MANG1014 – Commercial Law

Lecture 4: Contract Law 2

Dr. Hosam Al Kaddour

 Quick recap

• What do we know from last week?

• A contract has essential elements

• There has to be an agreement consisting of an

offer and an acceptance of that offer

• The nature of the arrangement will determine

whether the parties have intention to enter
into legal relations
Elements of a contract

3
 Intention to create legal relations
• In order for an agreement to be legally binding,
the parties must intend for legal relations (i.e.
rights and obligations) to be imposed on them

• Intention doesn’t necessarily have to be stated

• If there is a dispute over the agreement, court

needs to decide if there was an intention to create
legal relations or not
 Social, domestic & family arrangements

• Generally presumed that these arrangements are

not legally binding

• Key cases: Balfour v Balfour (1919) – agreement

between separated husband & wife to pay
maintenance

• Jones v Padavatton (1999) – payment of

allowances to daughter on condition she passes
barristers’ exams
 Exemptions to the presumption
• If there is clear evidence that legal relations were
intended to be created

• Simpkins v Pays (1955)

• Two family members and a lodger jointly enter

newspaper competitions, sharing cost of entry

• When defendant won £ 750, refused to pay claimant

• Verdict: as they had all equally contributed to

entering competitions, there is an expectation that
the prize would be shared equally
Lottery syndicates – intention?
Commercial or business arrangements

• Generally a presumption that both parties intend

to create legal relations

• As citizens, this is important to remember when

entering into non-monetary transactions with
business entities, for example:

• Competitions

• Free gifts

• Using social media

 Rebutting the presumption
• Occasionally, some companies use an ‘honour
code’, which can specifically state that the
agreement is not legally binding

• Rose and Frank v Crompton Bros Ltd (1925)

• Parties agreed to an honourable pledge that was

not legally binding – this was ultimately agreed by
the Court
Intention – a summary

In situations where it is
not obvious whether there
was intention to create
legal relations, the court
will consider the
individual circumstances
of the arrangement

i.e. it depends from case-

to-case
 Capacity to contract

• Some people may be limited in their powers

to make contracts I.e. they lack contractual
capacity
 Minors

• A minor is regarded as a person under 18

• A contract with a minor for necessaries will be

binding on the minor, as long as it does not
contain harsh terms that are detrimental to the
minor e.g. a travel pass for school

• What is regarded as necessary will depend on the

minor and their social standing
 Beneficial service contracts for minors

• A contract for training, education or

employment is binding on a minor as long as it
is, on the whole, for their benefit

• Even if some of the terms are detrimental to

the minor, the contract will still be binding if the
majority of the terms are in their favour
 Contracts voidable by minors

• Certain contracts can be voidable by a minor

I.e. they can be voided by the minor before or
just after reaching the age of 18

• Contracts are usually of a continuous nature

such as partnership agreements, property
leases etc.
 Unenforceable contracts with minors
• Contracts with minors that are not for
necessaries, beneficial service nor fall under
voidable will be regarded as unenforceable

• Includes contracts for non-necessary goods and

services, also loans

• Though the minor could choose to ratify the

contract I.e. be legally bound by it, once they
reach 18
Contracts with minors - summary
 Intoxication

• It is presumed that people under the influence of

alcohol or drugs still have the capacity to know
what they are doing, therefore will be bound by the
contract

• However, a contract will be unenforceable if the

intoxicated party does not comprehend the nature
of the transaction AND…

• …the other party was aware of this but carried on

with the transaction regardless
Intoxication
 Corporations and capacity
• A corporation is a legal entity with its own legal
personality

• As a general rule, a company has unrestricted

objects, meaning it has no restrictions to enter into
legal relations

• However, a company may choose to restrict its

objects by stating restrictions in its constitution
Capacity – in summary
 Consideration

• A binding contract must have consideration from

both parties

• Unless made under deed, gratuitous promises

will not be enforced

• Consideration is the promise to give, do

something or refrain from doing something
 Consideration

• Promisor - person who makes a promise

• Promisee - person who receives a promise

• In many contracts, there is an exchange of

promises, meaning that both parties are
promisors AND promisees at the same time
 Executory or Executed Consideration
• Executory consideration - the promise to do
something in the future

• Executed consideration - consideration that has

already been completed
 Past consideration

• This occurs when a promise is only made AFTER an

act has been done

• E.g. if a person were to find and return an expensive

item to you before you’d realised that you’d lost it

• Usually, not accepted as consideration

A request with an implied promise to pay

• If a request is made for a service and the

request implies a promise to pay for it, then
completing the service is consideration, not
past consideration

• e.g. hiring a taxi or ordering at a restaurant

A request with an implied promise to pay

• In order for this rule to apply, there must be

these conditions present:

• The act must have been carried out at the

request of the promisor

• Both parties must contemplate that payment is

going to be made for the service
Consideration must be sufficient, but it need
not be adequate
• Sufficient - it must have some measurable and
material value, and it must be real, legal and certain

• Need not be adequate - provided it has some value

in the eyes of the law, the consideration will be
regarded as valid

• Parties have freedom to make their own contracts,

the courts do not care if the parties make a good or
bad bargain
 Thomas v Thomas (1842)

• Executors of a deceased person’s estate agreed

that a house be provided for life for the tenant in
exchange for ground rent of £ 1 per year

• As the £ 1 has legal value and the agreement was

created in a binding contract, the consideration is
deemed sufficient
 Privity of Contract

• Contract is binding between the offeror and

the offeree
 Privity of Contract

• Contract is binding between the offeror and the

offeree

• Privity of contract = persons not party to the

agreement (i.e. third parties) cannot be bound by
the terms or take action if the terms are broken

• See Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co

Ltd (1915)
Privity of Contract
Exemptions to the rule of privity

• As the rule could cause injustice, the courts

developed a number of exceptions

• e.g. if contracts were made for the benefit of a

group of people such as a family

• See Jackson v Horizon Holidays Ltd (1975)

 Jackson v Horizon Holidays Ltd (1975)

• Mr J made a complaint against Horizon for

misrepresentation regarding the lack of facilities
during a family holiday
 Jackson v Horizon Holidays Ltd (1975)

• Mr J made a complaint against Horizon for

misrepresentation regarding the lack of facilities
during a family holiday

• Horizon accepted liability but would only award

compensation to Mr. J and not the rest of the
family
 Jackson v Horizon Holidays Ltd (1975)

• Mr J made a complaint against Horizon for

misrepresentation regarding the lack of facilities
during a family holiday

• Horizon accepted liability but would only award

compensation to Mr. J and not the rest of the
family

• As Mr. J had entered into the contract on their

behalf, damages were awarded by court in
respect of the whole family
Elements of a contract

36
Void, voidable and unenforceable
• Void contract – if contract void, it means that
contract effectively never existed

• Contract will be voided if, for example:

• Made by parties without the capacity to agree

• Contains unlawful goods e.g. illegal drugs

• No consideration offered

• If contract void, ownership of items cannot pass

between parties
Void, voidable and unenforceable

• Voidable contract – one party has the option

to void the contract but until that point, it is
treated as a valid contract and goods can be
legally transferred under it
Void, voidable and unenforceable

• Unenforceable contract – is a valid contract,

but if one of the parties does not carry out their
side of the contract, the courts will not enforce
it

• E.g. the agreed terms of the contract are too

vague