Lecture 13:Contract Law (2)

Foundation Law 2013/14

Recap-Lecture 12: Introduction to Contract Law (1)• In last week’s lecture we looked at………

• Definition of a contract

• The 7 key elements of a contract

• Offers and invitations to treat

• Acceptance of offers

• The Postal Rule on Acceptance of Offers

What is a Contract?

•A contract is:

“An agreement between two parties who promise to give and receive something from each other, known as

consideration, and who intend the agreement to be legally binding”.

7 elements of a ContractOfferAcceptanceConsiderationCapacityIntention to create legal relationsLegalityAgreement

OFFERS• What is an offer?

• Oxford Dictionary of Law definition: “ an indication of willingness to do or refrain from doing something that is capable of being converted by acceptance into a legally binding contract”

• Offers therefore, generally refer to a willingness to do/not to do something…..offers are usually made with respect to underlying terms/conditions of an agreement. For example, offer of a price.

• “Offeror”- the person who is making an offer (For example, Sue is offering to buy Jen’s car for £5000)

• “Offeree”- the person to whom the offer is made (in the example above, this would be Jen)

Invitations to Treat

Invitations to Treat• An offer is NOT the same thing as an invitation to treat!

• An invitation to treat is essentially an invitation to someone to make an offer. It is not an offer. This “invitation” or “offer” can either be accepted or rejected by the offeree.

• Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953): items displayed for sale are invitations to treat

• Fisher v Bell (1961): held that displaying a flick knife with a price tag in the shop window, was an invitation to treat and not an offer for sale

• Harris v Nickerson (1873): it was held that an advertisement giving details of a forthcoming auction was not an offer but an invitation to make an offer (upheld in Partridge v Crittenden (1968))

Invitations to Treat• Therefore, articles displayed for sale and

advertisements are invitations to treat and not offers

• However, reward posters are considered to be offers, as outlined in Carlill v Carbolic Smoke Ball Co (1893)

Offers

• There are 5 key rules relating to offers:

1.An offer may be made to one or more parties2.Offers need not to be made in writing3.The offer must be communicated4.Revocation of an offer5.Other ways of terminating an offer

Acceptance of Offers• Acceptance of an offer is final and once an offer is

accepted then the contract is in existence and can only be revoked if the parties agree

• However, there are 5 key rules relating to the valid acceptance of an offer:

1)The offer can only be accepted by the offeree2)The acceptance must be absolute and unqualified3)Acceptance must be communicated to the offeror4)Acceptance must generally be in the form that the offeror

specifies5)The offer must still be in existence when it is accepted

The Postal Rule

• This rule only applies where post is held to be the most reasonable means of communicating offer and acceptance, (OR if the offeror states that post is the preferred method of communication):

the offer is effective when it arrives

Postal acceptance also is only effective when it arrives, rather than when it is placed in the letter box. However, if the offeror intends that acceptance is effective when placed in the letter box, then this will be sufficient

Contract Law (2)

• This week’s lecture will focus on consideration and intention to create legal relations………..

Learning Outcomes:Be able to explain what is “consideration” and its importance in contract

law;

Show knowledge and understanding of unilateral and bilateral contracts;

Explain the doctrine of privity of contract;

Show awareness of intention to create legal relations;

Become familiar with contract law terminology;

Apply legal principles to given facts and demonstrate criticality & analysis when answering fact based questions; and

Analyse case law and be able to apply case law in a persuasive manner to hypothetical case studies

Types of Contracts• There are generally two types of contract: bilateral and

unilateral contracts.

• Bilateral contracts: these are the standard type of contracts whereby both the promisor and the promisee, promise to do something and then carry out their part of the promise. For example, buying a latte from the coffee shop

• Unilateral contracts: these are the kind we find in cases such as Carlill v Carbolic Smoke Ball Co. Here only one party makes a promise. The other accepts the offer by performing the condition (e.g. finding a lost dog)

• Typically we find this kind of contact in “reward” cases

• In this type of contract, the requirement that acceptance should be communicated is not applicable. The offeree accepts by performing, so there is actually no contract at all until it has been performed (by the offeree)

• This contrasts with bilateral contracts in which the contract exists before it is performed by either party

Consideration• Consideration: something of value that is exchanged , which makes the

contract enforceable

• Dunlop v Selfridge Ltd (1915): “An act or forbearance of one party, or the promise thereof, is the price for

which the promise of the other is bought, and the promise thus given for value is enforceable”

• The “price” refers not only to money but something which has (monetary) value. For example, the performance of a service. Furthermore, the exchange of the consideration does not have to be equal in value…it simply needs to have some economic value

• Both parties must provide consideration

• Where only one person gives another something but the recipient does not give anything in exchange, this is a gift and a gift is not enforceable unless contained in a special deed

Third Parties & the Doctrine of Privity of Contract

• There is a general rule that only those people who have provided consideration may sue for an unperformed contract

• This is known as the “the doctrine of privity” - Dunlop v Selfridge Ltd (1915)

• Tweddle v Atkinson :X and Y promised each other to pay ZY died, so his executors were sued by ZIt was held that Z could not recover the money because he had

not provided considerationThe contract was only enforceable between X and Y under the

Doctrine of Privity of Contract

• Exception• The Contract (Rights of Third Parties) Act 1999: allows third

parties to sue where it gives the third party a benefit and where:• the contract explicitly says that the third party may sue; or

• It gives the third party a right in some other way.

The Requirements of Consideration• There are certain requirements and rules on valid

consideration

• Lets consider each one in turn……..

Consideration need not be adequate• Chappell & Co v Nestle Co. Ltd (1960):• Had consideration been provided?• It was held that the wrappers were consideration

(adequate) because they had some economic value – they persuaded people to buy the chocolate which they might not otherwise have bought

Consideration must be of some economic value

• The consideration exchanged must have some economic value

• White v Bluett (1853): held that the promise not to complain was not tangible and real and therefore, could not be consideration

The promise must be for more than what is already one’s duty• Williams v Roffey:

• It was held that the only additional benefit that defendant was receiving was (which was having the work done on time) seen as a “practical benefit” rather than a “legal” one

• There was no legal benefit here because the contract already provided that the work should be done

Debt payments

• For example, a promise to pay £50 when one already owes £100 is not good consideration as it does not satisfy the original debt

The promise must be do to something in the future• Re McArdle (1951):

• It was held that the daughter in law had not provided consideration as all of the work had already been done

• This is known as “past consideration”

• There is however, an exception to the rule in relation to past consideration. This is when one party asks the other to act and payment is implied. When the other party later promises payment, the courts will enforce that promise. This exception came from the case of Lampleigh v Braithwaite (1615)

Intention to create legal relations

• In business contexts, the general presumption taken by the courts is that any agreements made are intended to be legally enforceable, whereas in family or social contracts, the opposite is presumed

• However, both presumptions can be rebutted (reversed) if there is sufficient evidence

The presumption in a business context

• Parties can use “honour clauses” to exclude legal effects

• Rose and Frank Co. v JR Crompton (1923): held that the use of honour clauses prevented the contract from forming

The presumption in social/domestic arrangements• The presumption is that parties do not intend to create legal relations

• Balfour v Balfour (1919): held that the wife could not sue for the money as these kinds of arrangements were not intended to be legally binding

• Compare with……..

• Merritt v Merritt (1970)

• Jones v Padavatton (1969)

• In all cases, the situation must be looked at objectively. Remember that the question of intention is one of fact………

Preps. For Seminar 13:• Hand-out:

• Reading List:

• Jacqueline Martin, “GCSE Law”, 5th edition, Chapter 31-Consideration and Intention: contract law (pages 247-251 only)

• List of cases

• Preparatory Questions