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