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LA243 - Contract Law Lecture Notes
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Contract LawLecture 1: Setting the Context
Transactions = any kind of exchange between individuals and/or business
Contracts = particular type of transaction (governed by Contract Law, but not exclusively)
- Involve economic exchanges
- Legal recognition and enforceability under Contract Law
Other areas of law relevant e.g. Competition Law, Criminal or Financial Services Law.
- Regulatory rules to guide conduct of some parties (e.g. financial services providers)
- Normative impact of trade customs/usages
Codes of practice: (rules of conduct which have evolved between the parties to
transactions in that sector have taken on the status of being de facto rules which
everyone in that business sector is expected to follow, not necessarily written down
but followed)
There to prevent the intervention of parliament.
- Utilisation of digital technology in contracting
Dramatic expansion in usage for transactions, created potential to enable or restrict
certain ways of negotiating, concluding contracts e.g. website transactions.
What is a contract?
A transaction based on agreement (both parties agree to be bound by the contracts to one
another)
Simple transaction- coffee in café-bar.
Parties assume mutual obligations towards one another, the voluntary nature is essential.
Contracts can be
- Oral or written
- Standard-form contracts or negotiated (partially or fully)
- Performed instantly or over an extended time for performance e.g. raw materials are
supplied regularly to a manufacturer
Contract Law helps us to:
1- Figure out whether and when a contract has been conducted
2- To work out what the obligations between the parties are
3- To determine the consequences of some flaw when making a contract
4- To provide when the parties can be discharged from their obligations
5- To specify what should happen if one party has failed to honour its obligations
Common Law based (case-law). Occasionally find some supplementary statutory provision
e.g. remedies for frustration (but no codification of contract law). For certain types of
contract, we have more detailed statutory regulation of certain types of contract e.g.,
consumer or employment contracts (combination of common law and statute).
There are multiple stages of contracting-
- Pre-contractual: negotiation (not every contract is subject to pre negotiation)
- Contract formation: concluding a binding contract
- Determining the substance of the contract
- Performance of the contract
- Discharge
Contract law in context: commercial deals
- Relevance of ‘the context’ in a commercial deal
Planning stage:
o Contract to record agreement
o Contract law as a backdrop for contract
- Disputes
, Contract Law
o Problem occurs during performance
o Relationship between parties broken down
Freedom of contract:
Fundamental principle of English Contract Law but has a particularly broad scope in English
contract Law. Parties are free to contract on whatever terms and who they choose and the
courts enforce it- this is the case irrespective of the consequences (Arnold v Britton [2015]-
chalet leases & inflation of service charges. - The Supreme Court has supported a literal
interpretation of a 1974 service charge clause in a lease even though it means that it is harsh for the
individual tenants. In doing so it has set clear limits on the "commercial common sense" approach to the
interpretation of English law contracts. )
Lord Neuberger:
“…the mere fact that a contractual arrangement, if interpreted according to its natural
language, has worked out badly, or even disastrously, for one of the parties is not a reason for
departing from the natural language”
The court will not step in to make the contract fairer to parties, the parties have to accept the
consequences of what they have agreed, no matter how disastrous this may turn out for one of
the parties.
Limits to freedom of contract
- Some limitations at common law
e.g. effectiveness of certain contract terms
- penalty clauses
- clauses granting wide discretion to one party
- Statutory intervention
e.g. Unfair Contract Terms Act 1977 (commercial- business to business) and Part II of
the Consumer Rights Act 2015(consumer to business) provides a fairness test that can
be applied to every contract term in a consumer contract- so when it comes to
consumers, there is much greater scope for intervention in case the contract is unfair.
Lecture 2: Requirements for a legally binding contract
Requirements for a legally binding contract:
- Agreement between the parties
1) Offer
2) Acceptance
- Enforceability criteria
1) Intention to create legal relations
2) Consideration
Objective standard:
Offer and acceptance together constitute the agreement between the parties- has to be
determined objectively e.g. Smith v Hughes [1871].
= Held against a reasonable man – can be detrimental or in favour.
CASE FACTS
- Smith provided oats to Hughes, when arrived Hughes didn’t get what expected
- He needed old oats, due to horses diet, but received green oats – same as original sample
- Smith argued Hughes BOC as he didn’t pay for delivery or future oats delivery
- Contract held, no discussion on type of oats= objective test and reasonable person would expect the sale of good quality oats in a
similar contract
- An objective assessment considers each party’s words and actions as likely indication
of what was actually intended
No agreement in cases:
- Where it is clear that final agreement does not reflect one party’s intention
, Contract Law
1) Hartog v Colin and Shields [1939] (mistake in contract over pricing of beauty
product)
- held that there was no contract between the complainant and the defendant. Any contract would be void by the
mistake of the hare skin price; the complainant would have known that it was normally sold per piece and not by
pound. The court said that there is a duty to correct a mistake that is known to not be the real intention of the
person making it. You cannot simply take advantage and ‘snap up’ the offer.
- Parties of cross-purposes
1) Raffles v Wichelhous [1864] (2 ships with the same name)
- One party is mistaken about the terms of the contract or the identity of the other party,
and the other party knows (or should know) about that
1) Shogun Finance Ltd v Hudson [2004] (stolen car, couldn’t enforce contract)
- Sometimes referred to as ‘unilateral’ mistake
Offer and Invitation to treat:
An offer has to be made to have a contract- one party has to make a clear offer.
‘an expression, by words or conduct, of a willingness to be bound by specified terms.’
(Burrows, A restatement of the English Law of Contract, Art.7(3))
Made by the offeror, received by the offeree
Distinguish from invitation to treat – indication made by one party of a willingness to enter
into negotiations
- Partridge v Crittenden [1968]- advertisement is an invitation to treat
Pharmaceuticals Soc v Boots [1953] (Pharmaceutical Society of Great Britain v Boots [1953] 1
QB 401 Court of Appeal)- goods displayed in a shop are ITT.
- Goods on the shelf constitute an invitation to treat not an offer. A customer takes
the goods to the till and makes an offer to purchase. The shop assistant then
chooses whether to accept the offer. The contract is therefore concluded at the till
in the presence of a pharmacist.
Applying this in practice might be difficult- pinpointing whether something was an invitation
to treat or offer e.g. we know for example that as a general rule on advertisements in the
newspaper on by analogy, of course websites etc are regarded as invitations to treat. Even if
the word offer has been used. Clothes in shops are invitations to treat.
Acceptance
Requires us to find that the offeree has accepted the offer made by the offeror on exactly the
terms stated by the offeror. – sometimes referred to as the mirror image rule (means that any
suggestions for change would result in counter-offer
- Hyde v Wrench [1840]
The court dismissed the claims and held that there was no binding contract for the farm between Mr Hyde
and Mr Wrench. It was stated that when a counter offer is made, this supersedes and destroys the original
offer. This original offer is no longer available or on the table. In this case, when Mr Hyde offered £950, he
cancelled the £1,000 offer and could not back track and accept.
- Butler Machine Tools v Ex-Cell-O Corp [1979]
The offer to sell the machine on terms provided by Butler was destroyed by the counter offer made by Ex-
Cell-O. Therefore the price variation clause was not part of the contract. The contract was concluded on
Ex-Cell-O's terms since Butler signed the acknowledgement slip accepting those terms. Where there is a
battle of the forms whereby each party submits their own terms the last shot rule applies whereby a
contract is concluded on the terms submitted by the party who is the last to communicate those terms
before performance of the contract commences.
The effect of making a counter-offer is that the original offer is extinguished and off the table
for good. (Hyde v Wrench). So, we have to look carefully if an offer was actually accepted or
whether the seeming acceptance constituted a counter-offer.
- Causes particular difficulties in commercial contexts, where we often have
negotiations conducted on paper and as the parties send their various messages back
, Contract Law
and forth they often inadvertently or deliberately, attach their standard form contracts
to their communications
- meaning every time, they modify an offer, make a counter offer, they do so not just on
the substantive point they’ve mentioned, but also by re-establishing that they want to
contract on their standard terms. (Butler v Ex-Cell)
Acceptance must be communicated-
- By words or inferred from conduct
- Any reasonable method unless specific method stipulated by offeror
- Difficulties posed by some means of communication (Entores V Miles Far East
Corporation [1955])
CASE FACTS
- It was stated that the postal rule did not apply for instantaneous communications.
Since Telex was a form of instant messaging, the normal postal rule of acceptance
would not apply and instead, acceptance would be when the message by Telex was
received. Thus, the contract was created in London. This general principle on
acceptance was held to apply to all forms of instantaneous communication methods.
Acceptance via these forms of communication had to be clear before any contract is
created
The complainants, Entores, were a company that was based in London.
They had sent an offer to purchase 100 tons of copper cathodes to the
defendants, Miles Far East Corp. Their company was based in
Amsterdam and this offer was communicated by Telex, a form of
instantaneous communication. The Dutch company sent an acceptance
of this offer by Telex to the complainants. When the contract was not
fulfilled, the complainants tried to sue the defendants for damages.
Unilateral offers:
Offeror has promised something in return for performance by the offeree. Offeree does
not promise to perform in return e.g. reward for finding and returning lost item.
GIBBONS V PROCTOR (1891) 64 LT 594
Facts: A reward was promised to anyone who provided certain information. The person who ended up supplying the information was not
aware of the reward available
Held: It was held that the person was still entitled to the reward. So, despite there being no communication of the offer to the person, he was
still able to 'accept' it. This appears to go against the principle that an offer must be communicated.
Acceptance occurs through the performance of the acts requested by the offeror (Carlill v
The Carbolic Smoke Ball Co [1893])
o The Court of Appeal found for the claimant, determining that the advert amounted to the offer for a unilateral
contract by the defendants. In completing the conditions stipulated by the advert, Mrs Carlill provided
acceptance. The Court further found that: the advert’s own claim to sincerity negated the company’s assertion of
lacking intent; an offer could indeed be made to the world; wording need only be reasonably clear to imply
terms rather than entirely clear; and consideration was identifiable in the use of the balls.
No obligation on offeror until performance completed (Errington v Errington [1952])
o father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's
name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage
instalments, the father would transfer the house to them. The father then became ill and died. The mother
inherited the house. After the father's death the son went to live with his mother but the wife refused to live with
the mother and continued to pay the mortgage instalments. The mother brought an action to remove the wife
from the house.
o Held:The wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife
was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under
normal contract principles an offer may be revoked at any time before acceptance takes place, however, with
unilateral contracts acceptance takes place only on full performance. Lord Denning held that once performance
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