Formation Of Contract

Question 1

Vitiating factor

Answer 1

Something that happens which prevents a contract from being fulfilled

Question 2

The Sale of Goods Act 1979

Question 3

The Consumer Rights Act 2015

Question 4

Freedom of Contract

Answer 4

You are free to make the choice of entering a contract

Question 5

The Reliance Theory

Answer 5

An assumption of responsibility for a specified performance

Question 6

What case states that agreed terms in a contract must be certain?

Answer 6

Guthing v Lynn (1831) where the promise to pay £5 for a horse “if it was lucky” was too vague. Too vague – not a valid contract.

Question 7

What did Lord Denning say on Butler Tool Machine Co. Ltd v Ex-Cell-O Corporation (1977)

Answer 7

There should be an objective view that as soon as the last forms have been exchanged between parties and no objections raised that the terms are settled and a contract is valid.

Question 8

Consumer Rights Act 2015 on terms, rights and remedies in contract

Answer 8

Parliament stated that terms, rights and remedies cannot be excluded by a business.

Question 9

What is the expectation with ‘Good Faith’

Answer 9

Expectation is that both parties will do what they’ve said they will do.

There are criminal sanctions for the worst breaches e.g. fraud

Question 10

Victoria Laundry v Newman (1949).

Answer 10

Responsibility for any losses are taken by the person at fault, but only losses that are reasonably within the contemplation of the parties may be recovered

Question 11

Wellesley partners LLP v Withers LLP (2015)

Answer 11

basic rule of contract, that contracts are made between parties in good faith and that the damage resulting from the breach would have been the type in mind when the contract was made.

Question 12

Problems with ‘Good faith’

Answer 12

businesses are competitive and so parties entering into contracts cannot be expected to disclose every aspect of their business deals.

Balance needs to be struck between the interests of the parties to a contract by legislation, interpretation of common law, some equity.

Result - lack of certainty

Question 13

The United Nations Convention on Contracts for the International Sale of Goods (1980) states that…

Answer 13

there should be good faith in international commercial contracts, yet most international trade contracts state that English law will apply in London!

Question 14

Can a third party to a contract take legal action?

Answer 14

Only a party to a contract may take legal action. An agent, a person acting on behalf of somebody else (the principal), in making a contract with a third party, means the contract is between that third party and the principal.

The Contract (Rights of Third Parties) Act 1999 allowed third parties to make claims where the contract made this clear, but since most contracts exclude these, this is largely not applicable.

Question 15

Law Reform (Frustrated Contracts) Act 1943: what happens when a contract has been ‘frustrated’

Answer 15

Courts may order a ‘just sum’ to be paid

Question 16

Responsibility is one theory in contract law

Answer 16

An untrue statement of fact is a misrepresentation and a vitiating factor, therefore remedies will be appropriate.

Question 17

Degree of seriousness of misrepresentation:

Answer 17

innocent, negligent or fraudulent – Smith v Land and House Property (1884)

Question 18

If one party doesn’t ask about something…

Answer 18

…there’s no obligation to tell, so silence isn’t misrepresentation, this is because there is freedom of contract.

This is different in insurance contracts, where good faith is required.

If there is a deliberate attempt to conceal a fact, then there is liability.

Question 19

(Contract) 1995, Law Commission recommended…

Answer 19

no punitive damages for breach of contract, although penalty clauses in some contracts suggest otherwise, subject to judicial review.

Question 20

ParkingEye v Beavis (2015)

Answer 20

Lords Sumption and Neuberger, upholding a parking penalty of £85, stated that whilst the penalty rule was an interference with the freedom of contract; in a negotiated contract, the parties themselves are the best judges of what is appropriate. This means that in other words, as long as penalties are not excessive, they are legal.

Question 21

Smith v Land and House Property (1884)

Answer 21

If you misrepresent the facts in a negotiation then that will nullify the contract

Question 22

Olley v Marlborough Court Hotel (1949)

Answer 22

The exclusion clause was invalid as it had not been brought to Mrs Olley’s attention when she made the contract

Question 23

Jackson v Horizon Holidays

Answer 23

Most of the time, the people who are involved in the contract can take action but not a third party. This case is an exception to this

Question 24

Pearce v Brooks (1866)

Answer 24

They had the freedom to enter the contract, but morally, the court decided that this was not a valid contract, so it was not considered a contract

If the court decides that morally, a contract isn’t valid, it can make that decision

Question 25

Tax contracts

Answer 25

tax avoidance (legal), tax evasion (illegal), are contracts that set out to help people avoid tax immoral?

Question 26

Estoppel

Answer 26

this essentially means if one party to a contract and the other party relies on that promise, then they cannot go back on the agreement as they are ‘estopped’ from breaking a promise.

Question 27

Central London Property Trust v High Trees House [1947]

Answer 27

High Trees leased a block of flats from CLP at a ground rent of £2,500. It was a new block of flats at the time the lease was taken out in 1937. The defendant had difficulty in getting tenants for all the flats and the ground rent left High Trees with no profit. In 1940 many of the flats were still unoccupied and with the conditions of the war prevailing, it did not look as if there was to be any change to this situation in the near future. CLP agreed to reduce the rent to £1,250 during the war years. The agreement was put in writing and High Trees paid the reduced rent from 1941. When the war was over the flats became fully occupied and the claimant sought to return to the originally agreed rent.

Held:
The rent would be returned to the originally agreed price for the future only. CLP could not claim back the arrears accrued during the war years. This case is important as Denning J (as he then was) established the doctrine of promissory estoppel. Promissory estoppel prevented CLP going back on their promise to accept a lower rent despite the fact that the promise was unsupported by consideration.

Question 28

D & C Builders v Rees [1966]

Answer 28

The builders sought payment from Rees for building work done and materials supplied in respect of alterations and repairs completed on Rees’ shop. Rees did not pay, but the work continued and a second bill was issued. Builders started to have financial difficulties so requested the funds again. Rees offered Builders a reduced lump sum in payment of the debt and stated that if it was not accepted, they would get nothing. A cheque was issued after Builders feared they would receive no payment at all and Rees provided a receipt stating the funds were in full payment of the account. Builders brought action for the balance and Rees filed a defence stating that the work was defective and that Builders had entered into a binding agreement.
• The question was whether the agreement was a binding contract.
• Held:
• The appeal by Rees was dismissed. The agreement was invalid as there was no consideration in favour of Builders for reducing the value of the amount owing by Rees. The case of Foakes v Beer (1884) was applied in the fact that the payment was by cheque made no difference to the principle that late payment of a lesser amount did not equal satisfaction of the total amount owing. Builders had been under duress to accept a reduced amount due to their financial position which Rees was aware of and took advantage of. An acceptance arising from a threat does not amount to a settlement.

Question 29

Morality in contract

Answer 29

Derry v Peek (1889) – tort of deceit. It would be wrong to allow a contract to be obtained by fraud.
• Pay-day loan rates? Are these moral? They ARE legal.
• Therefore, in relation to contract law, morality is present with illegal contracts, economic duress, terms imposed in contracts and equitable remedies.

Question 30

The offer

Answer 30

• The offer is the starting point of the contract.
• The offer must be definite and not vague – Gibson v Manchester City Council
(1979).
• An ‘invitation to treat’ does not count as an offer. E.g. adverts, goods in a shop window, lots at an auction, requests for information.
• Advertisements – Partridge v Crittenden (1968). If however the advert clearly states that this is an offer, then it might be seen as such. Unilateral contracts, where the obligation is on the offeror only might count. E.g. reward poster.
• Unilateral contract – Carlill v Carbolic Smoke Ball Co. (1893).
• Goods in a shop window or on a shelf – not an offer until they are taken by the customer and presented at the checkout. Also not an offer as there might be legal restrictions or none left to sell – Fisher v Bell (1961), Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953).
• Lots at an auction are only an invitation to treat – British Car Auctions v Wright (1972).
• Request for information is not an offer – Harvey v Facey (1893).

Question 31

Who can make an offer?

Answer 31

• An offer can be made by anyone, even a machine – Thornton v Shoe Lane Parking (1971).
• An offer only lasts as long as it’s open and this must be communicated to the offeree – Taylor v Laird (1856).
• Exact timing is critical – Stevenson v McLean - where an enquiry about credit terms was not a counter offer. (1880).
• An offer can end though:
- Revocation
- Rejection
- Lapse of time
- Death
- Acceptance

Question 32

How can an offer end?

Answer 32

• Revocation – withdrawn at any time before acceptance. This must be communicated to the offeree – Routledge v Grant (1828), Dickinson v Dodds (1876) – the offeror doesn’t have to revoke the offer directly if a reliable person does it instead.
• The offeree can make a separate contract with the offeror to keep it open – a collateral contract.
• Communication of the revocation doesn’t have to come from the offeror directly, a reliable source is sufficient.
• Rejection – this ends the offer. Counter offers can be made, but they will all be new offers. An offer made to a group of people and rejected by one of them remains open to the others. Hyde v Wrench (1840).
• Lapse of time – if no time limit has been set on the offer, it will depend on the nature of the offer and what is considered reasonable – Ramsgate Victoria Hotel v Montefiore (1866).
• Death – offer ends if either party dies, however the executors or administrators of his estate can make a new offer.
• Acceptance – once the offer has been accepted, it ends.

Question 33

Acceptance of the offer

Answer 33

• Must be positive and unqualified based on the terms.
• Acceptance must be communicated to the offeror either in writing, email,
text etc.
• Must be a positive act of acceptance and silence/inactivity does not count as acceptance – Felthouse v Bindley (1863) and the purchase of a horse.
• If the offer is a general offer without precise instructions on how it is to be accepted, then it is still a valid acceptance – Yates v Pulleyn (1975), any form of post will do.
• Acceptance is generally held to have taken place once it has been communicated to the offeror.
• Acceptance by conduct means that a contract is valid if one party has already performed its obligations but a contract remains unsigned by one party – Reveille Independent LLC v Anotech International (UK) Ltd (2016).

Question 34

Acceptance by conduct means…

Answer 34

that a contract is valid if one party has already performed its obligations but a contract remains unsigned by one party – Reveille Independent LLC v Anotech International (UK) Ltd (2016).

Question 35

Acceptance by use of the post

Answer 35

the postal rules. If the letter of acceptance has been posted, and that was the usual or accepted means of communication, if it has been properly stamped/addressed and if the offeree can prove the letter was posted, then acceptance takes place the moment the letter is posted, exception to normal rules of acceptance – Adams v Lindsell (1818).

Question 36

Electronic methods of communication

Answer 36

acceptance occurs when the offeror is aware of the acceptance, in other words, once the buyer has received confirmation that their acceptance has been acknowledged – Article 11 of the Electronic Commerce (EC Directive) Regulations 2002.

Question 37

How to apply offer and acceptance rules to a
problem

Answer 37

• Step 1. Identify what happened in chronological order.
• Step 2. identify whether event is an invitation to treat, offer, counter offer, acceptance etc.
• Step 3. Attach relevant authority (rules) for each event.
• Step 4. Apply the authority to establish when the offer is open and when it ends/
• Step 5. Identify when acceptance took place. If that is while the offer is open, there is a contract. If it does not, there is no contract.
• Come to a conclusion based on your reasoning in steps 1-5.

Question 38

Contract Evaluation

Answer 38

• Offer and invitation to treat – can be confusing to both parties. Goods in a shop window, if they WERE an offer, would remove the freedom to contract because any customer could enter the shop and create a contract. This could make a shop owner liable then for selling a prohibited item to a child for instance.

• Goods on a shop shelf – as above, although some argue both should be ‘offers’ because that is what the public believe them to be. Problems here with age restriction. Only lawyers use the term ‘invitation to treat’.

• Advertisements and unilateral contracts – misleading adverts that lead to a contract can result in criminal sanctions, whereas the person affected is only left with a claim.

• Duration of offer, information or counter offer – again, can be confusing. For example, if the length of time the offer is open is not specified, then as in Ramsgate Victoria Hotel v Montefiore (1866), it’s judged as a ‘reasonable’ amount of time. What is reasonable? Counter offers end an original offer, but doesn’t this happen several times during negotiations?

• Acceptance and silence – as in Felthouse v Bindley, the final letter stated “if I hear no more, I consider the horse mine”. He heard no more, but there was no contract as the court ruled there must be a positive act of acceptance.

• Postal rules – many feel that this is outdated and unfair on the offeror who may not receive the letter and hence in the meantime, contracted with somebody else. The courts have been unwilling to expand this rule to electronic or other modern forms of acceptance.

Question 39

Pinnel’s Case

Answer 39

If you owe money to somebody and you strike a deal in advance to the deadline where you make a part payment, on the day the actual amount is due, even if you have agreed with the creditor in advance, they can claim the full amount back from you.

Question 40

Domestic agreement cases

Answer 40

Sadler v Reynolds (2005) - Sometimes there are cases that fall between business and domestic agreement due to commercial aspects (more likely to have legal standing).

Balfour v Balfour (1919) - divorce case where a married couple financially arranged for a monthly fee for the wife during the marriage - was not binding as a domestic agreement has no legal standing.

Merit v Merit (1970) - arrangement made after marriage broke downso was considered to have legal standing

Jones v Padatton (1969) - domestic agreement (not binding)

• Simpkins v Pays (1955) – if money changes hands, it is more likely to be a business arrangement.

In the case of a social or domestic arrangement, if one party thinks the arrangement is serious enough to put capital and/or livelihoods at risk on the expectation that they will receive something in return then this will have legal status.

Question 41

Gentlemen’s Agreement

Answer 41

• ‘Gentlemen’s agreements’ are not legally binding– Jones v Vernons Pools (1938).

• In Edwards v Skyways Ltd (1969), Skyways tried to argue that their agreement to make an ‘ex gratia’ (moral obligation/goodwill) payment in a redundancy was not legally binding because the payment was voluntary. This failed however because they had previously agreed to make the payment, which was binding.

• Offer of a free gift (binding) – Esso Petroleum Co. Ltd v Commissioners of Customs and Excise (1976).

• Competition prizes (binding) – McGowan v Radio Buxton (2001).

• ‘Letter of comfort’ (is not a guarantee, but more of an assurance - not binding) – Kleinwort Benson Ltd v Malaysian Mining Corporation (1989).

Question 42

Consideration means that…

Answer 42

• Consideration is the understanding that a contract requires a bargain, or giving something in exchange for something else, e.g. buying a newspaper.

• Executed consideration – where this has been carried out.

• Executory consideration – a promise to perform acts in the future.

• Consideration need not be adequate but must be sufficient – parties must agree that the value of things being exchanged is acceptable – Thomas v Thomas (1842), Chappell v Nestle Co. Ltd (1960).

• Consideration must be sufficient in that it must be real and have some value.

• There are conflicting decisions however – White v Bluett (1853), Ward v Byham (1956).

Question 43

Law on Past consideration

Answer 43

• Consideration has no value if it has already been done at the time the agreement was made – Re McArdle (1951).

• If there is any hint of a promise to pay for a particular task that has been implied however, there will be exceptions – Re Casey’s Patent (1892), Lampleigh v Braithwait (1615).

• A person cannot sue or be sued under a contract unless they have provided consideration for it. This is what consideration must move from the promise means – Tweddle v Atkinson (1861).

Question 44

Terms

Answer 44

Terms are what are negotiated when forming a contract.. Ts and Cs we call the,. There are two types of terms. We have an EXPRESS TERM which is clearly stated. And you have an IMPLIED TERM which is assumed.

Question 45

Performing a pre-existing duty cannot be the consideration for a new contract…WHY?

Answer 45

• If there is a pre-existing duty that you are already legally obliged to do, this cannot form the basis of a new contract – Collins v Godefroy (1831), Stilk v Myrick (1809).

• If there is an extra element required for a new payment however, this is different and there is consideration – Glasbrook Bros v Glamorgan County Council (1925), Hartley v Ponsonby (1857).

• A more modern example is Williams v Roffey Bros and Nicolls (Contractors) Ltd (1990).

If you are already doing what your job demands of you, then this doesn’t amount to consideration of a new contract. However, if you were doing more or extra on top of your pre-existing duty then that will be consideration

Question 46

Contractual duties that may be owed to a third
party!!!! Whipee!!!

Answer 46

If there is a contractual obligation to a third party, this too can provide consideration for a contract – Shadwell v Shadwell (1840) and Scotson v Pegg (1861).

Question 47

Promises

Answer 47

The main guiding principle on owing debt is that the full debt is recoverable by the creditor, including interest, even if an arrangement has been made that a part payment was sufficient. (Pinnel 1602).

Exceptions: High Tree and Promissory Estoppel

• If the two parties agree to end the contract, with the creditor accepting something other
  than money for the whole debt, even if it’s not of equal value.

The courts however have rarely followed High Tree and generally followed Pinnel

If the creditor is forced under duress to accept a part payment, then this is not equitable and the fully debt is recoverable, D and C Builders v Rees (1965).

In cases where debt is owed, equity will always come out first.

Question 48

Privity

Answer 48

• Only those party to a contract as bound by it – Beswick v Beswick (1967), Dunlop Pneumatic Tyre Co. Ltd v Selfridge & Co. Ltd (1915).

Contracts Act 1999: if the third party is either expressly named or is a member of a class or group named, the contract says that the third party can enforce the contract

• The rule of privity says that consideration must move from the promise, but this can sometimes be avoided by the courts in order to avoid injustice – Jackson v Horizon Holidays Ltd (1975).

Exceptions:

• Agency – an agent makes a contract on behalf of another (the principal), and therefore it is only the principal that is party to the contract.

• Collateral contracts – the court may be able to avoid the strict rule of privity by finding a second contract alongside the main agreement – Shanklin Pier Ltd v Detel Products Ltd (1951).

• Restrictive covenants – in land law, if a purchaser of land promises to the seller that they will not do something on that land then that promise ‘runs with the land’ and will therefore bind future purchasers also – Tulk v Moxhay (1848).

Question 49

Consumer Rights Act 2015

Answer 49

Lays out your rights as a consumer