Professor Paula Giliker, University of Bristol
What is a contract? “ Promise (or agreement) which is recognised by law.�
“ Promise (or agreement) which is recognised by law.” “Promise” – voluntary and serious undertaking given by
each party to contract.
“Agreement” – must be bilateral or multilateral “Recognised by law” – legal rules determine whether
contract exists
Key contractual terminology Offer and acceptance Consideration Intention to create legal relations Breach of contract Damages and remoteness
1. Offer and acceptance Agreement is formed on proof of offer and acceptance. Offer defined as “ statement by one party to enter into a
contract on stated terms, provided that these terms are, in turn, accepted by the party or parties to whom the offer is addressed.” Acceptance defined as “an unqualified expression of assent to the terms proposed by the offeror.” * Definitions from E McKendrick, Contract Law (8th ed., Palgrave, 2009).
Example of offer: Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 ď‚—Is an advertisement to the general public an
offer?
An advert to pay ÂŁ100 to anyone using the smoke ball and not being cured of influenza.
Bowen LJ: “It was also said that the contract is made with all the world - that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world ... It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement.�
Example of acceptance: Hyde v Wrench (1840) 3 Beav. 344 The defendant offered to sell his farm to the plaintiff for
£1,200. The plaintiff refused. On 6th June, defendant then offered to sell for £1,000. Plaintiff instead offered to buy the farm for £950. The defendant then asked for time to consider. On 27th June, defendant rejected offer of £950. On 29th June, plaintiff wrote to accept accept price of £1,000. Has the offer been accepted?
The Master of the Rolls (Lord Langdale): “I think there exists no valid binding contract between the parties for the purchase of the property. The Defendant offered to sell it for £1000, and if that had been at once unconditionally accepted, there would undoubtedly have been a perfect binding contract; instead of that, the Plaintiff made an offer of his own, to purchase the property for £950, and he thereby rejected the offer previously made by the Defendant. I think that it was not afterwards competent for him to revive the proposal of the Defendant, by tendering an acceptance of it; and that, therefore, there exists no obligation of any sort between the parties; the demurrer must be allowed.”
2. Consideration Definition: “a promisee should not be able to enforce a promise unless he has given or promised to give something in exchange for the promise or unless the promisor has obtained (or been promised) something in return.
* Definitions from E McKendrick, Contract Law (8th ed., Palgrave, 2009).
Executed or executory consideration? Executed =performed your side of bargain. Executory =promise to perform your side of bargain.
Gratuitous promises? No as no economic value. Unless in formal document: Deed.
In other words, a contract must be a bargain in English law.
Example: Thomas v Thomas (1842) 2 QB 851; 114 E.R. 330 Action brought by a widow against her husband's
executor. On the day of his death, the husband had said in front of witnesses, that he wanted his wife to have one of the houses for life. However, no legal documentation signed. After death, the executors agreed to convey a life interest in one of the houses "in consideration of John's desires" - provided she paid £1 per annum rent and kept premises in good repair. Consideration?
Patteson J: Yes. “Consideration must be of value and involve benefit or detriment. Respect for the testator's wishes is not sufficient consideration. But payment and a covenant to repair is sufficient.â€? Which means that provided some money paid (here ÂŁ1) there is consideration. The courts will not assess whether it is an adequate price.
3. Intention to create legal relations Essential element of a contract, but assessed OBJECTIVELY. Example =Balfour v Balfour [1919] 2 K.B. 571. Wife sought to enforce promise by her husband to pay her ÂŁ30 per month while he worked abroad. WAS THERE AN INTENTION TO CREATE LEGAL RELATIONS?
Atkin L.J.: No intention to create legal relations. “ ... agreements such as these are outside the realm of contracts altogether. The common law does not regulate the form of agreements between spouses ... The consideration that really obtains for them is that natural love and affection which counts for so little in these cold Courts.� So courts will not enforce contracts between husband and wife unless proof that there is a commercial intention e.g. family business.
4. Breach of contract Classic definition by Professor Treitel:
“a breach of contract is committed when a party without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing.” Number of elements here: (i)Fail or refuse to perform (ii)Perform defectively or incapacitates himself from performing (iii)Without lawful excuse. A lawful excuse would be frustration which terminates the contract, but does not amount to breach of contract.
Response to breach of contract: Terminate the contract if sufficiently serious. Right to damages to compensate for loss
resulting from the breach. (Rarely) specific performance of the obligation breached – VERY unusual in English law.
5. Damages: usual remedy for breach of contract. ď‚—The general principle is that the measure of damages for
breach of contract is intended to place the injured party in the same situation, as far as money can do it, as if the contract had been performed: Robinson v Harman(1848)1 Ex 850. ď‚—Recovery of damages limited by a number of doctrines: (i) remoteness (ii) duty to mitigate loss
(i) Remoteness Hadley v Baxendale (1854) 9 Ex 341 ď‚—â€œWhere two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.â€?
(ii) Duty to mitigate: British Westinghouse Electric v Underground Electric Railways Co of London Ltd [1912] A.C. 673 ď‚—Purchased steam turbines which were defective in design. Forced to replace them, but bought far more efficient machines which were so efficient that it would have been to the advantage of the railway company to replace the original turbines (even if functioning correctly) when they did. ď‚—Is this relevant to the claim for breach of contract?
House of Lords: Yes. ď‚—The additional benefits gained by the railway
company from acquiring the new turbines, over and above what would have been their contractual entitlement as against British Westinghouse, had to be brought into account in calculating the damages.
In this session, therefore, covered the following key contractual terminology: Offer and acceptance Consideration Intention to create legal relations Breach of contract Damages and remoteness
Next: Legal terminology in the law of tort/ delict.