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Beginning Contract Law

Short Questions and Answers

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Chapter 2

  1. How can you distinguish between an invitation to treat and an offer?

    The key distinguishing factor is the presence of an intention to be bound. Where there is an intention to be bound, the statement is more likely to be an offer that can be accepted. Where there is no intention to be bound, the statement is likely to be an invitation to treat (i.e., merely an invitation to parties to make an offer themselves).
  2. What is the difference between a bilateral contract and a unilateral contract?

    A bilateral contract exists where there is an exchange of promises by the parties. A unilateral contract exists where one party makes a promise to the world, which is accepted by performance of a specified act.
  3. When and how is an offer revoked?

    An offer can be revoked at any time before acceptance. In order to be effective, the revocation must be communicated to the offeree before acceptance: Byrne & Co. v Leon Van Tienhoven & Co (1879–80) LR 5 CPD 344. In the case of unilateral offers, if performance has begun but not been completed at the time of purported revocation, the offeror will be prevented from revoking the offer: Offord v Davies (1862) 142 ER 1336. This is known as part performance.
  4. What are the requirements of a valid acceptance?

    Acceptance must be a clear and unequivocal mirror image of the terms of the offer. There is no acceptance if the offeree proposes new terms to the contract. Acceptance must also be communicated to the offeror (Entores Ltd v Miles Far East Corp [1955] 2 QB 327), unless the postal rule applies (when acceptance takes place upon posting rather than receipt: Adams v Lindsell (1818) 1 B & Ald 681) or there is a unilateral offer (when acceptance takes place upon performance of the required act).
  5. How might the postal rule be ousted?
    A party may oust the postal rule by specifying in the offer that acceptance takes place upon receipt: Holwell Securities Ltd v Hughes [1974] 1 WLR 155.

Chapter 3

  1. Identify the elements of a contract.

    In order for a valid contract to be formed, there must be an agreement between the parties (offer and acceptance), consideration, an intention to create legal relations, and the parties must have the capacity to contract.
  2. What is meant by consideration?

    Consideration is something of value in the eyes of the law which is provided by the promisee in exchange for the promise made by the promisor. Consideration must have some value in the eyes of the law (i.e., it must be sufficient: White v Bluett (1853) 23 LJ Ex 36), but it need not have an equivalent value to the promise (i.e., it need not be adequate: Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87). Consideration must move from the promisee towards the promisor (Thomas v Thomas (1842) 2 QB 851) and the consideration may not have been provided in the past, prior to the promise being made (i.e., consideration must not be past: Eastwood v Kenyon (1840) 113 ER 482). There is also generally no good consideration in merely performing existing legal duties: Collins v Godefroy (1831) 1 B & A 950.
  3. Is a promise to pay more binding?

    A promise to pay the promisee more money is not binding if the promisee is merely performing an existing contractual duty: Stilk v Myrick (1809) 2 Campbell 317. Where the promisee has performed additional duties over and above their contractual duties, then the promise is binding: Hartley v Ponsonby (1857) 7 Ellis and Blackburn 872. Where the promisee provides the promisor with a ‘practical benefit’, then the promise is binding: Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR 1153.
  4. Is a promise to accept less binding?

    A promise to accept a lesser payment is not binding: Foakes v Beer (1883–84) LR 9 App Cas 605. There are a number of exceptions to this rule where a promise to accept less is binding in exchange for payment earlier than it was due, or at a different place, or by accepting something in addition to the requested payment (such as cloak or a hawk): Pinnel’s Case (1602) 5 Rep 117a.
  5. What is promissory estoppel?

    Promissory estoppel is an equitable doctrine which acts as a further exception to the rule that promises to accept less will not amount to good consideration. Promissory estoppel protects a party who has relied upon a promise to accept less, where it would be inequitable to go back on the promise: Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. Denning J revived the doctrine of promissory estoppel in the case of High Trees and later established the requirements needed to rely upon promissory estoppel in the case of Combe v Combe [1951] 2 KB 215.

Chapter 4

  1. Identify the elements of a contract.

    In order for a valid contract to be formed, there must be an agreement between the parties (offer and acceptance), consideration, an intention to create legal relations, and the parties must have the capacity to contract.
  2. What is meant by consideration?

    Consideration is something of value in the eyes of the law which is provided by the promisee in exchange for the promise made by the promisor. Consideration must have some value in the eyes of the law (i.e., it must be sufficient: White v Bluett (1853) 23 LJ Ex 36), but it need not have an equivalent value to the promise (i.e., it need not be adequate: Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87). Consideration must move from the promisee towards the promisor (Thomas v Thomas (1842) 2 QB 851) and the consideration may not have been provided in the past, prior to the promise being made (i.e., consideration must not be past: Eastwood v Kenyon (1840) 113 ER 482). There is also generally no good consideration in merely performing existing legal duties: Collins v Godefroy (1831) 1 B & A 950.
  3. Is a promise to pay more binding?

    A promise to pay the promisee more money is not binding if the promisee is merely performing an existing contractual duty: Stilk v Myrick (1809) 2 Campbell 317. Where the promisee has performed additional duties over and above their contractual duties, then the promise is binding: Hartley v Ponsonby (1857) 7 Ellis and Blackburn 872. Where the promisee provides the promisor with a ‘practical benefit’, then the promise is binding: Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR 1153.
  4. Is a promise to accept less binding?

    A promise to accept a lesser payment is not binding: Foakes v Beer (1883–84) LR 9 App Cas 605. There are a number of exceptions to this rule where a promise to accept less is binding in exchange for payment earlier than it was due, or at a different place, or by accepting something in addition to the requested payment (such as cloak or a hawk): Pinnel’s Case (1602) 5 Rep 117a.
  5. What is promissory estoppel?

    Promissory estoppel is an equitable doctrine which acts as a further exception to the rule that promises to accept less will not amount to good consideration. Promissory estoppel protects a party who has relied upon a promise to accept less, where it would be inequitable to go back on the promise: Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. Denning J revived the doctrine of promissory estoppel in the case of High Trees and later established the requirements needed to rely upon promissory estoppel in the case of Combe v Combe [1951] 2 KB 215.

Chapter 5

  1. What is misrepresentation?

    Where one party makes an unambiguous false representation of fact or law to another party and that statement induces the party to enter into a contract with the maker of the statement, there may be an action in misrepresentation.
  2. What is the effect of a successful action for misrepresentation?

    A successful action for misrepresentation will make the contract voidable. Where a contract is voidable, the contract continues to exist and the parties must perform their contractual obligations until the innocent party asks the court to rescind the contract. Rescission is an equitable remedy and will therefore be awarded at the discretion of the court.
  3. Is a statement of opinion ever actionable as a misrepresentation?

    Generally speaking, a false statement of opinion made during contractual negotiations is not an actionable misrepresentation: Bisset v Wilkinson [1927] AC 177. However, where an opinion is not honestly held, the statement of that opinion is a false statement of fact since the person making the statement clearly knows that it is not honestly held, thus is an actionable misrepresentation: Edgington v Fitzmaurice (1885) LR 29 Ch D 459. Furthermore, a statement of opinion may be elevated to a statement of fact and become actionable where it is made by a person who has special expertise or knowledge in the matter and the statement is false: Esso Petroleum Co Ltd v Mardon [1976] QB 801.
  4. Which category of misrepresentation is preferable from a claimant’s perspective and why?

    An action under s 2(1), Misrepresentation Act 1967 is preferable for a claimant because the measure of damages is the same generous award that is available for fraudulent misrepresentation at common law (namely the tortious measure of damages recoverable in the tort of deceit, which covers all losses that flow directly from the misrepresentation, whether foreseeable or not). Thus, the defendant who is liable for negligent misrepresentation is liable to the same extent as if he had fraudulently misrepresented the fact: Royscot Trust Ltd v Rogerson [1991] 2 QB 297. Furthermore, in an action under s 2(1), the claimant need not prove that the misrepresentation was negligent as it is for the defendant to prove that the statement was not made negligently.
  5. Is it possible to exclude liability for misrepresentation?

    A contracting party may exclude liability for a misrepresentation by including an exclusion clause in the contract. Section 3 of the Misrepresentation Act 1967 provides a control on the use of such exclusion clauses by requiring that the clause is subject to the reasonableness test under s 11(1), Unfair Contract Terms Act 1977.

Chapter 6

  1. What is mutual mistake and what effect will it have on the contract?

    Mutual mistake is where the parties do not reach an agreement because they are communicating at cross-purposes regarding the subject matter of the contract, such as occurred in the case of Raffles v Wichelhaus (1864) 2 Hurl & C 906, where both parties were referring to a ship called ‘The Peerless’, but in fact there were two such ships and each party meant to refer to a different one. Where there is a mutual mistake, this will render the contract void, provided that the mistake is one as to subject matter, since the parties are deemed never to have reached any agreement in the first place.
  2. What is unilateral mistake?

    Unilateral mistake occurs where just one of the parties makes a mistake and the other party to the contract takes advantage of that mistake. Where the mistake goes to a term of the contract, the contract is deemed to be void (Hartog v Colin and Shield [1939] 3 All ER 566). However, where the mistake is one as to the identity of a contracting party, the courts have drawn a distinction between negotiations that take place face-to-face and those carried out at a distance.
  3. What is the distinction between face-to-face negotiations and negotiations at a distance?

    Where negotiations take place face-to-face, there is deemed to be a contract between the seller and the person physically present in front of him (Phillips v Brooks Ltd [1919] 2 KB 243). However, where the contract is negotiated at a distance and parties do not see each other, the seller is deemed to intend to deal with the name on paper. Thus, the mistake negates the agreement in the latter scenario (Cundy v Lindsay (1878) 3 App Cas 459).
  4. How did the House of Lords deal with the situation in the case of Shogun Finance v Hudson [2004] 1 AC 919?

    In this case the negotiations over the sale of a car on a hire purchase agreement were not entirely face-to-face, but neither were they entirely by correspondence. The negotiations took place face-to-face with an intermediary (the car dealer) but the agreement was completed in writing and sent to the finance company. The House of Lords held (by a majority of 3:2) that there were no face-to-face dealings here. Thus, the House adopted the approach taken for negotiations at a distance and there was no contract.
  5. What is common mistake and what effect will it have on the contract?

    Common mistake is where the parties do reach an agreement but they make a fundamental mistake at the time of contracting, which renders performance of the contract impossible or very different to what was intended. The mistake must be one that goes to the root of the contract (such as in Couturier v Hastie (1856) 5 HL 673). Where there is common mistake, the contract will be void for mistake. However, where the mistake is merely one as to a characteristic of the contract, mistake will not apply and the contract will not be void (Bell v Lever Bros Ltd [1932] AC 161, HL).

 

Chapter 7

  1. What is duress and what effect will it have on the contract?

    Duress is the coercion of a contracting party’s consent, which renders the contract voidable. There can be physical duress where the coercion is unlawful, or economic duress where it is illegitimate pressure.
  2. What are the requirements for the illegitimate pressure that is needed to establish economic duress?

    In DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530, Dyson J stated the requirements needed for illegitimate pressure to exist. Firstly, the pressure has to result in the victim having no other practical choice; secondly, the pressure has to be illegitimate; and thirdly, the pressure must be a significant cause in the victim entering into the contract.
  3. What is undue influence and what effect will it have on the contract?

    Undue influence is an equitable doctrine. It is designed to prevent one party from exploiting their relationship with the other contracting party in order to gain their consent to the terms of the contract. Undue influence will render a contract voidable.
  4. What are the classes of undue influence?

    Class 1 is actual undue influence which arises where undue influence is actually exerted on one party such that the free will of that party in deciding to enter into the contract is compromised. Class 2 is presumed undue influence which arises where undue influence is presumed to have been exerted because of the relationship between the parties. There must be a special relationship of trust and confidence between the parties that has been exploited. There are two types of presumed undue influence: class 2A, which encompasses certain relationships where the presumption of undue influence is automatic in law; and class 2B, which applies to relationships where there is no automatic presumption of undue influence, but on the facts of the case one party placed particular trust and confidence in the other party.
  5. What effect will undue influence have on the contract?

    Undue influence renders a contract voidable where one party unfairly exploits their relationship with the other contracting party in order to gain their consent to the terms of the contract.

Chapter 8

  1. What is the general rule regarding privity of contract?

    At common law, only a party to a contract may enforce the contract. Anyone who is intended to benefit from the contract but who is not themselves a party to the contract may not enforce its terms (see Tweddle v Atkinson (1861) 1 Best and Smith 393).
  2. Why was the general rule criticised?

    The general rule of privity of contract was criticised as third parties to a contract could not enforce its terms, even where the contract was intended to confer a benefit on them. In Scruttons Ltd v Midland Silicones Ltd [1962] AC 446, Lord Denning criticised the position of the majority of the House of Lords who refused to allow a third party (a stevedore) to rely on an exclusion clause in a contract made between the carrier and the shipper.
  3. Are there any common law exceptions to the doctrine of privity of contract?

    At common law there are a number of exceptions to the rule which prevents third parties from enforcing a term in a contract. These include tort law, the law of trusts and collateral contracts.
  4. Are there any statutory exceptions to the doctrine of privity of contract?

    Parliament has legislated to create exceptions to the doctrine of privity of contract. Statutory exceptions include the Contract (Rights of Third Parties) Act 1999 and the Carriage of Goods by Sea Act 1992.
  5. What is the effect of the Contract (Rights of Third Parties) Act 1999?

    The Contract (Rights of Third Parties) Act 1999 does not treat a third party as a party to a contract itself, but does allow a third party to enforce the contract. The Contract (Rights of Third Parties) Act 1999 stipulates when a third party will be able to enforce the contract. However, a third party will never be liable under the contract (i.e., incur a detriment). A third party will be able to enforce the contract where it either expressly confers a benefit upon him by name or he is able to show that he is a member of a class or answers a particular description which is referred to in the contract. The Contract (Rights of Third Parties) Act 1999 can be expressly excluded by the contracting parties to prevent third parties from acquiring rights.

Chapter 9

  1. What is discharge of a contract?

    This is where all of the parties’ obligations under the contract cease to exist. A contract can be discharged in one of four ways: by agreement supported by consideration, by performance of the obligations under the contract, by repudiatory breach of contract by one party, or by frustration.
  2. What is the entire obligations rule and what are the exceptions to this rule?

    This rule was established in Cutter v Powell (1795) 6 Term Reports 320 and it holds that one party to a contract is only entitled to insist on payment (performance by the other party to the contract) if they have themselves performed all of their own obligations under the contract. The exceptions to this rule are where the party has substantially performed his obligations under the contract (as in Hoeing v Issacs [1952] 2 All ER 176), where the contracts are divisible, where partial performance has been accepted by the other party (as in Sumpter v Hedges [1898] 1 QB 673, where the claimant was awarded quantum meruit, i.e., a sum representing the work he had performed), or finally, where you are wrongfully prevented from completing your obligations under the contract by the other party.
  3. What is anticipatory breach?

    Anticipatory breach occurs where the defendant realises that he will be unable to perform his contractual obligations or he is unwilling to perform his contractual obligations and, in advance of the date required for performance, he informs the innocent party that he will be in breach of contract.
  4. What can the innocent party do about this?

    The innocent party has two options: the first is to accept the breach and discharge the contract; the second is to refuse to accept the breach and insist that the contract is performed. If the innocent party accepts the breach and the contract is discharged, then the innocent party can claim damages for breach of contract from the date of the anticipatory breach.
  5. What is the doctrine of frustration?

    A contract is frustrated where an event which occurs after contracting renders performance of the obligations under the contract impossible, illegal or radically different (see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696). A frustrating event discharges the obligations under the contract.

Chapter 10

  1. What legal remedy is available in contract law?

    Where a claimant successfully sues another in the law of contract, the most common remedy available to compensate the claimant is an award of damages.
  2. What is the difference between damages awarded in contract and those awarded in tort?

    The aim of an award of damages in contract law is to compensate the claimant for the loss that they have suffered, and the normal measure of damages in contract law seeks to put the claimant in the position that they would have been in had the contract been performed. In tort, the claimant may instead recover damages which seek to put the claimant back in the position that they were in prior to entering into the contract. 
  3. When will a party to a contract be unable to recover his expectation interest?

    A party will be unable to claim his expectation interest where his losses are too difficult to quantify, as in Anglia Television Ltd v Reed [1972] 1 QB 60. In this case, the claimants were unable to quantify their losses as it was impossible to say exactly how much money they would have made had Mr Reed starred in their film. A claimant will also be unable to recover his expectation losses where the court considers those to be disproportionate to the breach of contract, as in Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344.
  4. What is the test for remoteness from Hadley v Baxendale (1854) 156 ER 145?

    Alderson B established the test for remoteness in this case:
    ‘Where two parties have made a contract which one of them has broken, the damages that the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally (i.e., according to the usual course of things) from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.’
  5. What equitable remedies are available in contract law?

    Although damages are the normal legal remedy for breach of contract, the courts also have the discretion to award equitable remedies where damages would be inappropriate. Equitable remedies include specific performance and injunctions.