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CONTRACT LAW

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					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.

				
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