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CAVENDISH lawcards series® Contract Law Fourth Edition Cavendish Publishing Limited London • Sydney (cid:127) Portland, Oregon Fourth edition first published in Great Britain 2004 by Cavendish Publishing Limited, The Glass House, Wharton Street, London WC1X 9PX, United Kingdom Telephone:+44 (0)20 7278 8000 Facsimile:+44 (0)20 7278 8080 Email: [email protected] Website: www.cavendishpublishing.com Published in the United States by Cavendish Publishing c/o International Specialized Book Services, 5824 NE Hassalo Street, Portland, Oregon 97213–3644, USA Published in Australia by Cavendish Publishing (Australia) Pty Ltd 45 Beach Street, Coogee, NSW 2034, Australia Telephone:+61 (2)9664 0909 Facsimile:+61 (2)9664 5420 Email: [email protected] Website: www.cavendishpublishing.com.au © Cavendish Publishing Ltd 2004 All rights reserved. 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Cataloguing in Publication Data Data available ISBN 1–85941–868–6 1 3 5 7 9 1 0 8 6 4 2 Typeset by Photosetting, Chatham, Kent Printed and bound in Great Britain Contents 1 Agreement 1 2 Consideration 19 3 Contents of a Contract 37 4 Exemption (Exclusion or Limitation) Clauses 53 5 Vitiating Elements which Render a Contract Voidable 71 6 Mistake 93 7 Illegality and Capacity 107 8 Discharge 125 9 Remedies for Breach of Contract and Restitution 143 10 Privity of Contract 167 1 Agreement The traditional view that an agreement requires the identification of a valid offer and a valid acceptance of that offer has been challenged in recent years by: (cid:1) Lord Denning in Gibson v Manchester City Council (1979) and Butler Machine Tool Co Ltd v Ex-Cell-O Corpn Ltd (1979) where he stated that providing the parties were agreed on all material points, then there was no need for the traditional analysis; (cid:1) Lord Justice Steyn (obiter) in Trentham Ltd v Archital Luxfer (1993) where he stated that a strict analysis of offer and acceptance was not necessary in an executed contract in a commercial setting. The traditional view, however, was applied by the House of Lords in Gibson v Manchester City Council (1979). Lord Diplock did recognise that there may be some ‘exceptional contracts which do not fit easily into an analysis of offer and acceptance’, for example, a multi-partite contract as in Clarke v Dunraven (1897), but he stressed that in most contracts the ‘conventional’ approach of seeking an offer and an acceptance of that offer must be adhered to. In normal cases, therefore, a valid offer and a valid acceptance of that offer must be identified 1 Cavendish LawCards: Contract Law A bilateral agreement In a unilateral agreement consists of an exchange of the offerer alone makes a promises, for example: promise. The offer is accepted by doing what is set out in the offer, for example: Offer—I will sell my car for £500 Offer—I will pay £500 to anyone who returns my lost kitten Acceptance—I will give you Acceptance—The lost £500 for your car kitten is returned Unilateral and bilateral agreements The distinction is important with regard to: (cid:1) advertisements; (cid:1) revocation of offers; (cid:1) communication of acceptance. Offer A definite promise to be bound provided that certain specified terms are accepted A valid offer: (cid:1) must be communicated, so that the offeree may accept or reject it; (cid:1) may be communicated in writing, orally, or by conduct (there is no general requirement that an agreement must be in writing. Important exceptions include contracts 2 1 Agreement relating to interests in land (Law of Property (Miscellaneous Provisions) Act 1989, s 2(1)), and consumer credit (Consumer Credit Act 1974)); (cid:1) may be made to a particular person, to a group of persons, or to the whole world. In Carlill v Carbolic Smoke Ball Co Ltd (1893), the defendants issued an advertisement in which they offered to pay £100 to any person who used their smoke balls and then succumbed to influenza. Mrs Carlill saw the advertisement and used the smoke ball, but then immediately caught influenza. She sued for the £100. The defendants argued that it was not possible in English law to make an offer to the whole world. Held— an offer can be made to the whole world; (cid:1) must be definite in substance (see certainty of terms, p 17, below); (cid:1) must be distinguished from an invitation to treat. Invitations to treat An indication that the invitor is willing to enter into negotiations but is not prepared to be bound immediately In Gibson v Manchester City Council (1979), the council’s letter stated ‘we may be prepared to sell you ...’. The House of Lords did not regard this as an ‘offer’. A response to an invitation to treat does not lead to an agreement. The response may, however, be an offer. 3 Cavendish LawCards: Contract Law The distinction between an offer and an invitation to treat depends on the reasonable expectations of the parties. The courts have established that there is no intention to be bound in the following cases. Display of goods for sale (cid:1) In a shop. In Pharmaceutical Society of GB v Boots Cash Chemists Ltd (1952), the Court of Appeal held that, in a self-service shop, the sale takes place when the assistant accepts the customer’s offer to buy the goods. The display of goods is a mere invitation to treat. (cid:1) In a shop window. In Fisher v Bell (1961), it was held that the display of a ‘flick knife’ in a shop window with a price attached was an invitation to treat. However, it was suggested by Lord Denning in Thornton v Shoe Lane Parking (1971) (see below) that vending machines and automatic ticket machines are making offers since, once the money has been inserted, the transaction is irrevocable. (cid:1) In an advertisement. In Partridge v Crittenden (1968), an advertisement which said ‘Bramblefinch cocks and hens –25s’ was held to be an invitation to treat. The court pointed out that, if the advertisement was treated as an offer, this could lead to many actions for breach of contract against the advertiser, as his stock of birds was limited. He could not have intended the advertisement to be an offer. However, if the advertisement is unilateral in nature, and there is no problem of limited stock, then it may be an offer. See Carlill v Carbolic Smoke Ball Co Ltd (above). Advertising a reward may also be a unilateral offer. 4 1 Agreement Auctions (cid:1) An auctioneer’s request for bids in Payne v Cave (1789) was held to be an invitation to treat. The offer was made by the bidder (cf Sale of Goods Act 1979, s 57(2)). (cid:1) A notice of an auction. In Harris v Nickerson (1873), it was held that a notice that an auction would be held on a certain date was not an offer which then could be accepted by turning up at the stated time. It was a statement of intention. If the auction is stated to be ‘without reserve’, then there is still no necessity to hold an auction, but, if the auction is held, lots must be sold to the highest bidder (Barry v Heathcote Ball (2001), confirming obiter dicta in Warlow v Harrison (1859)). The phrase ‘without reserve’ constitutes a unilateral offer which can be accepted by turning up and submitting the highest bid. Tenders A request for tenders is normally an invitation to treat. (cid:1) However, it was held in Harvela Ltd v Royal Trust of Canada (1985) that if the request is made to specified parties and it is stated that the contract will be awarded to the lowest or the highest bidder, then this will be binding as an implied unilateral offer. It was also held in that case that a referential bid, for example, ‘the highest other bid plus 10%’ was not a valid bid. (cid:1) It was also held in Blackpool and Fylde Aero Club v Blackpool BC (1990) that, if the request is addressed to specified parties, this amounts to a unilateral offer that consideration will be given to each tender which is properly submitted. 5