Law of Contract
Task A
A contract is basically a document of legal rules regarding an agreement made between two or more parties. As Sir Fredrick Pollock explains it: "A promise or set of promises which the law will enforce."
There are two types of contracts; these are contracts by deed and simple contracts. Contracts by deed are formal legal documents, which is signed by the contracting parties and witnessed. Simple contracts are not deed and do not necessarily need to be in writing, they can be oral promises or partly written and partly oral. They can also be implied by conduct.
In order for a contract to be formed there are several traditional points that need to be included; these are offer (and counter offer), acceptance (and rejection), consideration and intention to create legal relations. Lord Denning believes that these are not all necessarily needed to create a legally binding contract. We will now look at each of these in turn to see the tradition approach to contract formation.
Firstly offer. G.H. Treitel defines an offer as being "...an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed."
In contract circumstances you have an offeror (the person making the offer) and an offeree (the person receiving the offer).
An offer must be made in certain terms, i.e. it must not be vague. If an offer is vague then any acceptance to that offer may enable the contract to be void. Although where there is a vague clause that that clause will be stuck out and the rest of the contract would be enforced. This can be seen in the case of Nicolene Ltd v Simmons [1953]1 where an uncertain term was removed from the contract as the court decided that it was "too uncertain."2
An offer must be communicated to the offeree in order for them to accept the offer. Therefore a person must be aware of the offer before he does the act that the contract implies. For example a person must know of a reward before he performed the act that would constitute the reward being given to him. This is shown in the case of Williams v Carwardine (1833)3.
The main way of terminating an offer is by way of revocation. An offer can be revoked at any time before the offer is accepted. The revocation of the contract can be given to the offeree by any means including from a third party. In Dickenson v Dodds (1896)4 this was such the case, as a third party (an agent) had told the plaintiff that the offer of buying the defendants house was no longer open.
Where post has been used to communicate the revocation it must be the accepted means of communication by both parties and the postal rule will apply in that a notice of revocation is only valid when it is received and not when it is posted.5
Death of either party will automatically result in the termination of an offer for personal services, if for non-personal services then the offer is still open until the offeree is notified of the death of the offeror. See obiter in Bradbury v Morgan (1862)6
An offer however will need to be distinguished from an invitation to treat. An invitation to treat can be advertisements, auctions, mere negotiations and goods displayed in shop windows. This is illustrated in the case of Fisher v Bell [1961]7
Secondly we will look at acceptance. The acceptance to an offer must be unconditional - it must not introduce any new terms to a contract. If any other terms are introduced this would then produce a counter-offer rather than an acceptance. This then results in the original offer being destroyed. Although as stated in the case of Society of Lloyds v Twin & Anor [2000]8 a request for further information about an offer does not constitute a counter-offer.
As with an offer, acceptance must also be communicated in order to be valid. In a unilateral contract then communication of acceptance is sometimes unnecessary as it can be inferred by conduct. As in the case of Carlill v Carbolic Smokeball co. [1893]9 where the defendants tried to say that they did not have a contract as they were not informed by the plaintiff that she had accepted the offer made in the local gazette in which they advertised a product and if it did not work they would give the costumer £100. The court held that there was a contract.
Therefore acceptance can be implied by conduct although the offeror must be aware of this conduct. See Brogden v Metropolitan Railway Co. (1877).10
It must be pointed out, however, that silence does not constitute acceptance, some actual positive action is required, as decided in Felthouse v Bindley (1862)11
In all cases the acceptance must be by an authorised person who is allowed to make the acceptance. A third party who does not have the authorisation by the offeree cannot accept on their behalf. See Powell v Lee (1908)12
With regards to the postal rule and ...
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Therefore acceptance can be implied by conduct although the offeror must be aware of this conduct. See Brogden v Metropolitan Railway Co. (1877).10
It must be pointed out, however, that silence does not constitute acceptance, some actual positive action is required, as decided in Felthouse v Bindley (1862)11
In all cases the acceptance must be by an authorised person who is allowed to make the acceptance. A third party who does not have the authorisation by the offeree cannot accept on their behalf. See Powell v Lee (1908)12
With regards to the postal rule and acceptance, in contrast with revocation of an offer the acceptance actually takes place at the time of posting rather than when it is received. This was displayed in Adams v Lindsell (1818)13 which is a major case regarding the postal rule.
Relating back to offer again, there can be no acceptance without knowledge of the offer in the first place. See back to communication of an offer.
Thirdly we will look at consideration. This principle has been defined in Currie v Misa (1875)14 as " a valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other."
It has been said more recently that consideration is "a plaintiff buying a defendants promise by performing some act in return for it."15
One of the principles of consideration is that consideration may be executed or executory but not past. This being that way that the plaintiff purchases the promise from the defendant. Executory consideration is where the acts of the parties are to be performed in the future, i.e., agreeing to pay for something on delivery of it. So therefore the payment and the delivery are in the future. Executed consideration is where one parties part of the agreement has already been performed and the other parties part is still to be executed and remains executory until it has been performed.
However it is said that 'past consideration is no consideration'16 i.e., an act that has been done voluntarily cannot be seen to be consideration to a later promise from another party. For example another party promising to pay for the voluntary act of the first party. If the other party does not pay then the voluntary act cannot be said to be consideration for that agreement as it was done in the past before the agreement was made. This has been shown in Re McArdle [1951]17 where alterations had been made to a house voluntarily before an agreement to pay for these alterations had been made.
There are however several exceptions to the past consideration rule. The first being the principle in Lampleigh v Braithwait (1615)18 where the court held that although there was no solid agreement to pay for the services received when first requested, the original request implied the promise to pay for the services. It is noted that both parties must have realised this and that the act was not a voluntary act without request but was requested by the defendant. This was restated in Pao On v Lau Yiu Long [1975]19 where it was said "the act must have been done at the promisor's request..."
There are also statutory exceptions from the Limitation Act 1980, s 27(5) and the Bills of Exchange Act 1882, s 27.20
The next principle of consideration is that consideration must move from the promisee. This meaning that if a person wants to sue on a contract he must prove that he was the contracting person that gave consideration to the contract and not a third party to the contract.
Also consideration must be real, but it needs not to be adequate. This means that the consideration must be of something of value and not of for example love and affection as in White v Bluett (1853)21
If you are already doing something that you are required to do by law or under an existing contract then this will not count as consideration to a contract.22
The fourth part of a contract that we will look at is the intention to create legal relations. This looks at whether the parties to an agreement meant for the agreement to be a legally binding contract or not. Most social and domestic arrangements and promises are not intended to be legally binding and generally fall into two areas. The first being family arrangements. The case of Balfour v Balfour [1919]23 shows that a domestic arrangement between married couples will generally not become a legally binding contract as it was just for domestic reasons that the arrangement was made in the first place. Although in the case of Merritt v Merritt [1970]24 the court found that the two parties did intend to create legal relations as the couple had split up.
In commercial arrangements the law presumes that there was an intention to create legal relations. If the parties want to avoid entering into a legally enforceable contract they must state this precisely and fully.
Capacity is also looked at when considering if a contract is valid or not. The fact that you were drunk when forming a contract does not automatically make the contract void, although it is voidable, as the drunken party can later confirm the contract when sober. It must be noted that a drunken person must pay for necessaries sold to him, i.e. food.25
With regards to a mentally ill person, it is basically the same as with a drunken person. A contract will be valid unless the party contracting with them knows that they do not have the mental capacity to appreciate what they are doing. As with drunkenness, mentally ill persons will be required to pay for necessaries.26
When looking at the capacity of minors, a contract may be enforced by the minor but not against him. Although contracts are not generally enforced against them, they will be enforced if the court decides that the goods or services under the contract are beneficial to them, e.g. contracts for education and employment.
Now that we have viewed the traditional analysis of formation of a contract we will see how this contrasts with Denning's view that not the entire individual points need to be identified to have a legally binding contract.
Denning believes that in order to show that a contract has been made there is no need to go through every part of the traditional way of formation of a contract as by looking at the documents and agreements between the parties you should be able to see if there has been an agreement made on the main points and facts. Whereas if you take every point of the traditional approach explained above and see if they have all be included in the making of a contract then not many contracts would actually be valid as not all lay people would know about counter-offers and consideration etc.
Task B
This case involves the issue of exemption (exclusion) clauses. Exclusion clauses enable one party of a contract to escape his or her liabilities under a contract.
In order for Glamorgan Computer Products Ltd (GCPL) to rely on the clause that relieves them of any liability for any defect or damage unless informed of these within 7 days they have to show that the exclusion clause was constructed in a way that incorporated it into the contract.
There are three ways that they can show that it was incorporated into the contract. The first being incorporation by signature. This being that if Terry has signed the document, which had the exclusion clause on it, then it has been incorporated and Terry will be bound by it. This is illustrated in L'Estrange v Graucob [1934].27 This principle still applies if Terry did not read the terms on the document, and this seems to be the situation in this case.
Secondly it also has to be shown that notice of the exclusion clauses was given in order for them to be incorporated. A court will only hold that an exclusion clause was incorporated if the party was sufficiently informed of it before the contract was formed. In Olley v Marlborough Court Ltd [1949]28 it was held that a notice on the back of a hotel door was not adequate notice as the contract had formed at the reception desk and said that there had to be 'reasonable notice' for the exclusion clause to be incorporated.
The document that stated the exclusion clause(s) however needs to be shown to have been a contract or part of a contract and therefore intended to give them reasonable notice. Some would argue that a receipt or invoice does not form part of the contract as in Chapelton v Barry UDC [1940].29 So by taking this view it could be argued that the delivery note does not constitute a contract, as Terry would only have been signing to say that the computer was delivered and acted as a receipt. And with regards to this point, the fact that the exclusion clause was on the back of the delivery note, then Terry would only have read the back after he had signed it and therefore this would not have been reasonable notice as he would have been informed of it after he had signed the document and the contract formed.
There have been concerns over what exactly is reasonable notice. It was said in Parker v S.E Railway Co. (1877)30 that the more unusual the clause the greater notice that needs to be given. This was taken further in Spurling v Bradshaw [1956]31 where it was said "some exclusion clauses...would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient."32 So maybe in this case GCPL would have been better to put the clause on the front in clear red ink so that Terry, when signing the document, would see it and therefore would be giving reasonable notice and incorporating the clause.
Thirdly, if it is shown that sufficient notice is not given then an exclusion clause can still be incorporated by previous dealings on the same terms. This is shown in Spurling v Bradshaw [1956]33 where there had been previous course of dealings and therefore the clause on the acknowledgement of deposit had said to be incorporated by previous dealings. However there must be sufficient previous dealings as illustrated in Hollier v Rambler Motors (AMC) Ltd. [1972]34 where there had been three to four occasions of previous dealings over five years and was held to not be sufficient enough. In this case it does not state whether or not Terry has dealt with GCPL before so assuming that he has not, this would suggest that the exclusion clause could not be incorporated by previous dealings.
If the construction of a clause is ambiguous and unclear then it will be construed against the party whom is replying on it. This is the contra proferentum rule. This was shown in the case of Baldry v Marshall [1925].35 In Terry's case there is no unclear or ambiguous wording in the exclusion clause so this principle need not apply here.
The next thing to look at is the doctrine of fundamental breach. Before 1966 it was said that an exclusion clause could not protect a party from liability for a fundamental breach. This was rejected by the House of Lords, obiter dicta, in the case of Suisse Atlantique Societe d'Armement SA v NV Rotterdamsche Kolen Centrale [1966].36 Now it is looked at in the view of whether the exclusion clause is reasonable or not. This was stated in George Mitchell v Finney Lock Seeds [1983]37 where the exclusion clause that the defendant was trying to reply on was said not to be reasonable. In Terry's case you would then have to look at whether the exclusion clause was reasonable or not. This would be a fact for the court to decide.
Terry could look to see if there were any Statutory Limitations regarding the use of exclusion clauses in his circumstances.
The Unfair Contract Terms Act 1977 provides for certain exclusion clauses to be void and some that are allowed if they satisfy a reasonableness test. It is mainly aimed at protecting consumers. Consumer is defined in s.12 of this Act. In Terry's case it is not clear whether he has purchased the computer as a consumer or as a business as he used it to write parts of a novel for which is his profession although he has had it delivered to his home address, which suggests that it could also be for personal use.
In R & B Customs Brokers Co. Ltd. V United Dominions Trust Ltd. [1988]38 there was a similar problem of deciding whether it was for business or personal use. The court held that because the subject matter was partly for business and partly for personal use then they had to look at whether it was regularly used for business. In this case they held that he was buying as a consumer. In Terry's case the court would have to decide this fact by looking at which he most used his computer for in order to see if he would be able to comply as a consumer for the purposes of the Unfair Contract Terms Act 1977. Considering that Terry is a professional writer we will assume that he has purchased the computer as a business. Under s.2(2) of the above Act it concerns buyers as businesses and it states that any exclusion clause that omits the liability of a business for damage or loss caused by the business' negligence must be seen to be reasonable. s.11 of the Act sets out the reasonableness test that is to be applied and Schedule 2 sets out the criteria used for deciding reasonableness in contracts for the sale or hire of goods.
We are going to assume that the exclusion clause on the delivery note has been incorporated and construed into the contract and now we need to decide whether the exclusion clause is reasonable under s.2(2). The reasonable test under s.11 of the Act states that a term must be reasonable with regard to the circumstances 'which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.' So therefore if we go back to the delivery note and assume that it was considered as a 'receipt' and nothing else then the circumstances that Terry would have known is that he was not making any sort of contract and therefore the term would not be reasonable to take effect at the time.
Therefore we would advise Terry to pursue the claim against GCPL as on the presumptions that we have made the exclusion clause would have a high probably of being voided due to lack of incorporation because there was not reasonable notice and due to that of the last point we have made.
[1953] 1 All ER 822
2 Elliot, C., Quinn, F. 2001 Contract Law. 3rd Ed. Pearson Education Limited. P39
3 (1833) 5 C&P 566
4 (1896) 2 Ch D 463
5 See Richards, P., 2002 Law of Contract. 5th edition. Pearson Education Limited. The postal rule. Pp35 - 37
6 (1862) 1 H & C 249
7 [1961] 1 QB 394
8 [2000] The Times 4 April
9 [1893] 1 QB 256
0 (1877) 2 App Cas 666
1 (1862) 11 CBNS 869
2 (1908) KBD 99 LT 284
3 (1818) 1 B & Ald 681
4 (1875) LR 10 Ex 153
5 Supra n5 at p 51
6 Supra n5 at p 52
7 [1951] Ch 669
8 (1615) Hob 105
9 Per Lord Scarman [1975] 3 All ER 65
20 See Supra n5 at p 54. Statutory exceptions.
21 (1853) 23 LJ Ex 36
22 See Collins v Godefroy (1831) 1 B & Ad 950
23 [1919] 2 KB 571
24 [1970] 1 WLR 1121
25 This comes under s.3 Sales of Goods Act 1979
26 Ibid
27 [1934] 2 KB 394
28 [1949] 1KB 532
29 [1940] KB 532
30 (1877) 2 CPD 416
31 [1956] 2 AER 121
32 Per Lord Denning Ibid
33 Supra n31
34 [1972] QB 71
35 [1925] 1 KB 260
36 [1966] 2 All ER 61
37 [1983] 2 AC 803
38 [1988] 1 All ER 847
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