Essential requirements of a contract, including privity of contract

Objectives Explain the requirements of a valid offer. Explain the requirements of a valid acceptance. Explain the rules of consideration. Understand the need for a valid contract to have intention to create legal relations. Explain and evaluate the doctrine of the privity of contract.

Introduction OFFER ACCEPTANCE CONTRACT + = INVITATION TO TREAT

Essential Requirements of a Contract Invitations to Treat An invitation to treat is not an offer, it is an invitation for a party to make an offer. Examples of invitations to treat: Goods on display in a shop – Pharmaceutical Society of GB v Boots Cash Chemists (1953). The customer does not make the offer until they take the goods to the till. Goods on display in a window – Fisher v Bell (1961) Advertisements and price lists – Partridge v Crittenden (1968) Lots at an auction – British Car Auctions v Wright (1972)

Essential Requirements of a Contract OFFER An offer is a statement containing the essential terms expressed in reasonably certain terms – for example, the goods, the price, the delivery date. The offer must be communicated to the offeree – Taylor v Laird (1856) An offer can be made to the whole world – Carlill v The Carbolic Smoke Ball Co (1893). The terms of the offer must be certain – Guthing v Lynn (1831) An offer can be withdrawn at any point before acceptance – Routledge v Grant (1828). The withdrawal must be communicated – Byrne & Co v Leon Van Tienhoven (1880) But once there has been acceptance, the offer cannot be withdrawn. An offer can be terminated by: - being accepted, and a contract is formed. - being withdrawn - a specified time can lapse - a reasonable time can lapse – Ramsgate Victoria Hotel Ltd v Montefiore (1866) - a counter offer being made – Hyde v Wrench (1840)

Essential Requirements of a Contract ACCEPTANCE Acceptance takes places when there is an unconditional assent to all terms of the offer. The acceptance must be communicated to the offeror; silence cannot amount to acceptance – Felthouse v Bindley (1863) Where there are ongoing negotiations of a contract, any new condition, alteration or qualification is regarded as a counter offer – Butler Machine Tool Ltd v Ex-cell-O Corp (1979). This is sometimes referred to as battle of the forms. Acceptance can be in any form, in writing, in words or implied by conduct – Yates v Pulleyn (1975). Where the accepted form of acceptance is by post, the acceptance takes effect as soon as it is posted, rather than when it is received – Adams v Lindsell (1818). The rule applies even if the letter is never received – Household Fire Insurance v Grant (1879) Discussion: how does the postal rule apply to instant methods of communication, such as fax or email? See the cases: Entores v Miles Far East Corporation (1955) Thomas v BPE Solicitors (2010)

Essential Requirements of a Contract ACCEPTANCE Consumer Protection (Distance Selling Regulations) 2000 Although it is the law that once an offer has been accepted, it cannot be withdrawn, an exception has been created under the Consumer Protection (Distance Selling Regulations) 2000 which allows a consumer a 14 day cooling off period. This allows a consumer to withdraw their acceptance within 14 days, so long as there has been no face to face contact between the buyer and seller. Exclusions: Contracts for the sale of land Purchase of something from a vending machine Contracts for transport and leisure Contracts to supply food for everyday consumption

The Llanelly Pottery Case Sarah, an antique dealer obtains a rare and valuable jug of Llanelly Pottery. She decides to give two of her regular customers, Fergus and Lucianda the opportunity to purchase the item and writes individually to them, telling them of this unique offer. She states in both letters that she is prepared to sell the jug for around £6,500 and asks them to telephone her no later than 1st March if they are interested. Fergus replies by email on the 1st March saying “I agree to pay £6,500, subject to you issuing a certificate of authenticity”. Lucianda posts the letter on 28th February indicating that she wishes to purchase the jug for £6,500. Although correctly addressed, Lucianda’s letter is delayed in the post and does not reach Sarah until 2nd March. By the time Sarah received Lucianda’s letter, she has already dispatched the jug to Fergus with a covering letter saying that she cannot issue a certificate of authenticity. Sarah now asks whether she can change her mind and sell the jug to Lucianda?

Essential Requirements of a Contract Intention to create legal relations Courts will only enforce a contract where there is an intention to be legally bound. This is assessed objectively – that is, how does it look to the reasonable outsider? There is a distinction between social and domestic agreements and commercial agreements: Social and domestic agreements: no intention to be legally bound – Balfour v Balfour (1919) Commercial agreements: intention to be legally bound – Esso Petroleum Co v Commissioners of Customs and Excise (1976) Intention can be negated by express wording, such as “subject to contract” – Confetti Records v Warner Music UK Ltd (2003) Discussion: What happens if you win the lottery? Have a look at the following two cases – was there an intention to create legal relations? Peck v Lateu (1973) and Wilson v Burnett (2007)

Essential Requirements of a Contract CONSIDERATION This means that each party must give something in return for what is gained by the other party, In can be described in terms of benefit to the person making the promise and detriment to the person to whom the promise is being made. Rules of consideration: Consideration need not be adequate, but must be sufficient – Chappell v Nestle (1960) Past consideration is no consideration – the consideration must be given in return for the promise – Re McArdle (1951). Exception: where it is at the promisor’s request and that payment will be made later – Lampleigh v Braithwaite (1615). The consideration must move from the promisee – Tweddle v Atkinson (1861)

Essential Requirements of a Contract CONSIDERATION Performing an existing duty cannot be consideration for a new promise – Collins v Godefroy (1831). However, the position has changed slightly in recent years: Contractual duties to supply goods or services – Williams v Roffey (1991) If the performance of the existing duty confers an additional benefit then it will be sufficient consideration. Contractual duties to pay existing debts – Pinnel’s case (1602) Part payment of a debt does not in itself constitute consideration, but it will be binding if there is some additional element that can be treated as consideration. However, under the doctrine of promissory estoppel, a contract can be formed even where there is no consideration. A contracting party who promises not to enforce a contractual right will not be able to enforce that right later if it is inequitable to do so – Central London Property Trust v High Trees House (1947)

Privity of Contract Common Law The basic rule here is that third parties cannot sue or be sued under a contract, even if they have an interest in its performance. Key Case: Tweddle v Atkinson (1861) where even though a person was named in a contract, he was unable to claim a third party right. This can leave parties without justice, and as such some exceptions have developed over the years: Married Women’s Property Act 1882 allows the beneficiary to life insurance to enforce the terms even though they are not parties to the contract. Road Traffic Act 1988 requires all drivers to take out third party liability insurance. Restrictive covenants Case Study: BBC v HarperCollins (2010) – have a look at this case and make a note of why ‘The Stig’ was permitted to publish an autobiography even though his identity was supposed to be kept a secret.

Privity of Contract Contracts (Rights of Third Parties) Act 1999 Statute Contracts (Rights of Third Parties) Act 1999 This Act enables parties enforce contractual terms even where they are not a party, provided: The contract expressly provides that they may do so; or The contract purports to confer a benefit upon them, unless the parties did not intend it to be enforceable – Nisshin Shipping v Cleaves (2003)

Privity of Contract Advantages Free will Unjust to allow a party to be able to sue, if they cannot be sued. Restricts the rights of the parties to modify or terminate the contract. It makes gratuitous promises enforceable Could expose parties to indefinite liability The ‘holiday’ cases – Jackson v Horizon Holidays (1975)

Privity of Contract Disadvantages Extended litigation Does not reflect the intentions of the parties Does not protect those who incur losses because they rely on a contract. Sheer number of exceptions makes it very legally complex. Could allow some parties to escape their contractual obligations.