CONTRACT LECTURES TRANSCRIPTS

C. STRICKLAND

LECTURE 1

Track /Slide 100.20

This first lecture is very much so an introductory lecture. What we are going to look at is how contract law developed in England, what the essential ingredients of a contract are and the approaches judges take to finding the existence of a contract.

Track/Slide 201.54

Contract law has developed mainly through the courts – through the common law. Thus the bulk of contract law is to be found in cases not in Acts of Parliament. The downside of this is that contract law developed through the accident of litigation, so the development has been somewhat haphazard. Common law worked through the writ system so you only had a cause of action if there was a specific writ covering your specific claim. This was quite harsh originally because only contracts made in writing and sealed had a cause of action. Since most people at the time could neither read nor write it denied them access to justice. A landmark case was Pickering v Thoroughgood 1533 in which Spelman J expressed the opinion that an assumpsit, an undertaking, should be actionable not only for misfeasance, agreeing to do something and doing it badly, but also for nonfeasance, agreeing to do something and not doing it at all. This is really seen as the birth of contract law as it marks a general cause of action called an assumpsit, an undertaking. This basically amounts to being able to sue someone in court for a ‘breach of promise’. Differences in approach to promises between older forms of action and assumpsit led to problems but these were eventually solved in Slade’s case in 1602.

Track/Slide 302.23

Having got to the stage of development that there was a general cause of action for breach of promise, the next problem was what type of promises should give rise to a cause of action. Clearly not all promises could be actionable as this would be unworkable for the courts. During the 16th century this problem was solved due to the growth of the idea of consideration. During the 17th and 18th centuries there is some controversy as to how contract law developed, but in the 19th century we see the development of what we might now recognise as the modern law of contract, due to three main factors. Firstly, was the industrial revolution. This is when commerce became a major source of wealth whereas previously wealth had been associated with the land. With the rise of commerce there was the need for Standard Form Contracts. From this we get the idea that contract law is the ‘child of commerce’ and serves the needs of commerce. This is something that we can see throughout contract law as we go through the lectures. The second point in the 19th century was the idea of ‘laissez-faire’. This is the idea that grown men of sound mind have the freedom to make whatever contracts they wish. The third point of the 19th century is that there was the growth of treatises or texts on contract law, such as Pollack’s law of contract. At this point then the modern law of contract was emerging as a ‘bi-lateral’ agreement giving birth to the idea of offer and acceptance. The task of the court is to try to give effect to what the parties have agreed. Cases tended to proceed on the basis that a ‘general’ set of principles would apply to most contracts.

Track/Slide 400.46

In the 20th century the principle of laissez-faire came under attack. This was because an individual contracting with a business man was at a huge disadvantage, especially if the business man was using a Standard Form Contract. Standard Form Contracts invariably contain exclusion clauses which could in certain circumstances exempt the businessmen from liability for breach of contract. Judicial intervention to protect the individual from exploitation was restricted due to the doctrine of precedent. Most inroads therefore into the principle of laissez-faire came from statutory intervention.

Track/Slide 501.08

Is it possible to give a definition of a contract? The truth of the matter is that there is no formal definition of a contract in English law. This is because we have seen how the law of contract has developed ad hoc, on the hoof, over the years. In order to define a contract one really has to make reference to all the principles that have evolved over the years. It is possible to elicit some general principles that apply to all contracts and these are what we are going to consider throughout the lectures, generally that there must be an agreement between the parties. This agreement must be supported by consideration. There must also be an intention to create legal relations, and so forth. A possible, tentative definition of a contract could be, ‘a legally binding agreement or set of promises between two or more parties.’

Track/Slide 600.16

Throughout these lectures we are dealing with simple or informal contracts, which are contracts made orally or in writing. We are not dealing with contracts made under seal or deeds.

Track/Slide 700.45

What is a simple contract? In Cheshire, Fifoot and Furmston’s ‘Law of Contract’ (14th edition) at page 32 it states, ‘An Englishman is liable, not because he has made a promise, but because he has made a bargain.’ The parties to a contract thus agree to be bound by it. Most contracts are carried out with absolutely no problems but when one side takes the other side to court, it is then the job of the judge to determine whether or not there is a contract – is there an agreement to be bound? What the judge tries to find is a ‘consensus ad idem’.

Track/Slide 800.14

When a case is brought to court the task of the judge is to determine objectively from all the evidence what was said, written and done by the two parties.

Track/Slide 902.03

The judge looks at the external evidence to see if the ‘reasonable man’ would have said there was a contract. In Storer v Manchester City Council 1974 Lord Denning said, ‘In contracts you do not look into the actual intent in a man’s mind. You look at what he said and did … a man cannot get out of a contract by saying, “I did not intend to contract” if by his words he has done so.’ The reason judges take this stance is because the parties to the contract are not mind readers and secondly, it is necessary to give some certainty to contracts. It would be far too easy for people to say that there was no contract because although they wrote something into it, actually that is not what they intended. What you have to remember at this point is that contract is the child of commerce – commerce needs certainty. When a judge determines objectively what he or she thinks the agreement is, this may or may not actually coincide with what one or other of the parties actually intended. It is to be hoped that in the most part that when the judge decides what the agreement is objectively this does in the main reflect subjectively what was actually going on in the minds of the parties. Sometimes it won’t match. Is this fair? The answer to this depends on whether you think fairness in this subjective sense could ever be achieved in the courts. How does a judge know whether one side is telling the truth? By taking the objective stance the judge can at least elicit some sense of judgemental framework from the facts.

Track/Slide 1002.41

It is not always easy for the judge to determine if there is an agreement between the two sides. The judge has to balance conflicting interests, of certainty for the law of contract generally and of fairness in the particular case. How do you think the interests of the parties were balances in the following cases? First, in the Centrovincial case. In this case the claimant, the lessors of a property, offered to renew the rent of the property at a market value rate of £65,000. Since the lessees, the defendants, were currently paying £68,320 they agreed in writing to the new sum, considerably less than they were paying already. When the lessors realised the mistake, they had meant to ask for £126,000 they sought a declaration from the court that there was no agreement. In the Court of Appeal it was held that the contract stood. Slade J said that the defendants had simply accepted in the proper way an unambiguous offer and that it would be contrary to established contract law to let the claimants withdraw their offer because even a reasonable man in their position would not have known of the mistake. This is promissee objectivety. Next let us consider the case of Hartog v Colin and Shields. In this case the defendants entered into a contract to sell 3000 hare skins to the claimants. They meant to ask for 10 pence per piece but by mistake offered sell them at 10 pence per POUND. This was to their disadvantage as there were about 3 pieces to the pound. When the defendants realised their mistake they refused to go ahead with the agreement and so the claimants sued for non-delivery. The court held that the claimants could not succed in demanding delivery at the contract price because a reasonable person in the same position as the claimants would have known that the offer did not reflect the true intention of the parties.

Track/Slide 1101.25

When a case comes to court and the judge has to ascertain whether a contract was in existence between the two parties, most judges will ‘reason forward’. That is, they will first try to find an offer, then an acceptance supported by intention to create legal relations and consideration. Thus, we need to determine just what an offer is. An offer can be defined as, ‘an expression of a willingness to be legally bound as soon as this expression, by words or conduct, has been accepted by the party or parties to whom it was addressed.’ It is probably a good idea at this point to remind ourselves of terminology. If A offers to sell a car to B, A equals the ‘offeror’ and B equals the ‘offeree’. A and B are parties to the contract. They are ‘privy’ to the contract. If A delivers the car and B doesn’t pay, A as claimant, formerly known as the plaintiff, may sue B, the defendant, for breach of contract.

Track/Slide 1201.54

From the beginning of a case it can be very difficult for the judge to decide if an offer has actually been made. For an offer to have been made, we can note at least three points that the judge will bear in mind. Firstly, negotiations between the parties must have ended so that the court can see when an offer was actually made. The difference between negotiations and an offer, is that the offeror has demonstrated an objective willingness to be bound should the other accept it. If negotiations have not ended, then at most, one can find an ‘invitation to treat’, which is not an offer. The second point the judge may note, the offer must be specific enough to be accepted. Vague words or phrases are unlikely to be seen as offers. There are likely to be seen as evidence of only an invitation to treat. The third point, the offer must be known about by the offeree. A person cannot purport to accept an offer if they knew nothing about it. Whilst generally it would be easier for the court to decide objectively if there is a contract when there is something written down, even so there can be problems when there is an exchange of correspondence, such as letters or Standard Form Contracts going repeatedly between the two parties. The court then has to determine at what point if any the correspondence gave rise to an offer that was accepted.

Track/Slide 1302.04

Here we can contrast two cases. Sudbrook Trading Estate Ltd v Eggleton 1983 and Bushwall Properties Ltd v Vortex Properties Ltd 1976. In the Sudbrook case, in order to determine the price of a freehold the two parties, under an option clause (which simply represents an offer) were each to appoint a valuer. One of the parties refused to appoint a valuer and so argued, that since the option clause did not say what was to happen if one of them refused to appoint a valuer, then the option clause was invalid and not an offer because it was too vague – it left something to be decided. The House of Lords disagreed. They said the option clause was certain enough to be accepted because it merely provided that a reasonable price should be found for the freehold – preferably through professional objective valuers – but if need be the court could provide a mechanism for finding a reasonable price. But, in the Bushwall case, an offer was held to be too uncertain. The agreement provided for the sale of land in three instalments. Following each instalment, quote, ‘a proportion of the land would be given over’ to the purchaser. However, there was no mechanism for saying which bit of land would be given over and so the offer was regarded as too vague to be accepted. From these two cases we can see that it is not easy to say which way a case will go. When answering examination questions, it is thus desirable to cover both possibilities.

Track/Slide 1400.52

An offer is effective only when communicated to the offeree. So, there can be no acceptance in ignorance of an offer. For this reason, two identical cross offers would not make a contract. Thus, in the case of Tinn v Hoffman and Co 1873 there was no contract when the two parties by chance wrote to each other at the same time, the one offering to buy 800 tons of iron at 69 shillings per ton and the other offering to sell 800 tons of iron at 69 shillings per ton. Here there would be no consensus ad idem – no agreement.

Track/Slide 1500.52

Do the courts always stick to the strict rules of offer and acceptance? The answer is no. Sometimes the court will say that there is a contract even when it is very difficult to analyse the position in terms of offer and acceptance. In New Zealand Shipping Co Ltd v Satterthwaite 1975 Lord Wilberforce said: ‘English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.’

Track/Slide 1602.54

This can be illustrated by the case of Clarke v Dunraven 1897. The plaintiff and the defendant entered a yacht club regatta, agreeing in writing to abide by the rules of the yacht club. One of the rules was that the offending yacht owner agreed to pay for all damage caused by the fouling of other yachts. The plaintiffs yacht was fouled by the defendants yacht causing it to sink. The defendant refused to pay for all the damage caused to the other yacht as per the rules, arguing that there was no contract between themselves and the plaintiff, that their only contract was with the yacht club itself. As such they only had to pay minimal damages according to the Merchant Shipping Act 1862. The House of Lords upheld the decision of the Court of Appeal that there was a contract between the two yacht owners which came into existence either when they entered the race or when they started sailing. They had accepted the rules as binding on each other. Why would the courts find a contract here? We can see that the facts of the case appear to have been forced to fit into offer and acceptance – maybe to reach a fair outcome. Although the parties had no direct contact with each other, they entered the race on the understanding of liability on the part of the one to the other. We could say that objectively their conduct gave rise to the contract. It is more common for contacts to be found to exist in commercial situations – not too surprising since we have already noted that contract is the child of commerce. So, in New Zealand Shipping Co Ltd v Satterthwaite 1975 what helped convince the majority of the Law Lords that a contract was formed between the shippers of an expensive drill and the stevedores who unloaded it in New Zealand was the fact that, quote, ‘The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises in this context as gratuitous seems paradoxical and is prima facie implausible’.

Track/Slide 1700.19

We will now look at various cases that illustrate the problems of finding a valid offer under the following headings: preliminary negotiations, advertisements, goods on display in shops/catalogues, auctions and tenders.

Track/Slide 1804.27

Let us recap on what an offer is. It is the expression or intimation to enter into a legally binding contract that will be formed as soon as it is accepted by the person to whom it is made. Preliminary negotiations that fall short of an unequivocal offer are called invitations to treat. An offer can be distinguished from an invitation to treat because an offer has to be sufficiently specific in setting out core details such as the subject matter of the contract and the price that are capable of being accepted. Secondly, an offer has to made on the understanding that a legally binding contract will be formed on its acceptance. In other words, the offeror demonstrates an intention to be bound if the offer is accepted. Whilst this seems straight forward enough in theory, in practice it is often very difficult to work out. An illustrative case of this and earlier points is Gibson v Manchester City Council 1979. The case concerned Mr Gibson who completed an application form to buy his council house from the council. However, when the council changed hands from Conservative to Labour the council said that no more council houses were for sale and that he had not actually entered into a contract to buy his council house. Mr Gibson said that there was a contract and brought an action for specific performance. It would be useful here if you stopped the lecture and read the case at source before proceeding. From the case, first you can note that this is a House of Lords decision and so sets binding precedent. Next, you can note that the decision of the Court of Appeal was reversed. We will concentrate on the judgment of Lord Diplock. His Lordship notes that it is unusual for cases concerning offer and acceptance in correspondence to come before the House of Lords. This case did so because it was a test case for 350 other people.