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ULAW Commercial Elective Notes. Achieved Distinction.
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WS1: Core Terms: Price, Payment and DeliveryFormation of a Contract
How is a Offer One party (the offeror) must make an identifiable offer on certain terms, showing
contract intention to be bound.
formed? > The courts establish that an agreement has been reached is by looking for an offer,
and acceptance of that offer.
3.2.1 > What constitutes an “offer”?
o Distinct from an Invitation to Treat:
Invitations to treat are non-specific, include non-promissory language.
There is no intention to be bound by acceptance.
An offer should be sufficiently specific to be capable of acceptance,
include promissory language and there will be objective intention to be
bound by acceptance.
o ‘Subject to contract’ – indicates that the parties do not intend to be bound by
the documents in question.
> The following will NOT be offers:
û Adverts
û Estimates
û Brochures
û Price lists
û Enquiries/Requests for information
û Letters of intent/Heads of terms/Memoranda of understanding
> An offer can be ended by:
o Rejection;
o Counteroffer;
o Lapse of time;
o Death of other party; or
o Revocation (prior to acceptance)
Acceptance Other party (offeree) must accept those terms unconditionally.
> Where a valid offer is made, it requires only acceptance to turn it into a binding
agreement.
> What constitutes as “acceptance”?
o Mirror image rule – must be made in response to an offer, matching its exact
terms.
o If on acceptance, the offeree adds more terms, then it is not an acceptance but
a counteroffer. This offer effectively dismantles the initial offer.
o Acceptance may occur by conduct, i.e., seller delivering or buyer accepting the
goods
Butler Machine Tool Co Ltd – return of signed acknowledgement slip
amounted to acceptance of buyer’s terms.
Battle of the > Where both parties seek to impose their own standard terms
Forms on the other.
> In such circumstances it may not be clear whose terms apply:
3.2.2.3 o E.g., Seller provides a buyer with an invitation to treat,
containing the seller’s standard terms and conditions
o The buyer then makes an offer, introducing his own
terms.
o If the seller does not accept the buyer’s terms, and insists
instead on reinstating its own terms, the seller has made
a counteroffer.
o If the contract is dealt with by staff who are not aware of
the rules relating to offer and acceptance, the wrong set
of terms may be accepted by accident e.g. by conduct.
> Critical point is that the terms which were accepted first bind.
Transformers & Rectifiers Ltd:
> Courts may find that neither parties’ terms bind if enough has
not been done to bring their respective terms to the other
party’s attention.
> This can be the case despite extensive previous course of
dealings.
Consideration > What one party gives/promises in exchange for other parties’ performance. Usually
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, required when:
3.2.3.1 o Forming a contract, and
o Changing terms of an already established contract.
> May be:
o Something tangible e.g. money or even chocolate bar wrappers (Chappell v
Nestle).
o Going over and above an existing contractual duty (Hartley v Ponsonby).
o Conferring a practical benefit on the promisor (Williams v Roffey Bros).
Intention to be legally bound is necessary for a contract to be legally formed.
Examples of Agreements Which are NOT Valid
Void for Lack of Agreement > Example price.
Certainty which fails to > However, such agreements may be saved by implied statutory provisions
address a key o E.g., s8 of the SGA 1979 implies a term, where the parties have failed to agree
3.2.3.2 – 3.2.3.3 area a price, that the price shall be a “reasonable” one.
> Otherwise, general approach is if the parties make their agreement incompetently
that is their problem.
o The courts may, however, fix a badly drafted contract if there is other
evidence of the intent.
Agreement > Agreement to enter into a contract at a later date, or
to: > Agreement that a certain provision will be agreed between the parties after the
commencement of the contract
o Will be void.
Lock-In Where A is contractually obliged to negotiate with B and no one else.
Agreement > Distinct from lock-out agreements, where A is not obliged to negotiate with B but
agrees not to negotiate with anyone else.
o Lock-out agreements may be enforceable, lock-in agreements will not
(Walford v Miles)
Cancellation A clause allowing parties to withdraw from the contract without liability in certain
Clauses circumstances.
> Void as held to be too wide with the effect of invalidating the contract altogether.
Mistake > An erroneous belief, at contracting, that certain facts are true, may render the
contract void.
> To have effect, the mistake must have occurred before the contract was made.
> In practice, the doctrine of mistake is narrow and very few mistakes will affect the
validity of a contract, but where they do, the effect is to render the contract void.
Incorporation of Terms
Clauses may be incorporated in one of three ways:
> By signature.
> By Notice
> By a Previous Course of Dealing
NB If a term has been expressly incorporated in the contract, then no need to look at SGA 1979 for implied terms.
Signature > Buyer will be bound by signature, whether or not he has read or understood the document
8.5.1 o L'Estrange v Graucob
Notice > If a clause is in a separate, unsigned document, it will only be incorporated provided that reasonable
steps are taken to bring it to the customer’s attention before the contract is made.
8.5.2 > Clauses should not be “hidden away” in the body of the agreement.
> The more onerous or burdensome the clause, the greater the need to draw it to the Buyer’s
attention; the so-called “red hand rule”:
o Spurling v Bradshaw
o Thornton v Shoe Lane Parking Ltd
> Consider the background; if the buyer has negotiated the contents of the clauses, it will be difficult to
deny knowledge.
Previous Course > If the parties have dealt with each other before, the term may be incorporated through these
of Dealing dealings even where the term was not brought to the attention of the other party on this occasion.
o Does the client do a lot of business with regular customers?
(Transformers) o Do the parties always contract on the same terms?
8.5.3 o Has there been a sufficient number of transactions?
Variation of Contractual Terms
Overview > Must generally provide consideration e.g.
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, 3.2.4.1 o Providing something over and above an existing contractual duty
(Hartley v Ponsonby).
o Conferring a practical benefit on the promisor
(Williams v Roffey Bros).
> However, promises might be enforceable even though no consideration has been provided:
o Doctrine of Waiver: a promise not to enforce the other party’s obligations under the
contract may be given limited effect in equity.
E.g., a buyer who accepts late delivery of goods may waive his right to terminate the
contract for late delivery.
o Promissory Estoppel:
In limited circumstances a party may be estopped from going back on a promise.
Generally, only applies where there are continuing obligations.
Would not prevent a Seller from buyer demanding an additional £2,000 where seller
accepts £8,000 for the goods despite originally agreeing £10,000.
Drafting to > No-Authority Clauses:
Prevent o These may restrict the grant of variations or waivers to, for instance, senior staff only, or
Unauthorised prevent oral variations (no-oral-modification NOM).
Variation o Alternatively, they may provide that any variation or waiver does not affect the seller’s
rights under the contract.
> Effective?
o NOM clauses are effective (MWB Business Exchange Centres Ltd v Rock Advertising Ltd ) –
Supreme Court held that a NOM clause is legally effective. Where contract includes a NOM
clause, parties must comply with the formalities set out in the clause if they wish to vary
the contract.
o However, if an innocent party accepts the breach without protest, the courts are likely to
hold that it has affirmed the contract (Tele2 International and Others v Post Office Ltd).
Economic > A contractual variation will not be valid if it is brought about by economic duress.
Duress o I.e., where one party threatens to break its side of the contract unless the other side
promises to pay more than originally agreed.
o A party to a contract cannot hold the other party to ransom. The variation of the contract will
be voidable and the only remedy is rescission.
Discharging Contracts
Overview A contract comes to an end when it is discharged by:
(a) Performance of the contract
3.2.6 (b) Agreement
(c) Frustration: i.e., if the contract can no longer be performed in the manner intended by the parties
(d) Breach: i.e., breach of a condition not of a warranty (a repudiatory breach) and that repudiation is
accepted by the innocent party.
Frustration > Where the contract becomes contract becomes impossible or radically different to perform i.e., there
is a “supervening event”.
> Contract automatically comes to an end and both parties are relieved of their obligations.
> Provisions of the Law Reform (Frustrated Contracts) Act 1943 will come into operation. Prima facie,
the buyer can:
o Recover any payments it made before frustration (s1(2)), and
o Any sums which are due before the frustration date will cease to be payable .
o The court, however, has the discretion to allow the seller to keep all or some of any advance
payment if it considers that this will be just.
o SGA 1979: Where there is a contract for the sale of specific goods and the goods perish
before risk has passed to the buyer, under s7 the contract is avoided.
Breach Breach of either a condition or warranty of the contract.
Remedies for Breach of Contract (also look at implied terms remedies under SGA – WS2)
Remedies Breach of > Innocent party gains the right to repudiate or terminate the contract (s11(3)
Condition SGA 1979).
3.2.6.2 > The innocent party is discharged from all future obligations under the contract.
> May recover any property transferred under the contract (including the price
paid for any goods or services).
> Can claim damages.
Breach of > Gives the innocent party the right to claim damages.
Warranty > Does not have the option to terminate the contract.
Principles of Contractual Damages > Intended to put the innocent party in the position they would have been in HAD
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, THE CONTRACT BEEN PERFORMED.
3.2.6.3 > Remoteness:
o Damages cannot be claimed for losses that are too remote. Not all loss
which the claimant suffers will arise as a direct result of the breach.
o Hadley v Baxendale: Damages can only be claimed for losses that:
(a) flow “naturally from the breach” (ordinary loss of profit can); or
(b) losses that were reasonably in the contemplation of the parties at the
time they made the contract.
Mitigation > Burden of proof on defendant to show claimant did not make reasonable
attempt.
Restitution and Restitutionary > Restitution seeks to reverse unjust enrichment of a Defendant, by restoring the
Damages Defendant’s benefit or enrichment to the Claimant.
> Rare and never where contractual remedies would produce a satisfactory
3.2.6.3 result.
Introduction to Commercial Contracts
Supply Chain Terminology (1.3)
Supply Chain The sourcing of the raw materials, goods, services and utilities necessary to produce the goods and
Procurement enable the business to function effectively.
Upstream > Provide the client with the resources needed in order to carry on business i.e., contracts which
Contracts require some sort of financial outlay.
o Supply of goods or services to the business,
o The supply of funds (loans),
o Permission to manufacture through intellectual property licences.
o Overheads’, such as utilities, employees, IT, maintenance, security.
E.g., BP’s Upstream Contracts include oil and natural gas exploration, as well as
“midstream” services such as transportation, storage, and processing.
Downstream > Those under which the client passes on and exploits the fruits of his labour.
Contracts o E.g., contracts for the supply of goods and services by the business.
o Generate income for the business.
E.g., for BP - Fuel refineries and marketing; convenience retail businesses; lubricant
sales; manufacture, sale and distribution of petrochemicals for use in consumer
products.
Use of Standard Terms: (look at WS2)
Advantages Disadvantages
ü Ensures contractual terms which are favourable to the û Lack of flexibility.
client, as opposed to negotiated compromises.
ü Standardised and well-known procedures – allows more û Still necessary to train staff e.g., to ensure terms are
junior staff to enter into contracts. effectively incorporated.
ü Commercial certainty û Incorporation difficulties/‘battle of the forms’
ü Cheaper – avoids the cost of drafting a potentially û Need for regular review to ensure regulatory
lengthy negotiated contract. compliance.
ü Useful starting point for negotiation. û Subject to legal constraints – must pass reasonableness
test under s3 of UCTA 1977.
Commercial Agreement – Basic Structure
(a) Commencement
and date.
(b) The parties
(c) The recitals, if
any;
(d) Definitions and > List defined terms alphabetically, with capital letters.
interpretation;
(e) Conditions > Conditions that have to be satisfied BEFORE the agreement comes into effect.
precedent, if any; > E.g., supply of goods conditional on the buyer obtaining a letter of credit.
(f) Agreements; > Defines the rights and obligations of the parties.
Operative Part
> E.g., Sale of Goods Contract:
o Seller is obliged to sell and deliver goods of a certain description and quality.
o Buyer is obliged to pay the price.
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