Company and Bowerman v Association of British Travel Agents Ltd.
119
Why are unilateral advertisements considered to be offers (unlike bilateral ones)?
This ensures the promise is enforceable if the act is completed.
120
What is the importance of knowledge in acceptance in the case of unilateral offers?
A unilateral offer of reward cannot be accepted if there is no knowledge of the offer – see the case of R v Clarke.
121
How may 'knowledge' of an offer be determined?
In order to determine whether there was knowledge at the crucial time it may be necessary to look at the precise terms of the offer – see the case of Gibbons v Proctor.
122
Is the motive of the offeree, in responding to the offer, of any relevance?
No, as long as the offeree has knowledge of the offer his motive in responding is irrelevant – see the case of Williams v Carwardine.
123
In the case of unilateral contracts is there a need to communicate an intention to complete the requested action?
No, there is an implied waiver to communicate acceptance. In a unilateral contract it is the performance of the requested act that constitutes the acceptance – there is no need to communicate the intention to complete the action – see the case of Carlill v Carbolic Smoke Ball Company.
124
Why are there special principles relating to the revocation of offers for unilateral offers?
Applying the general rules of revocation to unilateral contracts would be very harsh on the offeree as the offeror would seemingly be able to revoke their offer any point up to the completion of the requested action by the offeree.
125
What are the two opposing positions regarding revocation of unilateral offers now accepted by English Law?
1. The terms of the offer may contemplate that it is not possible to revoke once the offeree has ‘started to perform the act’ – what this actually means is still unclear
2. Equally, the terms of the offer may contemplate that revocation should be possible despite commencement of the performance of the act – see the case of Luxor (Eastbourne) Ltd v Cooper.
126
Which case demonstrates a contract with terms of the offer making it impossible for it to be revoked once the offeree has 'started to perform the act'?
The case of Errington v Errington & Woods saw it held that a promise by the father to transfer the house in exchange for paying all the mortgage payments could not be revoked once the couple had started to perform this act.
127
What is the potential reasoning behind decisions in cases like Errington v Errington & Woods?
It is argued that this position may be because a unilateral offer actually involves two promises; an express promise to pay on performance of the requested act and an implied promise not to revoke once the performance has been commenced.
128
What impact does the thinking that unilateral contracts actually involve two contracts have?
This analysis does not prevent revocation but rather creates an entitlement to a remedy in the form of damages if the second promise not to revoke the offer once performance has began is broken – this thinking was relied upon in the case of Daulia v Four Mill Bank Nominees Ltd.
129
What different analytical approach to the issue of revocation did the Law Revision Committee take?
The analysis of the Law Revision Committee in its 6th interim report 1937 suggested that revocation could be prevented if acceptance of the unilateral offer occurs once the offeree commences performance of the act – the reward would not, however, be payable until it had been completed in full.
130
What was the issue with the reasoning of the Law Revision Committee?
The issue with this second analysis was that it seemingly places an obligation of performance on the offeree – undermining the one-sided nature of unilateral contracts.
131
How can unilateral offers be revoked effectively?
Where unilateral offers are made to the whole world (the offeree is not identified) it is impossible for the offeror to comply with the normal rules requiring actual communication of revocation. Instead it is sufficient if the ‘same notoriety’ is given to the revocation as was given to the offer – see the case of Shuey v US. Provided the same channel of communication is used for offer and revocation whether the offeree sees the revocation is irrelevant.
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133
How may a request for tenders become a unilateral offer?
In typical bilateral situation the requestor of tenders is free to accept or reject any tenders to do the work (the tenders are offers) – see the case of Spencer v Harding.
If the requestor has expressly undertaken to award the contract to whichever party submits the lowest tender, said promise will be recognised – see the case of Harvela Investments Ltd v Royal Trust Co of Canada. Such a promise would thus amount to a unilateral offer.
134
Where may binding contractual obligations to consider all conforming tenders arise from and what are the consequences of failing to do this?
In some instances there may arise binding contractual obligations to consider all conforming tenders – this arises when the requestor promises to consider all tenders compliant with given stipulations. Failure to consider any conforming tenders (which now represent acceptance of a unilateral offer) will be a breach of this binding unilateral contract – allowing for a remedy in damages.
135
Can an obligation to consider confirming tender be implied from the circumstances as well?
Yes, see the case of Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council.
136
What did the case of Central Tenders Board v White show?
The implied contract principles do not, however, necessarily extend to the situation where a private citizen has invited offers for the sale of personal possessions and set a deadline for offers.
137
How many an auction amount to a unilateral offer?
If an auction is advertised without reserve the auctioneer is promising that no reserve price will be applied – here there is a unilateral promise to sell to the highest genuine bidder.
138
What happens if an owner bids at an auction to raise the price and the property is knocked down to him?
The next highest bidder can seek relief – they will be entitled to damages for breach of this unilateral contract – see the case of Warlow v Harrison.
139
What happens if an auctioneer refuses to accept the highest bid at such an auction and withdraws the goods?
The highest bidder has a remedy of damages to compensate in the event that the goods are withdrawn from the sale (i.e. damages amounting to the cost of purchasing replacements minus the amount of the auction bid) – see the case of Barry v Davies.
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141
Broadly, what are the consequences of agreement problems?
Where there are agreement problems the parties are generally unable to come to an agreement – thus the agreement may be rendered void or else merely voidable.
142
What is the difference between a contract that is rendered void and one that is made voidable?
Where a contract is void it is automatically of no effect from the very beginning – rendering a contract void means there is no, and never has there been, a contract.
A voidable contract is one where it is liable to be set aside by one party using the remedy of rescission – once it is set aside the contract is treated as never having existed.
143
What are the two key areas within agreement problems?
1. Certainty of Terms
| 2. Agreement Mistakes
144
What is the basic principle/reasoning behind the certainty of terms requirement?
If an apparent agreement is too uncertain in its terms the courts will not enforce it because they will not construct a binding contract for the parties – this is not their role.
145
What are the two key causes of contracts being too uncertain?
1. It is vague
2. Essential terms are missing – it is incomplete
(There is sometimes something of an overlap)
146
What is the general effect of vague terms?
If an essential term of a contract is vague the apparent agreement is void and the courts, generally, will not provide the details necessary to form a binding contract.
147
What is the first instance in which courts may fill in the blanks created by vague terms?
1. Where it is possible to do so based on clear commercial practice – see the case of Scammell & Nephew Ltd v Ouston (insufficiently clear business practice to fill in the details – contract made void) and contrast it to Hillas & Co Ltd v Arcos Ltd (identifiable, clear business practice at the time of the contract – contract not made void)
148
What is the second instance in which courts may fill in the blanks created by vague terms?
2. Where the agreement has already been ‘executed’ – that is to say, acted upon – generally where an agreement has been performed or executed by the parties already it is unlikely to be held unenforceable by the courts on the grounds of uncertainty – see the case of Trentham Ltd v Archital Luxfer. However, this does depend to an extent on the facts and whether there is agreement on the essential terms – see the cases of British Steel Corporation v Cleveland Bridge & Engineering Co Ltd and Baird Textiles Holdings Ltd v Marks & Spencer plc for instances of where the essential terms weren’t in place and the case of RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH & Co for an instance of where they were.
149
Can clauses deemed to be meaningless be severed from a contract?
Yes – this is underpinned by the need to prevent parties escaping from a contract by inserting a meaningless clause – see the case of Nicolene Ltd v Simmonds.
150
What is the general effect of incomplete terms?
Where an agreement leaves an essential matter, such as price, undecided or impossible to calculate the courts will not enforce this agreement. This includes agreements to negotiate – an apparent agreement to negotiate on a particular term is regarded as too uncertain to be a contract – see the case of Walford v Miles.
151
What statutory resolution may there be for the issue of incomplete terms?
Where terms for a contract leave no mechanism in the contract for fixing the price then statute may provide for a ‘reasonable price’ – this is established by Section 8(1) of the Sale of Goods Act 1979, Section 15 of the Supply of Goods and Services Act 1982 and Section 51 of the Consumer Rights Act 2015.
152
What are the limitations of the 'reasonable price' provided for by statute?
If there is a mechanism for fixing the price but it simply hasn’t been implemented the statutory measures are inapplicable for finding a ‘reasonable price’ – see the case of Mary & Butcher Ltd v R.
153
What are the two exceptions to the general rules on incomplete and thus uncertain terms?
1. Where the agreement has already been executed and the price is to be agreed by the parties but has not been the courts may not be prepared to declare the contract void – see the case of Foley v Classique Coaches Ltd
2. Where the principle in Sudbrook Trading Estate Ltd v Eggleton applies – essentially in instances where machinery/clauses exist purely for the purpose of fixing a fair price (rather than one that was an essential clause in determining the price) and it breaks down – the court could substitute it’s own machinery to calculate a fair price.
Note that the Sudbrook Case was later distinguished by the case of Gillatt v Sky Television Ltd in which the machinery was found to be integral and essential.
154
What are the difficulties with granting remedies for contracts with uncertain terms?
As such contracts are likely to be declared void and thus held to have never existed awarding of damages or other remedies is more complicated.
155
What potential remedies may follow a contract being made void for uncertain terms?
Parties may be required to pay for performance under an uncertain contract on the basis of quantum meruit (reasonable value of services). This is designed to be a restitutionary remedy based on the desire to prevent unjust enrichment.
156
In what circumstances may the courts grant payment for performance under a voided contract?
In cases where one party has already began performing a service while the terms of a contract are negotiated and finalised, only for the terms to be held to be too uncertain and the contract later made void, the courts may order one party to pay for the value of the performance that has occurred to date – see the case of British Steel Corporation v Cleveland Bridge & Engineering Co Ltd.
157
What did the case of Regalian Properties plc v London Dockland Development Corporation demonstrate in regards to remedies under contracts voided for uncertainty?
This case showed that it is only possible to recover performance expenses where the performance was specifically requested by the other party.
158
What did the case of Countrywide Communications Ltd v ICL Pathway Ltd illustrate in regards to part payment under quantum meruit?
There could only be recovery under quantum meruit in ‘exceptional cases’ – there had to be a benefit to the D in performance of the services which D had requested.
159
What further factors should be considered when deciding whether a claimant is entitled to part payment under quantum meruit?
Further factors to be considered are;
- The terms in which the request to perform was made and whether it was reasonable to assume the claimant would be compensated
- Whether they were services of a kind which would normally be given free of charge
- The circumstances in which the anticipated contract had failed to materialise and whether the D was at fault
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161
What is the basic concept of an agreement mistake?
An apparent agreement may be made void if it can be established that the parties entered into the contract on the basis of a ‘fundamental’ mistake which the law recognises as preventing the parties from ever reaching agreement.
162
What are the two types of agreement mistakes which prevent agreement being reached?
1. Mutual or Cross-Purpose mistakes
| 2. Unilateral mistakes
163
What are mutual mistakes?
Mutual mistakes occur where both parties are mistaken as to the terms but in different ways. Each party is said to have made a different mistake in their reasonable interpretation of a term – see the case of Raffles v Wichelhaus.
164
Where will mutual mistakes lead to a contract being made void?
Where it is impossible for the reasonable man to say which party’s interpretation is the more reasonable (using the objective test for contract formulation) because of the ambiguity in the offer terms there will be held to be no agreement – see the cases of Scriven Brothers & Co v Hindley (agreement void) and Tamplin v James (agreement upheld/not voided).
165
What are unilateral mistakes?
Unilateral mistakes occur where one party is mistaken as to a term of the contract and the other party knows of this mistake and cannot be allowed to take advantage of it – see the case of Shogun Finance v Hudson.
166
Where will unilateral mistakes lead to a contract being made void?
In order to avoid the agreement (or see it rendered void) there must be a mistake as to a term – and one party, with knowledge of the mistake, seeks to exploit it and ‘snap up’ the contract – see the case of Hartog v Colin & Shields.
167
What may prevent the contract being made void in the case of unilateral mistakes?
If the mistake does not relate to a term of the contract but to a collateral matter or matter relating to the quality of the subject matter, then it will not be considered fundamental and will not prevent agreement – see the case of Smith v Hughes.
168
What is the courts approach to mistakes of identity?
Mistakes as to identity occur where one party is mistaken as to the identity of the other contracting party (a term of the contract) and that the other know of the mistake (usually because he has fraudulently misrepresented his identity). This type of mistake will only render a contract void if it is fundamental, if it is not fundamental the contract will only be voidable under fraudulent misrepresentation.
169
What are the issues of recoverability in cases of fraudulent misrepresentation?
If a rogue or fraudulent party sells goods to a third party, said goods will be recoverable only if the contract was void – meaning the rogue party had no title of ownership to the goods. The fact that the contract was merely voidable under fraudulent misrepresentation is insufficient to allow return of the goods – this right was lost when the sale was made, here the third party can keep the goods.
170
How do the courts protect third parties from the effects of fraudulent misrepresentation?
In order to protect the third party the courts draw a distinction between true mistakes to identity (void) and mistakes as to attributes, such as creditworthiness (which only render a contract voidable).
171
What presumption is applied to face-face dealings in regards to mistakes of identity?
In face-face cases a presumption was applied that seeing as the intention was to deal face-face the mistake would be one of attributes (rather than true identity – which would make little sense) and thus the contract would be merely voidable – see the cases of Phillips v Brooks Ltd and Lewis v Averay.
172
What key distinction is there between written contracts and face-face contracts without writing?
Contracts made by written correspondence can be made void for mistake as to identity since identity would be of fundamental importance to the formation of a written contract by post – see the case of Cundy v Lindsay. Whereas, there is a presumption against doing so in the case of face-face contracts/dealings.
173
What is the courts approach to rectifying document mistakes?
In some instances, document mistakes may arise, the court may be asked to rectify a written document to reflect accurately what the parties in fact agreed – see the case of Joscelyne v Nissen. For rectification, however, it must be shown that the parties were in fact in agreement as to the terms of the contract but simply wrote them down incorrectly – see the case of Chartbrook v Persimmon Homes Ltd.
174
When may rectification of document mistakes not be granted/conducted by the courts?
Rectification has not been allowed in cases where the parties were agreed as to the terms of their agreement but made a mistake as to the meaning of those terms – see the case of Frederick E. Rose Ltd v William H. Pim Junior & Co Ltd.
175
What is a plea of non est factum?
A successful plea of non est factum (‘this is not my deed’) means that the person signing a document is fundamentally mistaken as to the nature of the document signed.
176
What are the consequences of a successful plea of non est factum?
If the plea succeeds the written contract will be void and a third party cannot acquire a good title under it.
177
How are pleas of non est factum construed and why?
The plea is very narrowly construed to minimise disadvantaging innocent third parties who have subsequently relied upon said signature as binding;
- The transaction must be fundamentally different in nature from the one signed
- The mistake regarding the nature of the document signed must not be a mistake which is the result of carelessness on the part of the person signing
- This is established by the case of Saunders v Anglia Building Society
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179
What are the six key issues to consider in determining the enforceability of a promise by one party against another?
1. Identify the promise that one parties seeks to make against another
2. Did the promisor intend to be legally bound by the promise?
3. Consider the possibility of duress
4. Was the promise contained in a deed?
5. Was any consideration supplied by the promise to support the promise made by the promisor?
6. Does the doctrine of promissory estoppel apply?
180
What is a key distinction in regards to enforceable promises?
1. Formation Promise – a promise on the formation of a contract where there is no existing contract in place between the parties and covering the relevant subject matter
2. Alteration Promise – a promise which alters the terms of an existing contract between the parties
181
What should you consider when identifying the promise one party seeks to enforce?
This is normally straightforward to do, and is often quite self-evident, but as guidance consider what has gone wrong and who has not done what they promised to do, or is seeking to avoid being bound by a given promise?
182
What presumption is made about intentions to create legal relations in commercial cases?
In the case of commercial cases the intention to create legal relations is presumed once a promise has been made and is only likely to be rebutted either where;
1. Clear words to the opposite effect are used – see the cases of Rose & Frank Co v J. R. Crompton & Brothers Ltd and Jones v Vernon’s Pools Ltd, or;
2. There is extreme uncertainty of terms so that there is no clear contract - see the case of Baird Textiles Holdings Ltd v Marks & Spencer plc.
183
Which case distinguishes between advertising gimmicks and promises intended to be legally binding?
Carlill v Carbolic Smoke Ball Co - reposting of money showed an intention to be bound.
184
What is the key question in assessing the presence of an intention to create legal relations?
The key question is – would the promise be understood by the reasonable person as constituting a binding offer? – see the case of Bowerman v ABTA Ltd.
185
What presumption is applied to promises made in domestic situations?
In domestic or social contexts agreements made are treated with the presumption of no intention to be legally bound – see the case of Balfour v Balfour.
186
Is it possible to rebut the presumption that there was no intention to create legal relations in a domestic context?
Yes, if it can be established that the terms were sufficiently certain and there was reliance on the part of the parties then an intention to create legal relations may be identifiable in a domestic context – see the case of Parker v Clark.
187
What will happen if there is a failure to establish the terms were sufficiently certain to rebut the presumption of no intention to create legal relations in a domestic context?
Failure to establish this will lead to a finding of no such intention – see the case of Jones v Padavatton.
188
When will agreements between husband and wife see the presumption of no intention to create legal relations rebutted?
It is likely the presumption will only be rebutted if;
- The promises in the agreement are made when the parties have decided to separate – see the case of Merritt v Merritt
- The promise is sufficiently certain in its terms – see the case of Gould v Gould
189
What is the key question when considering the prospect of duress influencing agreements?
Was the promise freely given or was it extorted by illegitimate pressure or threats from the promisee?
190
What is the most common form of duress?
It should first be noted that said threats generally tend to affect a person’s business interests or financial well-being.
191
What are the implications of duress being established?
If duress can be established the relevant promise is voidable and, assuming the promise is not subsequently affirmed by the threatened party, it will not be enforced (or the promisor will not be bound by their promise).
192
What criteria must be satisfied to allow a contract to be voidable for economic duress?
It was established in the case of Pao On v Lau Yiu Long that for a contract to be voidable for economic duress;
1. There must be a pressure or threat which is illegitimate
2. That pressure or threat must amount to a ‘coercion of will that vitiates consent’
193
How is an illegitimate threat defined or determined?
Knowing what constitutes an illegitimate threat is not straightforward. Generally, the exercise (say on the part of a lender) of a legitimate right will constitute reasonable pressure but will not be considered illegitimate.
