10/17/2012
Today’s Lecture
Business & Employment Law Week 4
Contract Formation
Business contracts
• Contracts to buy goods from a wholesaler/manufacturer
• Contracts to sell goods to customers
• Contracts to employ staff
• Contracts to buy/rent property
• What is a contract and why do you need to know about contract law?
• How are contracts formed?
A contract is a legally binding agreement made between two or more people
Requirements for a valid contract
– Agreement – Consideration – Intention – Formalities – Capacity – Legal – not illegal or immoral
Agreement
Agreement = Offer + Acceptance An offer is a clear statement of terms on which one party is prepared to do business with the other Offeror – person who makes the offer
Bilateral offer – two promises
Offeree – person to whom offer is made
Unilateral offer – one promise 1
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Statements that are not offers
Displays in shop windows Fisher v Bell ‐ flick knives in shop window
Response to request for information Harvey v Facey
Bigg v Boyd Gibbons
Invitations to treat
Statements that open negotiations but are not actually offers
Carlill v Carbolic Smoke Ball Co
Advertisements may be unilateral offers
Offers to the world at large (not invitations to treat) Such offers cay be accepted by performing the conditions of the offer. Once accepted, a binding contract is formed. Termination of offers
rejection & counter offer ‐ Hyde v Wrench
A – offers to sell farm for £1,000
B – offers to buy it for £950
B – later agreed to pay the full price
A – refused to sell the farm to B
Goods on shelves in shops
Pharmaceutical Society v Boots – offer made when take goods to cash desk
Advertisements
Partridge v Crittenden
Bramble Finch Cocks and Hens 25 Shillings each
Offers must be communicated to the offeree
Bloom v American Swiss Watch Co
An offer may be communicated in writing, orally or by conduct
Where offer is made to the World (a unilateral offer) – it may be accepted by anyone who fulfils the terms of the offer
Expiry of specified time
Lapse of reasonable time ‐ Ramsgate Victoria Hotel v Montefiore
Withdrawal of offer (must be communicated) any time before it is accepted
Death of offeree
Held – counter offer (£950) destroyed original offer
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Withdrawal of unilateral offers
• Offeror cannot withdraw his offer if a person has embarked on performance
– Errington v Errington & Woods (1952)
• Offeror must simply take reasonable steps to give such notice of withdrawal and communicate notice of the revocation in the same form as he communicated the original offer. Postal Rule
Acceptance
• Normal rule: acceptance is effective only when received by offeror
• Postal Rule: effective once posted
Adams v Lindsell (1818) – see next slide
• Instantaneous communications – effective when actually received
Brinkibon Ltd v Stahag Stahl (1983)
• Generally email is deemed to be instantaneous
The Electronic Commerce (EC Directive) Regulations 2002
Consideration • Contract made as soon as acceptance posted Adams v Lindsell
• 2nd September – Simon offers to sell some tea to Louis
• 5th September – Louis posts his letter of acceptance to Simon
• 7th September – Simon sells the tea to Cheryl as he hasn’t heard from Louis
• 8th September ‐ Simon receives Louis’ letter saying he wants to buy the tea
The price of someone’s promise
• Simon is in breach of contract with Louis as contract for sale of the tea made on 5th
September
Rules relating to consideration
• You need to know 6 of them!
1. Courts will not enforce gratuitous promises
eg I’ll buy you a beer, I’ll give you my text book – these are simply gifts given in return for nothing 2. Past consideration is no consideration
Re McArdle
• Unless rule in Lampleigh v Braithwaite applies
– The act performed at promisor’s request. – Clearly understood that the promisee would be rewarded.
– Contract must be otherwise enforceable
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and the next to last one....
3. Consideration must be sufficient but need not be adequate – a promise must have some value (however small) – see the Nestle case
4. Performance of an existing public duty isn’t sufficient consideration in return for a promise – must do more than expected
Stilk v Myrick (1809)
• 2 sailors deserted a ship in the course of it’s voyage. The captain promised the remaining crew more money if they got the ship back to England.
• Upon their return the captain refused to give anyone this extra money
• Held by the court the crew were not entitled to any extra money because under their contract of employment they were expected to cope with the demands of a difficult voyage including too few crew
• The crew had offered no new consideration for the promise of the extra money
5. Performance of an existing contractual obligation isn’t sufficient consideration for another promise – must do more than required to do under the contract – see slides coming up
Stilk v Myrick
Williams v Roffey Bros & Nicholls Williams v Roffey Bros & Nicholls (1990)
But an exception to this old rule has been recognised by the courts in this 1990 case:
Court of Appeal enforced a promise by the defendants to pay the claimants an extra sum of money for work which the claimants were already under a contractual duty to perform for the defendants. WHY? Because by doing the work the claimants stopped the defendants having to pay a hefty penalty to someone else so the claimants indirectly gave fresh consideration for this extra money.
Final rule
6. Part payment of a debt ‐ say David owes Nick £1000
• Nick agrees to accept £500 in full and final settlement of the £1000 debt
• This DOES NOT get David off the hook ‐ he is still contractually bound to pay the remaining £500 unless he offers and Nick accepts something else in return eg a drink in the pub
• Look at the rule in Pinnel’s case and Foakes v Beer 4