Chapter 4-Formation of Contract I

Offer

“An offer is a definite promise to be bound on specific terms”

“An Express or implied statement of the term on which the maker is prepared to be
contractually bound if its is accepted unconditionally. The offer may be made to one person,
to a class of person or to the world at large, and only the person or one of the person to
whom it is made may accept it”

Calil v Carbolic Smoke Ball Influenza The offer may be made to one
Co. person, to a class of persons or to
the world at large.
Offer cannot be vague

Gunthing v Lynn Lucky Horse Vague statement cannot be an offer

An offer must be distinguished from invitation to treat or a mere supply of information.

Supply Of Information

Harvey v Facey Price of Bumper Hall A statement which sets out possible
pen term of a contract is not an offer
unless this is clearly indicated.

Bigg v Boyd Gibbons Quick Sale In the course of negotiations for

sale, vendor‟s statement may be an
offer

An invitation to treat

“An indication that a person is prepared to receive offer with a view to entering into a
binding contract"

Auction Sales

Payne v Cayne Bid Bid itself is the offer, which the

auctioneer is free to accept or reject

Advertisement

Patridge v Crittenden Bramble finch cocks An advertisement of goods for sale

is usually an attempt to induce
offers.

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Exhibition of Goods for Sale

Fisher v Bell Offensive Weapon Goods on display is not an offer

Pharmaceutical Society of Display of drugs in a Displaying goods on the open

Great Britain v Boots Cash self service shop shelves of a self service shop is an
Chemists invitation to treat

Invitation to a tender

Termination of Offer

An Offer may only be accepted when it is still open. In the absence of an acceptance an offer
may be terminated.

Rejection

Hyde v Wrench Sale of Property, Outright rejection terminates an

Counter Offer offer.

Counter Offer

Counter offer is the final rejection of the original offer

Request for information

It is possible to respond to an offer by making a request for information; it is not a

counter offer.

Lapse of time

An offer may be expressed to last for a specified time. If , however, there is no express
time limit set, it expires after a reasonable time.

Revocation of an offer

Routledge v Grant Offer to buy house, If the offer remains open for
acceptance required acceptance for a specified time he
within 6 weeks may still revoke it within that time.

Failure of a Condition

Financing Ltd v Stimson Condition An offer may be conditional and if

this condition is not satisfied the
offer is not capable of being
accepted.

Termination by Death

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Bradbury v Morgan Death The death of offeree terminates the
offer, unless the offeree accepts the
offer in the ignorance of the death.

Acceptance

“ A positive act by a person to whom an offer has been made which, if conditional, brings a
binding contract into effect”

Acceptance may be by express words, by action or inferred from conduct.

Silence

Felthouse v Bindley Nephew‟s Horse There must be some act on the part
of the offeree to indicate his
acceptance.

Acceptance „subject to contract‟

Means that the offeree is agreeable to the terms of the offer but proposes that the parties
should negotiate a formal contract

Letters of intent

Letters of intent are an indication be one party to another that they may place a contract
with them.

Acceptance of Tender (A tender to perform one task)

Great Northern Railways v Supply of stores in A tender to supply or perform a

Witham series series of things, is not accepted
until an order is placed (Standing
Offer)

Communication of Acceptance

Acceptance must be communicated to the offeror and that it is not effective until this has
been done.

Waiver of Communication

Prescribed mode of communication

No mode of Communication prescribed

The Postal Rule

Acceptance is complete as soon as letter is posted

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Adam v Lindsell Post on Different Where the use of the post is within
dates the comtemplation of both parties,
the acceptance is complete and
effective as soon as the letter is
posted, even though it may be
delayed or even lost altogether in
the post.

Household Fire and Carriage Application for The intention to use the post for
Accident Insurance v Grant shares communication of acceptance may
be deduced from the circumstances.

Cross Offer

If two offers, identical in terms, cross in the post, there is no contract

Unilateral Contract

R v Clarke Reward for There could not be acceptance

information without knowledge of the offer

Williams v Carwardine Criminals book Acceptance may still be valid even if

the offer was not the sole reason for
the action.

Collateral Contracts

Where consideration in provided by the making of another contract.

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 Chapter 5-Formation of Contract II

Consideration

A consideration in the sense of the law may consist either in some right, interest, profit or
benefit accruing to one party, or some forbearance, detrement, loss or responsibility given,
suffered or undertaken by the other

 Executed consideration is that which takes place at the present time

 Executory consideration is a promise given for a promise. That which takes place at
some future time.

Past Consideration

Re McArdle Improvements to Past consideration is something which

house has already been done at the time the
contract is made

Lamleigh v Braithwaite Royal Pardon When a request is made for a service

this request may imply a promise to
pay for it

Adequacy and sufficiency of consideration

Adequacy

Thomas v Thomas Rent £1 per annum It is presumed that each party is

capable of serving his own interest,
and the court will not seek to weigh up
the comparative value of the promises
or act exchanged

Sufficiency

Chappell & co v Nestle co Wrappers of Consideration is sufficient if it has

chocolate some identifiable value

Performance of exiting contractual duties

Collins v Godefory Provide evidence Performance of an existing obligation

imposed by statue is no consideration
for a promised of reward

Glasbrook bros v Glamorgan Extra Police force If extra service is given that is
sufficient consideration

Promise of additional reward

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Stilk v Myrick Two members of The promise for an additional reward to
crew perform existing contractual duties in
not binding as there is no extra
consideration

Hartley v Ponsonby 17 out of 36 crew If a claimant does more than to

members deserted perform an existing contractual duty,
this may amount to consideration

William v Roffey Bros & Refurbish a block Practical benefit is also a valid
Nicholls (Contractors) Ltd of flats consideration

Waiver of existing rights

Foakes v Beer Interest claimed Waiver of any part of a party‟s right

should be supported by consideration

Promissory Estoppel

“If a creditor (Y) makes a promise (unsupported by consideration) to the debtor (X) that
Y will not insist on the full discharge of the debt, and the promise is made with the
intention that the X should act on it and he does so, Y stopped from retracting his
promise, unless Z can be restored to his original location”

Central London Property Half rent in war If someone has made a promise they
Trust v High Trees House time can be prevented from denying it

Combe v Combe Maintenance Promissory estoppels is a shield not a

payment sword it does not create new causes of
action where none existed before

Intention to create legal relation

“An agreement will only become a legally binding contract if the parties intend this to
be so. This will be strongly presumed in the cases of business agreements but not
presumed if the agreement is of a friendly, social or domestic nature”

Husband and Wife

Balfour v Balfour For health reasons The fact that the parties are husband
wife would not and wife does not mean that they
return cannot enter into a contract

Merritt v Merritt Mortgage Payment Invitation to treat was to be inferred

Relatives

Jones v Padavatton Barrister, Agreement between other family

allowance members may also be examined by the

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 courts

Commercial Agreements

Rose and Frank v Crompton Distributor in USA In commercial agreements it is

presumed that there was an intention
to enter into a legally binding contract

Transaction binding in honor only

Jones v Vernons Pools Football pools If the parties state that an agreement is
coupon binding in honor only these amounts to
an express denial of intention to create
legal relations

Privity of Contract

“As a general rule, only a person who is a party to a contract has enforceable rights or
obligations under it. Third parties have no right of action save in certain exceptional
instances”

Tweddle v Atkinson Pay sum of money A promises B that A will confer a

to married benefit on C. Therefore, C cannot as a
daughter general rule enforce A‟s promise since
C has given no consideration.

Dunlop v Selfridge Do not sell tires at A person cannot recover damages

lower rate than under a contract to which it was not a
agreed party

Exceptions

Beswick v Beswick X transfer his The third party can sue in another
business to his capacity.
nephew

Shanklin Pier Ltd v Detal Confirmed the Collateral Contracts

Products Ltd paint‟s suitability

Forseeable loss to the third party

Original beneficiary could claim full damages on behalf of the third party

Statutory Exceptions:

 Road Traffic Act 1972

 Married woman‟s Property Act 1882
 Contract (Rights of third parties) Act 1999

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Contract (Rights of third parties) Act 1999
a) Where the contract itself expressly so provides
b) Where the term confers a benefit of the third party, unless it appears that the
contracting parties did not intend him to have the right to enforce it

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 Chapter 6- Terms of Contract
Contract Terms

“Statements made by the parties may be classified as terms or representations”

Bannerman v White Sulphur Term is an important part of the

contract, the party misled can claim for
breach of the contract

Routledge v McKay Sale of Motorcycle A representation is something which

(wrong model) includes the formation of the contract
but which does not become a term of
the contract

Express and Implied Terms

“Terms clearly include in the contract are express terms. The law may complement or
replace terms by implying terms into a contract”

Implied Terms

“ A term is the term expressly agreed by the parties to the contract”

Terms implied by custom

Hutton v Warren Tenant Farmer The parties may enter into a contract
subject to custom of their trade. Any
express term overrides a term which
might be implied by custom

Terms Implied by Statute

Sales of Good Act 1979

Terms implied by the courts

Liverpool City Council v Irwin Inter Alia the lifts Terms may be implied if the court
did not work concludes that the parties intended
those terms to apply to the contract

Conditions and Warranties

“Terms may be further classified as conditions and warranties”

 A condition is the vital term, going to the root of the contract, breach of which entitles
the injured party to treat the contract as discharged and claim damages.

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  A warranty is a term subsidiary to the main purpose of the contract, breach of which
only entitles the injured party to claim damages.

Poussard v Spiers Failure to sing in a A Vital term of the contract was

an opening night breached, which entitled the injured
party to treat the contract as
discharged

Bettini v Gye 3 out of 6 Only a minor term of the contract was

rehearsals breached, the injured party was not
allowed to treat the contract as
discharged but only claim damages

Innominate Terms

When it not possible to determine whether a term is a condition or a warrant, such terms are
classified as innominate terms

If the consequences of the breach is not so serious the term cannot be treated as condition,
hence injured party could not treat the contract as breached

Exclusion Clauses

“An exclusion clause may attempt to restrict one party‟s liability for breach of contract
or for negligence”

“A claue in a contract which purports to exclude liability altogether or to restrict it by

limiting damages or by imposing other onerous conditions”

a) Exclusion Clause must be incorporated into a contract before they have legal effect
b) Exclusion Clauses are interpreted strictly

Contractual Document

Chapelton v Barry UDC Pile of deck chairs Where the exclusion clause is
contained in an unsigned document it
must be shown that this document is
integral part of the contract

Signed Document

L’Estrange v Graucob Slot Machine, If a person signs a document

Small Print containing a term, he is held to have
agreed to the term even if he had not
read the document

Unsigned contracts and notices

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Olley v Marlborough court Ltd Notice in Bedroom Each party must be aware of the
contract‟s term before or at the time of
entering into the agreement if they are
to be binding

Onerous Terms

Interfoto picture library Ltd v Holding fee of £5 Where a term is particularly unusual is
Stiletto visual programmers plus VAT should be highlighted otherwise it
Ltd won‟t be incorporated into the contract

Interpretation of Exclusion Clauses

The „main‟ purpose rule

By this, the court presumes that the clause was not intended to prevent the main purpose of
the contract

Fundamental Breach

Photo Productions v Securicor Small Fire by A properly drafted exclusion clause can
Transports guard cover any breach of contract under
common law

The Unfair Contract Act 1977

Clauses which are void

If an exclusion clause is made void by statute it is unnecessary to consider how other legal
rules might affect it

Clauses which are subject to a test of reasonableness

George Mitchell Ltd v Finney Dutch winter Courts decides relying exclusively on
lock seeds Ltd cabbage seeds the statutory ground of reasonableness

The statutory ground of reasonableness

Smith v Eric S Bush Surveyor‟s Report It is sometimes unreasonable to

disclaim liability

The Unfair Terms in Consumer Contracts Regulations 1999

This deals with consumer contracts and terms which have not been individually negotiated

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 “A consumer is defined as „a natural person‟ who, in making a contract to which
these regulations apply, is acting for purposes which are outside his business”

 “An Unfair term is any term which causes a significant imbalance in the parties‟
rights and obligations under the contract to the detriment of the consumer”

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 Chapter 7- Breach of Contract

Repudiatory Breach

“A repudiatory breach occurs where a party indicates, either by words or by conduct,

that he does not intend to honour his contractual obligations or commits a breach of
condition or commit a breach which has very serious consequences for the injured
party. It only occurs when performance is due”

Anticipatory Breach

“Where one party declares in advance that he will not perform his side of the bargain
when the time for performance arrives, the other party may treat the contract as
discharged forthwith, or continue with his obligations until actual breach occurs. His
claim for damages will then depend upon what he has actually lost”

Hochester v de la tour European tour The claimant can sue as soon as the
anticipatory breach occurs

White & Carter (Councils) v Litter bins Repudiation does not, of itself, bring
McGregor the contract to an end. It gives the
innocent party the choice of affirmation
or rejection

Affirmation after repudiation

Damages

“Damages are a common law remedy intended to restore the party who has suffered
the loss to the same position he would have been in if the contract had been
performed”

The two tests applied to a claim for damages relate to remoteness of damage and measure
of damages.

Remoteness of Damages

Hadley v Baxendale Crank Shaft The loss must arise naturally form the
breach and in a manner which the
parties may reasonably be supposed to
have contemplated

Victoria Laundry (Windsor) v Large Boilers A loss outside the natural course of
Newman Industries events will only be compensated if the
exceptional circumstances are within
the defendant‟s knowledge when he

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 made the contract

Measure of Damages

“The measure of damages is that which will compensate for the loss incurred. It is not
intended that the injured party should profit from a claim. Damages may be awarded
for financial and non financial loss”

C & P Haulage v Middleton
Renewable license A claimant may seek to have his
reliance interest protected, i.e. the
position he would have been in had he
not relied on the contract. This
compensates for wasted expenditure

Anglia Television Ltd v Reed Film Making If a contract is speculative, it may be

unclear what profit might result.

Market Price Rule

The seller would have to compensate the buyer for any additional cost the buyer incurred
over the contract cost and vice versa (when buying or selling the equivalent goods at market
price)

Non Financial Loss

Jarvis v Swan Tours Holiday Damages could be recovered for mental

accommodation at distress where that is the main result
a winter sports of the breach
centre

Alexander v Rolls Royce Repair of Rolls Breach of contract to repair a car did
Motor cars Ltd Royce not give rise to any liability due to
distress

Cost of Cure

Ruxley Electronics and Swimming Pool If the claimant is seeking cost of cure
Construction Ltd v Forsyth for the defect which constituted the
breach, he may be denied if it is wholly
disproportionate to the breach

Mitigation of loss

In assessing the amount of damages it is assumed that the claimant will take any reasonable
steps to reduce or mitigate his loss

Liquidated Damages and Penalty Clause

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  Liquidated damages can be defined as „a fixed or ascertainable sum agreed by the
parties at the time of contracting, payable in the time of breach‟
 A penalty clause can be defined as „a clause in a contract providing for a specified
sum of money to be payable in the event of a subsequent breach. If its purpose is
merely to deter a potential difficulty, it will be held void and the court will proceed to
asses un liquidated damages‟

Action for Price

A simple action for the price to recover the agreed sum should be brought if breach of
contract is failure to pay the price

Quantum Meruit

De Barnardy v Harding
Advertise and sell Quantum Meruit‟s aim is to restore the
tickets claimant to the position he would have
been in if the contract had never been
made and is likely to be sought where
one party performed part of his
obligations and other party repudiates

Equitable Remedies

Specific Performance

The party in breach is ordered to perform his side of the contract

Injunction

Warner Bros Pictures Inc v Film star Bette An injunction may be used to enforce a
Nelson Davis contract of personal service for which
an order of specific performance would
be refused

Recission

It is a right which exists in certain circumstances, such as where a contract is voidable

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 Chapter 8- The Law of Torts

Tort
A tort is a civil wrong and the person wronged sues in a civil court for compensation or an
injunction.

The tort of negligence

Negligence is the most important modern tort. To succeed in an action for negligence the
claimant must prove that:
 The defendant had a duty of care
 There was a breach of that duty
 In consequence the claimant suffered injury, damage or loss

Duty of care

Donoghue v Stevenson Decomposed snail A person might owe a duty of care to

another with whom he had no
contractual relationship. Every person
owes a duty of care to his “neighbour”.

Anns v Merton London Development of the doctrine (Two

Borough Council stages must be tested)

Caparo Industries plc v Auditors Auditors do not owe a duty of care to

Dickman public at large (Three stage test)

Breach of duty of care

The standard of reasonable care requires that the person concerned should do what a
“reasonable man” would do. The following factors should be considered.

Probability of Injury

Glasgow Corporation v Taylor Poisonous berries A warning notice was not considered to
be sufficient to protect children.

Seriousness of the risk

Paris v Stepney Borough Protective goggles There was a higher standard of care
Council owed to the employee because an
injury to remaining good eye would
blind him.

Issues of practicality and cost

Latimer v AEC Ltd Slippery floor Duty of care is not breached because

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 reasonable step was taken.

Common Practice

Where an individual can prove their actions in line with common practice or custom it is
likely that they would have met their duty of care

Social Benefit

Where an action if of some benefit, defendants may be protected from liability

Professions and skill

Persons who hold themselves out to possess a particular skill should be judged on what a
reasonable person possessing the same skill would do in the situation

Res ipsa loquitur

Richley v Fould Skidded car “The thing speaks for itself.”

Mahon v Osborne Leaving a swab Leaving a swab inside a patient after

and operation was not negligent

Causality and remoteness of damages

The claimant must demonstrate that he suffered injury or loss as a “result” of the breach

The „But for‟ test

Barnett v Chelsea Arsenic poisoning The claimant must prove that if it was
not „but for‟ the other‟s actions they
would not have suffered damge

Multiple Causes

Multiple causes: Premature baby Court could not ascertain a direct

Wilsher v Essex AHA casual link due to the presence of
multiple causes

Novus actus intervieniens

McKew v Holland Leg injury The actions of the claimant may break
the chain of causation (Act of
Claimant)

Lamb v Camden LBC Damaged house Where a third party intervenes in the
course of events the defendant will
normally only be liable for damage
until the intervention (Act of a third

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 party)

Carslogie Steamship Co Damaged ship Where the natural event is

Ltd v Royal unforeseeable, the chain will be
broken (Natural events)

Remoteness of Damage

The Wagon Mound Furnace oil Liability is limited to damage that a

reasonable man could have foreseen

Defences to negligence

Contributory Negligence

Sayers v Harlow UDC Defective lock A court may reduce the amount of
damages paid to the claimant if the
defendant establishes that they
contributed to their own injury or
loss.

Volenti non fit injuria

ICI v Shatwell Detonators Where a defendant‟s actions carry the

risk of a tort being committed they
will have a defense if it can be proved
that the claimant consented to the
risk

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 Chapter 9-Professional negligence

Professional negligence

“Professional individuals and organizations have a special relationship with their

clients and those who rely on their work. This is because they act in an “expert
capacity”

Special relationship

“If someone possessed of a special skill undertakes….to apply that skill for the
assistance of another person who relies on that skill, a duty of care will arise”

Candler v Crane, To establish a “special relationship”

Christmas & Co the person who made the statement
must have done so in some
professional or expert capacity.

Hedly Byrne & Co v Statement about Claim for negligence cannot succeed if
Heller and Partners Ltd financial resources there is a „disclaimer‟ even if the
special relationship existed and duty
of care is breached

The Caparo Decision

“Auditors do not owe a duty of care to the public at large or to shareholders increasing
their stakes”

Caparo Industries plc v Auditors The auditor‟s duty did not extend to
dickman and others Takeover Bid potential investors nor to existing
Directors (the dickman shareholders increasing their stakes.
brothers) It was a duty owed to the body of
shareholders as whole.

ADT Ltd v BDO Binder Joint auditor The courts expect a higher standard
Hamlyn True & Fair view of care from accountants when giving
Potential buyer advice on company acquisition since
Meeting the losses can be so much greater.
Difference &Interest

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 Chapter 10- Employment Contract

 An Employee is “an individual who has entered into, or works under a contract of
employment”.

 A Contract of Employment is a contract of service or apprenticeship, whether

express or implied, and ( if it is express) whether it is oral or in writing.

Ferguson v John Dawson Builder‟s laborer In order to distinguish between

& Partners employment and independent
contractor the court will look at the
reality of situation rather than the
arrangements

Massey v Crown Life Insurance Co. Where there is some doubt as to the
Assurance nature of the relationship the courts
will then look at any agreement
between the parties

Tests

It is very important to know whether an individual is an employee or an independent

contractor. The court will apply a series of tests:

Control Test

Mersey Docks & Harbour Stevedores The court will consider whether the
Board v Coggins & employer has control over the way in
Griffiths which the employee performs his
duties

Integration Test

Cassidy v Ministry of Medical officer The courts consider whether the

Health employee is so skilled that he cannot
be controlled in the performance of
his duties. Lack of control indicates
that an employee is not integrated
into the employer‟s organization, and
therefore not employed.

Multiple ( economic reality ) Test

Ready Mixed concrete v Driver Courts also consider whether the

Ministry of Pension & Liquid concrete employee was working on his own
National Insurance account and this requires numerous
factors to be taken into account.

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Agency workers
Two cases are considered
(a)Length of Service
(b)Control over the worker

Other Relevant factors:

 Own tools & equipment
 Selection or appointment
 Payment of salary
 Delegation of work

O’Kelley v trusthouse Waiter It depends entirely on the facts of

forte plc each case. When there is no
„mutuality of obligations‟, there is no
contract

Why distinguishing is important?

Social Security Implied terms

Taxation VAT

Employment protection Bankruptcy

Tortuous acts Health and Safety

Common Law Duties

Employee‟s duties:
 Fundamental duty of faithful service
 Reasonable competence
 Obedience
 Duty to account for all money and property
 Reasonable care and skill
 Personal service

Hivac Ltd v Park Royal Spare time Even though the employees had not
Directly competed passed on any confidential
information, they were still in breach
of their duty of fidelity to the
claimants.

Pepper v webb Gardener The gardener was in breach of his

implied duty to obey as the
instructions were lawful and

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 reasonable.

Boston Deep Sea Fishing Commissions The company was justified in

and Ice Co.v Ansell dismissing the claimant and he must
account to it for the commissions.

Employer‟s duties
 Pay remuneration
 Indemnify the employee
 Health and safety
 Provide work
 Duty of mutual trust and confidence

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 Chapter 11- Dismissal and Redundancy

Summary dismissal

Summary dismissal is where the employer dismisses the employee without notice. He may do
this if the employee has committed a serious breach of contract

Wilson v Racher Gardener Action succeeded because it was

employer‟s own conduct that provoked
the outburst

Constructive dismissal

Constructive dismissal is where the employer commits a breach of contract, thereby causing
the employee to resign

Western Excavating (ECC) Ltd Advance Holiday If the employer is not in breach of
v Sharp Pay contract, the employee cannot claim
for constructive dismissal

Wrongful dismissal

Wrongful dismissal is a common law concept arising in specific circumstances. It gives the
employee an action for breach of contract

Justification of dismissal
 Willful disobedience of a lawful order
 Misconduct
 Dishonesty
 Incompetence or neglect
 Gross negligence
 Immorality
 Drunkenness

Unfair dismissal

Unfair dismissal is a statutory concept introduced by employment protection legislation. As a

rule, every employee has the right not to be unfairly dismissed

Potentially fair reasons for dismissal

 Capability and Qualifications
 Conduct
 Redundancy
 Legal prohibition
 Some other substantial reason

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International Sports Ltd v Employee did not The illnesses were unrelated and
Thomson work for 25% of the unverifiable so dismissal was fair
time

Remedies for Unfair dismissal

Reinstatement

Reinstatement is return to the same job without any break of continuity

Re-engagement

Re-engagement means that the employee is given new employment with the employer (or his
successor or associate) on terms specified in the order.

Compensation

 Basic Award
 Compensatory award (up to £66,200)
 Punitive additional award (up to £380 per week)

Redundancy

A dismissal is treated as caused by redundancy if the only or main reason is that:

 The employer has ceased, or intends to cease, to carry on the business in which the
employee has been employed
 The requirement of that business for employees to carry on the work done by the
employee have ceased or diminished

High Table Ltd v Horst and Waitresses Dismissal was for genuine redundancy
Others as the place of work was of the new
employer was at the client company
premises

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