Contract law

Revision

Preview

• Formation of a contract• Capacity• The contents of a contract• Vitiating factors• Discharge of a contract• Remedies

Formation of a contract: offer and acceptance

• An offer must be communicated but can be made to the whole world or to an individual (Carlill v Carbolic Smoke Ball Co. Ltd)

• An offer can be withdrawn any time up to acceptance and this can be through a reliable third party (Dickinson v Dodds)

• In unilateral offers acceptance is done through performance and the offer cannot be withdrawn while performance is under way (Errington v Errington&Woods)

Formation of a contract: offer and acceptance

• Acceptance must be unconditional and a counter offer means the offer is no longer open to accept (Hyde v Wrench)

• Silence can never be acceptance (Felthouse v Bindley)

Formation of a contract: consideration

• Consideration is the price for which the promise of the other is bought (Dunlop Pneumatic Tyre Co. V Selfridge&Co.)

• Consideration must be real, tangible and of value (Chappel v Nestle)

• Past consideration is no consideration (Re McArdle)

• Consideration must move from the promisee (Tweddle v Atkinson)

Formation of a contract: intention to create legal relations

• Domestic arrangements are presumed not to give rise to legal relations (Balfour v Balfour) unless the contrary is proved (Merritt v Merritt)

• Business arrangements are presumed to lead to legal relations (Edwards v Skyways Ltd unless a contrary intent can be shown (Rose and Frank Co v J R Crompton & Bros)

Capacity

• Corporations are limited in their capacity to contract Rolled Steel Products (Holdings) Ltd v British Steel Corporation)by their objects clause

• Minors are bound to pay a reasonable price for necessaries actually delivered (Nash v Inman) and employment contracts substantially for their benefit (De Francesco v Barnum) but can avoid contracts of continuous obligation (Steinberg v Scala (Leeds) Ltd.)

The contents of a contract: terms

• Terms must be incorporated into the contract (Oscar Chess Ltd v Williams)

• Parties are bound by contracts they have signed (L’Estrange v Graucob)

• Terms can be implied into a contract e.g. for business efficacy (The Moorcock) but this must represent the presumed intention of both parties (Shell (UK) Ltd v Lostock Garages Ltd)

The contents of a contract: terms

• Terms can also be implied by common law (Liverpool City Council v Irwin) as well as by statute (e.g. Sale of Goods Act 1979)

• Terms can be conditions going to the root of the contract and allowing for repudiation as well as an action for damages (Poussard v Spiers and Pond) or warranties only giving rise to damages (Bettini v Gye)

The contents of a contract: exclusion clauses

• Exclusion clauses may affect consumers adversely so, to be incorporated, the party subject to them must be aware of them (Olley v Marlborough Court Hotels)

• They are not incorporated if in a form not easily recognisable as contractual (Curtis v Chemical cleaning Co) and the party seeking to rely on them must make every effort to communicate to the party subject to them (Thornton v Shoe Lane Parking)

• Under the Unfair terms in Consumer Contracts Regulations a term must not be an unfair surprise or be contrary to good faith (Director General of Fair Trading v First National Bank)

The contents of a contract: exclusion clauses

Vitiating factors: misrepresentation

• Misrepresentation – a false statement of material facts used to induce a party to enter a contract (Edgington v Fitzmaurice)

• M. can be:• Fraudulent – made knowingly• Reckless• Negligent

Vitiating factors: mistake

• Common m. – when both parties mistake the existence of a subject-matter the contract is void (Couturier v Hastie), but a common mistake as to quality has no effect on the contract(Bell v Lever Bros)

• Mutual mistake – when the parties are at cross purposes the contract may be void

• Unilateral m.- where one party is mistaken and the other knows of the mistake the contract is void

Vitiating factors: duress

• A contract may be avoided where it is made as a result of threats of violence (Barton v Armstrong)

• This applies also where a party is put under excess commercial pressure (Express v Kafko)

Vitiating factors: undue influence

• Traditionally a person in a special relationship could avoid a contract made through unfair influence (Allcard v Skinner)

• Otherwise the unfair pressure must be proved (National Westminster bank v Morgan)

Vitiating factors: illegality

• Some contracts are prohibited by statute (Cope v Rowlands)

• Common law makes immoral contracts unenforcable (Pearce v Brooks) and those based on corruption (Parkinson v College of Ambulance)

Discharge of contract: performance

• The basic rule: in an entire contract all obligations must be performed (Cutter v Powell)

• An exception is where part performance is freely accepted (Sumpter v Hedges) or where a party has substantially performed (Hoenig v Isaacs)

• A party is not bound to perform when he has been prevented by the other party (Planche v Colbourn)

Discharge of contract: agreement

• Parties can agree to end obligations by each providing consideration for a new agreement to end existing obligations (British Russian Gazette Ltd v Associated Newspapers Ltd)

Discharge: frustration

• Traditionally parties were bound by absolute obligation to perform (Paradine v Jane)

• This was unfair so a principle developed ending the obligation to perform where an unforeseen event beyond the control of either party made it impossible to perform (Taylor v Caldwell)

• Self-induced frustration will not relieve a party of obligations (Maritime National Fish Ltd v Ocean Trawlers Ltd)

Discharge: breach

• Whether the injured party can repudiate or sue for damages depends on the nature of the term breached (Bunge Corporation v Tradax Export SA)

Remedies: damages

• The breach must be the factual cause of the damage (London Joint Stock Bank v MacMillan) and must be a loss naturally arising from the breach or one in the contemplation of both parties when the contract was formed (Hadley v Baxendale)

Equitable remedies

• Specific performance: enforces completion of a contract so is only granted where it is possible for the court to oversee it (Ryan v Mutual Tontine Westminster Chambers Association)

Equitable remedies

• Injunctions: can be used to protect legitimate interests

• Rescission: puts the parties back to their pre-contractual position (Clarke v Dickinson)

• Rectification: a contractual document may be changed where it does not accurately reflect the actual agreement (Craddock Bros Ltd v Hunt)