F4 Notes Chapter 4-11

Compiled by: Ahmad Tariq

Chapter 4-Formation of Contract I

Offer

“An offer is a definite promise to be bound on specific terms”

“An Express or implied statement of the term on which the maker is prepared to be contractually bound if its is accepted unconditionally. The offer may be made to one person, to a class of person or to the world at large, and only the person or one of the person to whom it is made may accept it”

Calil v Carbolic Smoke Ball Co.

Influenza The offer may be made to one person, to a class of persons or to the world at large.Offer cannot be vague

Gunthing v Lynn Lucky Horse Vague statement cannot be an offer

An offer must be distinguished from invitation to treat or a mere supply of information.

Supply Of Information

Harvey v Facey Price of Bumper Hall pen

A statement which sets out possible term of a contract is not an offer unless this is clearly indicated.

Bigg v Boyd Gibbons Quick Sale In the course of negotiations for sale, vendor’s statement may be an offer

An invitation to treat

“An indication that a person is prepared to receive offer with a view to entering into a binding contract"

Auction Sales

Payne v Cayne Bid Bid itself is the offer, which the auctioneer is free to accept or reject

Advertisement

Patridge v Crittenden Bramble finch cocks An advertisement of goods for sale


is usually an attempt to induce offers.

Exhibition of Goods for Sale

Fisher v Bell Offensive Weapon Goods on display is not an offer

Pharmaceutical Society of Great Britain v Boots Cash Chemists

Display of drugs in a self service shop

Displaying goods on the open shelves of a self service shop is an invitation to treat

Invitation to a tender

Termination of Offer

An Offer may only be accepted when it is still open. In the absence of an acceptance an offer may be terminated.

Rejection

Hyde v Wrench Sale of Property, Counter Offer

Outright rejection terminates an offer.

Counter Offer

Counter offer is the final rejection of the original offer

Request for information

It is possible to respond to an offer by making a request for information; it is not a counter offer.

Lapse of time

An offer may be expressed to last for a specified time. If , however, there is no express time limit set, it expires after a reasonable time.

Revocation of an offer

Routledge v Grant Offer to buy house, acceptance required within 6 weeks

If the offer remains open for acceptance for a specified time he may still revoke it within that time.

Failure of a Condition

Financing Ltd v Stimson Condition An offer may be conditional and if this condition is not satisfied the offer is not capable of being accepted.


Termination by Death

Bradbury v Morgan Death The death of offeree terminates the offer, unless the offeree accepts the offer in the ignorance of the death.

Acceptance

“ A positive act by a person to whom an offer has been made which, if conditional, brings a binding contract into effect”

Acceptance may be by express words, by action or inferred from conduct.

Silence

Felthouse v Bindley Nephew’s Horse There must be some act on the part of the offeree to indicate his acceptance.

Acceptance ‘subject to contract’

Means that the offeree is agreeable to the terms of the offer but proposes that the parties should negotiate a formal contract

Letters of intent

Letters of intent are an indication be one party to another that they may place a contract with them.

Acceptance of Tender (A tender to perform one task)

Great Northern Railways v Witham

Supply of stores in series

A tender to supply or perform a series of things, is not accepted until an order is placed (Standing Offer)

Communication of Acceptance

Acceptance must be communicated to the offeror and that it is not effective until this has been done.

Waiver of Communication

Prescribed mode of communication

No mode of Communication prescribed


The Postal RuleAcceptance is complete as soon as letter is posted

Adam v Lindsell Post on Different dates

Where the use of the post is within the comtemplation of both parties, the acceptance is complete and effective as soon as the letter is posted, even though it may be delayed or even lost altogether in the post.

Household Fire and Carriage Accident Insurance v Grant

Application for shares

The intention to use the post for communication of acceptance may be deduced from the circumstances.

Cross Offer

If two offers, identical in terms, cross in the post, there is no contract

Unilateral Contract

R v Clarke Reward for information

There could not be acceptance without knowledge of the offer

Williams v Carwardine Criminals book Acceptance may still be valid even if the offer was not the sole reason for the action.

Collateral Contracts

Where consideration in provided by the making of another contract.


Chapter 5-Formation of Contract II

Consideration

A consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detrement, loss or responsibility given, suffered or undertaken by the other

Executed consideration is that which takes place at the present time Executory consideration is a promise given for a promise. That which takes place

at some future time.

Past Consideration

Re McArdle Improvements to house

Past consideration is something which has already been done at the time the contract is made

Lamleigh v Braithwaite Royal Pardon When a request is made for a service this request may imply a promise to pay for it

Adequacy and sufficiency of consideration

Adequacy

Thomas v Thomas Rent £1 per annum

It is presumed that each party is capable of serving his own interest, and the court will not seek to weigh up the comparative value of the promises or act exchanged

Sufficiency

Chappell & co v Nestle co Wrappers of chocolate

Consideration is sufficient if it has some identifiable value

Performance of exiting contractual duties

Collins v Godefory Provide evidence Performance of an existing obligation imposed by statue is no consideration for a promised of reward

Glasbrook bros v Glamorgan Extra Police force If extra service is given that is sufficient consideration

Promise of additional reward

Stilk v Myrick Two members of The promise for an additional reward


crew to perform existing contractual duties in not binding as there is no extra consideration

Hartley v Ponsonby 17 out of 36 crew members deserted

If a claimant does more than to perform an existing contractual duty, this may amount to consideration

William v Roffey Bros & Nicholls (Contractors) Ltd

Refurbish a block of flats

Practical benefit is also a valid consideration

Waiver of existing rights

Foakes v Beer Interest claimed Waiver of any part of a party’s right should be supported by consideration

Promissory Estoppel

“If a creditor (Y) makes a promise (unsupported by consideration) to the debtor (X) that Y will not insist on the full discharge of the debt, and the promise is made with the intention that the X should act on it and he does so, Y stopped from retracting his promise, unless Z can be restored to his original location”

Central London Property Trust v High Trees House

Half rent in war time

If someone has made a promise they can be prevented from denying it

Combe v Combe Maintenance payment

Promissory estoppels is a shield not a sword it does not create new causes of action where none existed before

Intention to create legal relation

“An agreement will only become a legally binding contract if the parties intend this to be so. This will be strongly presumed in the cases of business agreements but not presumed if the agreement is of a friendly, social or domestic nature”

Husband and Wife

Balfour v Balfour For health reasons wife would not return

The fact that the parties are husband and wife does not mean that they cannot enter into a contract

Merritt v Merritt Mortgage Payment Invitation to treat was to be inferred

Relatives

Jones v Padavatton Barrister, allowance

Agreement between other family members may also be examined by the courts


Commercial Agreements

Rose and Frank v Crompton Distributor in USA In commercial agreements it is presumed that there was an intention to enter into a legally binding contract

Transaction binding in honor only

Jones v Vernons Pools Football pools coupon

If the parties state that an agreement is binding in honor only these amounts to an express denial of intention to create legal relations

Privity of Contract

“As a general rule, only a person who is a party to a contract has enforceable rights or obligations under it. Third parties have no right of action save in certain exceptional instances”

Tweddle v Atkinson Pay sum of money to married daughter

A promises B that A will confer a benefit on C. Therefore, C cannot as a general rule enforce A’s promise since C has given no consideration.

Dunlop v Selfridge Do not sell tires at lower rate than agreed

A person cannot recover damages under a contract to which it was not a party

Exceptions

Beswick v Beswick X transfer his business to his nephew

The third party can sue in another capacity.

Shanklin Pier Ltd v Detal Products Ltd

Confirmed the paint’s suitability

Collateral Contracts

Forseeable loss to the third party

Original beneficiary could claim full damages on behalf of the third party

Statutory Exceptions:

Road Traffic Act 1972 Married woman’s Property Act 1882 Contract (Rights of third parties) Act 1999

Contract (Rights of third parties) Act 1999a) Where the contract itself expressly so provides


b) Where the term confers a benefit of the third party, unless it appears that the contracting parties did not intend him to have the right to enforce it


Chapter 6- Terms of Contract

Contract Terms

“Statements made by the parties may be classified as terms or representations”

Bannerman v White Sulphur Term is an important part of the contract, the party misled can claim for breach of the contract

Routledge v McKay Sale of Motorcycle (wrong model)

A representation is something which includes the formation of the contract but which does not become a term of the contract

Express and Implied Terms

“Terms clearly include in the contract are express terms. The law may complement or replace terms by implying terms into a contract”

Implied Terms

“ A term is the term expressly agreed by the parties to the contract”

Terms implied by custom

Hutton v Warren Tenant Farmer The parties may enter into a contract subject to custom of their trade. Any express term overrides a term which might be implied by custom

Terms Implied by Statute

Sales of Good Act 1979

Terms implied by the courts

Liverpool City Council v Irwin Inter Alia the lifts did not work

Terms may be implied if the court concludes that the parties intended those terms to apply to the contract

Conditions and Warranties

“Terms may be further classified as conditions and warranties”

A condition is the vital term, going to the root of the contract, breach of which entitles the injured party to treat the contract as discharged and claim damages.


A warranty is a term subsidiary to the main purpose of the contract, breach of which only entitles the injured party to claim damages.

Poussard v Spiers Failure to sing in a an opening night

A Vital term of the contract was breached, which entitled the injured party to treat the contract as discharged

Bettini v Gye 3 out of 6 rehearsals

Only a minor term of the contract was breached, the injured party was not allowed to treat the contract as discharged but only claim damages

Innominate Terms

When it not possible to determine whether a term is a condition or a warrant, such terms are classified as innominate terms

If the consequences of the breach is not so serious the term cannot be treated as condition, hence injured party could not treat the contract as breached

Exclusion Clauses

“An exclusion clause may attempt to restrict one party’s liability for breach of contract or for negligence”

“A claue in a contract which purports to exclude liability altogether or to restrict it by limiting damages or by imposing other onerous conditions”

a) Exclusion Clause must be incorporated into a contract before they have legal effectb) Exclusion Clauses are interpreted strictly

Contractual Document

Chapelton v Barry UDC Pile of deck chairs Where the exclusion clause is contained in an unsigned document it must be shown that this document is integral part of the contract

Signed Document

L’Estrange v Graucob Slot Machine, Small Print

If a person signs a document containing a term, he is held to have agreed to the term even if he had not read the document

Unsigned contracts and notices

Olley v Marlborough court Ltd

Notice in Bedroom Each party must be aware of the contract’s term before or at the time


of entering into the agreement if they are to be binding

Onerous Terms

Interfoto picture library Ltd v Stiletto visual programmers Ltd

Holding fee of £5 plus VAT

Where a term is particularly unusual is should be highlighted otherwise it won’t be incorporated into the contract

Interpretation of Exclusion Clauses

The ‘main’ purpose rule

By this, the court presumes that the clause was not intended to prevent the main purpose of the contract

Fundamental Breach

Photo Productions v Securicor Transports

Small Fire by guard

A properly drafted exclusion clause can cover any breach of contract under common law

The Unfair Contract Act 1977

Clauses which are void

If an exclusion clause is made void by statute it is unnecessary to consider how other legal rules might affect it

Clauses which are subject to a test of reasonableness

George Mitchell Ltd v Finney lock seeds Ltd

Dutch winter cabbage seeds

Courts decides relying exclusively on the statutory ground of reasonableness

The statutory ground of reasonableness

Smith v Eric S Bush Surveyor’s Report It is sometimes unreasonable to disclaim liability

The Unfair Terms in Consumer Contracts Regulations 1999This deals with consumer contracts and terms which have not been individually negotiated


“A consumer is defined as ‘a natural person’ who, in making a contract to which these regulations apply, is acting for purposes which are outside his business”

“An Unfair term is any term which causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”


Chapter 7- Breach of Contract

Repudiatory Breach

“A repudiatory breach occurs where a party indicates, either by words or by conduct, that he does not intend to honour his contractual obligations or commits a breach of condition or commit a breach which has very serious consequences for the injured party. It only occurs when performance is due”

Anticipatory Breach

“Where one party declares in advance that he will not perform his side of the bargain when the time for performance arrives, the other party may treat the contract as discharged forthwith, or continue with his obligations until actual breach occurs. His claim for damages will then depend upon what he has actually lost”

Hochester v de la tour European tour The claimant can sue as soon as the anticipatory breach occurs

White & Carter (Councils) v McGregor

Litter bins Repudiation does not, of itself, bring the contract to an end. It gives the innocent party the choice of affirmation or rejection

Affirmation after repudiation

Damages

“Damages are a common law remedy intended to restore the party who has suffered the loss to the same position he would have been in if the contract had been performed”

The two tests applied to a claim for damages relate to remoteness of damage and measure of damages.

Remoteness of Damages

Hadley v Baxendale Crank Shaft The loss must arise naturally form the breach and in a manner which the parties may reasonably be supposed to have contemplated

Victoria Laundry (Windsor) v Newman Industries

Large Boilers A loss outside the natural course of events will only be compensated if the exceptional circumstances are within the defendant’s knowledge when he


made the contract

Measure of Damages

“The measure of damages is that which will compensate for the loss incurred. It is not intended that the injured party should profit from a claim. Damages may be awarded for financial and non financial loss”

C & P Haulage v Middleton Renewable license A claimant may seek to have his reliance interest protected, i.e. the position he would have been in had he not relied on the contract. This compensates for wasted expenditure

Anglia Television Ltd v Reed Film Making If a contract is speculative, it may be unclear what profit might result.

Market Price Rule

The seller would have to compensate the buyer for any additional cost the buyer incurred over the contract cost and vice versa (when buying or selling the equivalent goods at market price)

Non Financial Loss

Jarvis v Swan Tours Holiday accommodation at a winter sports centre

Damages could be recovered for mental distress where that is the main result of the breach

Alexander v Rolls Royce Motor cars Ltd

Repair of Rolls Royce

Breach of contract to repair a car did not give rise to any liability due to distress

Cost of Cure

Ruxley Electronics and Construction Ltd v Forsyth

Swimming Pool If the claimant is seeking cost of cure for the defect which constituted the breach, he may be denied if it is wholly disproportionate to the breach

Mitigation of loss

In assessing the amount of damages it is assumed that the claimant will take any reasonable steps to reduce or mitigate his loss

Liquidated Damages and Penalty Clause

Liquidated damages can be defined as ‘a fixed or ascertainable sum agreed by the parties at the time of contracting, payable in the time of breach’


A penalty clause can be defined as ‘a clause in a contract providing for a specified sum of money to be payable in the event of a subsequent breach. If its purpose is merely to deter a potential difficulty, it will be held void and the court will proceed to asses un liquidated damages’

Action for Price

A simple action for the price to recover the agreed sum should be brought if breach of contract is failure to pay the price

Quantum Meruit

De Barnardy v Harding Advertise and sell tickets

Quantum Meruit’s aim is to restore the claimant to the position he would have been in if the contract had never been made and is likely to be sought where one party performed part of his obligations and other party repudiates

Equitable Remedies

Specific Performance

The party in breach is ordered to perform his side of the contract

Injunction

Warner Bros Pictures Inc v Nelson

Film star Bette Davis

An injunction may be used to enforce a contract of personal service for which an order of specific performance would be refused

Recission

It is a right which exists in certain circumstances, such as where a contract is voidable


Chapter 8- The Law of Torts

TortA tort is a civil wrong and the person wronged sues in a civil court for compensation or an injunction.

The tort of negligenceNegligence is the most important modern tort. To succeed in an action for negligence the claimant must prove that:

The defendant had a duty of care There was a breach of that duty In consequence the claimant suffered injury, damage or loss

Duty of care

Donoghue v Stevenson Decomposed snail A person might owe a duty of care to another with whom he had no contractual relationship. Every person owes a duty of care to his “neighbour”.

Anns v Merton London Borough Council

Development of the doctrine (Two stages must be tested)

Caparo Industries plc v Dickman

Auditors Auditors do not owe a duty of care to public at large (Three stage test)

Breach of duty of careThe standard of reasonable care requires that the person concerned should do what a “reasonable man” would do. The following factors should be considered.

Probability of Injury

Glasgow Corporation v Taylor

Poisonous berries A warning notice was not considered to be sufficient to protect children.

Seriousness of the risk

Paris v Stepney Borough Council

Protective goggles There was a higher standard of care owed to the employee because an injury to remaining good eye would blind him.

Issues of practicality and cost

Latimer v AEC Ltd Slippery floor Duty of care is not breached because


reasonable step was taken.

Common Practice

Where an individual can prove their actions in line with common practice or custom it is likely that they would have met their duty of care

Social Benefit

Where an action if of some benefit, defendants may be protected from liability

Professions and skill

Persons who hold themselves out to possess a particular skill should be judged on what a reasonable person possessing the same skill would do in the situation

Res ipsa loquitur

Richley v Fould Skidded car “The thing speaks for itself.”

Mahon v Osborne Leaving a swab Leaving a swab inside a patient after and operation was not negligent

Causality and remoteness of damagesThe claimant must demonstrate that he suffered injury or loss as a “result” of the breach

The ‘But for’ test

Barnett v Chelsea Arsenic poisoning The claimant must prove that if it was not ‘but for’ the other’s actions they would not have suffered damge

Multiple Causes

Multiple causes:Wilsher v Essex AHA

Premature baby Court could not ascertain a direct casual link due to the presence of multiple causes

Novus actus intervieniens

McKew v Holland Leg injury The actions of the claimant may break the chain of causation (Act of Claimant)

Lamb v Camden LBC Damaged house Where a third party intervenes in the course of events the defendant will normally only be liable for damage until the intervention (Act of a third party)


Carslogie Steamship Co Ltd v Royal

Damaged ship Where the natural event is unforeseeable, the chain will be broken (Natural events)

Remoteness of Damage

The Wagon Mound Furnace oil Liability is limited to damage that a reasonable man could have foreseen

Defences to negligence

Contributory Negligence

Sayers v Harlow UDC Defective lock A court may reduce the amount of damages paid to the claimant if the defendant establishes that they contributed to their own injury or loss.

Volenti non fit injuria

ICI v Shatwell Detonators Where a defendant’s actions carry the risk of a tort being committed they will have a defense if it can be proved that the claimant consented to the risk


Chapter 9- Professional negligence

Professional negligence

“Professional individuals and organizations have a special relationship with their clients and those who rely on their work. This is because they act in an “expert capacity”

Special relationship

“If someone possessed of a special skill undertakes….to apply that skill for the assistance of another person who relies on that skill, a duty of care will arise”

Candler v Crane, Christmas & Co

To establish a “special relationship” the person who made the statement must have done so in some professional or expert capacity.

Hedly Byrne & Co v Heller and Partners Ltd

Statement about financial resources

Claim for negligence cannot succeed if there is a ‘disclaimer’ even if the special relationship existed and duty of care is breached

The Caparo Decision

“Auditors do not owe a duty of care to the public at large or to shareholders increasing their stakes”

Caparo Industries plc v dickman and others

AuditorsTakeover BidDirectors (the dickman brothers)

The auditor’s duty did not extend to potential investors nor to existing shareholders increasing their stakes. It was a duty owed to the body of shareholders as whole.

ADT Ltd v BDO Binder Hamlyn

Joint auditorTrue & Fair viewPotential buyerMeetingDifference &Interest

The courts expect a higher standard of care from accountants when giving advice on company acquisition since the losses can be so much greater.


Chapter 10- Employment Contract

An Employee is “an individual who has entered into, or works under a contract of employment”.

A Contract of Employment is a contract of service or apprenticeship, whether express or implied, and ( if it is express) whether it is oral or in writing.

Ferguson v John Dawson & Partners

Builder’s laborer In order to distinguish between employment and independent contractor the court will look at the reality of situation rather than the arrangements

Massey v Crown Life Assurance

Insurance Co. Where there is some doubt as to the nature of the relationship the courts will then look at any agreement between the parties

Tests

It is very important to know whether an individual is an employee or an independent contractor. The court will apply a series of tests:

Control Test

Mersey Docks & Harbour Board v Coggins & Griffiths

Stevedores The court will consider whether the employer has control over the way in which the employee performs his duties

Integration Test

Cassidy v Ministry of Health

Medical officer The courts consider whether the employee is so skilled that he cannot be controlled in the performance of his duties. Lack of control indicates that an employee is not integrated into the employer’s organization, and therefore not employed.

Multiple ( economic reality ) Test

Ready Mixed concrete v Ministry of Pension & National Insurance

DriverLiquid concrete

Courts also consider whether the employee was working on his own account and this requires numerous factors to be taken into account.


Agency workersTwo cases are considered

(a)Length of Service(b)Control over the worker

Other Relevant factors: Own tools & equipment Selection or appointment Payment of salary Delegation of work

O’Kelley v trusthouse forte plc

Waiter It depends entirely on the facts of each case. When there is no ‘mutuality of obligations’, there is no contract

Why distinguishing is important?

Social Security Implied terms

Taxation VAT

Employment protection Bankruptcy

Tortuous acts Health and Safety

Common Law Duties

Employee’s duties: Fundamental duty of faithful service Reasonable competence Obedience Duty to account for all money and property Reasonable care and skill Personal service

Hivac Ltd v Park Royal Spare timeDirectly competed

Even though the employees had not passed on any confidential information, they were still in breach of their duty of fidelity to the claimants.

Pepper v webb Gardener The gardener was in breach of his implied duty to obey as the instructions were lawful and reasonable.


Boston Deep Sea Fishing and Ice Co.v Ansell

Commissions The company was justified in dismissing the claimant and he must account to it for the commissions.

Employer’s duties Pay remuneration Indemnify the employee Health and safety Provide work Duty of mutual trust and confidence


Chapter 11- Dismissal and Redundancy

Summary dismissal

Summary dismissal is where the employer dismisses the employee without notice. He may do this if the employee has committed a serious breach of contract

Wilson v Racher Gardener Action succeeded because it was employer’s own conduct that provoked the outburst

Constructive dismissal

Constructive dismissal is where the employer commits a breach of contract, thereby causing the employee to resign

Western Excavating (ECC) Ltd v Sharp

Advance Holiday Pay

If the employer is not in breach of contract, the employee cannot claim for constructive dismissal

Wrongful dismissal

Wrongful dismissal is a common law concept arising in specific circumstances. It gives the employee an action for breach of contract

Justification of dismissal Willful disobedience of a lawful order Misconduct Dishonesty Incompetence or neglect Gross negligence Immorality Drunkenness

Unfair dismissal

Unfair dismissal is a statutory concept introduced by employment protection legislation. As a rule, every employee has the right not to be unfairly dismissed

Potentially fair reasons for dismissal Capability and Qualifications Conduct Redundancy Legal prohibition Some other substantial reason


International Sports Ltd v Thomson

Employee did not work for 25% of the time

The illnesses were unrelated and unverifiable so dismissal was fair

Remedies for Unfair dismissal

Reinstatement

Reinstatement is return to the same job without any break of continuity

Re-engagement

Re-engagement means that the employee is given new employment with the employer (or his successor or associate) on terms specified in the order.

Compensation

Basic Award Compensatory award (up to £66,200) Punitive additional award (up to £380 per week)

Redundancy

A dismissal is treated as caused by redundancy if the only or main reason is that: The employer has ceased, or intends to cease, to carry on the business in which the

employee has been employed The requirement of that business for employees to carry on the work done by the

employee have ceased or diminished

High Table Ltd v Horst and Others

Waitresses Dismissal was for genuine redundancy as the place of work was of the new employer was at the client company premises

F4 Notes Chapter 4-11

Documents

Transcript of F4 Notes Chapter 4-11