Law of Contract – law notes for legal and accounting students from Holland Condon solicitors

This is the civil side of our law.

Main Sources = Common law, Statute & EU law

Definition =

• Legally binding agreement
• Freely entered by 2 people
• Giving rights and obligation on both sides
• • Breach allows injured person to sue

Types:

• Bilateral – 2 parties exchange promise & bound from beginning
• Unilateral – initially 1 person bound from the beginning e.g.

Carlill -v- Carbolic Smoke Ball Co

The Case on Contract Law.  Offer & acceptance & elements of Contract discussed.If sniff smoke ball 3 times daily for 2 weeks & still caught flu.  £1000 lodged in Regent Street Bank “as token of our sincerity”.£100 reward each person.

 

Essentials for a Contract: All must be present to be legally enforceable = 

 

Essential elementsOf a Contract

Agreement between the parties. (Not all agreements are contracts); Terms of Contract expressed with a degree of certainty; Parties must possess the intention to create legal relations; Exchange of consideration; Contract must be legal & capable of being carried out.

 

 

1. Agreement element =

OFFER: –

• Is a clear and unambiguous statement of the terms on which a party is prepared to be bound contractually;
• In writing or verbal or implied by conduct;
• Made to one person or to the world at large.

Invitation to Treat = invitation to make an offer.  You might think its an offer but its not! Examples:

1. Advertisements               Partridge case                                                                                               Carbolic Smoke Ball                                                                                    Grainger

2. Display of Goods for Sale                                                                                                              Boots Pharmaceutical case – criminal case involving offence of offering for sale.

3. Auction Sales
4. Catalogues/brochures and quotations and tenders

Boyers case – quote for 3,000 yards canvass (1905); Plaintiff had asked for quote & Defendant gave below cost price.

ACCEPTANCE: –

• Accepting the offer = agreement;
• Can be in writing or verbal or implied by conduct

1. Acceptance must be unqualified e.g. Neale v Merrett;
2. Acceptance must be communicated (e.g. Russell case), except can be implied by conduct e.g. Carlill v Carbolic Smoke Balle. unilateral contracts

Offer, Acceptance & Postal Rule: –  If ordinary post is used: –

• Offer made when letter received by offeree;
• Offer is accepted (= agreement) when offeree posts the acceptance not when offeror gets it!
• Offer revoked when offeree received letter, provided offeree has not already accepted it

*Largely its historical as communication is mainly electronic these days.

Termination of an Offer: –

1. Rejection;
2. Counter offer made by offeree e.g. Hyde v Wrench;
3. Unreasonable lapse of time between offer and acceptance e.g. Victoria Hotel Co;
4. Withdrawal (revocation) of the offer before it is accepted by the offeree e.g. Routledge case;
5. By Law = death of one of the parties, bankruptcy, lunacy/incapacity of one party;
6. Before performance in unilateral contracts e.g. Shuey case.

 

2. Terms of the Contract must be expressed with degree of certainty.

 Parties must possess the intention to create legal relations

Domestic/Social Agreements ~ Courts presume parties do not intend to enter legal binding contract e.g.

1. Contracts between spouses = Balfour v Balfour

2. Parent and child = Jones v Padavatton

Irish High Court have said presumption only applies to close family.

 

Commercial Agreements ~ strong presumption that parties intend to enter contract where business agreement e.g. Rose v Crompton

O’Rourke v Talbot: Irish company entered agreement not to make 4 men redundant; gave “guarantee” protection; made men redundant.  Held although company did not intend it to be legally binding, they did not communicate this so they were bound by it.

• Express terms: “not legally binding” or “Subject to Contract” = no intention

 

“Possess” => Capacity i.e. capable of entering an agreement

• Minors = you only have capacity if you are 18plus or married, but minors are bound for

(A) Necessities (Sale of Goods = actual requirements) e.g. Nash v Inman

(B) If contract is of benefit to the minor e.g. training contract

For Minors, following agreements/contracts always void =

Repayment of money lent; 2. Goods not necessaries;3. Money owing.

• Person of unsound mind (all about lacking mental competence) then contract is invalid if  (1) Person was unable to understand contract AND (2) Other person knew or ought to know this.
• Drunkard = same as above;
• Convicts = couldn’t enter contracts = Forfeiture Act 1870 except this has been changed by Criminal Law Act, 1997;
• Companies acting “ultra vires” their objects;
• Other important aspects that affect capacity to enter contracts by not having the ability to give genuine consent =

~ Duress e.g. forcing someone        ~ Undue influence e.g.influencing old person

~ Parties mistake or misrepresentation      ~ Companies acting ultra vires

 

4. Consideration = what each party gives

quid pro quo = ‘something for something’ e.g. buying bar chocolate: “A” gets chocolate and “B” gets money for it

= you do something for me and I’ll do something for you.

 

~ Executed Consideration = a promise for an act e.g.  I’ll give you €1000, if you give me your car ;

~ Executory Consideration = a promise for a promise – both sides promise to exchange consideration in the future e.g. I promise to give you €10 when I get the flowers and you promise to deliver the flowers to me tomorrow.

 

Rules of Consideration: –

1. Consideration must be sufficient but need not be adequate Thomas v Thomas ;
2. Consideration must be present and not past e.g. Re McArdle
3. Consideration must be more than what party has to do Collins v Godfrey;

 

If No consideration given, then probably no contractUNLESS it’s either a document under seal in a deed OR by virtue of Principle of Promissory Estoppel = where a person makes a promise & no consideration passing (e.g. to waive a debt or obligation) and where promisee acts on the promise, equity can say the promissor is estopped (prevented/stopped) from retracting the promise.

 

5. Contract must be legal & capable of being performed.

NOW WE HAVE A LEGAL CONTRACT  !!!

****************  We have a contract, so what’s in it?

Contents of Contract

Terms of Contract = what each party is obligated to do.  They can be

• Express terms = actually there (best if written)
• Implied terms = although not specifically agreed the Law says they are there i.e.

Terms implied by Custom;   By Legislation; By the Courts; By the Constitution; By E.U. Law;

Terms of Contract divide into three categories: –

1. Conditions

• Vital terms
• If breached other party can repudiate contract & sue for damages e.g. Arcos v Ronassen

2.Warranties

• Not as vital but important
• If breached other party can only sue for damages e.g. Bettini

3.Innominate Terms

• Where Court cant determine if its condition or warranty
• Breach MAY entitle repudiate if substantial benefit lost (+/or get damages) e.g. Hong Kong Fir Shipping case, Irish Telephone Rentals case

Exemption Clauses = Terms of Contracts attempting to exclude or limit liability of a party for a breach = Also known as exclusion clauses or limitation clauses.

Defined as a clause in a contract which attempts to limit, exempt or exclude liability of one party where loss or injury occurs to the other party to the contract.

Courts disapprove of them and have put in place strict rules governing validity. Rules =

• Written contract with exemption clause signed by parties; parties generally bound by it e.g. L’estrange v Graucob;
• Oral contract with exemption clause – parties bound if brought to their attention in advance e.g. Thornton v Shoe Lane Parking;
• Deemed incorporated through course of dealings – exemption clause not notified but parties had a few previous transactions e.g. Spurling v Bradshaw;

 

If Court says exemption clause is validly incorporated then it must interpret it.  Courts have “leaned against them” & use strict & narrow interpretation =

• Contra Proferentum Rule – if its unclear, then Court takes the meaning that’s least favourable to party wanting to enforce e.g. Houghton v Trafalgar;
• Main Purpose Rule – clause cannot be used except for the main purpose of the contract e.g. Sze Hai Tong Bank v Rambler;
• Fundamental Breach – party cannot use the clause where that party is in fundamental breach of contract Clayton Love case

 

Exemption Clauses in Consumer Contracts

• Consumer Law including Acts, has restricted  their use in consumer contracts, that is a contract betwee a business and a consumer e.g.  Sale of Goods and Supply of Services Act, 1980 prohibits their use in certain situations i.e.exempting liability relating to merchantable quality for example.
• Exemption clauses can be used in contracts between two businesses as long as the clause is “fair and reasonable”.    Finney Lock seed case
• European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 were implented here as a result of EU directive. Apply to consumer contracts and exclusion/limitation clauses will be deemed unfair if they cause a”significant imbalance in the parties’ rights and obligations”. By the way, under this Regulation, the High Court issued an order setting out 10 types of clauses that would be unfair if used in contracts to buy a new house in a housing estate.
• If a clause is found unfair then the clause is removed from the contract but the rest of the contract still stands/applies.