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CONTRACT LAW August, 2009. CONTRACT LAW The law of contract has it identity firmly in place in the UK. Contract law first came about in the thirteenth.

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Presentation on theme: "CONTRACT LAW August, 2009. CONTRACT LAW The law of contract has it identity firmly in place in the UK. Contract law first came about in the thirteenth."— Presentation transcript:

1 CONTRACT LAW August, 2009

2 CONTRACT LAW The law of contract has it identity firmly in place in the UK. Contract law first came about in the thirteenth century and m ost of the developed western world derives its laws involving contract from the British system. Hong Kong, Malaysia, Pak- istan, India and now China all use British Law of Contract. Contract law is based on the principal of PRECEDENT What is PRECEDENT?? The eighteenth century is known as the golden years of con- tract as it is where the contract as we know it derives from. 1

3 DEFINITION: An agreement, giving rise to obligations which are enforced or recognized by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agre- ement of the contracting parties. A contract arises when there is intention by 2 or more people to enter into an agreement. Lord Denning: Gibson v Manchester City Council [1979] All ER 972 Look at the correspondence as a whole and at the conduct of the parties and see there from whether the parties have come to an agreement on everything that was material. 2

4 WHAT IS THIS??? Subjective??? This approach was rejected by the Appeal Court in favour of the more traditional approach which is to find the objective intention of the parties when they entered into the agreement by reducing the contract into 1)offer 2)counter offer 3)acceptance 4)revocation 5)Rejection Lord Diplock in the same case went with the above method and rejected Dennings argument. Diplock sees separating everything into manageable blocks as an easy way of objectively finding out the truth. However in difficult cases where this may not be possible the courts may well accept Dennings view. 3

5 OFFER An offer an expression of a willingness to contract on certain terms made with the intention that a binding agreement will exist once that offer is accepted. Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 Company introduced a smoke ball onto the market with the promise that They would pay 100 pounds to anyone who contracted influenza after using the smoke ball. The plaintiff used the smoke ball and then immediately caught influe- nza and sued for the 100 pounds. The defendant refuted saying that it was impossible to make an offer to the whole world 4

6 Bowen LJ gave the dissenting judgment in the Appeal Court. Although the contract is offered to the whole world which could be a difficult proposition, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. In the Carlill case the defendants tried to say that “ the plaintiff had not accepted the offer therefore there was no consensus of agreement.” 5

7 Again this was rejected by the court and the subject the offer ma y arise in two ways 1) bilateral 2) unilateral A bilateral offer arises where one party agrees to do something for an other in return for a promise made by the offeree. Both parties are agreeing to do something in return for a promise. EG: If A promises to sell his car in return for B promising to pay him 500 pounds. The vast majority of offers are this type A unilateral offer where one party promises to pay for the act of anot- her. That is a conditional promise. The acceptance occurs when the person does the act as in Carlill case. 6

8 INVITATION TO TREAT The main occurrence of this is to be found in goods for sale. Are Goods displayed in a shop window or within the shop itself an offer? The issue becomes that when someone walks into a shop they are accepting a binding offer to buy? Or Is it an invitation to accept the offer and the customer then either accepts or declines the offer? 7

9 General Rule Fisher v Bell [1961] 1 QB 394 A price marked flick knife was displayed for sale in a shop window. The seller was prosecuted under the (now repealed) Offensive Weapons Act 1961 which made it an offer to offer to sell such items and was aquitted. Lord Parker “ It is clear according to the ordinary law of contract that the display of an article 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. 8

10 Taylor v Laird (1856) 1 H & N 266, 25 LJ ex 329 The captain of a ship accepted a contract to sail a cargo down the NIGER river but sailed half way then gave up and brought the ship back. He then wanted payment for the time he spent. The court rejected this and said he had not fulfilled the condi- tions of the contract and had not communicated the desire to return the boat to the owners so there was no acceptance of the new offer. 9

11 ACCEPTANCE Definition: A final unqualified acceptance as an expression of intent to all the terms of the offer. Taylor v Laird Acceptance must be unequivocal and unconditional. 10

12 Tinn V Hoffman and Co (1873) 29 LT 271 Blackburn J: When a contract is made between two parties there is a promise made by one in consideration of the promise made by the other; there are 2 assenting minds. There is an exch- ange of promises. The promise or offer made on each side in ignorance of the promise or offer made on the other side then neither of them can be construed as accepting the offer. 11

13 In this case 2 offers crossed in the post X offers to buy a car from Y for 5000 pounds At the same time Y offers to sell his car for 5000 pounds Therefore no contract exists because subjectively they agree but objectively there is no indication of agreement because the communication has not been accepted as an offer. 12

14 COMMUNICATION Holwell Securities Ltd v Hughes [1974] 1 WLR 155 Houghton J “There must be some form of objective or external manifes- tation of acceptance which must be communicated to the offeror.” Therefore silence does not constitute as acceptance of an offer in any way shape or form. 13

15 Felthouse v Bindley (1982) 11 CBNS 869 Based on an action in tort. Defendant was selling farming stock at auction for John Felthouse. A man was interested in buying a horse but there was misunderstanding whether the price was in pounds or guineas. He wrote to the auctioneer stating “ If I hear no more about it I will expect th price to be in guineas” There was no reply but Hughes instructed that the horse be removed from the auction. “ Silence is usually equivicaql as to consent and the letter did not render the auctioneers failure to reply unequivocally since failure to reply to letters is a common human weakness” 14

16 CONSIDERATION Is one of the principal ingredients of an enforceable contract. Definition: A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by another. 15

17 This approach to defining consideration develops deficiencies when seen in contracts based solely on an exchange of promises. If PARTY A promises to buy a car from B for $2000 and B on his part promises to sell the car to A for $2000 there is clearly a binding contract which can be enforced if one party should not to carry on. Until the date for performance arrives there is no benefit or detriment undertaken by either party, the consid- eration within the contract presenting itself via the exchange of promise made by the parties. The definition is therefore meaningless in this context. 16

18 he approach today comes from Sir Frederick Pollock (1950) in the Principles of Contract An act or forebearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. This definition was approved in the House of Lords 17

19 Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847 This is now regarded as being more representative of the doctrine of consideration in the modern commercial contract than the 19c concept of benefit and detriment. The sub principles may be seen as 1) Consideration must be executed or executory but not past 2)Consideration must move from the promisee but not necessarily to the promisor; 3)Consideration must be sufficient though not necessarily adequate. 18

20 PAST CONSIDERATION This method reflects the methods by which the plaintiff purchases the promise of the defendant. In executory consideration the form of the consideration arises by way of a promise by the defendant in return by a promise by the plaintiff. This is an agreement which will take place in the future. EG A promises to buy Bs car on credit, delivery to take place next week. Here both agree to a future deal so the consideration is executory. Executed consideration occurs when one of the parties has done all he can do under the contract, that is, he has executed his side of the bargain. The other parties consideration which is still unperformed remains executory in that it remains to be completed in the future. 19

21 Past consideration is no consideration. A paints the outside of Bs house as a voluntary act while B is on holiday. When B returns from holiday he is pleasantly surprised by As kindness and promises to pay A $100. If B refuses to pay can A claim?? The claim will fail since As consideration of painting the house is past in relation of the promise to pay and past consideration is no consideration. Re McArdle [1951] CH 669 Modern authority on past consideration. 20

22 EXCEPTIONS TO PAST CONSIDERATION RULE Lampleigh v Braithwait (1615) Hob 105 Braithwait killed another man and asked Lampleigh to obtain a pardon for him from the King. Lampleigh went to considerable expense to secure the pardon who subsequently promised to pay 100 pounds. Braithwait the refused to pay and was sued. Clearly on the basis of the rule on PAST CONSIDERATION Lampleigh’s efforts were in the past in relation to the promise. The court held that there was an implied promise to reward and reimburse Lampleigh for his efforst. Thus the previous request and subsequent promise were part of the same transaction and as such were enforceable. This clearly shows that the courts are trying their best to be fair and reasonable. 21

23 CONSIDATION MUST MOVE FROM THE PROMISEE TO THE PROMISOR THOUGH NOT NECESSARILY TO THE PROMISOR. Price v Easton (1833) 4 B & Ad 433 Price owed the plaintiff 13 pounds and agreed to work for the defendant who promised to pay Prices wages to the plaintiff but then failed to do so. It was held that the plaintiff could not recover the money from the defendant as no consideration had moved from the plainti ff. 22

24 CONSIDERATION MUST BE SUFFICIENT BUT NOT NECESSARILY ADEQUATE. The consideration must have some value namely economic value. Adequacy: Describes the reciprocal elements of the bargain, quid pro quo of the contract. This is very important in the contract as it decides if the individual has made a good sale or purchase in economic terms. Sufficiency: This describes not the economic value of the considera- tion but whether the consideration can exist as such in the eyes of the law as supporting a simple contract. Main case 23

25 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and throws away the corn. 24

26 Midland Bank Trust Co Ltd v Green [1981] AC 513 Father had option to sell to son sold to his wife a farm for 500 pounds even though the farm was worth 40,000 pounds. Court of Appeal said that because it was sold at such an undervalued price could not amount to a sale for moneys worth. House of Lords reversed the decision: The court would not enquire into the adequacy as long as the consideration was real. Thus there was a good contract between the parties. 25

27 INTENTION TO CREATE A LEGAL RELATIONSHIP So we can see that the courts will look very carefully at each situation and then make a judgment based on 3 main factors. 1) It must be JUST and FAIR 2) It must be REASONABLE 3) There must be proximity between the parties. 26

28 Merritt v Merritt [1970] 1 WLR 1121 Husband left home to live with another woman and agreed in writing to give his wife 40 pounds a month to pay of the mortgage and when finished he would transfer the house into her name. She paid off the mortgage then he refused to transfer the deeds. Court of Appeal: There most certainly was an intention to create a legal relationship and the courts must be seen to be fair and just and take every case on its merits. It can only be reasonable to expect this man to honour the agreements he makes with anyone not just his ex wife. 27

29 Donoghue v Stevenson [1932] AC 562 One of the most famous cases in English legal history. It was based on a TORT law issue of negligence but is used for the law of proximity for all contract law cases. It also defined the DUTY OF CARE principal used in many countries across the world today. 28

30 On the evening of Sunday 26 August 1928 May Donoghue, née M’Alister, boarded a tram in Glasgow for the thirty-minute journey to Paisley. At around ten minutes to nine, she and a friend took their seats in the Wellmeadow Café in the town's Wellmeadow Place. They were approached by the café owner, Francis Minchella, and Donoghue's friend ordered and paid for a pear and ice and an ice- cream drink. The owner brought the order and poured part of a bottle of ginger beer into a tumbler containing ice cream. Donoghue drank some of the contents and her friend lifted the bottle to pour the remainder of the ginger beer into the tumbler. It was claimed that the remains of a snail in a state of decomposition dropped out of the bottle into the tumbler. Donoghue later complained of stomach pain and her doctor diagnosed her as having gastroenteritis and being in a state of severe shock. 29

31 On 9 April 1929, Donoghue brought an action against David Stevenson, an aerated water manufacturer in Paisley, in which she claimed £500 as damages for injuries sustained by her through drinking ginger beer which had been manufactured by him. The case was ultimately settled out of court and the facts were never established in a court of law. 30

32 The identity of Donoghue's friend is unknown, but that person is referred to as "she" in the case reports (including the first paragraph of the judgment of Lord MacMillan in the House of Lords). Other factual uncertainties include whether the animal (if it existed) was a snail or a slug; whether the bottle contained ginger beer or some other beverage (as 'ginger' in Glaswegian and West of Scotland parlance refereed to any fizzy drink) and whether the drink was part of an ice-cream soda. 31

33 Legal background In common law, a person can claim damages from another person where that other person owed them a duty of care and harmed them through their negligent action. This concept existed prior to Donoghue, but it was generally held that a duty of care was only owed in very specific circumstances, such as where a contract existed between two parties or where a manufacturer was making inherently dangerous products or was acting fraudulently. 32

34 There was no contractual relationship between Donoghue the drinks manufacturer or even, as Donoghue had not ordered or paid for the drink herself, between Donoghue and the café owner. Although there was a contractual relationship between the café owner and Donoghue's friend, the friend had not been harmed by the ginger beer. As ginger beer was not a dangerous product, and the manufacturer had not fraudulently misrepresented it, the case also fell outside the scope of the established cases on product liability. On the face of it, the law therefore did not provide a remedy for Donoghue. 33

35 Donoghue's solicitor, Walter Leechman of W G Leechman & Co in Glasgow's West George Street, had already tried to establish liability against aerated water manufacturer A. G. Barr when a dead mouse was alleged to have found its way into a bottle of its ginger beer. However, an action for damages was rejected by the Inner House of the Court of Session, when the appeal court judges ruled that there was no legal authority allowing such an action (Mullen v A.G. Barr & Co. 1929 S.C. 461). 34

36 Progress of the case The writ lodged in the Court of Session on April 1929 alleged that May Donoghue had become ill with nervous shock and gastroenteritis after drinking part of the contents of an opaque bottle of ginger beer, and David Stevenson, the manufacturer, "owed her a duty to take reasonable care that ginger beer he manufactured, bottled, labelled and sealed, and invited her to buy, did not contain substances likely to cause her injury." Donoghue claimed damages of £500. 35

37 Counsel for the manufacturer denied that any such duty was owed, but in June 1930 the judge, Lord Moncrieff, ruled there was a case to answer. Stevenson appealed the ruling on a number of legal grounds, and the judges of the Inner House granted the appeal in November 1930, dismissing Donoghue's claim as having no legal basis following the authority of their earlier decision in Mullen v AG Barr. One of the judges said that "the only difference between Donoghue's case and the mouse cases was the difference between a rodent and a gastropod and in Scots law that meant no difference at all." 36

38 Donoghue was allowed to appeal her case to the House of Lords but, whilst her legal team had agreed to provide their services free, she was unable to put up the security needed to ensure the other side's costs were met should she lose in the Lords. However, as such security would not be required if she could gain the status of a pauper, she petitioned the House of Lords, saying, "I am very poor and am not worth in all the world the sum of five pounds, my wearing apparel and the subject matter of the said appeal...". A certificate of poverty signed by a minister and two elders of her church was attached to the petition, and the House of Lords agreed to grant her pauper status. 37

39 Nine months after her petition was granted, Lords Buckmaster, Atkin, Tomlin, Thankerton and MacMillan heard counsels' arguments. Donoghue's counsel - George Morton KC and W. R. Milligan argued that a manufacturer who puts a product intended for human consumption onto the market in a form that precludes examination before its use is liable for any damage caused if he fails to exercise reasonable care to ensure it is fit for human consumption. Stevenson's counsel - argued that there was no authority for such a principle of law. 38

40 The judgment and Lord Atkin's "neighbour" principle The leading judgement was delivered on 26 May 1932 by Lord Atkin. The most famous section was his explanation of the "neighbour" principle, which was derived from the Christian principle of "loving your neighbour. 39

41 There must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances....The rule that you are to love your neighbour becomes in law you must not injure your neighbour; and the lawyer's question: Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer see ms to be - persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions that are called in question... a manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer's life or property, owes a duty to the consumer to take that reasonable care. 40

42 Lords Thankerton and MacMillan supported Lord Atkin's opinion, with Lords Buckmaster and Tomlin dissenting. Buck master said it was impossible to accept such a wide proposition and (anticipating later "floodgates" arguments) that it was difficult to see how trade could be carried on if the Lord Atkin's principle was law. Buckmaster also opined, as did Lord Tomlin, that if such a duty of care existed it must cov er the construction of every article, not just food: "If one step, why not fifty?" Tomlin referred to the Versailles train crash in 1842 caused by a defective axle, noting that, if Lord Atkin's principle were to be law, every injured party would be permitted to sue the axle manufacturer in such a case. 41

43 The case was returned to Scotland for the Court of Session to apply the ruling to the facts of the case. In the event, David Stevenson died within a year of the decision and his executors settled out of court, for less than the original claim of £500. 42

44 Consequences of the case As Justice Allen Linden has pointed out, Donoghue is an extension of a principle articulated by Benjamin Cardozo in an earlier case in the United States, MacPherson v. Buick Motor Co. which the judges referred to in Donoghue. MacPherson pioneered the tortious principle of a general duty of care, the starting point for any action in negligence, though the principles were expressed within the context of product liability only. 43

45 Donoghue is perhaps best known for the speech of Lord Atkin and his "neighbour" or "neighbourhood" principle, where he applied Luke 10 to law so that, where an established duty of care does not already exist, a person will owe a duty of care not to injure those whom it can be reasonably foreseen would be affected by their acts or omissions. The effect of this case was not only to provide individuals in England and Wales with a remedy against suppliers of consumer products even where the complainant had no privity of contract with those individual or company tortfeasors, but to allow such individuals to bring negligence claims in any circumstance where the conditions for establishing a duty of care were met. 44

46 In 1990, the House of Lords revised Lord Atkin's "neighbour" principle to encompass public policy concerns articulated in Caparo Industries Plc. v Dickman ([1990] 1 All ER 568). The three-stage Caparo test for establishing a duty of care requires (i) foreseeability of damage, (ii) a relationship characterized by the law as one of proximity or neighbourho- od and (iii) that the situation should be one in which the court considers it would be fair, just and reasonable that the law should impose a duty of given scope on one party for the benefit of the other. In other jurisdictions, such as New Zealand, there is now a two-part test for novel fact situations, where the establishment of a duty must be balanced against applicable policy matters. 45

47 AN AMUSING CASE Millar v Jackson [1977] QB 966 A famous Court of Appeal case in the torts of negligence and nuisance. The court considered whether the defendant (the chairman of a local cricket club, on behalf of its members) was liable in nuisance or negligence when sixes were hit over the boundary and onto the property of their neighbours, Mr and Mrs Miller (the plaintiffs). 46

48 Cricket had been played at a small cricket ground in Lintz, near Burnopfield, County Durham, since 1905, on land leased to the club by the National Coal Board. The National Coal Board also owned a field adjacent to the ground, which it sold to Stanley Urban District Council. The Council sold the land to Wimpey for development. A line of new semi-detached houses were built next to the ground in 1972, one of which, 20, Brackenridge, was bought by the Millers. 47

49 The Millers' garden boundary was only 100 feet (30 m) from the nearest batting crease, and their house only 60 feet (18 m) further away. Several cricket balls were hit onto their property over the following years, causing minor damage to their house (chipped paintwork, broken roof tiles) and risking personal injury to the Millers. 48

50 Despite measures taken by the club to minimise recurrences, including the erection of a 8 foot 9 inch (2.7 m) high fence in March 1975 on top of a 6 foot (1.8 m) boundary wall and asking batsmen to try to hit fours rather than sixes, a few balls continued to be hit out of the ground each season. For example, in 1975, 36 matches were played over 20 weeks in the summer, with 2,221 six-ball overs being bowled. Out of the 13,326 legitimate deliveries (ignoring no-balls and wides) there were 120 sixes, of which six crossed the fence and fell into the housing estate. 49

51 The club offered to meet the cost of any property damage (£400), and suggested further countermeasures, such as louvred window shutters, and a net over the Millers' garden. The Millers were not content and sued for damages and an injunction to prevent cricket being played on the ground. The case is well-known for the lyrical opening to Lord Denning's judgment, the first paragraph of which reads: 50

52 In summertime village cricket is the delight of everyone. Nearly every village has its own cricket field where the young men play an d the old men watch. In the village of Lintz in County Durham they have their own ground, where they have played these last 70 year s. They tend it well. The wicket area is well rolled and mown. The outfield is kept short. It has a good club house for the players and seats for the onlookers. The village team plays there on Saturdays and Sundays. They belong to a league, competing with the neighbouring villages. On other evenings after work they practice while the light lasts. Yet now after these 70 years a judge of the High Court has ordered that they must not play there any more. He has issued an injunction to stop them. He has done it at the instance of a newcomer who is no lover of cricket. 51

53 This newcomer has built, or has had built for him, a house on the edge of the cricket ground which four years ago was a field where cattle grazed. The animals did not mind the cricket. But now this adjoining field has been turned into a housing estate. The newcomer bought one of the houses on the edge of the cricket ground. No doubt the open space was a selling point. 52

54 Now he complains that when a batsman hits a six the ball has been known to land in his garden or on or near his house. His wife has got so upset about it that they always go out at week-ends. They do not go into the garden when cricket is being played. They say that this is intolerable. So they asked the judge to stop the cricket being played. And the judge, much against his will, has felt that he must order the cricket to be stopped: with the consequence, I suppose, that the Lintz Cricket Club will disappear. 53

55 The cricket ground will be turned to some other use. I expect for more houses or a factory. The young men will turn to other things instead of cricket. The whole village will be much the poorer. And all this because of a newcomer who has just bought a house there next to the cricket ground. 54

56 Judgment High Court Reeve J. heard the case at first instance in the High Court in Nottingham. He delivered his judgement on December 3, 1976, granting the Millers the injunction they sought, and ordering the club to pay general damages of £150 for negligence and nuisance, for the inconvenience and interference with the use of the Millers' property. The defendants appealed against the injunction, and the plainti- ffs cross-appealed for an increase in the award of damages. Michael Kempster QC and James N. Harper appeared as counsel for the club; James Chadwin QC and Frederick Such as counsel for the Millers at a two-day hearing on 31 March and 1 April 1977. 55

57 Court of Appeal The Court of Appeal delivered its judgment on 6 April 1977. Geoffrey Lane and Cumming-Bruce LJJ held that there was a foreseeable risk of injury to the plaintiffs and their property from the cricket balls and the club could not prevent accidents from happening. The club was guilty of negligence "on each occasion when a ball comes over the fence and causes damage to the plaintiffs" The repeated interference with their property was also held to be an actionable nuisance. 56

58 Following Sturges v. Bridgman, the fact that the Millers had "come to the nuisance" was no defence. On that basis, the Millers were awarded damages. Lord Denning MR dissented from the finding of negligence and nuisance, holding that "the public interest should prevail over the private interest However, on the basis that the club had agreed to pay for an y damage, Lord Denning was "content that there should be an award of £400 to cover any past or future damage". 57

59 Geoffrey Lane LJ would have upheld the injunction. However, Lord Denning MR and Cumming-Bruce LJ held that damages were a sufficient remedy, holding that the discretionary equitable remedy of an injunction was not necessary. 58

60 In the words of Cumming-Bruce LJ, the court had to "strike a fair balance between the right of the plaintiffs to have quiet enjoyment of their house and garden without exposure to cricket balls occasionally falling like thunderbolts from the heavens, and the opportunity of the inhabitants of the village in which they live to continue to enjoy the manly sport which constitutes a summer recreation for adults and young person s. The Millers had bought a house with the benefit of an open space adjacent to their land, and had to accept that the innocent and lawful use of the open land could restrict the enjoyment of their garden. 59

61 It is notable that the court did not hold that holding cricket matches on the ground was negligent, per se; rather, there were separate negligent acts each time a ball left the ground. It is not clear why attempting to hit a ball for six should be negligent, since it is one of the objects of playing cricket. 60

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