CONTRACT LAW

An overview

Natalie Morris

[email protected]
Aims of the Lecture
• Identify the ingredients of a valid contract

• Identify the difference between an invitation to

treat and different types of offers

• Identify methods of acceptance & revocation

• Consider consideration

• Doctrine of promissory estoppel

Your Ideas?
– What do you need to create a binding
contract?

– What is the point of contract law?

– Is it necessary?

– What contracts have you made today?

Is my contract valid?

– Ingredients of a valid contract:

 Offer

 Acceptance

 Intention to create legal relations

 Capacity

 Consideration
HOWEVER…..
– Contracts do NOT have to be
in writing
– Contract must NOT be illegal
– If 1 essential element is
missing – contract = void OR
voidable
 OFFERS

Offeror Offeree

– Party MAKING the offer – Party RECEIVING the offer

Unilateral or Bilateral offer?

– Bilateral = Each party has an

obligation

– Unilateral = Offer to the world – 1

party assumes an obligation
Carlill v Carbolic Smoke Ball (1893)
– Defs. Manufactured smokeballs which
they claimed prevented flu.

– Advertised they would pay £100.00 to

ANYONE who used their smokeballs
correctly and still caught flu.

– Mrs Carlill used the smokeballs and still

got flu.

– Mrs Carlill claimed the £100.00 offered.

Consider…..
– Was an enforceable offer made?

– If so, what type of offer do you think it

was?

– Do you think Mrs Carlill for the £100.00

she claimed?
OUTCOME

– Defs. Refused to pay

– Claimed advert could NOT be an offer as it is

impossible to make an offer to and therefore
contract with the world.

– Claimed advert was a mere puff

– HoL HELD = Advert was an offer to the world

which was duly accepted by Mrs Carlill
– = UNILATERAL OFFER
Lefkowitz v Great Minneapolis Surplus Store (1957)
US case
– Advert:
– Saturday 9am sharp: 3 brand new fur coats, worth
to $100. First come first served. $1 each.

– Offer or ITT?

– HELD = Offer. Performance required = be one of

the first 3 customers on Saturday morning
Invitation to Treat

– NOT a binding offer

– Where one party invites the other to make an

offer

– Adverts are usually invitations to treat

– BUT what about Carlill v Carbolic Smoke Ball?

How to recognise the difference

– Adverts:
– Consider the actual wording used

– Enough to be an advert or ITT?

– Unilateral = NO further negotiation needed eg.

Carlill

– Bilateral = goods advertised at a price but all

terms are not sufficiently certain
Invitation to treat – examples
– Partridge v Crittendon (1968)
– Advert in paper to sell birds of a protected species

– Fisher v Bell (1960)

– Display of flick knives in window

– Pharmaceutical Society of Great Britain v Boots

(1953)
– Goods displayed on shelf to be sold under
supervision of a pharmacist
Tenders
– A request for tenders = usually ITT

– Offer = request states that the highest bid will be accepted.

– Harvela Investments Ltd v Royal Trust Co. of Canada Ltd

[1986]
– Vendors of a plot of land sought a single offer for whole plot,
promised to accept highest bid

– One party stated a price

– Other stated a price or as an alternative $101,000 in excess

of any other offer
– HELD – HoL – Referential bid undermined the
competitive tendering process

– Implied into the request for tenders that referential

bids would not be accepted.
Auctions
– Advert to hold an auction is an ITT
– Harris v Nickerson [1873]– advert to offer office
equipment for sale at auction

– Office equipment withdrawn suddenly & w/out

notice

– Claimant sued for expenses of having travelled to

auction

– Held – advert is a statement of intent. Public

policy grounds also considered
– Bid = Offer

– Acceptance = fall of hammer. See also s.57(2)

Sale of Goods Act 1979

– BUT consider…
– Auction without reserve = a promise to sell to the
highest bidder = UNILATERAL OFFER
Terms of an Offer
– Clear

– Certain

– Otherwise = fail or be void for

uncertainty

– If certainty is central to contract –

whole contract will fail.
When does an offer come to an end?
– Accepted = contract
– Offeror is legally bound & cannot withdraw

– Lapse of time
– Reasonable time – depends upon means of
communicating offer & subject matter

– Ramsgate Victoria Hotel v Montefiore (1806)

– Def. applied for shares in a co. & paid a deposit
but heard nothing.
– After 5 months they informed him the shares
had been allocated to him & asked for the
balance
– HELD – Offer to buy had lapse

– Pre-condition – Offer may be conditional

– Financing v Stimson (1962)

– Offer subject to a pre-condition – not fulfilled

– D was offered to buy car from C. Car was stolen

before signed acceptance.
Rejection
– Offer will end if offeree rejects
it
– Once rejected, offeree cannot
try and accept the offer at a
later date
Counter Offer

– Terminates the original offer

– Hyde v Wrench (1840)

– D offered to sell his farm for £1k & C offered to
buy it for £950.00

– D rejected this & C tried to accept original offer of

£1k but counter offer had terminated it.
Request for Information
– Original offer remains open

– Stevenson, Jacques & Co v McLean (1880)

– D made an offer to C & stated the offer was open
until the following Monday

– C’s response was to ask about credit terms. On

Monday, C tried to accept the offer but the goods
had already been sold

– Held – offer was still open to be accepted & so

acceptance was valid = binding contract
Death of Offeror

– Before acceptance = Offer terminated

– After acceptance = Offeree can sue offeror PRs

– Death of the offerer ends the offer once offeree

knows of offeror’s death
Withdrawal of an offer
– Offer may be withdrawn at ANY time until it is
accepted

– Payne v Cave (1789)

– Withdrawal of auction bid before hammer fell

– MUST be communicated
Byrne v Tienhoven (1880)

– D posted an offer letter on 1 October.

– C received it on 11 October & accepted

immediately by telegram

– D posted letter of revocation on 8 October BUT C

did NOT receive it until 20 October

– HELD – Contract was binding

Communicated by who?

– Effective even if communicated via a reliable

source

– Dickinson v Dodds (1976)

– Revocation communicated through a 4th person &
was held to be effective

– Errington v Errington (1952)

– Offer CANNOT be revoked once a party has
started to perform the contract
 ACCEPTANCE
 Oral

 Writing

 Conduct

= Agreement to all the terms of the offer

Communication of acceptance
– MUST be communicated unless
unilateral offer

– Silence is NOT acceptance

– Acceptance must be someone

authorised to accept
Entores v Miles Far East Corporation (1955)
– General rule = acceptance must not only be
spoken it must be heard

– Denning LJ – Postal rule could not apply to

instantaneous communications such as telephone
or telex

– If a phoneline "went dead" just before the offeree

said "yes", it would be absurd to assume that the
contract was formed and the parties would not
have to call each other back
Felthouse v Bindley (1862)

– Uncle & nephew discussed possible sale of nephew’s horse

to uncle.

– Uncle wrote to nephew offering a price & said if I hear

nothing then I consider the horse is mine at that price.

– Nothing was heard. The court ruled that Felthouse did not
have ownership of the horse as there was no acceptance of
the contract.
– Acceptance must be communicated clearly and
cannot be imposed due to silence of one of the
parties.
– Uncle had no right to impose a sale through
silence whereby the contract would only fail by
repudiation. Though the nephew expressed
interest in completing the sale there was no
communication of that intention

– HELD – No contract
However….

– Re Selectmove (1995)

– Obiter - Silence can amount to acceptance in

some circumstances

– Only possible if suggested by the offeree

Methods of Acceptance
– If offeror states acceptance must be by a particular
method, then ONLY acceptance by that method
will be binding

– Yates v R J Pulleyn (1975)

– Stipulated acceptance should be sent by

registered or recorded post
Manchester Diocesan Council of Education v C &
G Investments Ltd [1970]
– Where the offeror has not made it clear that the
stipulated method of acceptance is mandatory &
that no other will suffice – acceptance can be valid
if:
– Any equally sensible method is used if it fulfils
the purpose of the prescribed method – eg. A
quick response required eg. Fax – email
acceptable
Postal Rule
– General rule = acceptance takes effect when
posted

– Adams v Lindsell (1818)

– Postal rule effective for acceptance even though

letter did not arrive by the time D sold the goods to
another party
How to use the postal rule

– Letter must be correctly stamped & addressed

– Parties have not specifically excluded the rule –

Holwell v Securities v Hughes [1974]

– Must be reasonable to use the post – Henthorn v

Fraser [1892]
Instantaneous methods of communication
– Where parties are treated as being in each other’s
presence

– No contract will be formed unless the words of

acceptance are clearly heard by the offeror
(receipt rule)

– Instantaneous methods include telephone, fax and

email
Offeree must…..
– Ensure message gets through

– If line goes dead & offeree knows this, then offeree

must repeat the message to ensure receipt

– If line goes dead & offeree does not know but

offeror does, offeror must ask for the message to
be repeated – if not – offeror cannot deny
acceptance was effectively received

– BUT – if no no one at fault – no contract

When instantaneous is not instantaneous?
– Brinkibon Lts v Stahag Stahl und
Stahlwarenhandelsgesellschaft GmbH [1983]

– Messages are often sent outside of business

hours – are stored until next day

– No general rule concerning their delivery – based

upon intentions of the parties, sound business
practice & a judgment as to where the risks should
lie.
Essentially…

– If offeree has done all that he might reasonably be

expected to do to get his message through,
acceptance should take effect when the offeree
might reasonably expect it to be communicated to
offeror.
Communication to a business during office
hours
– If acceptance has been communicated to a
business during office hours - > offeree could
reasonably expect the offeror to receive it when
received by the machine – The Brimnes [1975]

– Messages would be at the risk of the recipient if

they failed to man their fax machines or check
emails (Brinkibon)
Communication to a business outside office
hours
– Mondial Shipping ND Chartering BV v Astarte
Shipping Ltd [1995]

– Suggested that receipt of a notice deemed to

occur the next day if it was received and stored
outside normal working hours

– Message sent and received at 23:41 on Friday

Acceptance & the Internet
– Sales over the internet are governed by the
Consumer Contracts (Information, Cancellation
and Additional Payments) Regulations 2013

– Apply from 13 June 2014

– The regulations apply to items bought online, at a

distance, or away from a trader's premises

– Provides certain rules for the protection of the

consumer
CONSIDERATION

What is it?

Sufficient?

At least one party must benefit or detriment

Consideration
– What the offeree gives in return for the offer

– A gratuitous promise is NOT binding

– Sufficient – consideration = one party must

receive a benefit or cause a detriment to the
other

– Must be sufficient but need not be adequate

Executory or Executed? (That is the question!)
– Executory – to be done in the future

– Executed – at the formation of the contract –

consideration has already been provided/done

– Up to the parties to make whatever arrangements

they wish

– Court will not interfere – small or trivial act can

amount to consideration
Thomas v Thomas (1842)
– P was a widow whose husband had wanted her to
live in the house foe the rest of her life, after which
she was to give it to her sons.

– D executor agreed that she could stay there if she

paid £1.00 rent a year & kept house in good repair

– Later tried to evict her claiming there was no

consideration for a binding contract
Held
– Valid contract

– Promise to pay £1.00 & keep house in

good repair was valid consideration
Must not be Past
– Must negotiate consideration before doing the act

– Re McArdle (1951)
– Mrs McArdle died & left her house to her children

– One child undertook repairs

– Other children said they would contribute

– They refused to pay

– Could not be sued as the consideration had already

past
• Consideration must move from the promisee.

• Price v Easton (1833)

• Easton contracted with X

• Contract said that in return for X’s work, Easton

would pay Price £19.00. Easton did not pay

• Price tried to sue Easton for the £19.00

• No claim as consideration had come from the

offeror & not promisee (Easton)
Tweddle v Atkinson (1861)

• Plaintiff’s father & future father in law agreed to

pay £100.00 & £200.00 respectively in
consideration of the plaintiff’s marriage.

• Was confirmed in writing.

• Father in law died.

• Plaintiff sued the estate for the money.

• Failed – Plaintiff had provided no consideration.

Privity of Contract
• Only a party to a contract can sue under the
contract. Dunlop v Selfridge & Co (1915)

Some exceptions
• S11 Married Women’s Property Act 1882
• Bill of Exchange Act 1882
• S56 Law of Property Act 1925
• S136 LPA 1925
• Doctrine of Agency
• Contracts (Rights of 3rd Parties) Act 1999
Consideration & Existing
duty
• Consideration to do something one is
already bound to do is NOT
consideration.

• Offer to pay you more to complete

your obligations = no consideration
Illustrations
• Stilk v Myrick (1809);

• Sailors were promised extra pay to do the work of

2 deserters.

• Their contracts already obliged them to do extra

work for no additional pay

• Held – claim was refused.

Collins v Godefroy (18310

• Godefroy promised Collins 6 guineas if he would

attend court to testify.

• Collins attended court & Godefroy refused to pay

him.

• Held Not enforceable as he had been summoned

– so legally obliged to testify anyway.
Exception = Additional benefit…
• Where you meet your initial contractual duty but
are able to enforce a promise of additional
payment.

• Williams v Roffey (1990)

• Roffey contracted to refurbish flats &
subcontracted work to Williams.

• W. ran into financial difficulties & needed more

money to complete the work.
• R. would have been penalised if the work was not
completed on time

• So R. promised more money to W. to finish on

time & also included a few slight changes to the
specification but later refused to pay
 HELD

• W. was entitled to extra money although only

fulfilling original obligations

• Consideration = the benefit to R. not to be

penalised & having to find new contractors to
finish the work.
Part Payment of Debts
• All debts are payable in full.

• One does not have to accept part payment in

satisfaction for the whole amount.

• A promise for part-payment is NOT sufficient

consideration.
Pinnel’s Case (1602)
• P sued Cole for roughly £8.00 owed on a bond.

• Debt was due on 11/11.

• Cole argued that at P’s request, he had paid

roughly £5, on 01/10 which P had accepted as full
& final settlement.

• P sued for the balance & won on a technicality.

• Fact that C paid earlier than the due date = extra
element of consideration needed to make part
payment binding.
–
• Creditor has to receive some benefit

• Example
• Payment made early, in a more convenient place,
or something given in addition
Foakes v Beer (1884)

• Mrs Beer was owed money on a judgment

debt by Dr Foakes.

• Agreed to he would pay her £500.00

immediately & the rest in instalments

• Agreed to instalments in lieu of legal

action.
• Interest is payable on a judgment debt
but their agreement did not deal with
this.

• When Dr Foakes had paid the debt, Mrs

Beer asked for the interest too. He
refused.

• What do you think happened?

HoL HELD
• Mrs Beer was entitled to the
interest.

• Payment of part of the debt was

no consideration for Mrs Beer not
suing Dr Foakes
 Exception

• If a 3rd party pays part of the debt, the creditor

once accepted, cannot claim the rest of the
money from the original debtor - Welby v Drake
(1825)

• Insolvency situations

• If amount owed is genuinely disputed

• Unliquidated claim
Promissory Estoppel
(Equitable doctrine)
• The doctrine must only be used as a defence – it
is ‘a shield not a sword’

• Introduced by equity to reduce the unfairness of

the common law.
Requirements

• Must be a clear & unequivocal promise

• Person to whom promise was made

must have relied on it

• Inequitable for the other to go back on

the promise
• Doctrine operates to suspend
strict legal rights but does not
extinguish them.

• Promissory estoppel prevents

enforcement of rights already
held, it does NOT create new
ones.
Combe v Combe (1951)
• A husband had promised to pay his wife £100 a year for
maintenance.

• In reliance on his promise she decided not to apply for

maintenance.

• Husband failed to pay, she sued.

• Claim failed because her husband had not asked
her not to apply to Court for maintenance.

• His promise had not been made in return for her

promise not to apply.

• CA - HELD there was no consideration & no pre-

existing agreement that had been modified by a
promise

• CANNOT use promissory estoppel as a sword

D & C Builders v Rees (1966)
• Plaintiffs were a small firm of builders who did
work costing £732 for the Rees.

• Rees paid £250 before the work was finished

• Then refused to pay no more than £300, claiming

the work was defective.
• Said if D & C refused they would get nothing.
Payment of £300 would be in full & final
settlement.

• Builders were in financial trouble & pressed for

payment.

• Eventually accepted £300

• D&C later sued for the balance & obtained
judgment against Rees.

• HELD – Pinnel’s case was applied BUT

• Lord Denning also raised promissory estoppel –

explained that Rees could not have relied on
builders promise to accept payment as they had
deliberately taken advantage of D & C’s financial
situation.
Intention to Create Legal
Relations
• Parties must intend to create legal relationships

Family and social agreements

• In family and social settings there is a rebuttable
presumption that parties do not intend to create
legal relations

• There is no contract if terms are vague - Gould v

Gould (1970) or clearly not intended to be taken
seriously.
Social & Domestic Agreements
– Strong presumption that parties do not intend to
be legally bound

– Rebuttable – evidential burden on person seeking

to rely on agreement
Balfour v Balfour (1919)

• A husband promised to pay his wife maintenance

of £30 a month while he was in Sri Lanka
• He stopped when they separated

• Held - Not enforceable because:

• a) she had provided no consideration
• b) No intention to create legal relations.

• Family matter in which the courts really had no

place in.
Merritt v Merritt [1970]
– Husband left wife & promised to pay £40 a month.
Also wrote a note which provided when mortgage
payments had all been paid he would transfer the
house to the wife in consideration for her paying all
household charges.
– Wife paid off charges etc. Husband refused to
transfer the house. Wife claimed
– HELD – WAS intention to create legal relations.
– Agreement put into writing – terms sufficiently certain

– No presumption of no intention where husband & wife

are not living in amity or are separated or about to
separate.

– Lord Denning MR “It is altogether different when

the parties are not living in amity but are
separated, or about to separate. They then bargain
keenly. They do not rely on honourable
understandings. They want everything cut and
dried…”
Commercial or Business Agreement
• Strong presumption that parties
intend to create legally binding
relationships.

• Presumption can be rebutted by

inserting an express statement to
this effect.
• Terms of advertisements are regarded as
extravagant – not intended to be binding.

• Some agreements have an express clause to

ensure agreement is not binding –

• Jones v Vernon’s Pools (1938) –

• Clause stated ‘editor’s decision is final’

• Other phrases such as ‘binding in honours only’

will prevent a binding contract.
Forms of contract
– Most contracts do NOT need to be
in writing to be enforceable but it is
often difficult to prove the terms of
the contract if not in writing.
Exceptions
1) Contracts for sale of land – must be by deed, also
leases of more than 3 years s1 LP (Miscellaneous
Provisions) Act 1989. Deed must be signed,
signature must be witnessed, must state it is a
deed.

2) A written document is needed for the following –

bills of exchange – marine insurance, transfer of
shares in a limited company, consumer credit

3) Contract of guarantee cannot be enforced unless

there is written evidence of their terms.
Summary
• Ingredients of a contract

• Offer - different types

• Acceptance – methods of acceptance

• Concept of consideration

• Part payment of debts

• Promissory estoppel
The end of the road!