CONTRACT LAW
MANUAL SUMMARIES
What will I achieve by studying this Manual?
Contract formation: what constitutes a legally binding contract (different from any
other arrangement. Parts of contract: agreement, contractual intention, consideration
recognise a contract in practice.
Contents of the Contract: statutory implied terms and exemption clauses (common
law and statutory control of exemption clauses)
Breach of contract, which remedies are available? If multiple, which is the most
appropriate? Possibility of discharge of damage (eg by complete performance)
Vitiating factors: factors which do not prevent a contract from coming into existence
but which subsequently allow a claimant, in certain circumstances, to rescind (end)
the contract. Include misrepresentation, duress and undue influence
CONTRACT LAW UNIT 1 - IS THERE A CONTRACT?
Sub-unit 1: AGREEMENT AND CONTRACTUAL INTENTION
Learning outcomes:
Rules and presumptions governing offer and acceptance (agreement) and contractual
intention
Identify legal, factual and practical issues involved in contract formation problems
Case law on agreement and contractual intention
1. Agreement and Contractual Intention
In order for parties to reach an agreement, one party must make an offer (ie a definite promise
to be bound by specified terms) which is accepted by the other
Offer = “an expression of willingness to contract on certain terms, made with the intention
that it shall become binding as soon as it is accepted by the person to whom it is addressed”
(Treitel, The Law of Contract, 13th edn, p. 8)
HENCE Offer = definite promise to be bound by specified terms
Offeror = person who makes an offer
Offeree = person to whom offer is made
“Expression” can have different forms (letter, fax, newspaper ad, conduct etc.) as long
as it communicates the basis on which offeror is prepared to contract
“Intention” is not necessarily offeror’s actual intention: courts look at what was said
and done between the parties from point of view of a “reasonable person” and try to
decide what a reasonable person would have through was going on (Smith v Hughes
(1871) LR 6 QB 597)
Allied Marine Transport v Vale do Rio Doce Navegacao SA (The Leonidas) [1985] 1
WLR 925: If the offeror so acts that his conduct, objectively considered, constitutes
an offer, and the offeree, believing that the conduct of the offeror represents his actual
intention, accepts the offer, then a contract will come into existence.
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, o Objective test agreement
o Offeree must BELIEVE that offeror actually intended to make offer
When assessing damages the general aim of the court is to put the innocent party in the
position he would have been if the contract had been properly performed
2. Offer or invitation to treat?
2.1 Distinction between Offer and Invitation to Treat
Invitation to treat = inviting negotiation, preliminary statement to offer, no intention to be
bound by specific terms
2.2 Self-service and Shop Window Displays
Goods on display in supermarkets and self-service shops are generally regarded as invitations
to treat and not offers.
Offer to buy the goods when they are presented at payment point.
Acceptance is when the shop takes payment for the goods.
Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401, CA
HENCE, offer to buy is made by costumer and acceptance occurs at payment point = only
then, a binding contract is concluded
2.3 Advertisements
If all advertisements were offers, it would mean that anyone asking for the advertised goods
would be accepting, in which case it would be a problem if the advertiser had run out of stock
HENCE invitation to treat.
BUT advertisement of reward is regarded as offer because there is an intention to be bound as
soon as information is given (Williams v Carwardine (1833) 5 C & P 566)
ONLY advertisement of reward is offer, other advertisements are invitations to treat
UNLESS there are special circumstances that show intention to be bound, then advert is
offer.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA
What would a reasonable person do/think?
an advertisement can constitute an offer to “the world”, and that it may, by the way in
which it is stated, waive the need for communication of acceptance prior to a claim under it
(in this case it was offer of a unilateral contract, not bilateral)
2.4 Unilateral and Bilateral Contracts
Bilateral contract: where one party makes a promise in return for a promise from the
other party
Unilateral contract: it is effectively a promise in return for an act, one-sided
commitment. Promisor is bound to perform only if person(s) to whom promise is
made performs the specified act (if you do this, I promise to)
o Offer of reward
2.4.1 Auctions
Particular situation with special rules:
Section 57(2) of the Sale of Goods Act 1979: a sale by auction is complete on the fall of the
auctioneer’s hammer (= the acceptance).
Bids = offers that can be withdrawn at any time before acceptance.
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,Call for bids by auctioneer is invitation to treat.
When auctioneer accepts offer, contract of sale is formed between bidder and owner of good,
auctioneer acts as agent of owner in order to form the contract.
Section 57(3) of the 1979 Act: “reserve price” is lowest price at which auctioneer can accept
the bid (agreed with owner).
Auctions without reserve are without reserve price and highest bidder wins unilateral
contract (if you make highest bid, I will sell you the good). If auctioneer does not sell to
highest bidder, held in breach of contract. Cannot sue the owner of the good because it is the
auctioneer that has breached contract. (Barry v Davies (t/a Heathcote Ball & Co) [2000] 1
WLR 1962, CA)
2.4.2 Tenders
When businesses outsource a function, they invite outside contractors to submit written
tenders for the job:
Request for tenders = invitation to treat
Tenders = offers
BUT invitation to tender is offer because it may give rise to unilateral contract, depending on
circumstances (eg: if said that “if any offer made by you is the highest offer received by us
we bind ourselves to accept such offer”).
Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council [1990] 1 WLR 1195
Invited small number of selected parties to tender: hence, tenderers had right to have their
tender considered along with the rest (reasonable expectation)
3. Termination of offer
Can terminate offer in 3 ways:
revocation (ie withdrawal) of the offer by the offeror
rejection by the offeree
lapse of time
3.1 Revocation
3.1.1 Offer can generally be revoked at any time before acceptance
General rule: can revoke offer at any time before acceptance BUT once accepted it is
irrevocable.
At times, can make offer and promise to keep it open for certain period of time Routledge
v Grant (1828) 4 Bing 653: these promises are not binding if they are gratuitous promises
(offeree has not given or promised anything in return for promise to keep offer open) HENCE
generally, promise to keep offer open is not binding and offeror can revoke it within specified
time as long as it was not accepted
3.1.2 Revocation must be communicated to the offeree
Notice of withdrawal must be given to offeree and communicated to offeree in order to be
effective implicit in Byrne & Co v Van Tienhoven & Co (1880) 5 CPD 344.
Treitel: exceptions to general rule that revocation must be communicated, examples:
notice of withdrawal sent to the offeree’s last known address would be effective if he
has moved without notifying the offeror
withdrawal that reaches offeree may be effective if offeree chooses not to read it
Revocation of Offers made to the Public
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, Case of Carlill v Carbolic Smoke Ball
Impossible to revoke offer if the offer is an ad on newspapers, hence best way to revoke it is
to publish a sufficiently prominent notice of withdrawal in the relevant newspapers.
Notice of revocation sent to a business
Sent during normal office hours: notice will be effective on receipt where it is
reasonable to expect a member of staff to be available to read a notice of revocation
(case of The Brimnes [1975] QB 929), HENCE during normal office hours, notice is
effective at point when it arrives even if not read immediately BUT it all depends on
what is reasonable
3.1.3 Revocation may be communicated by a reliable third party
Dickinson v Dodds (1876) 2 Ch D 463: revocation can be communicated by a reliable third
party, no need to be authorized by offeror but must be objectively perceived as being reliable.
3.1.4 Revocation of offers of unilateral contracts
Problem with when acceptance takes place: is it when the promisee starts to perform, or is it
on completion of the act?
General rule: with unilateral contracts no obligations arise until the specified act is completed
HENCE acceptance only occurs when performance is complete
BUT this way, offer can be revoked at any time before act is complete (whilst it is being
performed) hence unfair: a number of judicial authorities which suggest that partial
performance of a unilateral contract is sufficient to prevent revocation by the offeror.
McGovney, 27 Harvard Law Review 644 suggests that there are two offers: express offer and
implied promise not to revoke if specified act I started within reasonable time. Acceptance
and consideration for the implied promise is then the commencement of act.
Consideration = what a party does, or promises to do, in return for the other party’s promise.
3.2 Rejection by offeree
Can reject either expressly or impliedly:
Implied rejection: an acceptance must match exactly the terms of an offer, otherwise
there can be no contract hence if response to offer suggests something different it is a
counter offer (not an acceptance) HENCE implied rejection of offer
Express rejection: straight-forward
3.3 Lapse of time
Offer can become incapable of acceptance due to lapse of time: express condition with
specified time in the offer OR after reasonable time which depends on all circumstances
4. Acceptance
An offer must be in a form whereby a simple assent to it is enough to lead to agreement.
Acceptance = complete and unqualified acceptance of all of the terms of the offer
Offeree must know of the offer in order to accept.
Acceptance = “a final and unqualified expression of assent to the terms of an offer” (Treitel,
The Law of Contract, 13th edn, p 17):
Unqualified: it must correspond exactly with the terms of the offer
o if slightly different terms, it is counter offer and implied rejection
o if inquiry by offeree: not acceptance!
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