Contract Law

Mary Charman

• Publisher: Willan
• Year: 2013
• ISBN:
  9781134037940
• Edition: 4
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

This textbook covers the Contract Law option of the new A-level law syllabus, and provides at the same time an ideal introduction for anybody coming to the subject for the first time.The book covers all A-level syllabuses/specification requirements, and is written by the principal examiner in Contract Law for one of the major examination boards. It contains extensive case illustration, and a range of examination related questions and activities. There is a special focus on key skills, and on the new synoptic assessment syllabus requirements.This fully updated fourth edition builds upon the success of the first three editions, with new case law (especially on offer and acceptance, legal intent, terms, exemption clauses and misrepresentation remedies) and coverage of new statute law (especially Unfair Terms in Consumer Contracts Regulations).

1   Principles of the law of contract

Have you made a contract today, or this week? If you have not studied the law of contract at all, then your answer may well be ‘no’, since the law of contract may conjure up images of long, complicated forms for the sale of houses, loan agreements, exchange of businesses, etc. However, contracts exist in much more humble settings, beginning with everyday actions such as buying a packet of crisps or making a bus journey, and so the law concerning it has simple foundations. Yet this basic law of everyday contracts with which we will be concerned during much of this book, covers all kinds of situations from simple shopping to large commercial deals, and the cases which lay down the rules are equally wide in the matters which they cover.

Note: The particular area of contracts concerning the sale of land operates within this general framework of the law of contract, but is also covered by further law specific to land, which is outside the scope of this book. (‘Land’ covers not just the ground, but things growing in it, flowing through it, and attached to it, such as houses and other buildings.)

Can you think of some situations during the last few days when you might have made a contract?

Contracts are made by ordinary people in everyday situations, often many times during a day. Examples include buying a magazine, parking a car, doing the family shopping, entering competitions. Most of these events take place quite smoothly without any awareness of a contract having been made. It is usually not until disputes occur that the question of a possible contract arises.

Why do we need a law of contract?

The majority of people generally honour most of their promises as a matter of principle. However, situations do arise where conflicting interests lead to dispute, and then an established system of some sort is needed to resolve the problems and to attempt to prevent injustice.

It is easy enough to imagine a situation where an intention to trade dishonestly leads to a contract dispute, but problems may also arise when two or more people have honest, but differing, views of a situation. For example, those involved may have used similar language while understanding completely different things in an agreement. Equally, an arrangement may have begun amicably, a subsequent difference of opinion colouring a person’s view of the situation.

In theory, at least, it would be ideal if problems with contracts could be sorted out by referring to the intentions of those involved. However, most contracts are not written, and it is obvious that no court can look into a person’s mind, so English law looks for an objective test of agreement. It attempts to look at the conduct and communications between the parties involved, as if through the eyes of an ordinary reasonable person, to see if the outward signs of a contract exist. A good illustration of this is found in the following case.

Smith v Hughes (1871) Here a buyer wanted some old, mature, oats for his horse, and, after inspecting a sample, thought he had obtained these at a reasonable price. In fact the seller thought that new oats were required, and sold him less mature oats at a fairly high price (old oats were worth more than new oats). When the error was discovered the question arose as to what had really been intended.

Since the court could not investigate what had taken place in the parties’ minds, they based their decision on the evidence of what was intended, that is that the two parties had been quite happy with the sale of what they had seen in the sample in front of them.

Blackburn, J said of this objective approach,

If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party, upon that belief, enters into the contract with him, the man thus conducting himself would be equally bound, as if he had intended to agree to the other party’s terms.

Are all promises enforced by law?

No. If a friend promises to bring a CD along for you to listen to, and forgets, this would not be a breach of contract. Even though the friend’s promise is made honestly and seriously and intended to be binding, it was probably not the intention that it would form a legal agreement enforceable in court. Happily, the law takes this view too, as the promise itself may not contain the essential elements which are considered to be part of a contract. An obvious example is two members of a family, or a group of friends, making social arrangements – but more about this later.

Generally, the type of promise which the law will enforce is where something is to be gained on each side, such as goods for money, goods for goods, or exchange of services, although other less obvious bargains may be enforceable. So, in contract law, a court will look for a promise given for a promise, as opposed to a gratuitous (or one-sided) promise.

The form of a contract

Apart from a few exceptions (such as the sale of land) a contract may take any form. It may be oral or in writing, and may be made as a casual statement or accompanied by anything from a handshake to an elaborate ceremony. Often the form of agreement is suggested by the value of the contract in money terms, although this is not always the case, and it is certainly not a legal principle. However, buying a newspaper would not normally take place in the same manner as an agreement to deal in gold bullion!

The basis of contract law

The main aim of the law of contract is to ensure that these agreements are made in a fair way, and to enforce them, whether it is on behalf of the owner of a large company or a consumer buying a bar of chocolate. The rules of contract law are built on fairness and reasonableness, as cases have been decided in court, and on top of these Parliament has formed statutes where issues are of general concern.

As issues have come before the courts in the form of broken, misunderstood or non-existent contracts, the law has developed the rules which we apply to contracts today. The situation is gradually changing as more legislation is passed, often in an attempt to protect the consumer, who may otherwise be at a disadvantage in negotiating arrangements. Some examples are the Sale of Goods Act 1979 (as amended) and the Unfair Terms in Consumer Contracts Regulations 1994.

However, the principle that contract is a ‘case law’ subject remains true. The law of contract does not, in general, give rights and impose duties (as do some other aspects of law). It works by limiting the obligations that people may impose on themselves and others, within a general freedom to contract. The case of Felthouse v Bindley (1862) shows that obligations cannot be imposed on another party. In this case an uncle proposed to buy his nephew’s horse. The uncle wrote to the nephew saying that if he did not hear otherwise, he would assume that the horse was his. It was held that this could not amount to a contract without some communication from the nephew, as a contract cannot be imposed on a person in this way (even if they are happy with it).

Some aspects of Felthouse v Bindley appear a little harsh. Do you think that the outcome is justified? What if someone wrote to you offering to buy your hi-fi, and stated that unless you let them know otherwise they would assume that there was a contract between you? Should you be under an obligation to reply?

So, exactly what is needed to form a valid contract? The rest of this book will address that issue, and will also look at ways in which courts deal with problems that may arise once a contract is formed.

Part 1

The formation of a contract

Is there agreement?

To form a binding contract, the essential requirement is that the parties are like-minded over the basis of their contract. We say that there should be consensus ad idem, which is a meeting of minds, and to a pure theorist that is all which should be required. The problem lies in finding evidence of this agreement. It is a little like convincing a teacher or an examiner of your knowledge of the law (or anything else). Evidence is required of your knowledge in an agreed way.

Through case law a pattern has evolved of finding evidence of agreement, and it is by requiring the parties to have communicated in some way, one of them making an offer and the other making an acceptance. In most cases this is not too difficult, although it will be seen in Chapter 2 that there are a few difficult and non-standard cases.

The benefit obtained or ‘bargained’

If offer and acceptance were the only requirements, we could in theory have some very one-sided agreements. If I offer to give you a present of £20 next week, and you agree to this, we have an offer from me and an acceptance from you. If I then do not give anything at all next week, I will have broken my promise. Is this something that the law should enforce? The law is quite strict on not generally enforcing one-sided promises, feeling that it becomes very much a problem of morals when people break such promises.

The law will, however, enforce an agreement if something has been bargained by both parties, and both sides have contributed to the agreement in a recognisable way, for example by paying in exchange for goods. This does not have to be the actual handing over of goods, so a promise to pay could be given in exchange for the promise to hand over goods. This exchange is known as consideration, and is another requirement in forming a contract.

The intention to be bound by the agreement

A third requirement is that the parties do really intend to be bound by whatever they agree. In a shopping context this is likely to go without saying, as a seller is unlikely to intend to give away goods without really expecting payment! However, if I offer to pay for my friend’s drink if he buys my sandwich, I do not seriously expect to sue him if he only buys his own sandwich. To distinguish between serious contracts and social agreements the law requires an element of legal intention in forming a contract.

Capacity

A further factor to consider in the legality of a contract is whether the parties are of the standing required by the law to make a binding agreement. If a child in a playground agrees to sell one of his toys, this would not normally be binding. The law requires a legal capacity to contract, and generally adults over the age of 18 are said to have this. A further formation requirement examined in this part of the book, then, is the capacity to contract.

If all four of these requirements are present, then there will normally be a binding contract.

2 Offer and acceptance

A contract is an agreement between two parties imposing rights and obligations which may be enforced by law. The courts need some kind of evidence of this agreement, so they look, through the eyes of a reasonable person, for external evidence of it. To help identify evidence of agreement, it is conventionally analysed into two aspects: offer and acceptance.

Figure 2.1

Offer

An offer can be defined as follows:

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.

Offers can be one of two types:

• Specific – made to one person or group of people. Then only that particular person or group of people can accept.

• General – made to ‘the whole world’ (or people generally), particularly seen in the cases of rewards and other public advertisements.

The following is probably one of the best known cases in contract law, and it involves a general offer, made to the ‘whole world’.

Carlill v Carbolic Smoke Ball Company (1893)
In the Illustrated London News in November 1891 appeared what was to become a notorious advertisement. It read,

£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic, influenza, colds or any diseases caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball …. One Carbolic Smoke Ball will last a family several months making it the cheapest remedy in the world at the price – 10 shillings post free.

Recent winters had been hard, influenza epidemics sweeping the country and resulting in many deaths. Mrs Carlill, like many others, must have been impressed by the advertisement and acquired a smoke ball from her chemist. Unlike many others, however, when the smoke ball failed to prevent her from getting influenza (despite ...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• Table of Statutes
• Table of Cases
• Preface to the fourth edition
• 1 Principles of the law of contract
• Part 1: The formation of a contract
• Part 2: The contents of a contract
• Part 3: Vitiating factors
• Part 4: Discharge and remedies
• Part 5: Consumer protection
• Part 6: General questions on contract law
• Part 7: Studying contract law
• Answers guide
• Legal terms and expressions
• Legal resources
• Index