Contract Law

An offer is a clear, definite statement of the terms on which the offeror is willing to be bound, communicated to the offeree. It must be distinguished from an invitation to treat (an invitation to others to make offers).

Invitation to treat (NOT an offer):

• Goods displayed in a shop window or on a shelf: The display is an invitation to treat; the customer makes the offer at the checkout (Pharmaceutical Society v Boots Cash Chemists [1953])
• Advertisements: Generally an invitation to treat, not an offer — unless they are a unilateral offer (Carlill v Carbolic Smoke Ball Co [1893] — a reward advertisement was held to be an offer to the whole world)
• Auction: The auctioneer's call for bids is an invitation to treat; each bid is an offer; the fall of the hammer is acceptance
• Tenders: A request for tenders is an invitation to treat; each tender submitted is an offer

Termination of an offer: An offer may be terminated by: revocation (withdrawal by the offeror — effective when communicated to the offeree, and can be communicated by a reliable third party — Dickinson v Dodds [1876]), rejection by the offeree, counter-offer (which destroys the original offer — Hyde v Wrench [1840]), lapse of time (if a deadline was set, or after a reasonable time), death of either party (in most cases), failure of a condition attached to the offer.

Counter-offer vs request for information: A counter-offer rejects and replaces the original offer. A mere request for information (e.g., "Would you consider accepting £900?") does not reject the offer — it remains open (Stevenson v McLean [1880]).

Acceptance is an unqualified agreement to all the terms of the offer. It must be communicated to the offeror.

Key rules:

• Acceptance must be unconditional — any change to the terms is a counter-offer, not acceptance
• Acceptance must be communicated to the offeror. Silence does not constitute acceptance (Felthouse v Bindley [1863] — "If I hear no more about it, I shall consider the horse mine" was not valid acceptance)
• Acceptance must be made by the offeree (or their authorised agent)
• If the offeror prescribes a method of acceptance, that method should generally be used. However, an equally effective alternative method may suffice.

The postal rule: Acceptance by post is effective when the letter is posted (placed in the control of the postal service), not when received — Adams v Lindsell [1818]. The postal rule applies only when: post is a reasonable method of communication, the letter is properly addressed and stamped, and the offeror has not expressly excluded the postal rule. The postal rule does NOT apply to instantaneous communications (email, fax, phone) — these are effective on receipt.

Consideration is something of value given by each party to the other — the "price" of the promise. A contract requires consideration from both parties (unless the contract is made by deed).

Definition: "An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought" — Dunlop v Selfridge [1915].

Key rules of consideration:

• Must be sufficient but need not be adequate: Consideration must have some value in the eyes of the law, but the court will not assess whether it is a fair exchange. £1 can be valid consideration for a £100,000 item (Thomas v Thomas [1842]). However, consideration must have some economic value — love, affection, and moral obligations are not sufficient.
• Must not be past: Consideration must be given in return for the promise, not for something already done. An act performed before the promise was made is "past consideration" and is not valid (Re McArdle [1951]). Exception: if the act was done at the promisor's request with an understanding that payment would follow, past consideration may be valid (Lampleigh v Braithwait [1615]).
• Must move from the promisee: The person seeking to enforce the contract must have provided consideration. Only a party who has given consideration can sue on the contract (relates to privity).
• Performance of an existing duty is not good consideration: Doing what you are already legally obliged to do (by law or by an existing contract) is generally not valid consideration for a new promise. Exception: if the promisee does more than their existing duty, this can be good consideration. Also, a practical benefit to the promisor may constitute consideration (Williams v Roffey Bros [1991] — a builder promised extra payment to a subcontractor to ensure timely completion; the practical benefit of avoiding a penalty clause was sufficient consideration).
• Part payment of a debt: Payment of a lesser sum does not discharge an obligation to pay a greater sum (Pinnel's Case [1602]). However, exceptions include: payment of a lesser sum at an earlier date, payment by a different method, payment by a third party, and the doctrine of promissory estoppel (Central London Property Trust v High Trees House [1947] — where a party has relied on a promise to accept less, the promisor may be estopped from going back on that promise).

The parties must intend their agreement to be legally binding. Two presumptions apply:

• Social/domestic agreements: Presumed NOT to be legally binding (e.g., arrangements between family members, friends). This presumption can be rebutted by evidence to the contrary (Merritt v Merritt [1970] — a separated couple's agreement was held to be binding).
• Commercial/business agreements: Presumed to be legally binding. This presumption can be rebutted by an express statement (e.g., "This agreement is not intended to be legally binding" — a "subject to contract" clause, or an "honourable pledge" clause: Rose & Frank v Crompton [1925]).

The parties must have the legal capacity to enter into a contract. Most adults of sound mind have full contractual capacity. Restrictions apply to:

• Minors (under 18): Generally, contracts with minors are voidable (the minor can avoid them, but the other party is bound). Exceptions: contracts for necessaries (goods or services suitable to the minor's condition in life — Sale of Goods Act 1979 s.3) and contracts of employment, education, or training that are substantially for the minor's benefit are binding.
• Persons of unsound mind / intoxicated persons: A contract is voidable if the person was unable to understand the nature of the transaction AND the other party knew of the incapacity.
• Companies: A company incorporated under CA 2006 has unlimited capacity (the ultra vires doctrine is largely abolished for third parties dealing in good faith — s.39 CA 2006). However, directors who act beyond their authority may be personally liable.

Express terms are terms explicitly agreed by the parties (orally or in writing). They are the terms the parties actually negotiated and stated.

Implied terms are terms not expressly agreed but incorporated into the contract by:

• Statute: Legislation implies certain terms automatically — e.g., Sale of Goods Act 1979 (SGA), Consumer Rights Act 2015 (CRA), Supply of Goods and Services Act 1982 (SGSA)
• Custom or trade usage: A term may be implied if it is a well-established custom in a particular trade or market
• The courts: A term may be implied "in fact" to give business efficacy to the contract (The Moorcock [1889]) — the term must be necessary to make the contract work as the parties intended. The term must satisfy the "officious bystander" test: would an officious bystander suggest the term, and would both parties immediately agree?

Sale of Goods Act 1979 (SGA) implies terms into contracts for the sale of goods between businesses (B2B):

• s.12 — Title: The seller has the right to sell the goods (implied condition)
• s.13 — Description: Goods must correspond with their description (implied condition)
• s.14(2) — Satisfactory quality: Goods must be of satisfactory quality — fit for all common purposes, free from minor defects, safe, durable, appearance and finish (implied condition). Only applies where the seller sells in the course of business.
• s.14(3) — Fitness for particular purpose: Where the buyer makes known a particular purpose, goods must be reasonably fit for that purpose (implied condition)
• s.15 — Sample: Where goods are sold by sample, the bulk must correspond with the sample (implied condition)

Consumer Rights Act 2015 (CRA) implies similar terms into consumer contracts (B2C — trader to consumer):

• s.9 — Satisfactory quality: Goods must be of satisfactory quality (similar to SGA s.14(2))
• s.10 — Fitness for particular purpose
• s.11 — Goods to match description
• s.13 — Goods to match sample
• Consumer remedies: Short-term right to reject (within 30 days), right to repair or replacement, and right to a price reduction or final right to reject. These remedies are more consumer-friendly than SGA remedies.

Key distinction: SGA applies to B2B transactions. CRA applies to B2C (consumer) transactions. For B2B, exclusion clauses may limit liability for implied terms (subject to the reasonableness test under the Unfair Contract Terms Act 1977 — UCTA). For B2C under the CRA, these implied terms cannot be excluded.

A misrepresentation is a false statement of fact (not opinion or future intention) made by one party to the other before the contract was formed, which induced the other party to enter into the contract.

Three types:

Bars to rescission: Rescission may be lost if: the innocent party affirmed the contract (continued with it after discovering the misrepresentation), a third party has acquired rights in good faith, excessive delay (lapse of time), or it is impossible to restore the parties to their original positions (restitutio in integrum).

Duress: Pressure or threats that force a party to enter into a contract against their free will. The contract is voidable.

• Physical duress: Threats of violence to the person. Rare in a business context.
• Economic duress: Illegitimate economic pressure that leaves the victim with no practical alternative but to agree (e.g., threatening to breach an existing contract unless the other party agrees to new terms — Atlas Express v Kafco [1989]). The pressure must be a significant cause of entering the contract, the victim must have had no realistic alternative, and the victim must not have affirmed the contract after the pressure was removed.

Undue influence: Where one party has a position of influence or trust over another and uses it to obtain an unfair advantage. The contract is voidable.

• Actual undue influence: The claimant proves the other party actually exerted improper influence
• Presumed undue influence: Arises automatically in certain relationships of trust and confidence (e.g., solicitor-client, doctor-patient, parent-child, religious advisor-follower). The presumption is that the person in the position of trust influenced the other. The burden shifts to the dominant party to prove the transaction was entered into freely (e.g., by showing independent legal advice was obtained).

Mistake: A fundamental error about a material element of the contract. Operative mistake renders the contract void (never existed). Types:

• Common mistake: Both parties share the same mistake about a fundamental fact (e.g., the subject matter has been destroyed without either party's knowledge — Bell v Lever Bros [1932]). The mistake must be fundamental — a mere mistake about quality or value is insufficient.
• Mutual mistake: The parties are at cross-purposes — each party has a different understanding of a material term (e.g., they are talking about different things). If a reasonable person would not be able to determine which meaning was intended, the contract is void.
• Unilateral mistake: One party is mistaken, and the other party knows (or ought to know) about the mistake. Typically arises in: mistaken identity (e.g., dealing with an impostor), mistakes about terms (where one party knows the other is mistaken about a term).

Illegality: A contract is void and unenforceable if its purpose or performance is illegal (e.g., a contract to commit a crime, a contract to defraud HMRC) or contrary to public policy. In some cases, an innocent party may recover money paid.

Damages are the primary common law remedy for breach of contract — a monetary payment to compensate the innocent party for their loss.

Purpose: To put the innocent party in the position they would have been in had the contract been performed (the "expectation" or "loss of bargain" measure). This is the primary measure. Alternatively, the court may award "reliance" damages — putting the claimant in the position they would have been in had the contract never been made (recovering wasted expenditure).

Remoteness of damage — Hadley v Baxendale [1854]:

Damages are only recoverable for losses that are not too remote. A loss is not too remote if it falls within one of two limbs:

1. First limb: Loss arising naturally from the breach — the type of loss that any reasonable person would foresee as a probable result of the breach in the ordinary course of events.
2. Second limb: Loss arising from special circumstances known to both parties at the time the contract was made — unusual or exceptional losses that the defendant was aware of (or should have been aware of) when they entered the contract.

The test was refined in The Heron II [1969] and Transfield Shipping v Mercator Shipping [2008]: the type of loss must have been within the reasonable contemplation of the parties at the time of contracting.

Duty to mitigate: The innocent party has a duty to take reasonable steps to minimise their loss. They cannot recover damages for losses they could have avoided by acting reasonably (e.g., finding an alternative supplier, reselling goods to another buyer). They cannot recover for losses caused by their own unreasonable actions.

Liquidated damages vs penalties: The parties may agree in advance a fixed sum payable on breach (liquidated damages). This is enforceable if it is a genuine pre-estimate of loss. A clause that is disproportionate and intended to punish rather than compensate may be struck down as a penalty — the test is whether the clause protects a legitimate business interest (Cavendish Square Holding v Makdessi [2015]).

Available where damages would be inadequate. All equitable remedies are discretionary.

Specific performance: A court order requiring the defendant to perform their contractual obligations. Typically available for contracts involving unique goods (e.g., land, antiques, one-of-a-kind items) where a substitute cannot be obtained. NOT available for: contracts of personal service (employment), contracts requiring constant supervision, or where the claimant has acted inequitably.

Injunction: A court order to restrain a party from doing something — typically enforcing a restrictive covenant or a non-compete clause. Prohibitory injunctions (ordering someone NOT to do something) are more common than mandatory injunctions (ordering positive action).

Rescission: Setting aside the contract and restoring the parties to their pre-contractual position. The primary remedy for misrepresentation. Subject to bars (affirmation, third-party rights, lapse of time, impossibility of restitution).