1. Introduction – What is a Contract? 1. 1 Definitions Not all agreements will be contract enforceable in law – social arrangements, for example, or contracts which offend against public decency and public policy and those which involve criminal activity. ‘A contract is an agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. ‘ Treitel ‘A promise or set of promises which the law will enforce. ‘ Pollock.
‘The law of contract may be provisionally described as that branch of the law which determines the circumstances in which a promise shall be legally binding on the person making it. ‘ Anson 1. 2 Why should contracts be enforced? As a very broad principle, agreement between individuals and between commercial entities is based on a very high degree of freedom of choice; but, in the modern era with increasing use of statute to regulate behaviour that may mislead, exclude liability or be oppressive. 1. 3 Essentials of a modern contract * Intention to create legal relations.
* Offer * Acceptance * Written formalities in exceptional cases * Consideration except for contracts under deed * Clear terms * Parties must have capacity to contract * The contract must not be ‘illegal’ or contrary to public policy There must have been genuine consent, not vitiated by: * Mistake * Misrepresentation * Duress * Undue influence 1. 4 Contracts may be void, voidable or unenforceable In the absence of any of the elements referred to in s1. 3 the contract may be void, voidable or unenforceable. Void ab initio – no legal effect at all.
Voidable – legally binding, but one party has a right to set it aside Unenforceable – valid in all respects but may not be enforced in a court of law. Money paid under such a contract cannot usually be recovered. Limitation Act 1980 3. 1 What is an Offer? An intimation (viewed from an objective standpoint) by words or conduct of a willingness to enter into a legally binding contract, specifying the terms of the binding agreement which will be formed should the offer be accepted by the party to whom it is addressed. 3. 1. 1 An offer may be made to a specific person, a group of persons or an individual.
————————————————- Carlill v Carbolic Smokeball Co Ltd [1893] ————————————————- The Carbolic Smoke Ball Company made a product called the “smoke ball”. It claimed to be a cure for influenza and a number of other diseases. The Company published advertisements in the press claiming that it would pay? 100 to anyone who became sick with influenza after using its product according to the instructions set out in the advertisement. ————————————————- ————————————————-
?100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according to the printed directions supplied with each ball. ————————————————- ————————————————- ?1000 is deposited with the Alliance Bank showing our sincerity in the matter. ————————————————- ————————————————-
Mrs Carlill saw the advertisement, bought one of the balls and used it in accordance with the instructions. l She contracted the flu She claimed ? 100 from the Carbolic Smoke Ball Company. Mrs Carlill brought a claim to court. She contended that the advertisement and her reliance on it was a contract between her and the company, and so they ought to pay. The company argued it was not a serious contract. ————————————————- ————————————————- The Court of Appeal rejected the company’s arguments and held that there was a fully binding contract for ?
100with Mrs Carlill. Among the reasons given by the three judges were: (1) that the advert was a unilateral offer to all the world (2) that satisfying conditions for using the smoke ball constituted acceptance of the offer (3) that purchasing or merely using the smoke ball constituted good consideration, because it was a distinct detriment incurred at the behest of the company and, furthermore, more people buying smoke balls by relying on the advert was a clear benefit to Carbolic (4) that the company’s claim that ? 1000 was deposited at the Alliance Bank showed the serious intention to be legally bound..
The advert was not “mere puff” as had been alleged by the company, because the deposit of ? 1000 in the bank evidenced seriousness. 2. The advertisement was an offer to the world. 3. Communication of acceptance is not necessary for a contract when people’s conduct manifests an intention to contract. 4. That the vagueness of the advert’s terms was no insurmountable obstacle. 5. The nature of Mrs Carlill’s consideration (what she gave in return for the offer) was good, because there is both an advantage in additional sales in reaction to the advertisement and a “distinct inconvenience” that people go to to use a smoke ball.
3. 1. 2 Bilateral and unilateral contracts Unilateral contracts arise where X promises to do something in return for an ACT by Y, e. g. to pay ? 100 if he walks from London to Brighton. Y is not bound to do the act, but only if he performs the act will he be able to enforce the promise on X’s part. A bilateral contract arises where X promises to do something for Y if Y promises to do something for X in return. The exchange of such promises normally renders them enforceable. 3. 2 Offer Distinguished from Invitation to Treat.
If an individual is merely feeling his way towards making an offer or has stated an intention only, this will amount to an invitation to treat only. Whether an act is construed as an offer or an invitation to treat is dependant on the intention of the parties. 3. 2. 1 Shop and self service situations The display of goods in a shop amounts only to an invitation to treat. Fisher v Bell [1961] Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 3. 2. 2 Advertisements and circulars These are generally classified as invitations to treat.
Advert for birds in a magazine was not an offer. Partridge v Crittenden [1968] Circulation of a wine catalogue was an invitation to treat. Grainger & Son v Gough [1896] Advertisements promising rewards for the recovery of lost property are generally construed as offers. Gibbons v Proctor (1891) ————————————————- Williams v Cawardine (1833) ————————————————- Walter Carwardine was murdered. The plaintiff, Mrs Williams, gave evidence against two suspects, but did not say all she knew. The suspects were acquitted.
The victim’s brother and defendant, Mr Cawardine, published a handbill, stating there would be a reward for information leading to the discovery of Cawardine’s murderer. Mrs Williams then gave more information which led to the conviction of two men (including a Mr John Williams, the plaintiff’s husband). She claimed the reward. Mr Carwardine refused to pay. At the trial her motives were examined. It was found that she knew about the reward, but that she did not give information specifically to get the reward. It was apparent that after the first murder trial, Mrs Williams had been savagely beaten by Mr Williams.
————————————————- The Court held, that the plaintiff was entitled to recover the reward. The advertisement amounted to a general promise or contract to pay the offered reward to any person who performed the condition mentioned in it, namely, who gave the information – motives were irrelevant. ————————————————- ————————————————- Little dale J: “If the person knows of the handbill and does the thing, that is quite enough. ” Patteson J said “We cannot go into the plaintiff’s motives.
” ————————————————- ————————————————- The case is also authority for the rule that the offer must be communicated. In R v Clarke (1927) information was given in connection with a reward, the prime motivation being the obtaining of a royal pardon. In Williams v Carawrdine the judges were not concerned with the motive. In R v Clarke the High Court of Australia held that motive was important. Adverts giving rise to unilateral contracts are generally regarded as offers. It is, however, always a matter of construction.
Carlill v Carbolic Smokeball Co Ltd [1893] 3. 2. 3 Negotiations for the sale of land Land transactions must now by made in writing under the Law of Property (Miscellaneous Provisions) Act 1989. However even cases predating the Act show that clear evidence of an intention to be bound, and the existence of a certain offer, were needed in cases involving land. Harvey v Facey [1893] telegraphed “Will you sell us ‘Bumper Hall Pen’? Telegraph lowest cash price” D replied “Lowest cash price….? 900” P telegraphed “We agree to buy…. for ? 900 asked by you. Please send us title deed.
” HELD: D’s telegram was an invitation to treat not an offer. Spencer v Harding (1870) “We are instructed to offer… by sale by tender” was held to be an invitation to treat. Bigg v Boyd Gibbons Ltd [1971] “For a quick sale I would accept ? 26,000” was held to be an offer capable of acceptance. Clifton v Palumbo [1944] “I am prepared to offer you my estate for ? 600,000. ”Because the estate was large and scattered the Court of Appeal held that this was not a definite offer. The price was but one issue to be settled between the parties. 3. 2. 4 Tenders and standing offers
An announcement that contracts for the provision of goods or services is open to tender, is an invitation to treat and not an offer. Spencer v Harding (1870) D issued a circular offering for sale certain stock in trade for which tenders were invited. Harvela Investments v Royal Trust Co of Canada Ltd [1986] In cases where the standing offer is in effect a unilateral offer, complying with the rules on certainty and clarity of intention, it will not be held to be an invitation to treat but can be accepted and create a binding contract. Great Northern Railway v Witham (1873)
3. 2. 5 Auction sales The call for bids is an invitation to treat. The bid is an offer. The auctioneer may accept or reject such offers. Payne v Cave (1789) 3 Term Rep 148 Section 57 Sale of Goods Act 1979 57 Auction sales (i) Where goods are put up for sale by auction in lots, each lot is prima facie deemed to be the subject of a separate contract of sale. (ii) A sale by auction is complete when the auctioneer announces its completion by the fall of the hammer, or in other customary manner; and until the announcement is made any bidder may retract his bid.
(iii) A sale by auction may be notified to be subject to a reserve or upset price, and a right to bid may also be reserved expressly by or on behalf of the seller. (iv) Where a sale by auction is not notified to be subject to a right to bid by or on behalf of the seller, it is not lawful for the seller to bid himself or to employ any person to bid at the sale, or for the auctioneer knowingly to take any bid from the seller or any such person. (v) A sale contravening subsection (4) above may be treated as fraudulent by the buyer.
(vi) Where, in respect of a sale by auction, a right to bid is expressly reserved (but not otherwise) the seller or anyone person on his behalf may bid at the auction. McManus v Fortescue Auctions subject to reserve: No contract if bids fail to reach advertised/notified reserve. No contract between owner of property and highest bidder if auctioneer fails to accept highest bid. Warlow v Harrison (1859) The aggrieved bidder would, in such a case, be able to sue the auctioneer for breach of contract.
An advertisement that an auction is to be held is an invitation to treat, not an offer, and no liability arises in contract if the auction is later cancelled. It is not decided whether these rules will require adjustment for electronic auctions aimed at consumers e. g. Ebay. 3. 3 Termination of Offer An offer remains ‘live’ that is, capable of being accepted, until terminated. Termination may occur in six ways: (i) Revocation (ii) Rejection (iii) Lapse of time (iv) Death (v) Insanity, incapacity, impossibility (vi) Occurrence of a terminating condition. Revocation The offeror may revoke his offer at any time up until acceptance
————————————————- Byrne v Van Tienhoven (1880) ————————————————- On 1 October Van Tienhoven wrote offering tin plates for sale to Byrne, who was in New York. They sent a letter revoking the offer on the 8th, which did not reach New York until the 20th. Byrne received the first letter offering plates on the 11th, and sent a telegram back the same day accepting the offer. A letter was then sent on the 15th again confirming the acceptance of the offer. Revocation must be communicated and is effective upon receipt.