Contract law

The main points of a contract

1. Valid offer
2. Acceptance
3. Consideration (give and take)
4. Capacity (mentally disabled and not a minor)
5. Intention

Offer:
The first issue is to see if the contract which may be formed will be unilateral
or bilateral. A unilateral contract is where one party takes responsibility of
performance and acceptance is only by conduct(work) (Carlil v Carbolic) and
bilateral contract is where both parties take responsibility and acceptance can
be by communication as well

Bilateral contract:
If the contract is bilateral, the second issue is to see if the initial
communication is an offer or invitation to treat(ITT). Offer is inviting another to
form a contract (Storer v Mcc), and ITT is inviting an offer from the other party
(Gibson v Mcc). If there is direct communication and it is clear and specific
then it is an offer, if unclear it is an ITT.

All advertisements for bilateral contracts are ITT’s (Partridge v Crittenden).

All displays of goods are ITT’s (Fisher v Bell) (Pharmaceutical society v boots
chemist).

The third issue is to identify the offeror and the offeree and the standing offer.
If an offer is given it will expire due to:
1. Expiry of specified time
2. Expiry of reasonable time
3. Death of offerer or oferee
4. Rejection
5. Counter offer

The fourth issue is to determine the date and time of acceptance. The general
rule for acceptance in bilateral contracts is that it has to be communicated to
the offeror. (Entauer v Miles), it can be by conduct as well (brogden case), but
cannot be by silence (Felthouse v Bindley) unless the offeror and offeree both
accept silence as a mode of acceptance and the offer puts himself at risk(Rust
v Abbey)

Exceptions to the communication rule

1. If the offeror does not get communication of acceptance due to his own
fault then offer will be accepted without communication after lapse of a
reasonable time (Brimnes)
2. Postal acceptance will be valid at the time of posting. This is known as
the postal rule (Adams v Lindsay,Dunlog v Higgin) however, postal rule
does not apply where the offeror has specified the mode of
acceptance(Hallwell security v Hues) where post is not a reasonable
mode of acceptance (Henthron v Fraser) or the offeree misadresses the
letter (Korbeis case)

Withdrawal of offer or acceptance:

1. Offer can be withdrawn at any point before acceptance but it has to be
communicated to the offeree (Payne v Cave) Communication can come
from anywhere (Dickenson v Dodds)
2. Acceptance can also be withdrawn but communication of withdrawal
has to be given before the actual acceptance (Dunmore v Alexander)

Unilateral contract:
In a unilateral contract, there are only offers which can be accepted by
conduct on full performance (Daulia). However, if part performance begins,
the offer cannot be withdrawn (Errington v Errington) unless the reward is
large and the work is small then it can be withdrawn ( Luxor v Cooper).
Unilateral offers given through a medium can be withdrawn if the withdrawal is
through the same medium (Shuey v USA) or it can be withdrawn through
communication. However, an offer can only be accepted if the offeree has
knowledge or remembers the offer at the time of acceptance. (R v Clarke,
William v Carwadine)
Consideration:
Means give and take of promises (Currie v Nisa)

General rule:
1. Any promise should have economic value (White v Lueck) but there's no
requirement that it should meet the market value (Thomas v Thomsa,
Chappenn). Consideration can be a promise not to sue someone and benefit
can be transferred to a third party Emotional stance is invalid since it
doesn't have a market value
2. Past consideration: Generally, promise should come before the act. If it
comes afterwards, it is past consideration and invalid (Roscala v
Thomas). However, past consideration can be valid if there is a
complete act and a clear promise after it, the context is commercial and
the act at the promisor's request (Pau on law)
3. Existing duty at law: if a person is under an existing duty at law.To do
something then any additional promise will only be binding if the other
party does something extra above the legal duty (Glassbrooke brothers
v GCC) (Ward v Byham)
4. Existing contractual duty: if a person is under an existing contractual
duty then an additional promise will only be binding if the other party
does something considerably extra (Stilk v Myrick, Hartley v Ponsonby).
However, even if nothing extra is done and completion of existing duty
gives rise to a practical benefit to the promisor then additional promise
will be binding provided it was not given under economic duress.
(William v Roffey)
5. Existing duty to pay debt: Part payment of debt will never be considered
as full payment unless there is something extra with the part payment in
the form of an object or earlier payment (Pinnels case) (Foakes v Beer)
6. Existing duty towards third party: if a person is under an existing duty
towards a third party then any promise given by another person to
complete that existing duty will be binding and the consideration of that
person to the other would be the exposure to risk of legal claim.
(Eurymedon)
7. Promissory estoppel (PE): PE was introduced in the Hughs case and
refined in the HighTrees case and hold a promise binding without
consideration if the following conditions are met:
1. A clear promise
2. A reliance on promise
3. Pre existing contract
 4. Unfair to take the promise back
5. It is a defence about claim
6. It suspends contractual rights but does not permanently destroy them

Intention to create legal relation

Since intention is a subjective element, it is difficult to prove in court but the
courts created the following rebuttals presumptions:

1. There are no intentions in domestic and social context (Balfour v

Balfour) (Meritt v Meritt)(Soulsbury v Soulsbury)
2. In commercial context there are always intentions but can be rebutted if
there is an honour clause or the term is a mere puff (Week v Tybald)

Capacity

Mentally disabled, intoxicated and minors cannot form contract unless for
minors the following contracts are binding:

1. Contract for necessities where necessities will be determined according

to the lifestyle and financial background (Nash v Inman)(CHapple v
Cooper
2. Contract for services but only those which are more beneficial on the
minor than the adult (De francesco) (Leslie)
3. A non binding contract on the minor is binding on the adult and the only
remedy available against the minor is restitution i.e. the goods have to
be returned but damages cannot be claimed
 Frustration
Frustration was defined in the case of national carrier ltd. where two parties
enter into a contract and subsequently an unforeseeable event occurs without
the knowledge of either parties which makes the performance of the contract
illegal or radically different or impossible. The courts will make the contract
void and the parties will be discharged of their duties to perform.
However, Frustration can fail in two circumstances:
1. Self induced frustration: This is where the frustrating event is caused
due to one party’s fault. (Maritime national fish case)
2. If there is an alternative way to perform the contract which is more
difficult or expensive then the contract will not be frustrated (Davis
contractor ltd) (Nobalee case)
The remedies for frustration is set out under “Law Reform Frustrated
Contracts Act” where under section 1 subsection (2) all advanced money paid
will be returned, any expense incurred by the other party will be deducted and
no further payment will be made
Under section 1 sub section(3) if any non monetary benefit is provided then
compensation can be seeked for the same.
However, if the frustrating event destroys the benefit then there is no
obligation to give compensation. (BP exploration)

Mistake
When two parties enter into a contract and before entering into a contract
there is an element of mistake. If this mistake becomes the operating cause
towards the formation of the contract then the contract will be void ab initio i.e.
void from the beginning.
Bilateral mistake: This is where both the parties are at mistake. This is further
divided into two categories:
1. Cross purpose mistake: this is where both the parties are at a mistaken
belief and the nature of mistake is different. The courts apply the
objective by standard test according to which the courts act as a third
party and listen to the conversation of the contracting party and if the
courts can conclusively decide what the contract is about then the
contract will be valid for that subject matter but if the courts cannot
conclusively decide what the contract is about and remain confused
then the contract will be void.
 2. Common mistake: Has different categories;
1. If both parties are mistaken about the existence of the subject matter
then the contract will be held void and this also applies where the
subject matter never existed. But subject matter has to be guaranteed.
(Scott v Colson)(Couturier v Hastie)(Mc Rae). section 6 of sale of goods
act also holds the contract void whose subject matter has been
destroyed.
2. Mistake of ownership (Cooper v Phibbs)
3. Mistake of law
4. Mistake of performance
5. Mistake of quality; for quality mistake, the law is very narrow where
contract will only be void if the quality is so different that the basic
purpose of the contract is not achieved (Bell v Lever brothers)
(Japanese associated Bank)(Great Piece Shipping)(Leaf v Int galleries)

Unilateral mistake: The contract will only be void when the mistaken party
knows or reasonably ought to know the mistake.

1. Term: For unilateral mistake of terms, the contract will only be held void
if the non mistaken party knows or reasonably ought to know about the
mistake but did not point it out. (Smith v Hughes)(Hotdog v Collin
Shield)
2. Identity:
a) Inter absentees; If the contract is formed through non physical
needs then the contract will be with the existing person who will
get the title and the fraudster will only get the good. The contract
will be held void and the title will revert to the first party who will
keep the goods. (Candy v Lindsay) (Shogun Finance), but if there
is no existing person then by default the contract title will go to the
fraudster who will pass it to the innocent third party (King norton
Metal)
b) Inter presentness: If the contract is formed face to face then the
contract will be with the person who’s physically there i.e. the
fraudster who will pass the title to the innocent third party (Phillip
v Brooks) (Ingram v Little) (Louis v Avery)
 Misrepresentation
The first issue is to prove a false statement of fact which is any statement
given in line of business or where the person is in possession of material facts
(Esso petroleum v Mardon)(Smith v land house properties), there is no liability
for opinions or unclear statements (Dimmock v Hallet)(Bisset v Wilkinson). Mis
representation can also be by conduct(Spice Girls case). If a person gives a
statement of future intention and does not do what they are conveyed to do
then they can be liable for misrepresentation (Edgington v Fitzmaurice).
Silence does not amount to misrepresentation (Smith v Hughs) unless there is
a contract of good faith for example Land or insurance or there is a change of
circumstances (Wth v O'Flanagan)

The second issue is to prove inducement i.e. if not for the misrepresentation,
the other party would not have formed a contract and the misrepresentation is
the major reason for contract formation (Raffison case). If the claimant has an
opportunity to check but fails to do so, inducement will not be finished
(Redgrave v Hurd) but third party reliance will finish inducement (Attwood v
Small)

The third issue is to determine the category of misrepresentation:

1) Fraudulent misrepresentation: the claimant has to prove fraud and

nothing less. The burden of proof is very high.( Derry v Peek) (Smith v
New Court securities)
2) Negligent misrepresentation at common law: The claimant has to prove
the difficult conditions set out in (Hedley Bryan v Heller) which include
evidence of pre contractual relationship, special relationship, voluntary
assumption of responsibility and reliance which is reasonable.
3) Statutory misrepresentation: In terms of section 2(1) of the
misrepresentation act, the defendant will automatically be liable for
misrepresentation unless he proves he had the reasonable grounds to
believe it was true, the courts have set the burden of proof very
high(Howard Marine v Ogden)
4) Innocent misrepresentation: This is a default category and the
defendant will automatically fall under this if any of the above is not
proven.

The final issue is to determine the remedies available. The primary

remedy is Rescission i.e the claimant has an option to either accept or
terminate the contract and the courts upon termination have to put the
parties in their pre contractual position. Rescission is not possible
where:

1. Third party acquire rights (Caldwell)

 2. Timelapse (Leaf v International Galleries)
3. Affirmation (Long v Lloyd)
4. Subject matter is used up

For fraudulent misrepresentation, rescission plus damages are available

where the damage calculation test is that no foreseeability criteria applies and
all damages have to be compensated.

For statutory misrepresentation, rescission and damages are available but the
damage calculation would not be defined under the act so the courts created
“the fiction of fraud” i.e. the same test for fraud will apply to statute. (Royscott
v Rogerson).

For innocent misrepresentation, only rescission is available but if it cannot be

given then damages will be awarded but only those which are reasonably
foreseeable.

Performance, breach and damages

The first issue is to prove whether the breach is actual or anticipatory. Actual
breach is where there is no performance or different performance after the
due date of performance whereas anticipatory breach is when performance is
refused before the due date. If there is an anticipatory breach, the innocent
party has an option to affirm or terminate the contract but affirmation is only
possible if the other party is willing to cooperate. For actual breach, we first
need to determine if breach occurred or not and for that we need to see if the
contract is for goods or services. For goods, strict liability standard applies and
for services the reasonable skill standard applies.
The next step for actual breach is to determine whether the term was
condition, warranty or innominate. A condition is the core term or defined by
the parties as a condition and any breach gives the other party the right to
terminate the contract and claim damages. Warranties are non-core terms and
any breach only gives right for damages. Innominate are those terms whose
breach can be serious or less serious and depending on the breach this term
will be treated as a condition or warranty.

Damages:
For actual or anticipatory, the general rule for damages is that only reasonable
foreseeable damages are given i.e. those which are in the ordinary course of
business or within the knowledge of the parties at the time of contract. Even if
foreseeable, the measure of damage has to be seen:
 1. Expectation loss i.e. if profits are guaranteed, they will be compensated
2. Reliance loss i.e. if profits not guaranteed then expenses will be
compensated
3. Restitution i.e. if there is unjust enrichment the money earned has to be
compensated.
4. Non pecuniary losses i.e. non financial losses for eg mental distress but
only given if foreseeable
There is also a duty to mitigate losses

Midterm
Offer
Consideration
Performance breach
Misrepersenatation