INTRODUCTION TO ENGLISH
CONTRACT LAW:
General introduction
Nadine Tilbury
Bielefeld University 2006
WHAT IS A CONTRACT?
An agreement between 2 or more parties, which
generates rights and obligations and is intended
to have legally enforceable consequences.
Agreement - means a meeting of minds –
consensus ad idem.
The parties are agreed about the same thing AND
they intend the agreement should be legally
enforceable.
Enforcement may be damages (£) or performance
WHAT IS NOT A CONTRACT?
Every contract is an agreement but
not every agreement is a contract
(they may not be intended to be
binding)
Every contract contains a promise
but not all promises are contracts
(although enforceable, they may be
unilateral)
WHY ARE CONTRACTS
ENFORCED?
Because they create legitimate expectations
in both parties that their promises will be
carried out.
Because it is common that for one party
to a contract to incur expense, relying on
the promise made
Because if one party does perform his/her
side of the bargain, it is not right to allow
the other to avoid paying the price.
FREEDOM OF CONTRACT?
Inequality of bargaining strength of the
two parties
Acceptance of implied terms
Use of standard form contracts
Statutory intervention to protect
consumers
The obligation to implement EU law
IS THERE A CONTRACT?
First question in any contractual
dispute – does a contract actually
exist?
ESSENTIALS OF A VALID
CONTRACT
Offer and Acceptance – offer by one party and
acceptance by another
Intention – to create legal relations
Capacity – each party must have legal capacity to
make the contract
Consent – must be genuine (no fraud or duress,
mistake or misrepresentation)
Consideration – must be present (except for
deeds)
Legality – the object of the contract must not be
one of which the law disapproves
Possibility – of performance
OTHER RELEVANT FACTORS
Form - eg contracts for sale of land must be
made in a particular way (deed)
Privity - rights of third parties – generally
a contract is only enforceable by or
against the parties themselves, but
certain third party rights are now
protected in the Contracts (Rights of Third
Parties) Act 1999.
OBJECTIVE ASSESSMENT
surrounding factual circumstances + the state of
mind of either party.
Consensus ad idem
Would a reasonable observer think an agreement
has been made on particular terms?
Moran v University College Salford (No2) 1996
TYPES OF CONTRACT
Contracts of Record - court judgments,
recognizances
Contracts by Deed - conveyances, leases
for more than 3 years, articles of
partnerships. Signed, Sealed and
Delivered
Simple contracts – orally, in writing or
implied by conduct
VOCABULARY / CONCEPTS
VOID – VOIDABLE – UNENFORCEABLE
EXPRESS – IMPLIED
EXECUTED – EXECUTORY
BILATERAL AND UNILATERAL CONTRACTS
INTRODUCTION TO ENGLISH
CONTRACT LAW:
Offer
Nadine Tilbury
Bielefeld University 2006
OFFER
A statement of willingness to be bound by
the terms of the offer
Must be distinguished from an invitation
to treat (Fisher v Bell)
Should be distinguished from a mere
statement of price which does not
indicate willingness to sell (Harvey v
Facey)
Special words may make an apparent
invitation to treat an offer eg competitive
tendering (Harvela Investments Ltd v
Royal Trust Co. of Canada)
INVITATION TO TREAT
Auctions – British Car Auctions v Wright 1972
Self service shopping - Pharmaceutical Society of Great
Britain v Boots Cash Chemist Ltd 1953
Goods displayed in a shop window – Fisher v Bell 1961
Advertisements – Partridge v Crittenden 1968
Withdrawing lots in catalogues – Harris v Nickerson
Invitations to council house tenants to buy their houses
Gibson v Manchester City Council 1979
Mere statement of price Harvey v Facey 1893 Bumper
CRIMINAL LAW AND CONTRACT
LAW
Advertisements of goods for sale are
usually considered to be ITT
Boots case – price of goods and refusal at
till
Fisher v Bell 1960 – no offence of offering
for sale a flick knife
Partridge v Crittenden 1968 –no statutory
offence of “offering for sale” a wild bird.
INVITATIONS TO TENDER
not normally held to amount to an
offer to contract with the highest
bidder (Spencer v Harding 1870)
but can do if it is clear that that is
what was clearly intended Harvela
Investments Ltd.”
AUCTION
Auctioneer’s request for bids is an ITT and each bid is
an offer. Payne v Cave 1789.
Statutory force s.57(2) Sale of Goods Act 1979 “a sale
is complete when the auctioneer announces its
completion by the fall of the hammer, or in any other
customary manner. Until such announcement is made,
any bidder may retract his bid”.
An advertisement that an auction will be held, is not an
offer Harris v Nickerson 1873
But an advertisement to hold an auction “without
reserve” does amount to an offer to sell to the highest
bidder, accepted by submission of the highest bid.
Barry v Heathcote Ball & Co(Commercial Auctions) CA
2000
LAND SALES
Can be difficult to distinguish
between negotiations and offers.
Statement of minimum price at
which a party would sell, doesn’t
amount to an offer. Harvey v Facey
1983,
REQUEST FOR INFORMATION
Distinguish counter offers from
mere request for information –
Stevenson v McLean
WORDING MAY LIMIT THE PEOPLE
CAPABLE OF RESPONDING
Unilateral offers – for example those
contained in advertisements (that might
otherwise be seen as ITT) offering a
reward. Carlill v Carbolic Smoke Ball Co.
1893
Competitive tendering – eg stating that
the highest bidder will be awarded the
contract. Harvela Investments Ltd v Royal
Trust Co. of Canada)
COMMUNICATING THE OFFER
Must be communicated to the offeree – it would
be unfair for a party to be bound by an offer of
which he had no knowledge (Taylor v Laird 1856
Can be made to an individual or to the whole
world (Carlill v Carbolic Smoke Ball Co)
The terms must be certain – vague words may
invalidate the agreement (Guthing v Lynn)
Substituting offeree - Boulton v Jones1857.
Cannot substitute for someone else without
consent and to someone’s disadvantage, securing
to yourself all the benefit of the contract.
REVOKING THE OFFER
Can be withdrawn any time up to acceptance
Routledge v Grant
An offer made in response to an ITT may also be
withdrawn if not yet accepted Payne v Cave 1789
Revocation must be communicated to the offeree
Byrne v Van Tienhoven 1880
This may be through a reliable third party Dickinson v
Dodds 1876 “indirect revocation”.
A unilateral offer cannot be withdrawn if the offeree is
performing since acceptance and performance are the
same thing Errington v Errington & Woods 1952 –
TERMINATING AN OFFER
Rejection
Revocation before acceptance
By passage of time – either stated time or reasonable time.
Reasonable time is a question of fact in each case Ramsgate Hotel v
Montefiore 1866.
By failure of a condition precedent – Financings v Stimson 1962.
By death of a party before acceptance – if the offeree accepts in
ignorance of the death of the offeror then a contract may be formed
Bradbury v Morgan 1862. (though contrary view expressed in 1876)
If offeree dies before acceptance, offer terminates and cannot be
accepted by executors.
ANOMALY
House of Lords has recognised
exceptional circumstances where
although it is clear parties have
reached an agreement, it is difficult
to work out the offer / acceptance
eg rules of the Yacht club were held
to amount to a binding contract
between each member. Clarke v
Dunravien Hl 1897
INTRODUCTION TO ENGLISH
CONTRACT LAW:
Acceptance
Nadine Tilbury
Bielefeld University 2006
ACCEPTANCE
A contract is not formed until an offer is
accepted.
When a valid acceptance follows a valid
offer the contract is formed on acceptance
(provided the other formalities are also in
place)
Important to establish that the response
to the offer is indeed an acceptance and
is properly communicated to the offeror.
MIRROR IMAGE RULE
Acceptance must be unequivocal and unconditional –
mirroring the offer Society of Lloyds v Twinn CA 2000
Each case on its merits
An attempt to vary the terms of the offer is a counter offer
Hyde v Wrench 1840
A mere enquiry will not wipe out the offer Stevenson v
McLean 1880
If an agreement is reached after a counter offer has been
made, the contract is based on the counter offer Davies & Co
v William Old 1969
“subject to contract” – means just that
ACCEPTING TENDERS
Tenders are usually considered ITT. But where they have
been held to be offers acceptance is not always held to result
in a contract.
3 possibilities:
party invites tenders for supply of specific quantity of goods
on a specific date
tenders invited for supply of a specific quantity of goods over
a period of time
If invitation to tender doesn’t specify quantity but requires
supply “as and when” required then “acceptance” does not
conclude contract – Standing Offer
Standing Offer can be revoked at any time, although tenderer
is bound by orders already made.
COMMUNICATING THE
ACCEPTANCE
No contract unless the acceptance is communicated
Acceptance must be communicated to be valid – so silence cannot be acceptance
Felthouse v Bindley 1863
If a specific form of acceptance is required, it must be in that form Compangnie de
Commerce et Commissions S.A.R.L v Parkinson Stove Co
In some situations communication of acceptance can be waived eg unilateral contracts
or customary conduct between parties
Acceptance of a unilateral offer does not need to be communicated because
performance is the same as acceptance Carlill v Carbolic Smoke Ball Co. Carlill relied
upon by CA in Bowerman v Association of British Travel Agents Ltd. CA 1995.
If a particular method of communication acceptance is set out and makes clear that no
other method will do, then there may be no contract if other method used. Eliason v
Henshaw 1819
But if doesn’t say no other method will do, then may be ok Tinn v Hoffman 1873
POSTING RULE
If posting is the expected method of acceptance, then
acceptance occurs on posting Adams v Lindsell 1818– even
though the offeror may not yet have received notification
Rule applies where letter of acceptance is received after
notice of revocation of the offer is sent Henthorn v
Fraser1892
Acceptance applies even if the letter is never received
Household Fire Insurance Co v Grant 1879
Posting rule can be excluded by the terms of the offer Holwell
Securities v Hughes 1974
Postal rule does not apply where letter has not been properly
posted
MODERN COMMUNICATION
METHODS
Telex – offer and acceptance valid
because method so instantaneous that
parties were deemed to be dealing face to
face, even though in different countries.
Entores Ltd v Miles Far East Corp 1955
and Brinkibon Ltd v Stahag Stahl 1983
Timings may cause problems – eg faxes
sent out of office hours
E-mail akin to postal since can be a delay
between Send and Receive?
E OFFERS AND ACCEPTANCES
Now governed by the Consumer Protection
(Distance Selling) Regulations 2000.
Gives the buyer the right to be informed of right
to cancel within 7 days, description, price,
arrangements for payment and identity of seller
and to be given written confirmation, without
which the contract is not formed.
Under EU Electronic Commerce Directive 2000.31,
no contract can be made electronically until the
buyer has received acknowledgement of his
acceptance.
BATTLE OF THE FORMS
A makes an offer on a document containing
standard terms of business, B accepts using a
document containing his own standard terms of
business that clash. No contract at this stage, but
courts have held that if B’s communication is
acted on by A, eg by delivering goods, a contract
may come into being on B’s terms on the basis
that his counter-offer has been accepted. British
Road Services v Arthur Crutchley Ltd. CA 1968.
Approach adopted by CA in Pickfords Ltd v
Celestica CA 2003.
Courts have struggled to find agreements. They
will replace contested terms by implying
reasonable ones.
INTRODUCTION TO ENGLISH
CONTRACT LAW:
Consideration
Nadine Tilbury
Bielefeld University 2006
PAST CONSIDERATION IS NO
CONSIDERATION AT ALL
A PROMISE WITHOUT
CONSIDERATION IS A GIFT; ONE
MADE FOR CONSIDERATION IS A
BARGAIN
WHY IS CONSIDERATION
NECESSARY?
Contract law enforces promises
based on mutual agreement
The law will not enforce merely
gratuitous promises
Quid pro quo – something in
exchange for something else
Eventually defined as a benefit
gained or a detriment suffered.
WHAT IS CONSIDERATION?
Something which is actually given or received in return
for a promise
Benefit or detriment “Some detriment to the plaintiff or
some benefit to the defendant” Thomas v Thomas
1842
Valuable consideration “may consist either in some
right, interest, profit, or benefit accruing to one party,
or some forebearance, detriment, loss or responsibility
given, suffered, or undertaken by the other” Currie and
Others v Misa [1875
“Loss or convenience sustained by one party at the
request of another “ Bunn v Guy 1803
CONSIDERATION
Must be sufficient ie.have some value, but
need not be adequate
Need not move to the promisor
Must move from the promisee
Past consideration is no consideration
Must not be illegal or against public policy
Must be real
Must be possible of performance at the
time of contract
“SUFFICIENT” = REAL, TANGIBLE,
DISCERNIBLE VALUE
Need not equal the value of the other thing - law is not
concerned with whether a party has made a good bargain or
a bad one – provided it is freely entered into. Chappel & Co v
Nestle Co Ltd 1960
Economic value is measured v benefit gained – can be very
little -Edmonds v Lawson 2000
Must not be empty, illusionary or concerned with feelings Courts refusal to recognise moral obligation as sufficient
consideration to enforce a promise White v Bluett 1853 and
Thomas v Thomas 1842
Should not come before any agreement Re McArdle 1951
Unless the service was requested Lampleigh v Braithwaite
1615
PAST CONSIDERATION IS NO
CONSIDERATION AT ALL
Prevents coercion by suppliers of goods
and services
Unsolicited Goods and Services Act 1971
Voluntary act with no mention of payment
at the time - law concludes no payment
expected.
Re McArdle [1951]
Lampleigh v Braithwaite 1615
ALSO - specialised areas of law contain
statutory exceptions
CONSIDERATION MUST MOVE
FROM THE PROMISSEE
Connected with rule on privity but is a separate
rule
Only a party that has provided consideration can
sue or be sued on the contract
Except where third parties seek to enforce
collateral warranties upon which they have relied
or where the Contracts (Rights of Third Parties)
Act 1999 applies.
ILLEGALITY / AGAINST PUBLIC
POLICY
Must not be illegal or against public
policy
Parkinson v College of Ambulance
Ltd & Harrison [1925]
Foster v Driscoll 1929
PROMISE TO PERFORM /
PERFORMANCE OF EXISTING DUTY
ALREADY OWED
Existing public duty
Colliins v Godefroy 1831
Ward v Byham 1956
Glasbrook Bros 1925
Exceeding existing contractual duty
Stilk v Myrick 1809 –
Hartley v Ponsonby 1857
Williams v Roffey Bros and Nicholls (Contractors)
Ltd 1990 – qualified Stilk case
If 3rd party rights are affected by performance of
existing contractual duty then = consideration.
Pao On v Lao Yiu Long 1980
PART PAYMENT OF DEBTS
Basic rule in Pinnel’s case 1602 –part payment of
debt can never satisfy whole debt
Any agreement to accept part payment in full
satisfaction of the debt is unenforceable as no
consideration
Rule = fair when debtor trying to avoid debt by
relying on the promise
But unfair when creditor goes back on a promise
made on which the debtor has relied in deciding
on future conduct Foakes v Beer 1884
Result – courts have developed exceptions to the
rule
EXCEPTIONS
1.
Where something different is added or happens (= consideration) eg
agreement to accept smaller sum on earlier date / accept payment
other than in money / or lesser sum plus something other than money
2. Promissory estoppel – Hughes v Metropolitan Railway Co 1877 – party
should be prevented from going back on a promise to waive rights.
Denning reintroduced and developed in High Trees House Ltd 1947 “if
one party promises to forego or not to rely upon his strict legal rights
and the other party, in reliance on that promise, acts upon it, then the
promisor is estopped from asserting his full legal rights”
clarified and confirmed in Coombe v Coombe 1951
shield not a sword
INTRODUCTION TO ENGLISH
CONTRACT LAW:
Intention
Nadine Tilbury
Bielefeld University 2006
INTENTION TO BE LEGALLY BOUND
“To offer a friend a meal is not to
invite litigation”
Cheshire and Fifoot.
TYPES OF AGREEMENTS
advertisements – “mere puff” to cover exaggerated
claims. Carbolic Smokeball / Weeks v Tybald (1605)
Domestic agreements – Balfour v Balfour 1919, spouse
and parent and child agreements
No presumption against contractual intention where
parties not living together at time of agreement –
Merrit v Merrit 1870.
House sharing – depends on circumstances. Simpkins
v Page 1955 Where £ involved, more likely to be seen
as intending to be legally enforceable.
Edmonds v Lawson
PRESUMPTIONS
Purely domestic or social context – presumption is
no intention of legal enforceability
Business or commercial context – presumption is
that parties do intend agreement to be legally
binding
Rebuttable presumption if clear detriment – eg
Parker v Clark 1960.
Can be severable Julian v Furby 1982
COMMERCIAL AND BUSINESS
DEALINGS
Honour pledge clause – binding in
honour, not in law
Free gifts – way of expanding business
Mere comfort letters
Can say do not intend agreement to be
legally binding
Cannot say no right to go to court
INTRODUCTION TO ENGLISH
CONTRACT LAW:
Capacity
Nadine Tilbury
Bielefeld University 2006
CAPACITY or INCAPACITY?
Limits on a party’s capacity to contract or
limitations imposed on the other party
Every person assumed to have capacity –
but some groups identified as lacking full
capacity
Rules for:
Minors
Drunkards
People suffering mental incapacity
Corporations - sue and be sued
DRUNKENESS AND CAPACITY
A party who enters a contract while drunk – contract may be
unenforceable
Party must not have known the quality of his actions at the
time the contract was formed Gore v Gibson 1845
The other party must have known of the intoxication
Contract is voidable when drunken party is sober
Party may ratify agreement when sober Matthews v Baxter
1873
S3 Sale of Goods Act 1979 – even if contract is enforceable
eg necessaries – if incapacitated by drink, need only pay a
reasonable price for goods delivered.
MENTAL INCAPACITY
Capacity to enter into contracts still mainly governed by
common law.
Court must decide if, when contract formed, person capable
of understanding their act
Contract is voidable by person lacking mental capacity
Other party must have known of mental incapacity – if not,
then contract will be judged by same standards as if contract
between persons of sound mind.
S3 Sale of Goods Act 1979 –contract for necessaries –person
need only pay a reasonable price for goods delivered even if
other person not aware of mental illness