Notes on Contract law
prepared by vipin
Contract
A valid contract is a legally binding agreement, formed by the mutual consent of two parties.
A Contract is a legally-enforceable promise or set of promises made by one party to another.
A contract is an agreement creating obligations enforceable by law.
Essential element of contract
The three essential elements of a contract are
1. offer and acceptance
2. consideration
3. intention to enter into legal relations.
The validity of contract may also be affected by any of the following factors.
1. Some persons have restricted capacity to enter into contracts.
2. Some contracts must be made in a particular form.
3. Some terms which parties do not express may be implied, and some terms which parties do
express are overridden by statutory rules.
4. A mistake or misrepresentation made by one party may affect the validity of a contract.
5. The courts will not enforce a contract which is deemed to be illegal or contrary to public
policy.
A void contract is not a contract at all. A void contract cannot be enforced by law.
The property transferred under it can sometimes recover from a third party.
An agreement to carry out an illegal act is an example of a void contract or void agreement. For
example, a contract between drug dealers and buyers is a void contract simply because the terms
of the contract are illegal. In such a case, neither party can go to court to enforce the contract.
A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract is bound. The
unbound party may repudiate the contract, at which time the contract is void.
The property transferred under it is usually irrecoverable from a third party.
An unenforceable contract or transaction is one that is valid, but which the court will not enforce.
The property transferred under it is irrecoverable even from the other party.
FORM OF A CONTRACT
As a general rule, a contract may be made in any form.
Exceptions
1. Some contracts must be by deed
2. some contracts must be in writing
3. some contracts must be evidenced in writing
contracts by deed
A contract by deed is sometimes referred to as a specialty contract. Any other type of contract may be referred to
as a simple contract.
A contract by deed must be in writing and it must be signed. It must be sent to both parties or all involved. A
specialty contract may have witnesses and a seal.
Certain contracts may be made orally, but are not enforceable in a court of law unless there is
written evidence of their terms. The most important contract of this type is the contract of
guarantee.
Offer
What is an offer?
Offer is a definite and unequivocal statement of willingness to be bound on specified terms
without further negotiations.
An offer sets out the terms upon which an individual is willing to enter into a binding
contractual relationship with another person.
What is not an offer?
An invitation to treat is not an offer.
A statement of price in answer to an enquiry is not an offer but merely the supply of
information
A mere statement of intention to sell is not an offer.
Rules
1) an invitation to treat is not an offer.
It is not an offer but an invitation to others to make an offer. It is part of the
negotiations.
1. Advertisement (Patridge v crittenden)
An advertisement is an invitation to treat,not an offer, as in Patridge v
Crittenden
2. Shop Window display .
A window display was not an offer of sale, but only an invitation to treat, as
in fisher v bell.
3. Tender
there are 2 forms of tender:
• specific tenders
• a person invites tenders for a definite quantity of goods to
be delivered/sold at a specific time
• call for tenders is invitation to treat
• person wishing to deliver makes offer
• becomes contract when offer is accepted
• standing offer tenders
• a person invites tenders which may be required within a
specified time in the future
• acceptance of tender (offer) does not create a binding
contract
• offer is accepted every time an order is placed
a) A statement that goods are to be sold by tender is not normally an
offer ,as in Spencer v Harding
b) But an invitation to tender can be considered an offer in some cases,
as in Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council.
c) Standing offers can be revoked at any time unless there is a binding
obligation to keep it open for a certain period of time.(Great Northern
railway v witham)
d) Buyer is not obliged to order anything from the successful tenderer
but is in breach of contract if he orders goods of the stated kind from
anyone else.(kier v Whitehead iron Co.)
4. auction of sale
The auctioneer's request for bids was an invitation to treat, and each
bid constituted an offer which could be withdrawn at any time until it's
accepted, and finally, the fall of the auctioneer's hammer constituted acceptance of the
highest bid.(payne v cave)
5. goods in shop shelves
The display of goods in a shop was not an offer, but an invitation to treat
(Pharmaceutical Society of Great Britain v Boots Cash Chemists)
2) A statement of price in answer to an enquiry is not an offer but merely the supply of
information, as in harvey v facey..
3) A mere statement of intention to sell is not an offer.
An advertisement that goods will be put up for auction does not constitute an offer
to any person that the goods will actually be put up, as in Harris V Nickerson.
Termination of offer
1) Revocation
i. Revocation by the offeror can be made at any time before acceptance
even if the offeror has agreed to keep the offer open.(Routledge v.
Grant )
ii. The revocation must be communicated to the offeree.i.e, it must be
brought to his actual notice.(Byrne v Leon van Tienhoven)
iii. The revocation can be communicated by the offeror or a reliable third
party.(Dickinson v Dodds)
iv. Exceptions – If the offeree pays the offeror to keep the offer open , any
revocation will amount to a breach of that collateral contract. The offeree
could claim damages for loss of the opportunity to accept the offer,
although he could not accept the offer itself.
v. Exceptions-In the case of a unilateral/option contract, the offeror cannot
revoke his offer once the offeree has begun to perform the acts which
would amount to acceptance. (Errington v Errington)
2) rejection—counter-offer
I. Rejection by the offeree may be outright
II. Rejection by the offeree may be by means of a counter offer. A counter
-offer is an offer made in response to an offer.(Hyde v Wrench)
III. Exception.--Respond to an offer by making a REQUEST FOR INFORMATION
does not constitute a counter -offer.(Stevenson v McLean)
3) lapse of time
An offer will lapse after the expiry of a fixed time or after a reasonable
time.(Ramsgate Victoria Hotel Co V
Montefiore)
4) Offer may only be effective while certain conditions (specified or implied) exist.
(Financings Ltd v Stimson).
5) Termination by death
◦ The death of offeree terminates the offer.
◦ The offeror's death terminates the offer, unless the offeree accepts the
offer in ignorance of the death.(Bradbury V Morgan)
Acceptance
Acceptance is the unqualified and unconditional assent to all the terms of the offer.
It can be oral, written or by conduct---Carlill v Carbolic Smoke Ball
In certain circumstances, the courts may infer the existence of a contract without
the formalities of offer and acceptance. This type of contract is a collateral contract.
Rules
1. Acceptance may be inferred from conduct (Brogden v Metropolitan Railway Co.)
2. Silence cannot amount to acceptance, as in Felthouse v Bindley.
3. As a general rule, acceptance is not effective until it is communicated to the offeror.
----The offeror may dispense with the need for communication of acceptance.
Such a waiver may be express or may be inferred from the
circumstances. (Carlill v Carbolic Smoke Ball Co.)
----The offeror can stipulate a particular mode of acceptance. Communication
of acceptance by some other mode equally expeditious
generally
constitutes a valid acceptance unless specified otherwise. In Tinn v Hoffman and Co.; where it was
held that "reply by return of post"
included an equally speedy method.
----The offeree can use any method but must ensure that his acceptance is
understood if he chooses an instantaneous method of communication.
(Entores v Miles Far Eastern Corporation)
----If two offers, identical in terms, cross in the post, there is no contract.(Tinn V
Hoffmann)
4. Acceptance of an offer may only be made by a person authorised to do so. (Powell v Lee)
5. The postal rule is an exception to the rule that acceptance must be communicated.
The postal rule states that acceptance is complete as soon as the letter posted.
(Adams v Lindsell)
However, the postal rule only applies if:
the letter is properly stamped, addressed and posted and
post is a reasonable method of communication.
It applies even if the letter is never received by the offeror. (Household Fire
Insurance v Grant).
However, the postal rule does not apply if the offeror states that he must actually
receive the acceptance (Holwell Securities v Hughes)
CONSIDERATION
English law does not enforce every promise that might be under every circumstance. One way in
which courts limit the type of promise that they have to deal with is through the operation of the
doctrine of consideration. English law does not enforce gratitous promises, i.e. promises given for
no return, unless of course such promises are given by way of formal deed. The requirement is
that for a simple promise to be enforced in the courts as a binding contract, it is necessary that
the person to whom the promise was made, i.e. the promisee, should have done something in
return for the promise. That something done, or to be done, constitutes consideration.
The basic rule:
Every simple contract must be supported by consideration from each party.
However, contracts made by deed(specialty contracts) do not require consideration unless the
terms of the agreement require it.
Definition
“Consideration is an act or forbearance on the part of one party to a contract as the price of
promise made to him by another party to contract.”
(Dunlop Pneumatic Tyre Co V selfridge & Co Ltd)
'Some right, interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other' :
Currie v Misa
Types of consideration
Executory consideration is given where there is an exchange of promises to do something
in the future.
Executed consideration means that the consideration is in the form of an act at the time the
contract is made.
rules
i. Consideration must be sufficient but need not be adequate. Thomas v Thomas.
ii. Sufficient means that there must be some monetary value to consideration.
White v Bluett, Chappell &Co. V Nestle Co.
iii. past consideration is insufficient and therefore is not valid. Re McAardle
iv. exception.
past consideration is enough to be binding if the promise was made after the
service is rendered which was requested by promiser. (ReCasey's Patent)
v. An illegal act is insufficient to amount to consideration.
vi. Performance of an existing statutory duty is not sufficient consideration, Collins v
Godefroy
vii. Exception---if some extra service is given that is suffcient consideration.
Glasbrook v Glamorgan
viii.Performance of an existing contractual duty is not sufficient consideration, Stlik v
Myrick
ix. Exceptions—
1) if some extra service is given that is sufficient consideration Hartley v
Ponsonby
2) the performance of an existing contractual duty may be sufficient if it
confers some benefit of a practical nature on the other party.( Williams v
Roffey Bros.)
3) The performance of an existing contractual obligation is sufficient
consideration to support a promise from a third party.(Shadwell v
Shadwell)
A court will not look into the adequacy of consideration or the reasons for the bargain if there is a real bargain
between the parties.(Thomas v Thomas)
Consideration is sufficient if it has some identifiable value. The law only requires an element of
bargain, not necessarily that it should be a good bargain.
Chappell &Co. v Nestle Co.
As a sales promotion scheme, the defendant offered to supply a records of 'Rocking shoes' to
anyone who sent in a postal order for 1s.6d and three wrappers from 6d bars of chocolate made
by them. The claimant owned the copyrights to “rocking shoes'. The copyright provides for a royalty
of an amount, subject to a minimum, equal to 6¼ per cent. of the ordinary retail selling price of the record. They
argued that the value was to be calculated on the 1/6d plus the value of the wrappers. So then, the question arose
as to whether the wrappers were consideration for the records. It is held that the wrappers were part of the
consideration, and so Nestle was in breach of the Copyright Act 1956, by failing to pay royalties reflecting the extra
cost of the wrappers.
White v Bluett
Mr Bluett had lent his son some money. Mr Bluett died. The executor of Mr Bluett's estate was Mr White. He sued
the son to pay back the money. In his defence, the son argued that his father had said the son need not repay if the
son would stop complaining about how Mr Bluett would distribute his property in his will among the children. It is
held there was no consideration for any discharge of the obligation to repay. A son's promise to stop complaining
did not amount to consideration as it has no monetary value.
Privity of contract
•
•
The general rule
Only the parties to a contract
acquire rights and obligations under it
can sue and be sued on it
Exceptions
1) The third party can sue in another capacity. (Beswick v Beswick)
2) Collateral contracts (Shanklin pier Ltd v Detel Products Ltd)
A collateral contract is a contract where consideration is provided by the making of another
contract.
For example, if there are two separate contracts, one between A and B and one between A and C,
on terms which involve some concerted action between B and C, there may be a contract between
B and C.
3) valid assignment
benefit from a contract can be reassigned from the original beneficiary to a third party if it is in
writing, it transfers the same or no benefits to the new beneficiary and has the consent of the third
party.
4) Implied trusts
Equity may hold that an implied trust has been created. (Gregory and Parker v Willimans)
5) Statutory exceptions
➔ Road traffic Act 1972
➔ married woman's Property Act 1882
➔ Contracts(Right of Third Parties) Act 1999
The contracts Act 1999 allows a person who is not a party to a contract to enforce it
as the contract was for his benefit and he was expressly identified, by name or
description. (Beswick v Beswick)
6) Covenants
Under the rules of land law, restrictive covenants run with the land to which they relate i.e.
that a future owner will be subject to restrictions made in previous contracts. (Tulk V
Moxhay)
7) foreseeable loss to third party (Linden Gardens Trust Ltd v Lenesta sludge Disposals Ltd)
8) Agency
In normal circumstances the agent discloses to a third party with whom he contracts that
he is acting for a principal. The contract, when made, is between the principal and the third
party. The agent has no liability under the contract and no right to enforce it.
9) Insurance
Insurance law allows a third party to take benefit of a contract of insurance for example,
where the policy is for life insurance which will pay out to a third party in the event of the
policy holder's death.
Promissory estoppel
A)
The doctrine of promissory estoppel is based on the principles of fairness and justice. It
prevents a person going back on his promise to accept a lesser amount. (Central London
Property trust v High trees House)
The doctrine of promissory estoppel works as follows .
If a creditor Y makes a promise (unsupported by consideration) to the debtor X that Y will not insist
on the full discharge of the debt, and the promise is made with the intention that X should act on it
and he does so, Y is estopped from retracting his promise, unless X can be restored to his original
position.
The principle is subject to the following conditions:
➔ There must be an existing contract between the parties.
➔ The claimants must voluntarily waive their rights under the contract.
➔ There must be an intention that the defendants should rely on the waiver
➔ the defendants must alter their legal position because of the waiver.
The part-payment problem
General rule _ the rule in Pinnel's case(1602) states that payment of a smaller sum does
not discharge a debt of a greater amount. This has been affirmed in (Foakes v Beer)
exception to Pinnel's case
i. where the part payment is made by a third party
ii. composition with creditors (i.e. the creditors all agree to accept a sum which is
less than they are owed)
iii. accord and satisfaction
➔ accord means that both the parties agree freely to part payment.
➔ satisfaction (i.e. consideration) might be payment at an earlier date,
payment at a different place, payment in a different currency etc.
iv. the equitable doctrine of promissory estoppel.
Intention to create legal relations.
1)Legal intention in domestic situations
Agreements presumed not to be legally binding but can be rebutted if the facts of the case so
indicate.
✔
✔
✔
✔
Balfour v Balfour(agreement between a couple, usual presumption of domestic
arrangement stands)
Merritt v Merritt(couples separated, facts rebuts usual presumption)
Simpkins v Pays(facts shows that the parties made formal detailed financial arrangements)
Jones v Vernon's pools Ltd(wordings of agreement clearly states that it is not intended to
create legal relationship)
2)Commercial agreements
It is presumed that there is an intention to be legally bound, unless it can be shown otherwise.
This is a strong presumption that can only be rebutted by clear evidence to the contrary.
Capacity and legality.
Each party must have the legal power to bind itself contractually. For example persons
under the age of 18(minors) and persons of unsound mind or under the influence of alcohol have
limitations on their power to contract.
Legality
The courts will not enforce a contract which is deemed to be illegal.
Contractual terms.
A statement, written or oral, made during the negotiations leading to a contract, may be a term of
the contract or merely a representation inducing the contract.
Representation is something that is said by offeror in order to induce the offeree to enter into the
contract. It may or may not become a term of that contract.
If representation becomes a term, then remedy available for breach as well as for
misrepresentations..
If representation does not become a term, then remedies only available for misrepresentation
which are based on equitable remedies.
Terms may be express or implied.
Express terms are those specifically inserted into the contract by one or both of parties. They must
be clear for them to be enforecable. Scammell V Ouston
Implied terms are not expressly included in the contract, but they are nevertheless still part of the
contract.
1) They may be implied by statue e.g. equal pay Act 1970
In this instance legislation states that certain terms have to be taken as constituting part of
an agreement, even where the contractual agreement between the
parties is silent to that
particular provision.
2) They may be implied by custom or usage
An agreement may be subject to terms that are customarily found in such contracts within
a particular market, trade or locality.(Hutton v Warren)
3) They may be implied by the courts
Generally it is a matter for the parties concerned to decide the terms of contract, but on
occasion the court will presume that the parties intended to include a term which is not expressly
stated. They will do so where it is necessary to give 'business efficacy' tot he contract. The
Moorcock 1889.
INCOMPLETE