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What you will learn in Contract Law
1.
2.
3.
4.
5.
6.
7.
8.
Civil Law basics: Standard and burden of
proof plus a basic definition of civil law and
contract law.
Offer: Including how the offer can be
communicated.
Invitation to treat
Acceptance
Intention to create legal relations
Consideration: Consideration and past
consideration
Breach of contract: Actual and anticipatory
breach
Alternative methods to resolving disputes
over a breach in contract (ADR)
9.
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Page 4 to page 12
Page 6 to page 9.
Page 13 to page 15
Page 16 to page 19
Page 20 to page 22
Page 23 to page 26
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Start of court proceedings to pursue
damages for a breach of contract: The
process the claimant must follow forms the
claimant and defendant complete, time limits,
the courts the claim could be sent to for trial,
the pre-trial procedures.
10. Damages for breach of contract: What the
courts will take into account before they
award the Claimant compensation for a
breach of contract. How the damages can be
paid.
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How to use the notes
1. All basic definitions are in boxes.
2. Cases are in tables. You must learn the first two cases in each table in detail as a
minimum. Other cases must be learnt so that you can apply the key legal point in
application questions.
Where the table covers a range of topics you must learn 2 cases in detail on
each topic, e.g. when an offer comes to an end.
3. Exam questions are in call out boxes. These are boxes with a line leading from
them. The line will normally lead to a plan for the essay and some starting
sentences.
Important: All cases used in your answers must finish with saying why the case
illustrates the issue you are discussing. Without this you will score no marks for using
the case.
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Civil Law basics
Key Definitions
Civil law definition: Civil law is concerned with settling disputes between individuals:
‘individuals’ including businesses and, sometimes, Government.
Contract law: A contract is an agreement that the law will recognise. The purpose of the
law of contract is to decide whether there is a valid contract or not and to provide
remedies when one person has been affected by another’s failure to perform their part of
the contract.
Burden of proof for proving a breach in a contract: The claimant (C) has to prove the
defendant (D) has breached the contract.
Standard of proof: The C must prove on a balance of probabilities that the D has
breached the contract. The claimant must prove the D on balance breached the contract.
This can be defined as the C providing evidence in court to show the breach of contract
was at least 51% probable.
A civil case is started by the person who has suffered loss (the claimant) as the result of
a breach of contract, which only directly affects him. The defendant who has breached
the contract can provide evidence to show no breach of contract. If the Claimant wins his
case then he will be awarded damages for any loss suffered as a consequence of the
breach of contract. Either party can breach a contract, e.g. the person paying for a mars
bar or the person providing the mars bar, can breach the contract.
Case names (citation)
In all cases in Civil law, and therefore contract law, there will be two named parties to the
case. The first named party is normally the Claimant. The second named party it
normally the Defendant.
Task: Write a D for Defendant and a C for Claimant next to the following case names:
Fisher v Bell
C=
D=
Partridge v Crittenden
D=
C=
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Introduction to the formation of a contract and breaches of contract
Key definitions
Offeror: The person making the offer of a contract.
Offeree: The person who can accept or refuse the offer of a contract.
A valid contract starts with the acceptance of an offer made to the person accepting
the offer. There are four elements that need to be considered in the formation of a valid
contract:
1. That there has been a valid OFFER made by one party to the contract.
2. That there has been a valid ACCEPTANCE of the offer: together offer and
acceptance constitute an agreement.
3. That there is an INTENTION TO CREATE LEGAL RELATIONS: in other
words, an intention to have a legally enforceable contract.
4. That there has been CONSIDERATION: the idea that each party has given
up something or contributed something to the agreement. If one party
contributes and the other does not then there is a gift rather than a
contract.
If a person is to succeed in a contract claim, there must be proof that there is a valid
contract and that the contract has been broken.
Once a contract has been correctly formed you will need to be able discuss when a party
to the contract has broken the contract, a breach of contract.
Once a breach of contract has been proved you will need to be able to explain how a C
goes about starting a claim for Damages. You will also need to be able to explain
the court procedures before the case goes to trial.
You will also need to be able to explain what alternatives a C can try to resolve the
breach of the contract besides going to court. This is called alternative dispute
resolution.
(Activity 1)
(Activity 2)
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A valid offer
Key definitions
Offer – An offer is a statement of the terms upon which the person making the offer is
willing to enter a contract: it can be written or verbal.
Invitation to treat – An invitation to treat is merely an indication of a willingness to start
negotiations and is not an offer.
An offer is the starting point for a contract and can be made either orally or in writing.
If a statement made by one party is regarded as negotiations, before a legal offer is made
(known as an invitation to treat), then there will be no legally binding offer of a contract.
The offer must be communicated to the other party. Unless a person knows about an
offer, it cannot be acted upon. Once it is known to exist, the essential point is to establish
how long the offer lasts, as it can only be accepted whilst the offer remains open. Once
the offer has ended it cannot be accepted and so it cannot be the basis of a contract. A
new offer would then have to be made to start the process of forming a contract. The
contract is formed when an offer has been accepted.
Offer is made
Offer is open
If the offer is accepted
then a contract can be
formed
Offer ends
Offer can no longer
be accepted. A new
offer is needed.
An offer must be communicated to the other party
An offer cannot be accepted unless the person who is seeking to accept it knows of its existence.
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What are the differences between an offer and an invitation to treat?
Key definitions
Offer – An offer is a statement of the terms upon which the person making the offer is
willing to enter a contract: it can be written or verbal.
Invitation to treat – An invitation to treat is merely an indication of a willingness to start
negotiations and is not an offer.
An invitation to treat is merely an indication of a willingness to enter negotiations.
But an offer is a statement that a person is willing to enter into a legal contract.
Both an offer and invitation to treat can be made either verbally or in writing. However,
cases have distinguished between situations that are an offer and those that are an
invitation to treat and are mainly common sense.
Why do we have situations that are only classed as a willingness to start negotiating a
contract rather than going straight into an offer that can be accepted?
One reason contract law has situations classed, as an invitation to treat is that there are
many different goods and services that are traded which have many different methods of
forming a legal contract. For example, to buy a house you cannot make a contract
simply through an oral agreement. A written document must be signed by both parties
and witnessed by an independent person, such as a solicitor.
Task: Can you think of three more reasons why certain situations are only classed as
an initiation to treat?
Situation
Mars bars
displayed in a
shop window
The reason this is classed as an invitation to treat is because…
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Cases on offers and Invitations to treat – key points
Invitation to
treat
Advertisement in
a newspaper
Goods displayed
in a shop window
Offer
Getting goods
from a vending
or other
machine
Taking a chair
and awaiting
the attendant
to collect your
money
(Activity 3)
Legal point
Partridge v
Crittenden
Fisher v Bell
Goods on a
supermarket shelf
Response to a
request for
information
Uncertain words
Case
An advertisement for the sale of
protected birds was not an offer
A knife with a price label on it in a shop
window was not an offer but an
invitation to treat.
Pharmaceutical Goods in a self-service store are an
Society of GB v invitation to treat, not an offer
Boots
Thornton v
A ticket from an automatic machine in a
Shoe Lane
car park involved the car park owner
Parking
making the offer and the customer
accepting the offer by putting money in
the machine.
Chapleton v
A pile of deckchairs for hire on a beach
Barry
was an offer that the customer could
accept.
Harvey v
Facey
A response to a request for information
is just an invitation to treat, not an offer
Gibson v
Manchester
City Council
A statement is not an offer if the words
you use show uncertainty as to
whether there is a willingness to make
a contract.
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Cases where a legal offer was made
An offer is a statement of the terms upon which the person making the offer is willing to
enter a contract: it can be written or verbal. In both cases below the evidence
established that a legal offer had been made and could be accepted by the other party.
Case Name
Thornton v
Shoe Lane
Parking
Chapleton v
Barry
Brief facts
C was entering a car park via an
automatic barrier. Mr Thornton
put money in a machine to open
the barrier and was given a ticket.
It would be the same if he had
just taken a ticket and paid on exit
as is more common today.
The act of taking a deckchair from
a pile of deckchairs and sitting on
it formed the contract where a
local council hired deckchairs to
people on its beach.
Key issue
The offer is made by the owner of the
machine and that it is the buyer from the
machine who accepts the offer and makes
the contract come into existence, when the
purchase the item, in this cases a ticket to
park.
The acceptance takes place when the
customer puts the money in the slot.
The offer was the placing of the pile of
deckchairs that could be taken.
Cases where an invitation to treat was only established
An invitation to treat is merely an indication of a willingness to start negotiations and is
not an offer. Therefore a contract cannot be formed if only an invitation to treat exists.
Case Name
Partridge v
Crittenden
Harvey v Facey
Brief facts
An advertiser in a newspaper
advertised ‘bramble finch cocks and
hens [£1.25]’ It was an offence under
the Protection of Birds Act 1954 to offer
wild birds for sale. The defendant was
found not guilty as he did not offer the
birds for sale; there was merely an
invitation to treat
In this case the claimants were
interested in buying some land and
sent a message, ‘Will you sell us
Bumper Hall Pen [the land]? Send
lowest cash price.' The defendants
replied, ‘Lowest cash price for Bumper
Hall Pen is £900.’ The claimants then
replied, ‘We agree to buy Bumper Hall
Pen for £900.
Key issue
An advertisement for the sale
of protected birds was not an
offer because it was merely an
indication of a willingness to
enter negotiations.
The court decided that there
was not a contract as the
original message was merely a
request for information.
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Case Name
Gibson v
Manchester City
Council
Pharmaceutical
Society of Great
Britain v Boots
Cash Chemists
Fisher v Bell
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Brief facts
The council’s response when asked
by Mr Gibson whether he could buy
his council house was, 'the
corporation may be prepared to sell
the house to you at the purchase
price of £2,725 less 20 per cent. The
word ‘may’ indicated a lack of
certainty so there was not an offer.
The well-known high street shop was
prosecuted for offering medicines for
sale when a pharmacist was not
present. This was an offence under
the Pharmacy and Poisons Act
1933.
A shopkeeper in Bristol was
prosecuted because he had a flick
knife in his shop window with a price
label on it.
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Key issue
The uncertainty showed that
negotiations were still continuing,
not that there was a readiness to
make a contract meant that there
could be no offer to sell.
Boots were found not guilty as the
court decided that the offer was
made by the customer at the point
of sale, that is, the counter or
checkout till. This is reflected in
the practice of assistants in
pharmacies of seeking approval
from the pharmacist before selling
some medicines.
The shopkeeper was found not
guilty, as he was not offering the
knife for sale. It was merely an
invitation to treat. Again it is a
logical
decision
as
the
shopkeeper may wish to choose
the person to whom to sell the
goods.
Exam Question:
Jan 2010: Explain the distinction between an offer and an invitation to treat (7)
Plan
An offer is defined as.. Give brief examples but NOT one you use as a case
An invitation to treat is… Give brief examples but NOT one you use as a case
Explain 2 cases that are classed as an offer. Say why they are not an invitation to treat
but an offer.
Explain 2 cases that are classed as an invitation to treat. Say why they are not an offer
but an invitation to treat.
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The offer must be communicated to the other party
An offer cannot be accepted unless the person who is seeking to accept it knows of its
existence. If the other person is not aware of the offer then it cannot be accepted.
Potential purchasers who are responding to an invitation to treat and do not realise that
they have failed to communicate with the person making the invitation will have no legal
claim as there is no contract.
Case Name
Carlill v
Carbolic
Smoke Ball Co
Brief facts
Mrs Carlill claimed the reward offered by
the Carbolic Smoke Ball Co. for anyone
who used its smoke ball (a sort of
medicinal vaporiser or inhaler) but caught
influenza. The company refused to pay
stating that the so-called offer of £100 was
a mere marketing ‘puff’ and not intended
to have any basis for a contract. Mrs Carlill
argued that it was an offer, which she had
accepted by buying and using the smoke
ball in accordance with the instructions.
Legal issue
An advertisement could contain
an offer if it was clearly meant to
be taken seriously and was not
just an advertising gimmick. The
court also said that an offer
could be made to the whole
world, and that anyone hearing
the offer could accept it: it just
had to have been communicated
to the individual claiming to have
accepted it.
An offer can come to an end in one of five ways
1. Lapse of time: Some offers are made for a fixed period of time, such as seven days
or one month. At the end of that period, the offer lapses and comes to an end. Most
offers do not have any fixed time limit and so will come to an end after a reasonable
time. What is reasonable will depend on all the circumstances.
2. Revocation: A person who makes an offer can revoke (withdraw) his offer at any
time before it has been accepted. For this to happen, the person to whom the offer
was made must receive notification of the withdrawal, at which point he can no
longer accept the offer. A withdrawal of an offer can even occur during any period
when the offer is said to be open.
Revocation can be implied by another’s actions.
Once an offer for an object is accepted, it cannot be accepted again. However,
where the offer has been made to more than one person, there are potential
difficulties, as there could be two contracts with respect to one object. The Situation
where one person wants an offer to remain open for a period of time is quite
common as the time period is to be used for getting financial and other plans drawn
up. So as to make sure that the offer will remain open, a separate contract has to be
made. This is usually a contract to keep the offer open for an agreed fixed period in
exchange for an agreed sum of money. This is known as ‘buying an option'.
3. Rejection: Once an offer is rejected, it cannot be accepted and the offer comes to
an end. The person to whom the offer is made does not have a second chance to
accept the offer. If he attempts to accept the offer he is in fact making a fresh offer
that the person who originally made the offer can accept or reject. The rejection
must be a clear rejection and not just a request for more information.
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4. Counter-offer: A counter-offer both rejects the original offer and creates a new offer
that can then be accepted or rejected. This commonly takes place during
negotiations.
5. Death: In English law contracts can be enforced against a dead person’s estate, if
necessary by suing the deceased's executors or administrators. However, an offer
made by a person who dies before the offer ends cannot be accepted if the person
to whom the offer is made knows of his death. If he does not know of the death,
then the offer can still be accepted. This is logical as it could otherwise provide
hardship for the family of a business owner who died, as contracts in the course of
negotiation would have to be restarted.
Cases on offers and when they may come to an end
Way offer
can end
Lapse of
time
Revocation
Case Name
Facts
Legal point
Ramsgate
Hotel
v
Montefiore
Defendant offered to buy
shares in the Ramsgate
Victoria Hotel on 8 June. On
23 November, the company
tried to accept the offer but the
defendant no longer wanted to
buy the shares.
Routledge v
Grant
Grant made an offer to buy
Routledge’s house, the offer to
remain open for six weeks.
Grant decided not to buy the
house three weeks later and
told
Routledge
he
was
withdrawing his offer. Two
weeks later Routledge tried to
accept the offer.
Where Dodd’s offered to sell
his house to Dickinson. The
offer was open until Friday. On
Thursday afternoon, Dickinson
heard from someone else,
whom he knew to be reliable,
that Dodds had sold the
property to someone else. On
the Friday morning Dickinson
delivered a formal acceptance
to Dodds but the court decided
that the offer made to
Dickinson had been revoked
on the Thursday when he
heard of the sale of the house.
An offer to buy shares in a
company had lapsed when the
company
responded
five
months later. The person
making the offer was entitled
to assume that the company
did not want him to invest as
the length of time was
unreasonable.
The court decided that the
offer had been withdrawn, so it
could not be accepted.
Dickinson
Dodds
v
An offer can be revoked at any
time even if it is said to be
open for a fixed period that
has not yet ended.
Where a reliable person
informs the person to whom
an offer has been that the offer
has ended, it is as if the
revocation of the offer had
been made by the person who
had made the offer.
Hearing about the sale from a
reliable source is the implied
revocation of the offer.
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Way offer
can end
Rejection
Counter
offer
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Case Name
Facts
Legal point
Stevenson v
McLean
There was an enquiry from a
person to whom goods had
been offered for sale as to
whether he could have two
months' credit. There was no
reply, so assuming that there
would be no credit; he
accepted the offer being
prepared to pay cash.
An enquiry about whether
credit was available did not
reject the offer, which could
still be accepted.
Hyde v
Wrench
The court decided that this
enquiry about credit was not a
rejection of the offer or a
counter-offer and the offer
remained open and had been
accepted.
The facts of that case were:
A counter-offer ends the
original offer. In this case this
6 June: Wrench offered to sell occurred in negotiations over
his farm to Hyde for £1,000. the price to be paid for a farm.
Hyde offered £950
9 June: Wrench rejected
Hyde’s offer
21 June: Hyde tried to accept
the offer to sell at £1,000.
Wrench refused to sell at
£1,000, as his original offer
had ended with Hyde’s
counter-offer of £950.
(activity 4)
Exam Question:
June 2010: Explain the ways an offer can come to an end (7)
Plan:
An offer is defined as…
An offer must be communicated …
An offer can come to an end in one of five ways.
Explain 3 out of the 5 ways with one case on each.
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A valid Acceptance
Key definition
Acceptance: The final expression of agreement (assent) to the terms of an offer
There are six key points regarding a valid acceptance of an offer:
1. Once an offer is accepted there is a contract between the person making the offer
and the person accepting it, provided the other essentials of formation of
consideration and legal intention are present.
2. The acceptance has to be positive and unqualified. In other words it is responding to
the offer by saying ‘Yes' and not ‘Yes, but' or ‘Yes, if'.
3. The words can be said or written.
4. Acceptance can be by conduct, in other words by doing something
5. However, it cannot usually be by doing nothing.
6. Acceptance must usually be communicated to the person making the offer.
Methods of communicating an acceptance of an offer
There are four main methods of communicating acceptance:
1. Words/spoken acceptance: A verbal statement that is clearly heard and
understood fulfils the requirements.
2. Conduct: In general silence or inaction cannot be an acceptance as some positive
act is needed. Positive conduct can be acceptance where that is a method of
communication set out in the offer. This can be implied in the offer, for example,
starting to use goods sent on approval; see Carlill v Carbolic smoke Ball Co.
3. Postal rules: The postal rules developed during the 19th century as the postal service
became reliable and the main means of communication between businesses that were
at a distance from each other. The following rules were set out:
a. The postal rules only apply to letters of acceptance, not to offers, revocation of
offers or counter- offers.
B.The postal rules only apply if the post is the usual method of communication
between the parties involved in the contract or is specifically stated as the only or an
accepted method of communication of acceptance.
c.Acceptance takes place when a correctly stamped and addressed letter is posted
(the principle is based on the fact that once a letter is posted it cannot be got back).
d.The claimant must be able to prove the letter was posted. This is reflected in a
certificate of posting from a post office or a signed statement by the person putting
the letter in the letterbox.
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4. Electronic and instantaneous forms of communication: e.g. fax, e-mail. It is
accepted that telephone is instant verbal communication, just as though the parties
were in each other's presence. If the call was not heard because of a fault it appears
there would be no communication of acceptance. This is also the law when
communication of acceptance is by telex or fax. For all other methods of electronic
communications they are legally received when the person to whom they are
addressed are able to access them. This covers all contracts made with Internet
companies. IF THE SITUATION IS A PHONE CALL THIS IS TREATED JUST LIKE
A FACE TO FACE CONVERSATION. So acceptance takes place when the person
accepting the offer tells the person making the offer clearly (Entores v Miles).
5. Email acceptance: Thomas v BPE Solicitors (A Firm): There is no authority to
say whether an email acceptance is effective when it arrives or at the time when the
offeree could reasonably have been expected to read it. The question must be
resolved by reference to the intentions of the parties, sound business practice and in
some cases by where the risks should lie. In the present case, the email acceptance
of a solicitor’s undertaking sent at 1800 on Friday evening was effective upon its
receipt soon afterwards. In the context of a corporate transaction, 1800 was not
outside working hours and the email was available to be read then despite the fact
that the recipient had gone home.
Cases and legislation on Methods of communicating acceptance
Method of
communicati
on
Conduct
Case Name/Act
of Parliament
Felthouse v
Bindley
Facts
Legal point
Sale of a horse was
being negotiated by letter
and message. Eventually
Felthouse wrote saying
that if he heard nothing
further he would consider
the horse sold to him for
a stated price.
A statement that if nothing
further was heard then a
contract would be made
was not sufficient to be the
positive act required for
acceptance.
The court decided that this
was just another offer that
the seller could accept or
reject and was not an
acceptance, as
acceptance required
positive conduct.
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Method of
communication
By Post
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Case
Name/Act
of
Parliament
Adams v
Lindsell
Electronic and Entores v
instantaneous Miles Far
communication East
Corporation
Acceptance by
the offer or a
reward
Carlill v
Carbolic
smoke Ball
Co
3/6/2016
Facts
Legal point
The facts:
 2 September:
Lindsell wrote to
Adams offering to
sell some wool
asking for a reply ‘in
the course of post’.
 5 September: Adams
received the letter
and sent a letter of
acceptance.
 8 September:
Lindsell sold the
wool to someone
else.
 9 September:
Lindsell received
Adams' acceptance
letter.
The court set out the postal rules and
decided that the offer for the sale of the
wool had been accepted by Lindsell on 5
September when Adams posted his letter
of acceptance and there was a contract.
Postal rules:
1. The postal rules only apply to letters
of acceptance, not to offers,
revocation of offers or counteroffers.
2. The postal rules only apply if the
post is the usual method of
communication between the parties
involved in the contract or is
specifically stated as the only or an
accepted method of communication
of acceptance.
3. Acceptance takes place when a
correctly stamped and addressed
letter is posted (the principle is
based on the fact that once a letter
is posted it cannot be got back).
4. The claimant must be able to prove
the letter was posted. This is
reflected in a certificate of posting
from a post office or a signed
statement by the person putting the
letter in the letter box.
The court decided that the acceptance by
telex took place when it was sent, as
long as the receiver was able to receive
the message. This is the same for fax, email(but see Thomas) and text.
In this case the
question was when a
telex machine
communication was
made. The case also
resolved the rules on
phone acceptance.
For phone calls acceptance operates in
the same way as face to face contact, ie
as long as there is clear acceptance
straight away.
The offer was made to the whole world through the advert – called
a unilateral offer. By following the instructions for the product this
was the acceptance of the offer by the C by being rewarded with a
protection from influenza.
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Exam Question:
Jun 2013: Briefly explain the law on acceptance by conduct and acceptance by post (8)
Plan
1. Define acceptance
2. Conduct – define – must be by positive act – Explain Felthouse v Bindley – not
silence
3. Reward – define – Carhill v Carbolic soap – reward was following instructions
carefully of product which was supposed to have been awarded with protection
from influenza.
4. Postal – Explain the rules that apply, must be acceptance by post and normal
process – Adams v Lindsell
5. Email - Explain rules – email acceptance effective when the offeree could have
reasonably be expected to have read it based on the working practices of the
business.
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(activity 5)
Intention to create legal relations
Key definition:
Intention to create legal relations: the parties to a contract must intend the agreement
to be legally binding. This is implied in commercial agreements, but presumed not to
exist in social and domestic agreements.
Commercial agreements: Where the law presumes that the parties wish to be bound
by a contract. Usually the situation clearly implies this or the parties say or write this
down in the form of a written contract.
Domestic agreements: Where the law presumes the parties do not wish to be bound
by a contract. Usually the situation clearly implies this such as family/friend agreements
and a lack of any formal arrangements such as a written contract.
Deed: a formal written and witnessed document that can be classed as a contract and
an intention to create legal relations.
The law will not enforce a contract if there is no intention to create legal relations.
Everyone expects to have some legal rights should goods bought turn out to be
defective or services ordered not provided. The law presumes that there is an intention
that such contracts will be legally binding. These are in situations where the law
presumes legal relations are required, known as commercial agreements.
However it is equally clear that we do not expect our domestic arrangements to be
legally binding, with the prospect of a court case in the event of failure. I do not expect
my children to sue me if I am late in paying their pocket money, if a friend fails to turn up
and give me a lift to a venue for an evening out in their car, I, again, will consider that I
have no legal right to claim damages. In these situations the law presumes there is no
intention to create legal relations.
Important: The law allows both domestic and commercial presumptions over intention to
create legal relations to be challenged (rebutted) by using evidence to show there was
an intentions to create legal relations, in a case of a domestic agreement, or there wasn’t
an intention to create legal relations, in a commercial agreement.
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Commercial agreements
The general principle is that an intention to create legal relations is presumed in
commercial agreements. This can be rebutted by the words used in the agreement. The
agreement must be quite clear as to the nature and effect of this restriction and the
courts are very strict in interpreting these agreements. A clear express statement
excluding legal intention can be seen to have been effective in two situations:
1. A football coupon
2. A sale of a house subject to contract: This is reflecting the situation that an
agreement has been reached between the owner of the house and the prospective
purchaser; but that a written contract has not yet been completed. The delay may
occur while the purchaser checks financial and other details. A contract to sell land,
and therefore a house, has to be evidenced in writing to be legally valid under the
Law of Property Act 1925. The idea of ‘sold, subject to contract' is common practice
in such transactions but can still lead to unpleasant disputes where a house seller
ignores the agreement and then sells to another person for more money.
Social and Domestic agreements
Social and domestic arrangements are not usually legally binding. There are three
exceptions to the rule where there is a more formal situation:
1. Agreements made linked to a marriage break up
2. Agreements made between parents and children: Support for students by parents at
university and other situations can be classed as an intention to create legal
relations. For such an agreement to be a contract there needs to be something
much more formal, such as a deed (a formal written and witnessed document).
3. Agreements based on social arrangements: an agreement to share winnings in a
lottery syndicate. These arrangements are usually set out in writing and signed,
which again helps the evidence that the agreement is meant to be legally binding.
Cases on intention to create legal relations
Intention
Case
to create
legal
Relations?
N
Jones v
Vernons
Pools
Facts
Claims were made by
claimants who believed they
had a winning coupon.
The pools coupon clearly
stated ‘binding in honour
only' and the claimants had
signed the coupon.
Legal point
The court said the Claimant
could not enforce the
contract as the football pool
coupon clearly stated it was
‘binding in honour only’. The
word honour was interpreted,
as meaning there was no
intention to create legal
relations. And the claimants
had signed in agreement to
this.
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Intention
Case
to create
legal
Relations?
N
Balfour v
Balfour
Y
Merritt v
Merritt
Y
Simpkins v
Pays
3/6/2016
Facts
Legal point
Mr Balfour worked in Ceylon, and
came to England with his wife on
holiday. He later returned to Ceylon
alone but his wife stayed in
England for health reasons. He
promised to pay her £30 per month
as maintenance whilst she stayed
in England, but he stopped paying
her when the marriage broke down.
Mr Merritt left his wife. Shortly after
he left, they met to make
arrangements for their future. He
agreed to pay £40 per month
maintenance, out of which she
would pay the mortgage. When the
mortgage was paid off he would
transfer the house from joint names
to the wife’s name. He wrote this
down and signed the paper, but
later refused to transfer the house
The court decided she
could not take legal action
for the promised
maintenance payments as,
amongst other reasons, the
agreement was a purely
domestic arrangement that
they did intend to be legally
binding.
A more formal written
agreement between
husband and wife as to
some financial
arrangements following a
marital split can be legally
binding.
Mrs Pays, her granddaughter, and
Mr Simpkins, a lodger, shared a
house. They all contributed onethird of the stake in entering a
weekly competition in the Sunday
Empire News. On 27 June 1954,
the competition was to place, in
order of merit, eight women’s
fashions. They took it in turns to
pay the entry fee and fill in the form
and send it off. On that week a
prize of £750 was won for correctly
placing the fashion items in order
but as Mrs Pays had entered the
form that week, she refused to
share the prize.
An agreement to share
winnings in any prizes won
in a competition or lottery is
legally binding as the
exercise is a sort of joint
enterprise.
Thus each was entitled to a
one-third share of the
winnings.
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Exam Question:
June 2010: Explain the meaning of “intention to create legal relations” (7)
Plan
1. An intention to create legal relations is defined as..
2. Contract law presumes in domestic arrangements… Give brief examples but NOT
one you use as a case. Give brief example of a situation where there was an
intention to create legal relations but NOT one you are using in as a case.
3. Explain 1 case that is classed as an intention to create legal relations and 1 case
that isn’t. Say why they either not classed as a domestic arrangement or are classed
as a domestic arrangement.
4. Contract law presumes in commercial arrangements… Give brief examples but NOT
one you use as a case. Give brief example of a situation where there isn’t an
intention to create legal relations but NOT one you are using in as a case.
5. Explain 1 case where an intention to create legal relations was rebutted in a
commercial situation. Say why there was no intention to create legal relations.
How to approach an offer and acceptance problem
All offer and acceptance problems require the same logical approach:
1. Identify the sequence of events and list them in chronological order.
2. Identify each event as an invitation to treat, offer, counter-offer, revocation of offer,
acceptance, etc., as appropriate.
3. State the reasons why you identified the event as you did using decided cases to
back up your argument.
4. Identify when the offer opens and when it ends.
5. Identify whether there is an acceptance within that period.
6. Identify if there is an intention to create legal relations (if so, there is a contract).
7. Come to a conclusion.
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Consideration
Key definitions
Consideration: means that each party to a contract must give something of some value.
This is because the law is concerned with bargains and not gifts.
Executory consideration: When a person has not yet completed their part of the
contract.
Executed consideration: When a person has completed their part of the contract it can
be said to have been fulfilled. OR the term used to describe the status of a person's
promise in a contract where that part of the bargain has been performed.
Past consideration: Is not valid consideration. Something already done by A at the time
the agreement is made by him with B.
Consideration means that each party to a contract must give something of some value.
Consideration must be present for any valid contract unless the agreement is made by a
deed (a form of legal document). There are a number of aspects of consideration that
need to be understood. There are two types of valid consideration: executed
consideration and executory consideration.
Executed consideration is the term used to describe the status of a person's promise in a
contract where that part of the bargain has been performed. For example, if A agrees
with B to pay B £10 to wash A’s car, and B washes the car, B’s consideration is
executed, that is, complete, because he has then performed his side of the bargain. He
can then hold A to his promise to pay the £10.
Executory consideration is the term used to describe the status of a person's promise in
a contract where that part of the bargain has not yet been performed. Thus in the
previous example, it would be the payment of the £10 that had not yet happened.
Consideration must have some value
As the law is concerned with bargains and not gifts, the consideration must have some
value but does not have to be of equal value. The whole point of business is to get more
for your goods than you paid for them: clearly this is not equal value.
(activity 6)
Past consideration is not normally valid consideration
Past consideration is defined as something already done at the time the agreement is
made. Where the consideration is past, there will not be a valid contract.
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However, where A requests some performance from B before the contract comes into
existence but on the common understanding that there will be a contract and that there
will be a payment this is valid consideration. An example is asking a plumber to fix a leak
in an emergency.
Consideration must move from the promise
This means that the person making the promise must provide the consideration. It does
not matter that the contract was made for the benefit of another person.
Thus if A agrees to wash B’s car if B pays £10 to C, there is no promise that is
enforceable by C, as he has given no consideration for the £10.
However, this basic rule has been altered by the Contracts (Rights of Third Parties) Act
1999 so that a person who is not a party to a contract can enforce the contract if he is
named in the contract or he gains a benefit from it. This can be in situations as follows:
1. A person has ordered goods on the Internet to be delivered to someone else
2. Where someone makes a group booking for an event or travel
3. Where someone has bought the bride and groom a wedding present from a
wedding list in a shop.
Cases and legislation on Consideration
Issue
Case
Consideration Chappell v
must have
Nestle
some value
Past
consideration
is not valid
consideration
Re McArdle
Facts
Where chocolate bar wrappers
were taken as part payment for a
record as part of a promotion. It
was acknowledged that used
chocolate bar wrappers have little
value. They are often described
as having a value of 0.0001
pence.
In this case a person died and in
his will left his assets in equal
shares to his five children. The
wife of one of the children paid
out of her own money for
alterations to one of the houses
that were included in his assets.
The children wrote to the wife, ‘In
consideration of your carrying out
certain alterations...we hereby
agree to repay you [£488] from
the estate.'
Legal point
In this case chocolate bar
wrappers were enough to be
regarded as some value and
consideration even though
the value was small.
A promise to pay for work
done voluntarily after the
work has been done is not
consideration. It is past
consideration.
The court held that the
promise of payment did not
create a contract as the
alterations were over and
done with by the time the
promise of payment was
made.
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Issue
Exception
where past
consideration
is valid.
Consideration
must move
from the
promise
Page 23
Case
Facts
Lampleigh v Braithwaite killed someone and
Braithwaite then asked Lampleigh to get him
1615
a pardon from the king.
Lampleigh got the pardon and
gave it Braithwaite, who promised
to pay Lampleigh £100 for his
trouble.
Contracts
(Rights of
Third
Parties) Act
1999
3/6/2016
Legal point
Where an act is done at
someone’s request and the
parties understood that
payment would be made; this
is valid consideration, not
past consideration.
The court decided that
although Lampleigh’s
consideration was past (he
had got the pardon)
Braithwaite's promise to pay
could be linked to
Braithwaite's earlier request
and treated as one
agreement. Therefore, it
could be implied at the time
of the request that Lampleigh
would be paid and so was
valid consideration.
A person who is not a party to a contract can enforce the contract
if he is named in the contract or he gains a benefit from it, e.g.
such as where a person has ordered goods on the internet to be
delivered to someone else, where someone makes a group
booking for an event or travel, and where someone has bought
the bride and groom a wedding present from a wedding list in a
shop.
(Activity 7)
Exam Question:
Jan 2010: Explain the meaning of the terms “consideration” and “past consideration” (7)
Plan
Consideration is defined as..
Consideration can be executed which is defined as..
Consideration can be Executory which is defined as…
Consideration must be for some value, Case example and why this case shows some
value can be consideration.
Consideration must move from the promise which means…
Contracts (Rights of Third Parties) Act 1999 explain link to move from promise.
Past consideration is defined as…
Two case examples. Explain why past consideration is not normally valid and why there
is an exception.
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Breach of Contract - How does a Claimant show a valid contract has been
broken
Key Definitions
Breach of Contract: Occurs when one party to the contract fails or states that he will fail
to perform part or all of his side of the contract. To breach a contract the C must show
that the D did not perform a condition or a warranty of the contract.
Condition: Is a term of the contract that, if not performed, will go to the heart of the
contract. Breach of a condition gives the innocent party the right to end the contract, if he
chooses, in addition to the right to claim damages for any losses.
Warranty: is a minor term of the contract that, if not performed, will cause loss but does
not go to the heart of the contract.
Actual breach: Occurs either through poor performance of the contract, where there is
performance of the contract but the work is done badly or the goods are substandard, or
by non-performance where the work is not done or the goods are not provided at all.
Anticipatory breach: Occurs where one party to the contract states or otherwise
indicates that there will not be performance of the contract. This is usually that goods or
services will not be provided.
Damages: Usually financial compensation awarded to the C suffered as a result of the
breach of a contract by the D.
Warranty or Condition as a breach of contract
A breach of contract occurs when one party to the contract fails or states that he will fail
to perform part or all of his side of the bargain.
The law decides whether a breach of contract is serious enough by deciding which type
of term in the contract has been broken. A term in a contract is known as either a
condition or a warranty.
A term which can be either a condition or a warranty depending on the nature of the
failure is known as an innominate term.
If the breach has serious consequences for the innocent party the C will have the choice
of ending or continuing with the contract, as well as claiming damages. This would be
regarded as a breach of a condition of the contract. A condition is a term of the contract
that goes to the heart of the contract. For example, if I rent a car, one term of the
contract that will be a condition is that the car will actually go and stop. If it does not,
then clearly I would want to end the contract and either rent a different car or go
elsewhere. The failure to provide a car that goes and stops would be a breach of
condition of a contract and I would be entitled to treat the contract as ended
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Where the breach is only trivial, the innocent party must continue with the contract,
although he can claim damages for any losses. This is a warranty. A warranty is a term
that if broken if it is broken, loss will result, but the main purpose of the contract will still
be achieved. For example, If I rent a car and the rental company offers me one which
has a CD changer if the CD changer does not work I will still have a useable car, but
would expect to pay less and to be compensated for any CD of mine that I loaded that
could not be recovered from the broken changer. This would be a warranty and I would
have to continue with the contract, but would expect compensation for my lost CD and
perhaps very minor compensation for the car not having a CD changer.
Cases on Condition and Warranty
Issue
Condition
Case Name
Poussard v Spiers
and Pond
Warranty
Bettini v Gye
Facts
Opera singer made
a contract to sing in
an opera. She failed
to attend the first six
performances and
was replaced for the
entire run of the
opera. She could
only be replaced if
her failure to attend
was a breach of
condition.
An opera singer
made a contract to
perform from March
to July and was also
required to attend
six days before
performances for
rehearsals. He
failed to attend the
first two days of
rehearsals. The
promoters wanted
to replace the singer
for the actual
performances but
could only do this if
the rehearsals were
a condition of the
contract.
Legal point
Poussard’s inability
to sing the lead role
in an opera for the
first six days of
performances was a
breach of condition.
The opera promoter
was therefore able
to end the contract
and replace the
singer.
This was
considered to be a
warranty as it was
only for part of the
rehearsal, not the
performances, so
the singer could not
be replaced without
the opera company
breaking their
contract.
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Actual breach and anticipatory breach of a contract.
Breach of contract can occur in two ways: actual breach and anticipatory breach. Actual
breach occurs either through poor performance of the contract, where there is
performance of the contract but the work is done badly or the goods are substandard, or
by non-performance where the work is not done or the goods is not provided at all. For
actual breach it will depend on whether the breach is a condition or a warranty as to
what the C can claim as damages. You must refer to the notes on condition and
warranty.
Anticipatory breach occurs where one party to the contract states or otherwise
indicates that there will not be performance of the contract. This is usually that goods or
services will not be provided
If an actual or anticipatory breach of contract takes place the person affected can start
legal action under the contract.
Cases on Actual and Anticipatory breach
Type of Breach
Anticipatory
Case Name
Hochster v De La
Tour
Facts
A tour guide was
told that his services
would not be
required despite the
contract for him to
work in two months'
time.
Anticipatory
Avery v Bowden
1855
A case involving an
agreement to supply
a cargo for a ship at
a port in Russia.
The claimant was
advised that the
cargo would not be
supplied.
Legal point
The court decided
this was anticipatory
breach as the tour
guide’s contract had
not ended. Here the
guide has a choice:
he could wait and
see if the guide
work was in fact
wanted after all on
the due dates, or
treat the contract as
ended and take
immediate legal
action to recover
damages for his
loses.
The court decided
this was anticipatory
breach. However as
the C decided the
wait until the end of
the agreement
expired before
claiming damages
the Crimean war
with Russia then
made the contract
unenforceable.
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Exam Question:
Jan 2010: Explain the meaning of the term breach of contract (7) + 2 A03
Plan
A breach is defined as..
Actual breach is defined as..
Actual breach of a term can be defined as either a condition or a warranty…
Condition is defined as… If a condition is breached the C can..
Case example of Condition and why the breach was regarded as a condition and its
effects on the contract.
A warranty is defined as …
Case example of a warranty and why the breach was a warranty and its effects on the
contract.
Anticipatory breach is defined as…
One Case example plus explanation of what the C could do in this situation
(Activity 9)
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Starting a claim for Damages and court procedures before the trial
Key Definitions
Case monitoring: the system by which the court monitors progress of a case to help
achieve a quick conclusion
Case management: the active role taken by a judge in the life of a case to help reach a
speedy and just resolution of the issue.
Directions: A set of legal to do’s given to the C and the D including deadlines on
anything connected with the case such as calling witnesses or providing written
evidence.
Court track: A track is the process and court that will deal with both the pre-trial matters
and the trial itself
Either party to the contract can start the claim for a breach in contract. As this is a civil
case the trial will be heard in a civil court.
To start a claim the Claimant (C) will seek advice from a solicitor or complete a court
claim form, N1. This can be completed online. This form is simple to complete, requiring
names and addresses for claimant and defendant, brief details of the claim (such as
‘Damages for breach of contract resulting from the failure of the defendant to complete
building works at the agreed time'), and the value of the claim. The purpose of this is to
establish the fee payable and to help establish the choice of court and track. The
claimant needs to assess the value of his claim as this will help the court decide which
court the case will have a trial at. The C must pay a fee for the application based on the
size of the claim.
This claim form is then served on the defendant, usually by post. In addition to the claim
form, the defendant is sent forms for use in dealing with the claim made
The defendant’s response pack includes an admission form so that the defendant can
admit the claim, a defence form to be completed if the claim is not admitted and an
acknowledgement of service form, which confirms receipt of the claim. This means that
the defendant can do nothing and not reply to the claim at all, admit all or part of the
claim, or dispute all or part of the claim. The defendant must do this within 14 days of
receiving the claim. If the defendant does not file a defence within 14 days or any
extension the court may give, the claimant can file for a default judgment and effectively
win the case. The court will then only be concerned with awarding the appropriate
amount of damages and costs.
When the claimant receives the defence, the court will also send an allocation
questionnaire to all parties to the case. The purpose of this is to establish the location,
track and timing of a trial.
The case is monitored by the court using a system called case monitoring. The court
uses a computerised diary monitoring system to record court orders and requests, the
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deadline for the return of documents such as the allocation questionnaire and whether
the deadline has been met.
Case management has been introduced to avoid the problem of even quite trivial cases
dragging on for years. The judge now has the power to summon the parties to court to
find out what is going on in the event of inactivity and then make an appropriate order to
speed up the process. Failure to comply can result in the party at fault being prevented
from continuing the case.
Once the allocation questionnaires have been completed, a procedural judge (normally a
District Judge) will allocate the case to the appropriate track. If a party to a case does
not comply with a court order or time limit, that party may be struck out of the action. The
effect of this is that the party would be unable to take further part in the case and would
lose any right to claim or defend the court action.
After the case has been allocated the court sets a date for the trial. This date will be at
least 21 days later, and the actual date will depend on what other directions need to be
made.
Allocating the case to a court and a track
In order to try and speed up civil cases going to court, including contract claims the claim
is allocated (placed) on a track. A track is the process and court that will deal with both
the pre-trial matters and the trial itself. There are three tracks all based on the amount of
damages the contract claim involves:
Small Claims track
Fast track
Multi track
Deal with cases with a
value of upto £5000 in
damages
AND
Only simple cases
Deal with cases with a
value from £5000 to
£25000 in damages
AND
The case is more
complicated.
Deal with cases with a
value from £25000 and
above in damages
AND
Only complex cases
What happens?
What Happens?
What Happens?
Normally the C and D
represent themselves
and the case is heard in
private in front of a
district judge, in small
claims court. This court
is part of the county
court.
The emphasis is on little
formality.
Barristers or solicitors in
the County court will
represent the C and D.
The case is heard in
open court so the public
can watch.
The trial will last up to
one day
Barristers or solicitors in
the High court will
represent the C and D.
The case is heard in
open court so the public
can watch.
The trial will last up to a
day or more
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Exam Question:
Jan 2010: Identify which court would hear the claim and outline the procedure that would
be followed from issue of proceedings up to trial. (5 marks)
Plan
Define the small claims track and the court that hears the case
Define the Fast track and the court that hears the case
Define the Multi track and the court that hears the case
State, which track and court the C will be allocated to and why
Define the C’s procedure to start a claim
Define the D’s procedure to return the court forms
Define case management
Define case monitoring
Briefly state how the case is allocated to a court and a track for trial.
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Damages
Key Definitions
Damages: Normally take the form of money paid to the winning party. In contract
damages are compensatory.
Compensatory damages: The purpose is to put the claimant in the position he would
have been in had the contract been properly performed.
Loss of the bargain: Money will be awarded to the money lost as a result of the
contract not be carried out properly
Consequential losses: The extent of the losses that can be claimed depends on
whether the consequence is too remote to be recovered or not. The basic principle is
that if the loss is foreseeable to a reasonable person then compensation can be claimed.
Mitigation of loss: This means he must do his best to keep the losses he has suffered
to a minimum.
Causation: The link between the defendant’s breach of contract and the loss being
claimed.
Remoteness: Is the test used by the courts to decide whether losses resulting from a
breach of contract are recoverable. You cannot be held liable for losses that you could
not reasonably have anticipated
Direct or normal loss: loss of a type that would usually arise from a breach of contract.
Indirect or abnormal loss: loss of a type that is out of the ordinary.
If the C wins his court case he is entitled to claim damages. You will need to be able to
answer a question covering the follow issues related to damages:
 Compensatory damages.
 Describe the rules for calculation of damages for damage to property.
 Describe the rules for calculation of damages where there is a market for the goods
involved.
 Describe the principle of mitigation of loss.
 Describe the rules on causation and remoteness of damage.
 Apply the above rules to a given situation.
Damages in contract are compensatory. The purpose is to put the claimant in the
position he would have been in had the contract been properly performed. This means
that the claimant is entitled to the benefit of his bargain. The law is not concerned with
punishing the defendant, only with compensating the victim of the defendant’s breach of
contract.
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Calculation of damages
The court has to take into account a number of factors when awarding damages:
The amount payable for what is known as the ‘loss of the bargain': In other words
money will be awarded to the money lost as a result of the contract not be carried out
properly. The idea is to put the claimant in the same situation as if the contract had
been-performed. This will usually involve the return of any money paid and the
difference between the contract price and the general selling price of the goods or
services not delivered under the contract.
Consequential losses: The extent of the losses that can be claimed depends on
whether the consequence is too remote to be recovered or not. The basic principle is
that if the loss is foreseeable to a reasonable person then compensation can be claimed.
For example, if you bought a new tv and it caught fire because a part was defective. You
could recover for loss of bargain, the cost of the tv. You could also recover damages for
any property damaged such as a tv stand. This would be a consequential loss because
a reasonable person would be able to foresee that a tv stand would be damaged by a
fire caused by a defective tv. However it wouldn’t be foreseeable to a reasonable person
that your car parked in your drive would damaged because the tv set on fire in your living
room due to the same defective.
Where a business is claiming a loss of profit, it will have to show how the broken
contract affected its earnings. This is usually done by calculating the loss of profits on
the basis of previous profits, contracts made and the consequences of those contracts
being broken.
Losses claimed through emotional distress: In exceptional cases there can also be
damages for emotional distress following a breach of contract. This relates mainly to
consumer contracts and particularly holidays. For example, the hotel is a building site
and you can’t sleep for a week.
Mitigation of loss
The C has to mitigate the loss he suffers. This means he must do his best to keep the
losses he has suffered to a minimum. In practice, the claimant does not have to be too
careful about ensuring mitigation of loss; the important issue is that the action taken by
the claimant is reasonable.
Causation and remoteness
The general principle is that the loss complained of must have been caused by the
breach and not be too remote. In other words causation is that the breach of contract
must be the main cause of the claimant's loss.
Remoteness is the test used by the courts to decide whether losses resulting from a
breach of contract are recoverable. With remoteness of damage, it would clearly be
impossible to make the defendant liable for all the consequences of his breach as they
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could be, arguably never ending. The decision the law has to make is where to draw the
line. In other words the further away the losses are the C suffers from the main part of
the contract the less likely it is the courts will say the D is liable for damages.
There are two categories of loss the courts look at to establish whether losses are
remote developed in the case of Hadley v Baxendale. The decision was based on the
‘foreseeability' test for contract breaches: you cannot be held liable for losses that you
could not reasonably have anticipated. The two categories of loss are:
 Direct or normal loss: loss of a type that would usually arise from a breach of
contract. This is assumed to have been in the ‘reasonable contemplation' of the
parties at the time they made the contract.
 Indirect or abnormal loss: loss of a type that is out of the ordinary. This is
recoverable if, at the time of making the contract, the defendant knew it could happen
in the event of breach. The defendant must also have accepted responsibility for that
risk. Acceptance of risk is often implied from knowledge that the defendant has in
relation to the situation.
Cases on Damages
Issue
Facts
Legal point
Loss of profit
Wiseman v
Virgin
Atlantic
Airways
Where the claimant was wrongly not
let on board an aircraft in Port
Harcourt, Nigeria, flying to Stansted
airport in England. It was another 12
days before he could return to
England.
Calculation
of damages
Jarvis v
Swan Tours
Where a winter sports holiday had
failed to live up to expectations with
respect to the activities on offer and
caused emotional distress
The successful claim resulted in
damages of around £2,300 all
related to a loss of profit to the
C’s business.
However expenses that were not
related directly to a loss of profit
such as the breakdown of his
relationship with his fiancée was
not awarded as damages.
Damages could be awarded for
mental distress following a
breach of contract. This was
particularly relevant to holidays.
Calculation
of damages
Emotional
distress
Case name
Version 1
Issue
Case name
Remoteness
of damages
Hadley v
Baxendale
Victoria
Laundry v
Newman
Industries
Page 34
Facts
The claimants needed to have the
main shaft that powered their mill
repaired, as it had broken. Until it
was repaired, the mill could do no
work, and so they were losing
money. It could be repaired only in
London; they hired the defendant to
take it from Gloucester by the next
day. For some unexplained reason,
the shaft took several days to arrive.
The delay caused continuing losses.
The question before the court was
whether the defendant was liable for
the money that the Hadley’s had lost
while the mill was without its shaft
The defendants contracted to sell a
new larger, boiler to the claimants,
which the defendants knew was
required for immediate use. Delivery
was made five months late. The
claimants lost not only the £16 a
week profit that they could have
made from normal customers, but
also a £262 a week dyeing contract
with a Government department, The
government contract was deemed too
remote and not recoverable.
3/6/2016
Legal point
Damages for breach of contract
will cover naturally occurring
consequences of the breach and
those that are in the
contemplation of the parties to
the contract.
The court decided that since the
defendant did not necessarily
know that the mill would be idle
until the shaft could be returned
(they might have had a spare
shaft), the defendant was not
liable for the loss.
The claimant could recover
damages for their natural lost
profit, but not for an especially
valuable contract the defendant
did not know about as this was
not foreseeable and too remote.
Exam Question:
Jun 2010: If Juan were successful in his claim against AB, outline how the court would
calculate an award of damages
(5 marks)
Plan
Define Damages and compensatory damages
Define loss of profit
Explain Wiseman v Virgin Atlantic Airways
Define mitigation of loss
Define remoteness of Damage
Explain Hadley v Baxendale
Apply the rules on damages to Juan
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Alternative methods of resolving a dispute over a contract – Alternative
Dispute Resolution
Key Definitions
Alternative Dispute Resolution: Is an alternative method used by the claimant other
than going to court.
Litigation: the process of taking a case through the court process from the initial claim
to award of damages.
Negotiation: Resolve the problem by discussion directly with each party.
Meditation- this is when a neutral mediator (a person trained to help the parties reach a
decision) that helps the parties reach a compromise solution.
Conciliation: This is similar to mediation in that a 3rd party helps to resolve the dispute.
The main difference is the conciliator usually plays more of an active role, perhaps
suggesting solutions.
Arbitration: Parties agree to let 3rd parties make a binding decision.
Alternative Dispute Resolution (ADR) is an alternative method used by the claimant
other than going to court. Courts will try and encourage C’s to use this process wherever
possible. ADR is used as an alternative to litigation for the following reasons:
1. ADR is significantly cheaper than litigation
2. ADR allows parties to keep all the discussions secret. This is particularly important
with sensitive contracts made between businesses.
3. ADR allows experts to be used to help resolve contractual problems instead of less
qualified judges in specialist areas.
4. ADR cases can held at times such as evenings and weekends when courts do not
sit.
The four types of ADR are:
1. Negotiation: Resolve the problem by discussion directly with each party. An
advantage of this is that this is private and also a quicker method of settling
disputes. A disadvantage of this may be that parties cannot come to an agreement.
2. Mediation: This is when a neutral mediator (a person trained to help the parties
reach a decision) that helps the parties reach a compromise solution. Mediation is
only suitable if there is some hope that parties can co-operate.
3. Conciliation: This is similar to mediation in that a 3rd party helps to resolve the
dispute. The main difference is the conciliator usually plays more of an active role,
perhaps suggesting solutions.
4. Arbitration: Parties agree to let 3rd parties make a binding decision. Private
arbitration is covered by the Arbitration act 1996 and any decision made by the
arbitrator will be binding if both parties sign a written agreement. Arbitrators can be
lawyers or industry professionals (e.g. Institute of Arbitrators)
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Exam Question:
Jun 2010:Assuming that Juan has decided to sue AB for breach of contract identify which
court would hear Juan’s claim and track to which the case would be allocated. Outline the
opportunities there would be for settlement of the dispute without going to court.
(5 marks)
Plan
Define the small claims track and the court that hears the case
State, why C will be allocated to this court and track and why
Define ADR
State the four types of ADR
Define negotiation
Define mediation
Define arbitration
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Activity 1 – Is there a contract? Can you say why there is or what you can do if there
is a problem?
Scenario
You buy a ticket for
the bus and travel to
college on time
Your mum lends
you £5 to pay for
your bus fare but
you don’t pay it
back.
You buy a mars bar
from a vending
machine but it fails
to give you the mars
bar or return your
money
You have bought a
downloadable MP3
track but it doesn’t
download, even
though you have
paid for it
electronically.
You buy a ticket for
the bus and travel to
college but arrive
30mins late.
Catalogue retailer
Argos was
swamped with
online orders after a
software blunder led
to TV sets being
mistakenly priced at
£3 each. The 21inch television sets
should have been
priced at £299.99.
Is there a
contract?
Yes or No
Correct Answer
Key issue/problem
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Activity 2 – Use the diagram on page 1 to complete this crossword.
Across
4 Proceedings held before an
official trial including
completion of forms, allocation
of the case to a court.
8 There must be some economic
value (normally money, goods,
services), but not necessarily
equal value.
Down
1 This is implied in business
relations but presumed not to exist in
social and domestic arrangements.
2 Examples include negotiation,
mediation, conciliation, arbitration.
3 Where one party to the contract
fails or states that he will fail to
perform part or all of his side of the
bargain.
5 The purpose is to put the claimant
in the position he would have been
in had the contract been properly
performed.
6 The price at which an individual is
willing to sell a good or service.
7 The process of taking a case
through court when one party has
breached the contract in order to
claim damages.
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Activity 3 – Look at the scenarios and decide which one’s are an offer and which one’s
are an invitation to treat. Try and give a reason why you made your choice.
Key definitions
Offer – An offer is a statement of the terms upon which the person making the offer is willing to
enter a contract: it can be written or verbal.
Invitation to treat – An invitation to treat is merely an indication of a willingness to start
negotiations and is not an offer.
Scenario
A 16 year old boy gets a
bottle of wine from the
supermarket shelf and
goes to pay for it at the
checkout
You send a text
message to Bill saying
“Will you sell your bike
for £50?”
Bill replies, “Lowest cash
price for bike is £400”.
You text back saying
“agree to buy for £400”.
An advertisement for the
sale of computer and
you want to buy a
computer.
You place £1 coin in the
slot of a vending
machine and press the
diet coke button. Nothing
happens.
A flick knife with a price
label on it in a shop
window and you want to
buy the knife
You see a picture you
want to buy and offer
£500 for it. The seller
says they may sell it to
you for £500.
Offer
Invitation
to treat
The reason the case is an offer/invitation to
treat is because…
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Activity 4 – Look at the scenarios and decide whether an offer has come to an end.
Try and give a reason why you made your choice.
Scenario
John makes an offer to buy
Bill’s car. Bill reads in the
paper John has died and
then decides to accept the
offer by contacting John’s
daughter.
Roger answers an advert to
buy a motorbike from Rachel,
for £2000. Roger offers
Rachel £1800 but Rachel
says she only accept £1900.
Roger says he can’t afford
this and starts to walk off.
Rachel says she will accept
Roger’s £1800 but Roger
says he doesn’t want the bike
anymore.
Delia is offered a necklace by
H Samuels worth £1000 by email. Delia sends an e-mail
asking if there is any credit
available. She receives no
response over the next two
days and therefore e-mails
the shop saying she will pay
cash for the necklace.
Don wants to buy a
skateboard and offers Betty
£50 for it. 3 months later
Betty tries to accept Don’s
£50 offer for the skateboard
but he refuses to pay for it.
Jo offers to buy Ahmed’s
iphone for £200. Jo leaves a
message on Ahmed’s answer
phone but it fails to record.
Unaware of Jo’s offer Ahmed
sells his iphone to Tracy for
£150.
Offer
ended?
Yes or No
The reason the offer has/ has not ended is
because…
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Activity 5 – Look at the scenarios and decide valid acceptance has been
communicated to other party. Try and give a reason why you made your choice.
Scenario
Jane asks how
much a train to
Wigan costs and
then buys a ticket
off the conductor
Juan rings up about
an add Sarah has
placed about a
computer. Juan
agrees with Sarah
over the phone that
he will buy the
computer for £200.
Buck gets a quote
from an insurance
company by post for
life insurance. Buck
posts a letter
accepting life
insurance on the
way to run a
marathon but dies
on the marathon.
Broderick receives a
fax from Blackadder
offering him 60
turnips for £50.
Broderick faxes the
acceptance of the
offer back but
Blackadder’s fax
machine doesn’t
receive it.
Bill sends Steve a
text offering him a
Windows computer
for £50 on 8th Jan.
Steve texts back
accepting the offer
on 10th Jan, which
Bill receives.
However Bill has
sold the computer to
Tim on the 9th Jan.
Valid
The reason the case is/is not valid acceptance
Acceptance? is because…
Yes or No
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Activity 6 – Identify whether the following situations are executed or executory
consideration. Try and give a reason for your answer.
Key definitions
Consideration: means that each party to a contract must give something of some value.
This is because the law is concerned with bargains and not gifts.
Executory consideration: When a person has not yet completed their part of the
contract.
Executed consideration: When a person has completed their part of the contract it can
be said to have been fulfilled. OR the term used to describe the status of a person's
promise in a contract where that part of the bargain has been performed.
Scenario
Executory/Executed
This is executory/executed
consideration because…
Mike agrees to buy a bottle
of wine off January and
pays her £10.
Jean agrees to paint a
picture of Reece and
sketches out his face in
rough.
Richard orders a bike off
Sam and Sam calls Richard
to say his bike is ready to
collect.
The Queen visits Manhattan
in new York and receives
200 pepper corns in
payment for the rent on the
island, for the past 200
years, as agreed in the
contract.
Extension Question: looking at the definition to consideration write a short sentence as
to whether pepper corns can be classed as valid consideration or not.
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Activity 7 – Identify whether the following situations are valid consideration. Try and
give a reason for your answer.
Key definitions
Consideration: means that each party to a contract must give something of some value.
This is because the law is concerned with bargains and not gifts.
Past consideration: Is not valid consideration. Something already done by A at the time
the agreement is made by him with B.
Scenario
John pays Mike £1 for a
Picasso painting as agreed
in the written contract.
Natalie asks Joe to help her
finish off making some
beds in her hotel. Joe tries
to claim that Natalie owes
him money for the work he
has done.
James Cameron, the
director of Titanic the film,
decides not to take any
payment for his work on the
film. 2 years later the film
company pay him £400m
as a gift and the
government want to claim
tax on this payment as they
say it is payment for his
work on the film.
Arnie asks Sly, a mechanic,
to change his burst tyre as
he is in a rush. Sly charges
him £40 after the tyre his
fixed.
A agrees to wash B’s car if
B pays £10 to C. A washes
B’s car but B doesn’t pay C.
Kate and William are
bought a gold toast rack
from their wedding list at
Harrods but end up with 3.
Kate takes two toast racks
back for a refund.
Consideration? This is consideration/ not consideration
because…
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Activity 8 – Answer the following problem question using the approach below.
PLAN
All offer and acceptance problems require the same logical approach:
1. Identify the sequence of events and list them in chronological order.
2. Identify each event as an invitation to treat, offer, counter-offer, revocation of offer,
acceptance, etc., as appropriate.
3. State the reasons why you identified the event as you did using decided cases to
back up your argument.
4. Identify when the offer opens and when it ends.
5. Identify whether there is an acceptance within that period.
6. Identify if there is an intention to create legal relations (if so, there is a contract).
7. Come to a conclusion.
Scenario
On 29 April, Richard placed an advertisement in the local paper offering his car for sale
for £17,000. Jennifer telephoned Richard on 1 May and offered to buy the car for
£15,000. Richard said he was not prepared to accept such a low price, but kept
Jennifer's details. On 8 May Richard had still not sold his car and wrote to Jennifer
offering to sell it to her for £16,000. Jennifer received the letter on 9 May. On 10 May,
Jennifer wrote back stating that she would not pay more than £15,500 for the car. On 11
May Jennifer wrote another letter to Richard saying that she accepted his offer and
would pay £16,000 for the car. Richard received both of Jennifer’s letters on 12 May but
refused to give the car to Jennifer as he had found another buyer who would pay him
£16,500.
Discuss whether there has been offer and acceptance in the dealings between
Jennifer and Richard (7)
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Activity 9 – Identify whether the following situations are a breach of contract, what
type of breach and whether the breach is a condition or warranty. Try and give a
reason for your answer.
Key Definitions
Breach of Contract: Occurs when one party to the contract fails or states that he will fail
to perform part or all of his side of the contract. To breach a contract the C must show
that the D did not perform a condition or a warranty of the contract.
Scenario
A new car is delivered that
has a faulty interior.
A new car is delivered and
the engine and brakes don’t
work
John has ordered a bike
from Susan but Susan has
told John she can no longer
supply the bike on the
agreed date or any other
date.
John has ordered a bike
from Susan but Susan has
told John she can no longer
supply the bike on the
agreed date but can deliver
the bike the week after.
John will have to catch the
bus to work until he gets his
bike.
Type of Breach
This is a breach of contract
because
The car should have been
delivered with the interior in
perfect condition. However
it is not a condition as the
car is still driveable and
perfectly reliable.