Contract Law

Four elements required for a valid contract

Offer, acceptance, consideration, intention to create legal relations

Definition of an offer

A definite promise to be bound on specific terms if accepted

Difference between an offer and an invitation to treat

An offer is a definite promise capable of acceptance; an invitation to treat is an invitation to make offers (e.g., shop displays, advertisements)

Pharmaceutical Society v Boots

Goods on shop shelves are invitations to treat; customer makes the offer at the till

Mirror image rule (acceptance)

Acceptance must match the terms of the offer exactly—any variation is a counter-offer

Hyde v Wrench (1840)

A counter-offer kills the original offer—the original cannot then be accepted

Stevenson v McLean (1880)

A request for information about the offer is not a counter-offer; the original offer remains alive

General rule for communication of acceptance

Acceptance must be communicated to the offeror to be effective

Postal rule (Adams v Lindsell)

Acceptance by post is effective when posted, not when received

Acceptance by instantaneous communication (email, fax, phone)

Effective on receipt, not sending—postal rule does not apply

Revocation of offer—when effective?

When communicated to and received by the offeree (must be before acceptance)

Definition of consideration

Something of value exchanged by both parties—the price of the promise

Three key rules of consideration

(1) Must move from the promisee; (2) Need not be adequate but must be sufficient; (3) Past consideration is no consideration

Existing duty as consideration—general rule

Performing an existing contractual duty is not good consideration for a new promise

Williams v Roffey Bros (practical benefit exception)

If a party gets a practical benefit from the other performing an existing duty, that can be good consideration (e.g., avoiding penalty clause)

Presumptions for intention to create legal relations

Commercial agreements—presumed intended; domestic/social—presumed not intended

Balfour v Balfour

Domestic agreements between spouses presumed not legally binding

Three types of terms

Conditions, warranties, innominate terms

Effect of breach of condition

Innocent party can terminate the contract AND claim damages

Effect of breach of warranty

Damages only—cannot terminate

Innominate term—how to determine remedy

Apply Hong Kong Fir test: did the breach deprive the innocent party of substantially the whole benefit of the contract?

"Time is of the essence"—effect

Elevates time term to a condition—termination available regardless of actual consequences

Vague time language (e.g., "on or around")—effect

Suggests innominate term—apply Hong Kong Fir test based on consequences

Three methods of incorporation

Signature, reasonable notice, course of dealing

L'Estrange v Graucob

A signature binds a party to the terms in the document, even if unread (unless misrepresented)

Olley v Marlborough Court

Terms introduced after contract formation are not incorporated—too late

Chapelton v Barry UDC

Terms must be in a document a reasonable person would expect to contain contractual terms (ticket as receipt was not contractual)

Interfoto Picture Library v Stiletto

Unusual or onerous terms require special attention—must be specifically drawn to the other party's attention

Two-stage test for exclusion clauses

Stage 1 (common law): incorporated and covers breach? Stage 2 (statute): survives UCTA/CRA?

Contra proferentem rule

Any ambiguity in an exclusion clause is construed against the party seeking to rely on it

Personal injury caused by negligence—exclusion permitted?

Never—void under UCTA s.2(1) and CRA s.65

Property damage from negligence—exclusion test

Valid only if reasonable (UCTA s.2(2)) or fair (CRA s.62 for consumer contracts)

CRA 2015 fairness test (s.62)

Term unfair if, contrary to good faith, it causes significant imbalance in parties' rights to detriment of consumer

Elements of misrepresentation

False statement of fact, made by one party to another, before/at contracting, which induces entry into the contract

Three types of misrepresentation

Fraudulent (knew false/reckless), Negligent (no reasonable grounds), Innocent (reasonable grounds for belief)

Section 2(1) Misrepresentation Act 1967—burden of proof

Once false statement induced contract proven, burden shifts to representor to prove reasonable grounds for belief

Bars to rescission

Affirmation, lapse of time, third party rights, restitution impossible

Test for economic duress

(1) Illegitimate pressure; (2) Significant cause of entering contract; (3) No practical alternative

Etridge requirements—when bank on constructive notice

When (1) surety in non-commercial relationship with debtor, AND (2) transaction not to surety's advantage

Bank's obligation when on constructive notice (Etridge)

Must take reasonable steps—typically require independent legal advice for surety, with solicitor's confirmation

Purpose of contractual damages

To put claimant in the position they would have been in had the contract been properly performed (expectation interest)

Hadley v Baxendale—two limbs of remoteness

(1) Losses arising naturally from breach; (2) Losses from special circumstances communicated at time of contracting

Duty to mitigate

Claimant must take reasonable steps to reduce loss; cannot recover for losses that could have been avoided

When is specific performance available?

Discretionary—when damages inadequate; subject matter unique (e.g., land); no personal service; no ongoing supervision

Cost of cure vs difference in value (Ruxley v Forsyth)

Cost of cure may be limited if disproportionate to the benefit gained—court may award difference in value or modest sum for loss of amenity