CONTRACT LAW INTRODUCTION The Law of Contract governs the relationship between individuals in a wide range of circumstances. Everyday actions often involve making contracts and therefore the law has simple foundations. Contract law covers everything from simple shopping to large commercial deals and case law is wide in the matters that it covers also. Contracts are made by ordinary people in everyday situations many times a day e.g. buying a magazine, shopping, parking the car etc. Usually these events run smoothly, it is not until disputes occur that the question of a possible contract arises. WHY DO WE NEED A LAW OF CONTRACT? Where there is a conflict or dispute there needs to be some system to remedy the situation. Problems may arise deliberately and dishonestly or with two honest people having different views on a situation. It is easier to ascertain what has happened if a contract is written but, often this is not the case therefore the courts have to look for an objective test of agreement. SMITH v HUGHES (1871) A buyer wanted “old oats” for his horse. The seller thought he wanted “new oats”. The court held (based on the evidence of intention) that the two parties had agreed a sale (“reasonable man”) ARE ALL PROMISES ENFORCED BY LAW? Many domestic and social arrangements between friends and family are not legally enforceable, as there is no intention for them to be legally binding. Also, the court will make sure both parties have given something for the contract to be enforceable. THE FORM OF A CONTRACT Apart form a few exceptions e.g. land, a contract may take any form (oral or written etc.) THE BASIS OF CONTRACT LAW The main aim is to ensure agreements are made in a fair way and are “fair and reasonable”. There is case law and statute to govern contract law. Much recent contract legislation is in place to protect the consumer e.g. Sale of Goods Act 1979 (as amended) and Unfair Terms in Consumer Contracts Regulations 1994. Contract law works by limiting obligations people may impose on themselves and others. FELTHOUSE v BINDLEY (1862) An uncle proposed to buy his nephews horse saying that if he didn‟t hear otherwise, he would assume the horse was his. It was held this could not amount to a contract without some communication from the nephew. Obligations CANNOT be imposed on another party. FORMATION OF A CONTRACT IS THERE AGREEMENT? There must be “consensus ad idem” (meeting of minds) for there to be a contract. This is often difficult to prove however because evidence is required. Through case law a pattern has evolved of finding evidence of agreement and it is by requiring parties to have communicated in some way (offer and acceptance). THE BENEFIT OBTAINED OR “BARGAINED” Offer and acceptance are not the only requirements for a valid contract because otherwise the law may end up enforcing “one-sided” promises e.g. I‟ll give you a present of £20 next week. The law will however enforce agreements if each party has contributed in a recognisable way e.g. £20 for a football ticket (consideration). THE INTENTION TO BE BOUND BY THE AGREEMENT Differentiation must be made between parties intending to be bound to create legal relations and those which are not e.g. If I offer to buy my friend a sandwich if she pays for my drink we obviously don‟t intend for it to be legally enforceable in the courts. CAPACITY If a child in a playground offers to sell one of his toys then it is not normally legally enforceable as normally only adults (over the age of 18) are said to have the capacity to contract. OFFER The courts need some evidence of agreement between parties and external evidence of this can be seen in two aspects offer and acceptance. This handout will examine offer. An offer is “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.” There are two types of offer: Specific-made to one person or group of people who can choose to accept. General-to the “whole world” (or people generally) particularly seen in cases of rewards and other public advertisements. CARLILL v CARBOLIC SMOKE BALL CO (1893) This case had far reaching implications on future advertisements and the Co went bust in 1895. Therefore, whilst most offers require verbal or written acceptance (bilateral contracts) with general offers conduct may be a valid acceptance (unilateral contract). A more recent case found the acceptance to general offer to take place in a similar way BOWERMAN v ABTA (1996) An offer may be: Express-verbal or written Implied-from conduct or circumstances WILKIE v LONDON PASSENGER TRANSPORT BOARD (1947) OFFERS AND “NON-OFFERS” The court often looks at the statements made in negotiations to see if an offer has been made. Sometimes what appears to be an offer is an invitation to treat. Certain rules have been laid down to establish if there is: a) an offer-capable of acceptance b) an invitation to treat-invitation to others to negotiate an offer FISHER v BELL (1961) FISHER v BELL (1961) was confirmed in MELLA v MONAHAN (1961) later in the same year. If a customer makes an offer therefore, the seller can choose whether to accept or reject. The seller has the right to refuse to sell an item and cannot be compelled to sell to anyone. As Winfield (1939) pointed out “a shop is a place for bargaining”. N.B. A shopkeeper might incur criminal liability under the Trade Descriptions Act 1968 The law is not the same in other countries. Invitation to treat was applied to supermarkets in the following case PHARMACEUTICAL SOCIETY OF GB v BOOTS CASH CHEMISTS LTD (1953) In many situations it has been held that the advertisement of goods or services is an invitation to treat e.g. timetables, auctions, goods in adverts in newspapers etc. PARTRIDGE v CRITTENDEN (1968) Displays in shops, classified adverts, catalogues, circulars and timetables all apply the same “shopping principles”. CARLILL v CARBOLIC SMOKE BALL illustrates, some general offers are capable of acceptance. If an advert in a shop says “first 10 customers can purchase CD players for £5” and there are CD players available, then this is capable of acceptance. LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS STORES (1957) Problems also arise when two parties are negotiating individually and it is unclear when things have become firm enough for there to be an offer. GIBSON v MANCHESTER CITY COUNCIL (1979) OFFER – CASES CARLILL v CARBOLIC SMOKE BALL (1893) An advert appeared in the Illustrated London News in 1891. It said that anyone who took the Carbolic Smoke Ball Co „flu ball and contracted „flu would be paid £100. Mrs Carlill did as instructed and contracted „flu therefore claiming £100. The company refused to pay saying: a) It was merely an advert and there was no intention to create legal relations. b) A contract “with the whole world” is not legally possible. c) Mrs Carlill had not notified the company she intended to accept. d) There was no consideration to make the promise binding. The court held, in answer to the above: a) The company had not only said they would pay £100 but they had deposited £1000 in a bank to show intention to create legal relations. b) It was not a contract “with the whole world” but with anyone who performed the conditions. c) The action of using the smoke ball was acceptance by conduct. d) Using the smoke ball as directed constituted consideration. BOWERMAN v ABTA (1996) Notices on the wall in a travel agency were held to amount to an offer that anyone booking a holiday with this agency would be covered by ABTA. Acceptance was the act of booking a holiday with this agency by the client. WILKIE v LONDON PASSENGER TRANSPORT BOARD (1947) This case involved how and where a contract was formed on a bus journey. Clearly there was a contract but it was unclear as to when the offer and acceptance took place. The contract was largely implied by the actions of the parties rather than anything said specifically on the bus journey. FISHER v BELL (1961) The seller was accused of “offering for sale” a flick knife contrary to the Restriction of Offensive Weapons Act 1959. The knife was on display in his window. It was held that this was an invitation to treat not an offer, as generally displays in shop windows are not offers. PHARMACEUTICAL SOCIETY OF G.B. v BOOTS CASH CHEMISTS LTD. (1953) Boots were accused of selling goods without supervision of a pharmacist under the Pharmacy and Persons Act 1933. They had supermarket style shelves with a pharmacist at the cashier point. It was held the display of goods was an invitation to treat, the customer made an offer at the till, and the pharmacist had the right to accept or reject, therefore Boots were not liable. PARTRIDGE v CRITTENDEN (1968) The appellant had put an advert in the classified section of the newspaper advertising protected species of birds for sale at 25s each. He was charged with infringing the Protection of Birds Act 1954. It was held that this advert was not an offer for sale but an invitation to treat. If this was an offer it could result in exhausted stock. LEFKOVITZ v GREAT MINNEAPOLIS SURPLUS STORES (1957) An advert stated fur coats worth $100 would be sold to the first three customers for $1. One of the customers was refused because he was a man. It was held he had accepted the terms of the offer and was entitled to the coat for $1 GIBSON v MANCHESTER CITY COUNCIL (1979) Gibson wanted to buy his Council house from MCC. The Corporation said they would be willing to sell at a certain price. Gibson filled in the forms, but there was a subsequent election and a change of policy. The council refused to sell. It was held the Council proposal was an invitation to treat followed by an offer by Gibson which was rejected by the Council.