Contract Law

On Monday a woman saw an advertisement in a local newspaper for a second-hand car priced at £750. The seller provided a telephone number, so the woman called and arranged to view the car that evening. The woman offered the seller £650, which was rejected. The seller called the following day (on Tuesday) and offered to accept £700 but would only keep the offer open for three days, until Friday. On Wednesday evening the seller called and left an answerphone message to say that he had changed his mind and would not accept less than £750. The woman listened to the answerphone message on Thursday morning and is wondering whether she can still accept the seller’s offer of £700.

What is the woman’s legal position?

Revocation of the offer took effect when the woman listened to the answerphone message this morning. An offeror is entitled to revoke his offer at any time until it has been accepted. Revocation will take effect upon communication to the offeree.

A man tells his cousin that if she will wallpaper his dining room, he will pay her £500. The cousin does the job, but the man is refusing to pay the £500. The cousin is a decorator. Nothing was put in writing.

Will the man have to pay the £500?

The man must pay the £500 as whilst there is no presumption to create legal relations, that presumption can be rebutted given the cousin is a decorator. As the parties are cousins, there is a presumption that there is no intention to create legal relations. However, the more distant the relationship, the weaker the presumption and therefore it will be fairly weak in this case. As the cousin is a decorator, she would have little difficulty rebutting the presumption.

An offer to sell a product was made by a seller to a buyer. The offer was made via email on 10 January. The email stated that the offer was open for 10 days and the seller must hear from the buyer accepting the offer before the deadline on 20 January. The buyer sent a letter accepting the offer by post on 17 January. The letter was delayed in the post and did not reach the seller until after the deadline. Having not heard from the buyer by 20 January, the seller sold the product to someone else.

What best describes whether there is a binding contract?

The seller indicated the need to hear from the buyer by the deadline on 20 January so the postal rule was excluded and there is no binding contract. Acceptance is generally effective when received. However, an exception to this is the postal rule, where acceptance is effective when posted even if the letter is delayed. However, there are conditions to be met for the postal rule to apply, one condition being that the postal rule is only effective if it has not been excluded by the offeror. It is likely that the seller (the offeror in this case) impliedly excluded the postal rule by stating that the seller must hear from the buyer accepting the offer before the deadline on 20 January. The postal rule therefore does not apply and there is no binding agreement.

An antique writing desk is valued at £50,000. The owner decides to sell the desk at auction and hopes to achieve a minimum price of £35,000. The desk was made available at auction without a reserve price. There was little interest and the highest bid was £5,000. The auctioneer refused to sell the desk to the bidder explaining that the bid was far below the minimum price desired.

What remedies are available to the bidder?

The auctioneer should have accepted the highest bid. There is no sales contract for the desk but the auctioneer may be liable in damages to the bidder. If there is no reserve the auctioneer is obliged to accept the highest bid. However, the offer to buy the desk at £5,000 was not accepted and so there can be no contract with the owner. Although the bidder has no remedy against the owner of the desk, she may have a remedy against the auctioneer for damages. It may help you to have a look at the case of Barry v Davies (2000).

An uncle reaches an agreement with his nephew that the nephew will use the uncle’s van for a day and pay the uncle £200 for doing so. The van is ordinarily used by the uncle as part of his landscape gardening business. The nephew, who is a property developer, intends to use the van to clear a property prior to refurbishing it for sale.

What most accurately describes the situation with respect to their intention to create legal relations?

There is a presumption of no intention to create legal relations but this may be rebutted because of the nature of the transaction. It is generally presumed that an agreement between family members is a domestic agreement and is not intended to be a contract. However, there is a commercial context to this arrangement. The van is used as a business vehicle and is going to be used for a commercial purpose. This evidence may rebut the presumption.

An engineering company agreed to build 40 wind turbines on a farmer’s land by 1 May. The farmer needed the work completed by 1 May to enable him to fulfil a valuable energy supply contract. On 1 April the engineering company notified the farmer that due to labour shortages it would be difficult for the company to complete the work on time. The farmer promised an additional £15,000 to enable the company to pay its workforce overtime to ensure the work was completed on time.

Is the farmer obliged to pay the additional £15,000?

Yes, because the farmer is gaining a practical benefit or obviating a disbenefit from the work being completed on time. This is an example of a variation of a contract where there is a promise to pay more in return for the performance of an existing contractual duty on time. This kind of variation is binding so long as the paying party receives a practical benefit or obviates a practical disbenefit. Here, the farmer needs the work done on time so he can fulfil the valuable energy supply contract. The farmer therefore will receive a practical benefit in getting the work done on time.

A landlord agreed to rent premises to a baker on 1 January for £400 per month, payable in advance. The baker opened the bakery just as the council closed the road for roadworks. Business was not as good as the baker had expected. On 1 March the baker asked the landlord if she would accept £200 per month until business improves. The landlord agreed to reduce the rent until the roadworks were finished. The baker paid £200 on 1 March and for each of the following months.

The roadworks finished on 30 September. It is now 1 December and business has not improved for the baker.

The landlord would like to know if she can now demand the full rent of £400 and whether she has any claim for arrears of unpaid rent.

Which of the following statements best describes the landlord’s position in relation to the rent?

The landlord has no claim for the arrears from March to September but can claim the unpaid £200 per month for October and November and the full £400 per month from 1 December.

The general rule is that payment of a lesser sum is not good consideration for a promise to forego the balance (Foakes v Beer (1884) 9 App Cas 605, HL). Applying this principle, the landlord would be able to claim all the arrears of rent and demand the full rent going forward. However, there are exceptions to this rule. One such exception is the doctrine of promissory estoppel.

The doctrine of promissory estoppel provides that where there is a promise to forego a strict legal right made with the intention that it is relied upon and the promisee does so rely upon it then it would be inequitable for the promisor to go back on its promise (Central London Property Trust Ltd v High Trees House Ltd [1947] 1 KB 130).

The landlord’s promise was to reduce the payments until the roadworks finished. This happened on 30 September. From 1 October, the landlord would have a right to demand the full monthly rent of £400. Although obiter, it is generally thought that the right to past payments (covering the months of March to September) is extinguished. The landlord would have no right to claim the arrears of rent for the period the roadworks were ongoing.

The tiles on the roof of a woman’s home were damaged while she was away from home. Her neighbour, an accountant, repaired the roof while the woman was still away. When the woman returned, she promised the accountant she would pay him £100 for the work he had done.

Must the woman pay the accountant the £100?

No, because the accountant did the work before the promise of payment was made. A past act will not normally amount to sufficient consideration to bind a later promise to pay. Whilst there are exceptions to this general rule, none are applicable on these facts.

Today a company agrees to supply and install CCTV security cameras at a client’s warehouse. The price is £2,000 plus VAT. The client agrees to pay a deposit of £250 plus VAT within the next three working days and to pay the balance of the fee of £1,750 plus VAT on completion of the work. The parties agree a date for the work.

Today have the parties provided sufficient consideration to make their agreement legally binding?

Yes, because as it is the parties’ promises that provides sufficient consideration this is what makes the agreement binding. Consideration can be a promise to do something (executory consideration) and here in a bilateral agreement both parties are exchanging promises. The client promises to pay the fee and the company promises to do the work.