LECTURE 1. An Introduction to Contract Law

A. Work in pairs. Look only at this page. Tell your partner these facts about immigration history in order.

1. There were about twenty-five million "native Americans" (Indians) living in North and South America. 2. The English were the largest immigrant group to settle in North America. They were farmers, fishermen, and traders. 3. By the time of the American Revolution, there were also many immigrants from Scotland, Ireland, France, Holland, Germany, Sweden, and Poland. Most of these settlers were Protestants. 4. The Spanish settled mainly in the Southwest, especially California. They were managers, priests, and soldiers. 5. American slave traders captured black Africans and forced them to work on plantations in the United States.

B. Now listen to your partner and number these facts 6-10 in correct time order.

___ After the Gold Rush in California, 100,000 poor Chinese came to work in mining camps and on the railroad.

___ The U.S. government abolished quotas for immigration from non-European nations. Today, most immigrants are from Asian and Latin American countries.

_6_ During the Industrial Revolution, about 3.5 million Irish Catholics left poverty and discrimi­nation to work in America. They were coal miners and railroad and canal builders. At the same time, many Germans became farmers, laborers, and businessmen in the United States.

___ During the "Great Migration," twenty-five million Europeans of almost every nationality immigrated to America. They included Russian and Polish Jews, Slavic people from Eastern Europe, Italians, Greeks, Armenians, and Syrians. Canadians, Mexicans, and Central Americans came, too.

___ The United States welcomed thousands of refugees after the end of World War II.

C. Work in pairs. Look only at this page. Your partner will tell you some important facts about immigration history. Number them 1 -5 in correct time order.

__ American slave traders captured black Africans and forced them to work on plantations in the United States.

__ By the time of the American Revolution, there were also many immigrants from Scotland, Ireland, France, Holland, Germany, Sweden, and Poland. Most of these settlers were Protestants.

__ The English were the largest immigrant group to settle in North America. They were farmers, fishermen, and traders.

__ The Spanish settled mainly in the Southwest, especially California. They were managers, priests, and soldiers.

_1_There were about twenty-five million "native Americans" (Indians) living in North and South America.

D. Now tell your partner these facts about immigration history in order.

6. During the Industrial Revolution, about 3.5 million Irish Catholics left poverty and dis­crimination to work in America. They were coal miners and railroad and canal builders. At the same time, many Germans became farmers, laborers, and businessmen in the United States. 7. After the Gold Rush in California, 100,000 poor Chinese came to work in mining camps and on the railroad. 8. During the "Great Migration," twenty-five million Europeans of almost every nationality immigrated to America. They included Russian and Polish Jews, Slavic people from Eastern Europe, Italians, Greeks, Armenians, and Syrians. Canadians, Mexicans, and Central Americans came, too. 9. The United States welcomed thousands of refugees after the end of World War II. 10. The U.S. government abolished quotas for immigration from non-European nations. Today, most immigrants are from Asian and Latin American countries.

E. Immigration Law

LECTURE 1. An Introduction to Contract Law

(2 hrs)

1. Historical background

2. The subject matter of Contract Law

3. The difference between Contract, Tort and Restitution

This lecture deals with some preliminary, but fundamental, issues which need discussion before embarking on a detailed consideration of the case law and statutes which make up the English law of contract. These issues are principally concerned with identifying what the law of contract is, and its scope.

The order of treatment is to look first at what is meant by the “classical” law of contract. The issue of the subject matter of contract law is then explored. This leads into a discussion of the ways in which contract can be distinguished from other areas of law involving civil obligations, such as tort and restitution. The question of whether we have a law of “contract” or of “contracts” is considered next.

The concept of the classical law is “invented” in two senses. First, although based on decisions of the courts, the synthesis of those decisions into a (more or less) coherent body of law was largely the work of the “treatise writers”, whose work decided which cases would be given prominence, and who encouraged the formulation of principles of general application to a wide range of transactions. Secondly, the recognition of the model of contract law which emerged from the latter part of the 19th century as “classical”, with the intention of using that model as the basis for an argument that the requirements of “modern” contract law were different, and that adherence to the classical model was inhibiting its development, is largely the product of the work started by commentators writing in the 1970s.

Whatever the accuracy of the precise historical origins of the classical theory, it is now generally accepted that it is centered around the concept of “freedom of contract”, probably as a reflection of the dominance in the 19th century of laissez-faire economic attitudes. At a time of the swift industrialization and increasing commercialization of society, the best way of allowing wealth to develop was to let those involved in business regulate their own affairs, with the courts simply intervening to settle disputes. The parties to a contract will be governed by rational self-interest, and giving effect to transactions which result from this will be to the benefit of both the parties and society.

“Freedom of contract” in this context has two main aspects. The first is that it is the individual’s choice whether or not to enter into a contract, and if so with whom - in other words, the freedom to contract, or “party freedom”. The second is the freedom to decide on the content of the contractual obligations undertaken, or “term freedom”. This allows parties to make unwise, and even unfair, bargains - it is their decision, and the courts will not generally intervene to protect them from their own foolishness.

The paradigmatic contract which emerges from the classical theory has the following characteristics:

(1) It is based on an exchange of promises.

(2) It is executory. This means that the contract is formed, and obligations under it arise, before either side has performed any part of it.

(3) It involves an “exchange”, so that each side is giving something in return for the other’s promise. It is the existence of this mutuality (given effect through the doctrine of “consideration”) which generally gives rise to enforceability.

(4) The content of the contractual obligations is determined by deciding what the parties agreed, or what reasonable parties in their position would have agreed, at the time the contract was made. Later developments are of no significance.

(5) Disputes about a contract can generally be determined by asking what the parties expressly or impliedly agreed (or should be taken to have agreed) in the contract itself. This is sometimes referred to as the “will theory” of contract.

(6) The transaction is discrete, rather than being part of a continuing relationship.

(7) The role of the court is to act as “umpire” or “arbiter”, giving effect to the parties’ agreement. In particular, it has no role in deciding whether or not the transaction is “fair”.

There is probably also an underlying assumption that the parties are of equal bargaining power.

The type of contract which most closely fits the above paradigm is probably the commercial contract for the sale of goods, where the buyer and seller agree that at some agreed date they will exchange the ownership of goods of a specified type for a specified of sum of money. In practice, however, most contracts are not of this kind, and attempts to apply to them rules which were designed to be suitable for the paradigmatic case are likely to produce tensions and problems. Nevertheless, the classical theory of contract, and its model of the typical contract, can still be seen to cast its shadow over English law. In the latter part of the 20th century it was the subject of sustained attack by academic commentators, and many judicial decisions can be seen to have moved, in practice at least, from the strict classical formulations. There is still a reluctance, however, to abandon them, and it is frequently the case that the courts when involved in a development away from the classical model will continue to use language which suggests that they are being faithful to it. The challenge for the student of the modern law of contract in England is to reconcile the fact that it is still rooted in classical theory, at least in the way in which its concepts are expressed, while at the same time developing away from it. It is within this traditional framework that the courts continue to consider contract cases. The substance of many of their decisions, however, and virtually all the interventions of Parliament, are taking the law in new directions. The form may be “classical”, but the content is ‘modern’, and this tension must be kept in mind in considering all that follows.

Do we have a law of contract or a law of contracts? The premise of a contract text of this kind is that there is a sufficient body of general rules and principles which apply to all (or virtually all) contracts to say that there is a “law of contract”. The counter-argument can be based on two grounds, both largely to developments in the area over the past 100 years.

First, it can be pointed out that there are many specific types of contract which are now the subject of quite detailed statutory regulation. Contracts of employment, consumer credit agreements and contracts for the sale of land, for example, all operate within elaborate statutory frameworks. Even the type of agreement which might be regarded as the archetypal contract - the exchange of goods for money - is governed by the Sale of Goods Act 1979, the Unfair Contract Terms Act 1977 and, if the buyer is a consumer, the Unfair Terms in Consumer Contracts Regulations 1999. This dichotomy is reflected in the format of Chitty on Contracts, which appears in two volumes, one devoted to General Principles, the other to Special Contracts.

The consequences of this can be seen by looking at its effect on the way in which the novice law student learns about the law of contract. This in turn will affect the practitioner’s understanding, and will eventually be likely to have an impact on the practical development of contractual doctrine as developed by the courts. The reality is that the contracts falling within ‘specialist’ areas are often treated for didactic purposes as being best dealt with separately from the general law. The LLB course, therefore, will typically have a Contract Law course, but also separate courses on Employment Law, Land Law, Consumer Law, Commercial Law, etc. The general Contract Law course will not have the time to deal in detail with the statutory regimes governing all the different types of contract, and will leave these to be dealt with by the specialist courses. Some of these specialist courses will be optional. The student who does not follow all of them will therefore have an incomplete picture of the rules and principles governing ‘contracts’. More importantly, he or she will be likely to retain the mental ‘pigeon-holing’ encouraged by this structure to their studies, and therefore be less likely to draw connections between different areas.

One response to this is to say that it does not matter. There is in reality a range of different types of contract, and there is no reason why the rules operating in one area should have any impact in another. A contrary view is to argue that the diversity should be embraced as adding vibrancy to the development of contractual principles. An attempt to adopt an inclusive approach has been put forward by Collins. Noting that the generality of the traditional approach made it ‘increasingly irrelevant’ to disputes governed by special rules, he puts forward an alternative:

“In order to counter this incoherence and redundancy, the conception of contract law employed here focuses on the social context of market transactions, that is where people seek to acquire property or services by dealing with others." Whilst acknowledging that the law regulates these transactions by classifying them into particular types, this conception of contract law seeks to understand the general principles and social policies which inform and guide the legal classifications and regulation.”[1]

What is the law of contract about? This is a question to which, perhaps surprisingly, there is no clear, universally accepted answer. There are, however, several candidates for the basis of the legal enforceability of contractual obligations. They can be viewed, for example, as a means of:

(a) enforcing promises; or

(b) regulating the market in the provision of goods and services; or

(c) facilitating exchanges (for example, of goods or services for money).

Any of these individually, or some combination of them, can be put forward as being at the root of the law of contract, but none of them is without difficulty.

It is generally recognized that there are three main strands to English law relating to civil liability - contract, tort and restitution. To what extent are these distinct, and is there any overlap between them?

As indicated above, the view taken here is that the province of contract law is the facilitation and enforcement of voluntary exchange transactions. The law of tort, on the other hand, is concerned with imposition of standards of behavior, irrespective of whether the behavior is linked to a transaction, or voluntarily undertaken. There is an overlap, however, in that the performance of a contract can involve a tort, giving rise to the possibility of dual liability. If, for example, during the course of the construction of a building, the negligence of a builder leads to a wall collapsing, injuring a third party, the construction company may be liable in contract for the fact that the wall was defective, and in tort to the injured party for the negligence in its construction. If the person injured were the other party to the contract, then there would be liability in both tort and contract to the same claimant.

The third element in the law of obligations - restitution - has been recognized much more recently as a separate head. The aim of the law of restitution is to prevent “unjust enrichment”. Thus, where a person has been paid money as a result of a mistake, the law of restitution provides the means by which it may be recovered. There is no need for the situation to involve an exchange transaction, as in contract, or for the behavior of the person who has been unjustly enriched to fall below an accepted standard, as in tort. Restitution has links with contract, however, in that it is not infrequently used in situations where the parties have been attempting to make a contract, but this has for no reason failed.

The difference between contract, tort and restitution is sometimes said to be based on the nature of the remedies available in relation to each, and in particular the measure of damages. Thus, in contract, the primary measure of damages is the “expectation” interest, designed to put the claimant info the position as if the contract had been performed satisfactorily (so that benefits to be obtained from the contract, such as lost profits, can be recovered). In tort, on the other hand, the normal measure is to put the claimant into the position he or she would have been in had the tort not occurred. This will generally be backward looking, compensating for loss and damage caused, but not taking into account lost benefits. In restitution the object is the return of property and the disgorgement of unjustified benefits.

Looking at the differences between the various strands of the law of obligations in terms of the remedies is, however, starting from the wrong end. The basis of liability must be the foundation of the distinction between them, with the remedies which are available being a consequence of that liability. There is no absolute requirement, for example, that contract remedies should be centered on the expectation interest. Indeed, it is possible in an action for breach of contract to recover damages on any of the three bases just mentioned - that is, expectation, the ‘tort’ measure (compensating for actual losses, rather than expected benefits) or restitution.

LECTURE 2. Forming the Agreement (4 hrs)

1. Deeds and other formalities

2. General lack of formal requirement

3. The external signs of agreement

4. Offer

· Distinction of an Offer from “Invitation to Treat”

· Self-service displays

· Shop window displays

· Advertisements

· Unilateral and bilateral contracts

5. Acceptance. Methods of acceptance

· Acceptance by conduct

· Acceptance by silence

· Acceptance in bilateral contracts

· Inertia selling

· Acceptance by post

· Acceptance in Internet transactions

· Acceptance in unilateral contracts. Unilateral contracts and ‘agreement’

· Position in ‘reward’ contracts

· Acceptance in ignorance of an offer

The formal test of agreement is achieved by the concept of the ‘deed’. This is a formal written document, signed and, traditionally, sealed. The existence of a deed will be regarded as indicating that there is an agreement. There are certain contracts where a deed is required, but the device can be used for any type of contract if the parties so wish. This type of formality should be distinguished from the situations where some special procedure is required in addition to the finding of an agreement. In this situation there may be an agreement, but the courts will not enforce it unless certain formalities have been complied with.

Three examples will be mentioned here. First, all contracts involving the sale, or other disposal, of an interest in land must be in writing and signed by the parties. The justification for this rule is that contracts involving land are likely to be both complicated and valuable. Many commercial contracts, however, are also complex and valuable, yet there is no requirement of a written agreement (though in practice there is likely to be one).

Second types of contract are contracts of hire purchase, and other credit transactions, should be in writing and signed. This is a protective provision, designed to make sure that the individual consumer has written evidence of the agreement, and has the opportunity to see all its terms. A similar protective procedure operates in relation to contracts of employment, though here the requirement is simply that the employee should receive a written statement of terms and conditions within a certain period of starting the job, rather than that the agreement itself should be in writing.

A third situation where formality is required is when an agreement to guarantee the debt of a third party must, in order to be enforceable, be in writing and signed by the guarantor.

In most cases, however, English law imposes no formal requirements and looks simply for an agreement between two parties. In other words, the contract does not have to be put into writing, or signed, nor does any particular form of words have to be used. A purely verbal exchange can result in a binding contract. All that is needed is an agreement.

This simple assertion, however, masks a considerable problem in identifying precisely what is meant by an agreement. This may seem easy enough: it is simply a question of identifying a “meeting of the minds” between the parties at a particular point in time. But by the time two parties to a contract have arrived in court, they are clearly no longer of one mind. They may dispute whether there was ever an agreement between them at all or, while accepting that there was an agreement, they may disagree as to its terms.

Clearly, the courts cannot discover as a matter of fact what was actually going on in the minds of the parties at the time of the alleged agreement. Nor are they prepared to rely solely on what the parties now say was in their minds at that time (which would be a “subjective” approach), even if they are very convincing. Instead, the courts adopt what is primarily an “objective” approach to deciding whether there was an agreement and, if so, what its terms were. This means that they look at what was said and done between the parties from the point of view of the “reasonable person” and try to decide what such a person would have thought was going on. This approach means that the courts are not actually looking for agreements between the parties but: whether or not the negotiations and conduct have reached such a point that both parties can reasonably suppose that the other is committed to the contract so that it can be relied upon.

In other words it is behaviour justifying “reasonable reliance” on the other party’s commitment that is what the courts are in fact looking for, rather than “agreement”, whether looked at subjectively or objectively.

There are different types of objectivity. There is “promisor objectivity”, where the court tries to decide what the reasonable promisor would have intended, “promisee objectivity”, where the focus is on what the reasonable person being made a promise would have thought was intended, and ‘detached objectivity’, which views what has happened through the eyes of an independent third party.

The objective approach must, however, take account of all the evidence. Even if A has acted in a way which would reasonably cause B to assume a particular state of mind as regards an agreement, if B’s behaviour, objectively viewed, indicates that such an assumption has not been made by B, the courts will take account of this.

As we have seen, the process by which the courts try to decide whether the parties have made an agreement does not necessarily involve looking for actual agreement, but rather for the external signs of agreement. The classical theory of contract relied on a number of specific elements, which were regarded as both necessary and sufficient to identify an agreement which is intended to be legally binding. These were:

- offer;

- acceptance; and

- consideration.

These three factors, together with an overarching requirement that the court is satisfied that there was an intention to create legal relations, formed the classical basis for the identification of contracts in English law.

An offer may be defined as an indication by one person that he or she is prepared to contract with one or more others, on certain terms, which are fixed, or capable of being fixed, at the time the offer is made.

The offer may be made by words, conduct or a mixture of the two. The concept applies most easily to a situation such as that given in the above example where there are two parties communicating with each other about a commercial transaction. It fits less easily in many other everyday transactions, such as supermarket sales, or those involving the advertisement of goods in a newspaper or magazine. What the courts will look for, however, is some behaviour which indicates willingness to contract on particular terms. Once there is such an indication, all that is then required from the other person is a simple assent to the terms suggested, and a contract will be formed. The “indication of willingness” referred to above may take a number of forms - for example, the spoken word, a letter, a fax message, an email or an advertisement on a website. As long as it communicates to the potential acceptor or acceptors the basis on which the offeror is prepared to contract, then that is enough. It is not necessary for the offer itself to set out all the terms of the contract. The parties may have been negotiating over a period of time, and the offer may simply refer to terms appearing in earlier communications. That is quite acceptable, provided that it is clear what the terms are.

It is important, therefore, that behaviour which may have some of the characteristics of an offer should not be treated as such if, viewed objectively, that was not what was intended. Once a statement or action is categorised as an offer, then the person from whom it emanated has put themselves in the position where they can become legally bound simply by the other party accepting. It must be clear, therefore, that the statement or action indicates an intention to be bound, without more. The courts have traditionally approached this issue by drawing a distinction between an offer and an “invitation to treat”.

Sometimes a person will simply to open negotiations, rather than to make an offer which will lead immediately to a contract on acceptance.

The courts refer to such a preliminary communication as an “invitation to treat” or, even more archaically, as an “invitation to chaffer”. The distinction between an offer and an invitation to treat is an important one, but is not always easy to draw. Even where the parties appear to have reached agreement on the terms on which they are prepared to contract, the courts may decide that the language they have used is more appropriate to an invitation to treat than an offer.

Another area of difficulty arises in relation to the display of goods in a shop window, or on the shelves of a supermarket, or other shop where customers serve themselves. We commonly talk of such a situation as one in which the shop has the goods “on offer”. This is especially true of attractive bargains which may be labeled “special offer”. Are these “offers” for the purpose of the law of contract? The issue has been addressed in a number of criminal cases where the offence in question was based on there being a “sale” or an “offer for sale”. It has, however, generally been accepted subsequently that the display of goods within a shop is an invitation to treat and not an offer.

The slightly different issue of the shop window display. Аccording to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract.

Where goods or services are advertised, does this constitute an offer or an invitation to treat? The answer to the question “is this advertisement an offer?” will generally be determined by the context in which the advertisement appears, and the practical consequences of treating it as either an offer or an invitation to treat.

Generally speaking, an advertisement on a hoarding, a newspaper “display’’ or a television commercial will not be regarded as an offer. In other words, the practical consequences of treating the advertisement as an offer would be such that it is highly unlikely that this is what the person placing the advert can have intended. The advertisement is nothing more than an invitation to treat.

It follows from this that these types of advertisement should be regarded simply as attempts to make the public aware of what is available. Such advertisements will often in any case not be specific enough to amount to an offer. Even where goods are clearly identified and a price specified, however, there may still not be an offer.

This does not mean, however, that all newspaper advertisements will be treated as invitations to treat. If the guiding principle is promisor objectivity, rather than party freedom, then provided that the wording is clear, and that there are no problems of limited supply, there seems no reason why such an advertisement should not be an offer.

The second stage of discovering whether an agreement has been reached under classical contract theory is to look for an acceptance which matches the offer which has been made. No particular formula is required for a valid acceptance. As has been explained above, an offer must be in a form whereby a simple assent to it is sufficient to lead to a contract being formed. It is in many cases, therefore, enough for an acceptance to take the form of the person to whom the offer has been made simply saying ‘yes, I agree’. In some situations, however, particularly where there is a course of negotiations between the parties, it may become more difficult to determine precisely the point when the parties have exchanged a matching offer and acceptance. Unless they do match exactly, so the classical theory requires, there can be no contract. An ‘offer’ and an ‘acceptance’ must fit together like two pieces of a jigsaw puzzle. If they are not the same, they will not slot together, and the picture will be incomplete. At times, as we shall see, the English courts have adopted a somewhat flexible approach to the need for a precise equivalence. Nevertheless, once it is decided that there is a match, it is as if the two pieces of the jigsaw had been previously treated with ‘superglue’, for once in position it will be very hard, if not impossible, to pull them apart.

In unilateral contracts, the acceptance will always be by conduct though there are some problems as to just what conduct amounts to acceptance. Bilateral contract may be accepted by conduct, and there is no need for a verbal or written indication of acceptance.

In unilateral contracts the offeror may waive the need for communication of acceptance. The court thought that it clearly could not have been intended that everyone who bought something in reliance on the company’s advertisement should be expected to tell the company of this. It would be perfectly possible, of course, for an offeror to require such notice, but where an offer is made to the world or where a reward is offered for the return of property or the provision of information, the intention to waive such a requirement will easily be found.

In relation to bilateral contracts, the position is different. Silence cannot amount to acceptance, at least in bilateral contracts. It is by no means clear that the court intended to go this far. Acceptance of an offer cannot be inferred from silence, save in the most exceptional circumstances.

A requirement of communication will not, however, answer all problems. In the modern world communication can take many forms: face to face conversations, telephone, letters, faxes, or email. In some of these, there will be a delay between the sending of an acceptance and its coming to the attention of the offeror. The law of contract has to have rules, therefore, to make clear what is meant by ‘communication’. The simplest rule would be to say that no communication is effective until it is received and understood by the person to whom it is addressed.

Where communication of the offer is required, which is the case in virtually all situations, it is safe to say that communication means that the person to whom the offer is addressed is aware of it. Why should the position be any different as regards acceptances?

The problem first arose in relation to the post, where the delay is likely to be longest. Generally speaking, there will be a delay of at least 12 to 18 hours between the sending of an acceptance by post, and its receipt by the addressee. Does the sender of the acceptance have to wait until it is certain that the letter has arrived before being sure that a contract has been made? The issue was considered in Adams v Lindsell.

The defendants sent a letter to the plaintiffs offering wool for sale, and asking for a reply ‘in course of post’. The letter was misdirected by the defendants, and arrived later than would normally have been the case. The plaintiffs replied at once accepting, but the defendants, having decided that because of the delay the plaintiffs were not going to accept, had already sold the wool elsewhere. The plaintiffs sued for breach of contract. The court decided that to require a posted acceptance to arrive at its destination before it could be effective would be impractical and inefficient. The acceptor would not be able to take any action on the contract until it had been confirmed that the acceptance had arrived. The court felt that this might result in each side waiting for confirmation of receipt of the last communication ad infinitum. This would not promote business efficacy. It would be much better if, as soon as the letter was posted, the acceptor could proceed on the basis that a contract had been made, and take action accordingly. The court, in coming to this conclusion, was thus giving the practicalities of doing business priority over the question of whether at the time the contract was formed, the parties were in agreement. It was quite possible that by the time the letter of acceptance was posted, the offeror had had a change of mind and sent a withdrawal of the offer, or made a contract with someone else (as happened in Adams v Lindsell itself). Nevertheless, because in the court’s view the conduct of business would in general be better served by giving the offeree certainty in this situation, the postal rule was established.

It is likely that in the future an increasing amount of business will be conducted over the internet, either by means of email or, particularly in the case of consumer transactions, via a website. In the latter case, the consumer may be actually receiving a product over the web (for example, downloading a piece of software or a video or music file) or placing an order for goods to be delivered by the post or courier service. How do the principles outlined above apply in these situations?

In relation to email, as has been assumed in the previous discussion, there seems little reason to distinguish between this form of communication and other types of ‘instantaneous’ communication such as telex or fax. The contract will be formed at the earliest when the acceptance is received by the offeror’s email system, and is available to be read. At the latest, it should be regarded as complete once the time has passed at which it would be reasonable to expect the acceptance to have been read. Since most email systems will return an error message to the sender if delivery has not been possible, then there is no real need here for any other procedure for acknowledgment of receipt.

As regards contracting via a website, some of the potential problems were indicated by events in September 1999, when a retailer was found to be indicating on its website that televisions were available for the price of £3. This was a mistake: the price should have been £300. However, before it could be rectified, a large number of people had attempted to buy a television at the lower price. The crucial question was whether by responding to the information contained on the website, these people were accepting the retailer’s offer, or were themselves making an offer to buy at that price. Given that the purchasers would have had to submit credit card details in order to pay for the goods, and the retailer would presumably have reserved the right not to accept these as satisfactory, the better view would seem to be that the purchasers were making the offer to buy. The advertisement of the televisions would thus be simply an invitation to treat. The seller would be free to accept or reject the offers from the potential purchasers. The contract would be made where the seller had acknowledged to the purchaser that his or her offer was accepted, either by means of a direct response on the website or by a subsequent email.

This area has also been the subject of proposals from the European Commission, which has issued a directive dealing with a range of issues on electronic commerce, including the issue of ‘time of acceptance’. The final version of the Directive on Electronic Commerce was adopted in June 2000 (Directive 2000/31/EC). Article 11 provides that:

Member States shall ensure, except when otherwise agreed by parties who are not consumers, that in cases where the recipient of the service places his order through technological means, the following principles apply:

- the service provider has to acknowledge receipt of the recipient’s order without undue delay and by electronic means;

- the order and the acknowledgment of receipt are deemed to be received when the parties to whom they are addressed are able to access them.

English law in any case requires the offer to be accepted before it is effective, and this will satisfy the need for an acknowledgment of the order. If the offer is made by the website owner, however, and accepted by the customer, the Directive will place an additional requirement on the website owner to acknowledge the acceptance. In all cases, however, the Directive makes the test of when a communication takes place, the point at which it can be accessed by the recipient.

The Directive has been implemented in English law by the Electronic Commerce (EC Directive) Regulations 2002, the relevant sections of which came into force on 31 August 2002.

Regulation 11, entitled ‘placing of the order’, which deals with the matters covered by Art 11 of the Directive, states as follows:

1) Unless parries who are not consumers have agreed otherwise, where the recipient of the service places his order through technological means, a service provider shall -

(a) acknowledge receipt of the order to the recipient of the service without undue delay and by electronic means; and

(b) make available to the recipient of the service appropriate, effective and accessible technical means allowing him to identify and correct input errors prior to the placing of the order.

2) For the purposes of paragraph l) (a) above -

a) the order and the acknowledgment of receipt will be deemed to be received when the parties to whom they are addressed are able to access them; and

b) the acknowledgment of receipt may take the form of the provision of the service paid for where that service is an information society service.

3) The requirements of paragraph 1) above shall not apply to contracts concluded
exclusively by exchange of electronic mail or by equivalent individual
communications.

The word ‘order’ in reg 11 1) (b) (though not necessarily in reg 11 1) (a)) means the contractual offer (reg 12).

The sanctions for non-compliance are that non-compliance with reg 11 1) (a) gives a right to the customer to sue the service provider for damages for breach of statutory duty (reg 13). Non-compliance with reg 11 1) (b) gives the customer the right to rescind the contract (reg 15).

The wording of the Regulations seems to confirm the suggestion made above that it will generally be the customer who makes the offer. As noted above, reg 11 1) (b) requires the service provider to make available to customer ‘appropriate, effective and accessible technical means allowing him to identify and correct input errors prior to the placing of an order’. Regulation 12 then provides that ‘order’ in reg 11 1) (b) means ‘the contractual offer’. The service provider will thus be able to argue that any screen which they display in response to a costumer’s initial ‘order’ is simply fulfilling the requirements of reg 11 1) (b) and that reg 12 means that this must be taken as preceding ‘the contractual offer’. The ‘contractual offer’ then becomes customer’s clicking of a button confirming that he or she is happy with the terms set out on the page; so, although the Regulations do not on their face purport to affect the rules of offer and acceptance, it is clearly arguable that they do lead to particular conclusions about the stage at which an offer is made.

Lecture 3. Intention to Create Legal Relations (2 hrs)

1. Domestic agreements

2. Commercial agreements

3. Collective agreements

4. Is a requirement of intention necessary?

In addition to the tests of the existence of a contract the courts will also sometimes inquire whether, despite the fact that offer, acceptance and consideration can be identified, the parties did really intend to create a legally binding relationship. In line with the traditional approach that the courts regard themselves simply as “referees” or “umpires” giving effect to the parties’ intentions, it is only where the parties themselves have entered into an agreement which they intend to be legally binding that the courts will treat it as a contract. As with other tests of the parties’ intentions, the courts take an objective approach, looking at what they have said and done and the context in which they have been dealing with each other.

Whether the parties intended to enter into legally binding relations is an issue to be determined objectively and not by inquiring into their respective states of mind.

In cases where the issue is litigated, it seems likely that one party intended a legal agreement and the other wanted the agreement to be merely morally binding. This contradiction removes any possibility of justifying the limits of contracts on the basis of the joint intent of the parties. We are forced to the conclusion that the courts must rely upon hidden policy considerations when determining the intentions of the parties.

In many cases, rather than the parties having different intentions, they may not, at the time of entering into their agreement, have thought about the issue at all. In such a situation, the courts will adopt the approach, which they also adopt in other areas where there is later disagreement as to the parties’ intentions at the time of contracting, of asking what the reasonable person in the position of the parties would have been likely to intend. This is the way in which the issue is dealt with in the proposed Principles of European Contract Law, of which simply states that

the intention of a party to be legally bound by contract is to be determined from the party's statements or conduct as they were reasonably to be understood by the other party.

Another way of approaching the issue of “intention” would be through formal requirements. It would be possible to require, for example, that an agreement, to be legally binding, must be in writing, and have within it a clause confirming that it is intended to be legally binding. In one particular situation, relating to the enforceability of collective agreements between trade unions and employers, this is precisely what has been required. As has been explained earlier, however, generally the English law of contract does not require formalities. Verbal agreements are enforceable, and no particular forms of words are required. It can be argued, however, the requirements of offer, acceptance and consideration, discussed earlier, may be regarded in themselves as indications of an intention to enter into a legally binding contract. If the parties have taken the trouble to specify their obligations in a way which makes them clear and unambiguous (as required by “offer and acceptance”), and the agreement has the element of mutuality required by the doctrine of consideration, this may reassure a court that legal enforceability was intended. If, for example, a transaction which would otherwise appear as a gift has consideration introduced artificially, this may well be strong evidence of an intention to make a contract. The transfer of the ownership of a valuable painting, worth £50,000, which involves the recipient giving the supplier £1 in exchange, would fall into this category. There would be no point in the recipient giving the money unless the intention is to make the transaction of transfer into a contract, and the parties into “seller” and “buyer”. The introduction of consideration is in this case therefore evidence of an intention to create legal relations. Taking this approach to its logical conclusion, some have argued that there is no need for a separate heading of intention, and this point will be discussed below. The generally accepted view, however, is that although this analysis has some force, there are nevertheless some agreements which may have all the other characteristics of a contract, but which are clearly not meant to be treated as legally binding. If the parties to an apparently binding commercial agreement specifically state that it is not to have legal consequences, surely the courts should pay attention to this? Certain domestic arrangements may also raise difficulties. If, for example, there is an agreement between a man and a woman that he will cook a meal for them both, in return for her providing the wine to go with it, this may involve an offer, acceptance and consideration, but no one would expect it to be regarded as legally binding. If she failed to turn up, he would not be able to sue for the cost of preparing the meal. Given, however, that no formalities are required, and that offer, acceptance and consideration can be identified, how are those agreements which are intended to be binding to be distinguished from those which are not? The evidence of the parties themselves is likely to be unreliable, so some other means of determining the issue must be found.

In fact, as it has been noted above, English law operates on the basis of an “objective” approach, based on what a reasonable person in the position of the parties would have been likely to have intended. This approach is assisted by the of “presumptions” as to intention, which differ according to whether the agreement is to be regarded as “domestic” or “commercial”. These two categories of agreement must therefore be looked at separately.

It is considered that domestic arrangements are clearly not intended by the parties to be legally binding. As regards this possibility, Lord Atkin commented:

All I can say is that the small courts of this country would have to be multiplied one hundredfold if these arrangements were held to result in legal obligations. They are not sued upon, not because the parties are reluctant to enforce their legal rights when the agreement is broken, but because the parties, in the inception never intended that they should be sued upon. Agreements such as these are outside the realm of contracts altogether.[2]

Lord Atkin’s judgment is the one which has received most attention in subsequent case law, and has been taken as establishing the position that in relation to domestic agreements there is a presumption that they are not intended to be legally binding.

There are two points to be noted here. First, the notion of the “domestic” agreement should be taken as relating more to the subject matter than the relationship between the parties. If, for example, a woman agrees to sell her brother her car for £1,500, there seems little reason to deny this agreement the status of a contract, and it should be presumed to be binding, unless there is evidence to the contrary. On the other hand, social arrangements between friends who are not related, or household agreements between a couple living together, but not married, should come into the category of “domestic”, and will therefore be presumed not to be binding.

Secondly, the rule is simply based on a presumption, and it will be possible for that presumption to be rebutted.

Arrangement between husband and wife made in the context of the break-up of the marriage, are held to be legally binding. Lord Denning distinguished this assertion in the following terms:

In cases where the parties are living together in amity. their domestic arrangements are ordinarily not intended to create legal relations. It is altogether different when the parties are not living in amity but are separated, or about to separate. They then bargain keenly. They do not rely on honourable understandings. They want everything cut and dried. It may safely be presumed that they intend to create legal relations[3].

Finally, it should be noted that the question of whether or not, if the agreement is broken, the innocent party would in practice go to the courts to enforce it should not be regarded as being conclusive as to whether there was an intention to create legal relations. There are many minor commercial agreements (for example, the arrangement for newspapers to be delivered by a local newsagent) where the parties would be unlikely to consider it to be worth involving the courts to remedy a breach. Nevertheless, such agreements are clearly intended by the parties to affect their legal relations and to create binding obligations. Moreover, even in relation to substantial commercial transactions, research has shown that parties often prefer to settle disputes in ways which do not involve recourse to lawyers. This does not mean that they do not intend their agreements to be legally binding. The fact that the parties would not be expected to sue each other may be relevant if such expectation is based on the relationship between the parties (for example, mother and daughter), but even then it cannot be conclusive.

If the agreement is not a “domestic” one, then it will be regarded as “commercial”. This will mean that the presumption is that the agreement is intended to be legally binding.

It will be a heavy onus on a party to an ostensibly commercial agreement who wishes to argue that the presumption has been rebutted.

It is possible, however, by using sufficiently explicit wording to rebut the presumption even in relation to a clearly commercial agreement. This is commonly done in relation to agreements relating to the sale of land which are generally stated to be “subject to contract”, even where a price has been agreed between the parties[4]. This is intended to ensure that they are not binding until fully considered written contracts have been exchanged.

Public policy arguments may also influence a decision as to whether there is intention to create legal relations. Thus, in Robinson v HM Customs & Excise, the claimant was an informer for the Customs and Excise. He tried to bring a contractual claim for the payment of reasonable remuneration and expenses. It was held, however, that there was no intention to create legal relations in respect of the supply of information by the claimant. The payments were discretionary and dependent on results (for example, arrests, seizures of illicit goods) and there were reasons of public policy why the court could not become involved in inquiring into these matters[5].

Some problems of intention to create legal relations have arisen in the area of “collective agreements”. By this it is meant that agreements between trade unions and employers, or employers’ organisations, as to the terms and conditions of work of particular groups of employees. Each employee will have a binding contract of employment with the employer, but some of the terms of this agreement (for example, as to rates of pay) may specifically be stated to be subject to the current collective agreement between employer and trade union. What is the status of the collective agreement itself? It is clearly made in a commercial or business context, and therefore it would seem that there should a presumption of legal enforceability.

To make them legally binding would require “clear and express provisions” to that effect.

As far as collective agreements themselves are concerned, the matter is now dealt with by statute. Section 179 of the Trade Union and Labour Relations (Consolidation) Act 1992 provides that collective agreements are “conclusively presumed not to have been intended by the parties to be' legally enforceable. The only exception is where the agreement is in writing, and expressly stated to be legally enforceable. We thus have here a presumption against legal enforceability which is even stronger than that which operates in relation to domestic agreements. It cannot be rebutted by taking account of verbal statements, or by looking at the context, but only by a clear intention committed to writing. This, therefore, is one of the few occasions in which English law requires formality in the making of an agreement if it is to be legally enforceable.

At the beginning of this chapter, reference was made to the argument that the insistence on a requirement of intention in addition to the other elements of validly formed contract (offer, acceptance, consideration) is unnecessary. The concept of the bargain is central to the test of enforceability of contracts under English law and the vital elements in the identification of a bargain are offer, acceptance and consideration. These three elements should be treated together as indicating a bargain. Thus, an analysis which tries to separate out agreement (that is, offer and acceptance) from consideration is missing the point of why the courts started looking for evidence of these three elements in the first place.

As Bob Hepple said: “The separation of agreement from consideration ... has resulted in a fundamental point being overlooked. This is that the common law recognised at an early stage that usually parties do not define their intention to enter into legal relations. Consequently, the fact that they have cast their agreement into the form of bargain (offer, acceptance, consideration) provides an extremely practical test of that intention. This test of bargain renders superfluous any additional proof of intention.”[6]

The argument may be justified as according with the principle that matters of the intention of the parties must be decided objectively. In other words, can the party who claims that he or she thought that the agreement was intended to be enforceable be said to have acted reasonably in this assumption? The presumption would be that as long as offer, acceptance and consideration were present, and no specific statement had been made about enforceability, then it would be intended to be legally binding. Social and domestic agreements could still be excluded from enforceability either because no reasonable person expects them to be legally binding, and therefore an assumption that they are would be unreasonable, or because what is given in exchange in such agreements is not generally to be regarded as good consideration. In either case, no “bargain” is created.

This line of argument is in effect introducing a rule of formality into the formation of contracts. The formal requirements become not writing, or signature, but ‘offer’ ‘acceptance’ and ‘consideration’. The parties who go through the process of making an agreement which contains these elements will, in the absence of specific and explicit evidence to the contrary, be deemed to have made a ‘bargain’ and therefore a binding agreement. Although this has some attractions, it is submitted that it does not truly represent the English common law approach to contracts. This is based not only in relation to formation, but in many other areas as well, on the basis that the court is trying to give effect to the intention of the parties. This is the overriding concept, and the evidence which may go towards establishing whether any intention to create a legal relationship existed and, if so, what it was intended to be is subsidiary. For that reason, the courts legitimately remain concerned to establish the existence or absence of intention, even if other indicators of a binding agreement are present. The existence of the presumption of enforceability in commercial agreements does not contradict such an approach. It simply allows it to operate in a way which is efficient, and does not encourage the parties to an agreement to become involved in unnecessary disputes as to their supposed intentions.

Lecture 4. Capacity (2 hrs)

1. Reasons for limitations on capacity

2. Minors’ contracts

· Contracts for necessaries

· Beneficial contracts of service

· Contracts related to work

3. Effects of entering into a contract with a minor

· Void contracts

· Voidable contracts

· Enforceable contracts

4. Minors’ liability in tort

5. Mental disability

6. Intoxication

It has been seen that the idea of ‘agreement’ plays a central role in the classical law of contract. Much of the law is based on the presumption that parties enter into agreements of their own free will, and that therefore the courts’ primary concern can be to determine, and then give effect to, what the parties themselves have agreed. There are certain situations, however, where despite the fact that an agreement has apparently been made, the courts have felt the need to intervene so as to deny or limit its effect as a contract. One of these situations arises where for some reason one of the contracting parties is felt to need protection. It is in this context that the rules relating to ‘capacity’ can come into operation. In order to make a valid, enforceable contract, both parties must be regarded as having capacity in law to enter into such an agreement. The reason for intervention on the basis of ‘lack of capacity’ may relate to the need to protect the contracting party from him or herself, or to the need to ensure that a contracting party is not being ‘exploited’ because of his or her mental state. Three aspects of this topic are considered in this lecture, namely minors’ contracts, mental disability and intoxication.

There are other problems of ‘capacity’ which relate to the question of whether one party has the power or authority to make the contract, or is acting ultra vires. This sort of problem can arise in connection with agency arrangements. It can also arise in relation to the ability of incorporated bodies to make particular contracts. This aspect is not considered here, since it is regarded as more appropriately the concern of texts on company law.

Minors’ contracts.

Those who have not reached the age of 18 are regarded in English law as ‘minors’ and as such have limited capacity to enter into contracts. The choice of age for this purpose is inevitably somewhat arbitrary, but follows the general law as to the age at which a person attains ‘majority’ for many purposes of the law. It indicates that the object of the rules is largely paternalistic - that is, it is intended to protect minors from the consequences of their own actions.

One result of the current approach is that the law can sometimes appear to operate harshly against those who contract with minors. In particular, the adult party who is unaware that the other contracting party is a minor may still find the contract unenforceable.

The law starts from the presumption that all minors’ contracts are either void or voidable. There are two main exceptions to this, namely contracts for ‘necessaries’, and ‘beneficial contracts of service’. Such contracts may be fully enforceable. In addition, certain contracts which involve a minor obtaining an interest in property which involves continuous or recurring obligations may be voidable.

The first major exception to the rule as to unenforceability relates to contract for ‘necessaries’. The reasoning here is that a total rule of unenforceability would act to the minor’s disadvantage. If traders knew that any contract with a minor would involve the risk of the minor deciding not to honour it, they would be reluctant to enter into such contracts at all. The trader who is ignorant of the minor’s situation will not be protected. The decision is made by looking at matters entirely from the minor’s point of view.

As a consequence, the minor might have difficulty acquiring the basic requirements of everyday life, such as food or clothing. In reality, of course, the majority of transactions of this type take place on the basis of the simultaneous exchange of goods and payment, where there is little or no risk to the trader. In relation to more complicated transactions, and particularly those which do not involve payment on the spot, the question of whether the contract concerns ‘necessaries’ will still be important. The same limitation almost certainly applies to services.

According to Alderson B. in case Chappie v Cooper, ‘necessaries’ include not only things which are absolutely necessary for survival, but also all those which are required for a reasonable existence. Food and clothing are obviously covered, but so are medical assistance and education. Once the goods or services are of a kind which can be put in the general category of ‘necessaries’, there is then a further question as to whether they are appropriate to the particular minor.

The approach of the common law is confirmed as far as goods are concerned by s 3 of the Sale of Goods Act (SGA) 1979, which states:

... ‘necessaries’ means goods suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery.

Date: 2015-01-02; view: 1118