Mini Lecture

The Law of Contract: Offer and Acceptance

1. What is a contract?
A contract is an agreement between two or more persons, which is intended
by them to be legally binding and enforceable by law. Contracts may be
created orally, in writing, or inferred from the parties’ conduct.

2. Contract law is concerned with 3 basic questions

 Is there a contract? Consider the rules relating to formation of a

contract.

 Is the agreement one that the law should recognise and enforce?

 When do the obligations of the parties to the contract come to an end

and what remedies are there for breach of contract?

Contracts are essential in business:

 Written
contracts of
insurance

Contracts with
Contracts with
Building
suppliers
Contractors

Business
e.g
Supermarkets
Contracts with Contracts with
shareholders of
Ltd customers (in
Supermarket shop or over
Ltd. the internet)

Contracts for
Contracts of
services e.g.
Employment
cleaning
with employees
contract

Note:
Other branches of law are based primary on contract law e.g. sale of goods,
consumer credit agreements, employment, partnership, and agency.

3. For a contract to be enforceable in English law by an action in the civil courts,

the agreement must satisfy a number of criteria.

The following are essential to the formation of a valid contract:

1. Agreement: Offer and Acceptance of definite terms

2. Consideration

3. An intention to create legal relations (usually presumed in a business

transaction)

4. Compliance with required formalities where applicable

5. Capacity to contract (special rules about minors, mentally insane and

drunks)
 In addition the contract must be legal and the parties must genuinely consent
to the terms of the contract (e.g. there should be no be undue influence by
one of the parties).

Content – parties can generally enter into a contract on any terms they want
but some terms may be implied into the contract and other terms in the
contract may be overridden by statute.

If one or more of the essentials are not present then the contract may be
VOID or VOIDABLE or UNENFORCEABLE

Void - has no legal effect because there is no contract

Voidable - binding on one party while the other has the option to set the
contract aside

Unenforceable - a valid contract but one which the courts will not enforce

4. Bilateral and Unilateral Contracts

Bilateral Contracts: Each party takes on some sort of obligation, usually

promising to do something in return for a promise to do something by the
other party.

Most contracts are bilateral which means that both parties can bind
themselves by exchanging promises e.g. I promise to pay you £500 if you
promise to deliver your law notes to me.

Unilateral Contracts: where one party promises to do something usually in

return for completion of a specified act. But the other party does not
promise to carry out the act e.g. I promise to pay you £500 if you find my pet
snake.

5. Form of a Contract

General rule is a contract may be in any form, but exception for certain types
of contracts. Some contracts must be:

i. By written deed
In writing, signed and delivered – (delivered = conduct
indicting that persons intend to be bound by it) e.g. transfer of
land, lease of land for more than 3 years, contract made
 without consideration.

ii. In writing
Signed by one or both parties and containing the contract
terms e.g. transfer of shares in a company.

iii. Evidenced in writing

Cannot be enforced unless there is at least some written
evidence of the terms e.g. contract of guarantee.

6. The Offer

Offeror = person who makes the offer

Offeree = person who accepts the offer

An offer is a proposal made on certain terms by the offeror with a promise to

be bound by that proposal if the offeree accepts the terms.

An offer must not be too vague.

Guthing v Lynn (1831)

A promise to pay an extra £5 for a horse if ‘the horse is lucky for me’ was too
vague to create a valid contract.

But note that an apparently vague offer may be capable of clarification by

reference to previous dealings, trade custom.

Hillas v Arcas (1932)

An option in a contract for the supply of wood that permitted the buyer to
buy additional wood the following year was valid as the details could be
obtained from previous dealings and the custom and practice in the timber
trade.

An offer must be distinguished from an invitation to treat, statements

giving information or expressing an intention or a ‘mere puff’ or boast

(i) An invitation to treat

A pre offer - an invitation to make an offer and therefore not an offer -
adverts in magazines are usually invitations to treat as are goods
displayed in self service shops or in shop windows
 Pharmaceutical Society of GB v Boots Cash Chemist (1953)
A display on supermarket shelves is an invitation to treat.
Customer makes an offer to buy the goods at the cash desk
The contract is completed when the cashier accepts the offer.

Partridge v Crittenden (1965)

Advert for sale of a wild bird was not contrary to Protection of Wild Birds Act
- offering a wild bird for sale because:
Advert = invitation to treat

(ii) Statements giving information or expressing an intention Supplying

Information/ Statements made in negotiation

Harvey v Facey (1893)

H sent telegram to F ‘Will you sell me Bumper Hall Penn? Telegraph lowest
price?’
F replied ‘Lowest price acceptable £900.’
Court Decision: F’s telegram was just a statement of price rather than an
offer to sell at that price

(iii) A ‘mere puff or boast’

But note the difference between a mere boast and a promise that a
reasonable man would take seriously.

Carlill v Carbolic Smoke Ball Co. (1893)

An advertisement to prevent flu by using a smoke ball was more than a ‘mere
boast.’
This case also demonstrated that some advertisements were capable of being
offers to the world at large.

An Offer must be communicated to the other party.

A person cannot accept an offer he does not know about.

Bloom v American Swiss Watch Co. (1915)

Claimant gave information concerning a jewel thief but he did not know at
 the time there was a reward for information. He later learnt of the reward
and tried to claim it but the defendant was not legally obliged to pay him the
reward monies.

7. Unilateral Contracts
A unilateral contract is one where the offeror promises to do something, usually to
pay money, in return for an act by the offeree e.g. ‘£100 reward for return of fluffy
black cat called Pixie.’
Carlill v Carbolic Smoke Ball Co. (1893)
Bowerman and another v Association of British Travel Agents Ltd. (1996)
Tour operator went insolvent and C tried to claim loss from ABTA. The ‘ABTA
Promise’ to refund holiday expenses was advertised in press and court decided this
was an offer to the public at large. The offer was accepted when C booked holiday
with travel agent.

Once performance by the offeree has begun a unilateral contract usually cannot be
revoked.

Errington v Errington and Woods (1952)

Father bought house for son and daughter in law to live in. He paid deposit and son
and daughter in law paid mortgage. Gave mortgage paying in book to daughter in
law and said that the house would be their property when mortgage paid. Later F
died left house to widow - could not eject daughter in law as she had been paying
installments

8 Termination of the offer

An offer cannot continue indefinitely - once it ends it cannot be accepted.

(i) By Revocation
An offer may be revoked at any time before acceptance - once
revoked the offeree cannot accept it.

Offeror does not have to tell the Offeree he has withdrawn the offer
as long as a reliable third party tells the offeree.

Dickinson v Dobbs (1876)

D offered to sell his house to C.
Before C accepted it he learned from B that D had sold his house to
3rd party.
C could no longer accept the offer.

But note, if the offer is for a unilateral contract and performance has begun it may
not be possible to terminate the offer (see above)

(ii) Lapse of time

Ramsgate Victoria Hotel v Montefiore (1866)

 Investor offered to buy shares in Hotel company in June. He heard
nothing from company but in November was allocated shares
(allocation of shares is considered to be acceptance). He no longer
wanted them.
Held - Investor’s offer to purchase in June had expired = unreasonable
delay in acceptance. He did not have to pay for the shares as there
was no contract.

(iii) Death:
Death of offeree terminates offer. Death of offeror terminates offer
unless offeree accepts offer in ignorance of death and the contract is
not of a personal nature.

(iv) Counter - offer

An offer made in reply to an offer. Its effect is to destroy the original
offer so it cannot be accepted.
Hyde v Wrench (1840)

9. Acceptance

Acceptance is the unconditional assent to all the terms of the offer. It may be oral, in
writing or inferred by conduct. It must be absolute and unqualified.

 The offeree must agree to all the terms of the offer and not try and introduce
new terms.

Butler Machine Tools Ltd v Ex –Cell-O Ltd. (1979)

C sent standard forms to D offering to sell tools for named price but he stated
that the price could change. D sent back own terms with a fixed price for
tools and asked C to sign slip agreeing to terms. C signed but when he
delivered tools wanted more cash from D.
Decision: D was entitled to goods at fixed price as D’s own terms were a
counter offer which had been accepted by C when C signed the slip.

Butler Machine Tools Ltd v Ex –Cell-O Ltd. (1979)

 Acceptance must be firm – i.e. it cannot be conditional.

 There must be some positive act of acceptance. Mere silence will not usually
constitute acceptance.

Felthouse v Bindley (1863)

Negotiations were taking place regarding sale of a horse.
 P wrote to nephew and said ‘if I hear no more about it I consider the horse is
mine for £30 15s.
N did not reply.

No sale as silence not = acceptance.

 Acceptance must be communicated

General rule - acceptance must be communicated to the offeror and received by

him.

Acceptance must be communicated by the offeree or his authorised agent.

Powell v Lee (1908)

If the offeror prescribes a particular method of acceptance it would seem

that the offeree does not always have to use that method provided he uses
an equally expeditious method.

Exceptions to the rule- that acceptance must be received.

 Unilateral Contracts
Carlill v Carbolic Smoke Ball Co. (1893)

 Postal Rules
A letter of acceptance properly addressed and stamped is effective from the
moment of posting even if it never arrives.

Household Fire v Grant (1879)

D applied for shares in a company and letter of allotment (acceptance) never
arrived. Company went into liquidation. D was called upon to pay for
amount still outstanding (shares were only part paid)
Even though D had not known about acceptance it had happened and he had
to pay for the shares.

Note: The postal rules only apply to acceptance of an offer and do not affect
a posted offer or a posted revocation. Parties may exclude the postal rules
when making a contract.

10. The Electronic Contract

 Websites are usually considered to be shop windows = invitations to

treat. Offer is made by the purchaser and seller has option to accept
or reject.
  Where an agreement is made on the internet the service provider
must electronically acknowledge of receipt, Electronic Commerce (EC
Directive) Regulations 2002.

 Acceptance depends upon the wording of the electronic

communication send back to the purchaser. It may be when the seller
accepts the order or when he dispatches the goods.

 Contract made on-line is considered to be in writing.

 An electronic signature is acceptable.

Goods advertised on websites:

In 2002 Kodak advertised a digital camera on its website for £100 in error
(normal cost £330). Over 5,000 people placed orders and were sent an
automated e-mail which confirmed the model and price. The E- mail was the
seller’s acceptance of the offer and Kodak was bound by the contract.

In 2006 Amazon mistakenly offered pocket computers on its website at £7.32

instead of £274.99. However on its website Amazon specifically had stated
that a contract was formed only when the goods were dispatched, in order to
prevent being contractually bound by an automated e-mail so Amazon did
not have to honour the lower price.
 In groups consider the following questions:

1. Consider whether a valid contract has been formed in the following

circumstances. Give reasons for your answer and case authorities.

(I) Iraj sees the following advertisement in his local newspaper: ‘For
Sale: Rose Bushes only £12.99 for five. Hurry – limited supplies. Send
cheque to Beautiful Gardens Ltd., PO box 128, Sussex.’ Iraj sends a
cheque but is told the bushes are sold out.

(II) Dave writes to Peter, ‘You mentioned that you would like to buy my
red sports car. You can have it for £1000. If you want it let me know
by the end of the week.’ The following day Dave sells his car to Jane.
Peter learns of the sale and immediately tells Dave he accepts his
offer.

(III) Strait and Co. a manufacturer of vitamin pills states in an

advertisement that the regular use of its ‘Vito’ pills will increase a
user’s energy levels in 2 weeks. Slouch takes ‘Vito’ pills every day for
2 weeks but notices no improvement in his energy.

(IV) Penelope writes to her friend Quentin offering to buy his car for
£2,000 and says that if she has not heard from him within a week she
will assume that he has accepted. A week elapses and Penelope has
heard nothing from Quentin.

(V) James offers to sell his laptop to David for £750. David offers to pay
£500. James refuses to accept £500. David agrees to pay £750.

(VI) Lin books an intercity train from London to Glasgow using Simplerail’s
internet service. She is surprised as the ticket price is only £10, it is
normally £100. Although she put in her credit card details when she
booked the journey she has had no confirmation of her booking.

(VII) Paul sees a lawn mower in a shop window with a price tag of £100.
He says that he will buy the lawn mower but the shop assistant says
that the price tag should read £200 and refuses to sell it to him for
£100.

(VIII) Leonie is out walking in the park when she finds a lost dachshund dog.
She returns the dog to the address on his collar. Jens the owner of
the dog is very grateful to Leonie and thanks her profusely. On
leaving the house Leonie notices a poster stating ‘Reward for lost
dachshund dog £100’. Leonie returns to the house to ask Jens for the
£100 but he refuses to give it to her. Advise Leonie.
 (IX) On 1st December Alun, a collector of Elvis memorabilia wrote to Boris
offering to sell him one of Elvis’ guitars for £4,000. In the letter he
asks Boris to let him know by return of post. The letter arrives on 2 nd
December and Boris immediately writes back accepting offer and
enclosing a cheque for £4000. Unfortunately Boris’s letter is delayed
in the post and does not arrive until 9th December. On 7th December,
as Alun had not heard from Boris, Alun sells the guitar to Zac and
writes to Boris telling him of the sale. Boris receives this letter on 8 th
December.
Advise Boris.

Mini Lecture
The Law of Contract: Intention to Create Legal Relations and Consideration

1. Intention to Create Legal relations

 Social, domestic and family arrangements

Presumed that the parties intended the agreement not to be legally
binding

Jones v Padavatton (1969)

Mrs J persuaded daughter to leave job as a secretary and study for the
bar. In return she said she would give her a monthly allowance.
Allowance was not provided but instead Mrs J bought house and
daughter lived in it rent free and collected rent from tenants. 3 years
later mother reclaimed house and back rent. (D had failed her Bar
exams). D counterclaimed for money spent on running the house.
Question: Was there a contract? Had there been an intention to
create legal relations?

Balfour v Balfour (1919)

An agreement between husband and wife during their marriage was
not legally binding.

Hadley v Kemp (1999)

3 members of a former pop group Spandau Ballet, claimed they had
entered into an oral agreement in 1980/81 with a fourth member of
the group in which they had agreed he would share his publishing
income with them. After the defendant ceased making payments
they sued him.
 Court stated that if there had been an oral agreement then to be
effective it must have been spoken with an intention to create legal
relations. The parties had been friends since their school days and the
relationship was not simply one of business. There was no evidence
to show the defendant had made a statement about sharing his
publishing income with the intention of creating legal relations.

Simpkins v Pays (1955)

Family agreements can be binding e.g. family partnership agreement

or if parties separated.

Merritt v Merritt (1969)

Husband and wife were separated and court found that the parties
had clearly intended their agreement to be legally binding.

 Commercial or Business Agreements.

Presumed that the parties intended the agreement to be legally

enforceable unless expressly disclaimed or circumstances indicate
otherwise.

Esso Petroleum v Commissioners of Custom and Excise (1976)

Sales promotion by Esso was a commercial agreement with an
intention to create legal relations.

Note the burden of proof is on the person seeking to show there is no

intention to create legal relations

Edwards v Skyways (1964)

Negotiations for redundancy terms – choice of withdrawing contributions
from pension fund or receiving paid up pension. Agreed first option and
agreed D would also make ex gratia payment. C got pension fund but not ex
gratia payment. Although term ex gratia showed may be no intention to
create legal relations, it was a commercial contract and up to D to rebut
presumption. He had not done this and therefore court decided there was an
intention to create legal relations.
 Intention to create legal
relations

Social and domestic Business and commercial

agreements agreements

Intention presumed
No intention presumed
E.g. Esso Petroleum Ltd v
E.g. Jones v Padavatton
Com of Custom and
(1969)
Exercise (1976)

Presumption may be Presumption may be

rebutted rebutted
E.g. Simpkins v Pays E.g. Rose and Frank v
(1955) Crompton Bros Ltd. (1925)

2. Consideration
English law does not enforce gratuitous promises. A promise (unless made
by deed) must be backed by consideration i.e. the law is concerned with
bargains. Each side must promise to give or do something for the other
party.

Consideration has been defined as the price by which one party bought the
other party’s act or promise.

Currie v Misa [1875] ‘some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility given, suffered
or undertaken by the other’.

Dunlop v Selfridge [1915] ‘consideration is an act or forbearance (or the

promise of it) on the part of one party to a contract as the price of the
promise made to him by the other party to the contract’.

There must be an exchange – one person must do something, omit to do

something or promise to do or omit to do something in exchange for another
person doing, omitting or promising something.
4. Rules relating to Consideration

a) Past Consideration
If a promise is made after an act has been done and is independent of it,
it is called past consideration and is NOT good consideration in the eyes
of the law.

Re McArdle (1951)

b) Consideration need not be of adequate value

Provided that the consideration has some value, however small that
value might be, it can constitute consideration i.e. the courts are not
concerned if you make a bad bargain.

Chappell v Nestle Co Ltd (1959)

Chocolate wrapper was sufficient consideration

Thomas v Thomas (1842)

Rent of £1 per year was sufficient

d) Consideration must be sufficient

It must be ‘sufficient’ in the sense that the law recognises it as consideration.

It must be real consideration, something measurable and of material value.

White v Bluett (1853)

A promise by son to stop complaining that he had been disinherited was not
good consideration to release him from promissory note.
Son had no right to complain so he was not giving up anything of material
value.

In groups consider the following:

1. Is there an intention to create legal relations in the following circumstances:

Every week, Amy, Jim and their daughter, Sophie enter the National Lottery each
contributing £1 for 3 lucky dip numbers. Sophie always fills in the form, pays over
the money to the newsagent and keeps the ticket. Last week five of their
numbers came up and the ticket paid out £5000. Sophie refuses to share the
£5000. Advise Amy and Jim.

2. Discuss whether any legal obligations arise in the following circumstances:

a) Alan promises, Daisy £10 if she behaves herself for a week. Daisy agrees.

b) On an unfamiliar road Alice's car gets a puncture. The driver of a passing

vehicle stops and offers to change the wheel of Alice's car. When he has
 finished he says 'That will be £30 please. I do this for a living - my garage
is just down the road.'

Terms of a Contract

Once it has been established that there is a valid contract then it is necessary to find
out what the terms of a contract are. This may be more difficult than one thinks if it
is not a written contract. Various terms are implied into contracts.
One must also find out which terms are of major importance and if broken entitle
the other party to treat the contract at an end and which terms are less important
and entitle the injured party to damages only.

Areas to Consider:
 The need for certainty of essential terms
 Whether a statement made in negotiations is a term or a representation
 How important a term is and what happens if it is broken
 What terms may be implied into a contract by common law or statute
 Whether a term excluding or limiting a party’s liability for breach is effective.

1. Pre-Contractual and Contractual Statements

Not all statements will be deemed to be terms of the contract. It depends on the
stage at which the statement was made and whether the maker of the statement
had special knowledge or not:
A statement might be:
Trader’s hype or puff
A Representation
A Term

If a statement is not a term of the contract then it is at most a mere representation.

If the misrepresentation is untrue the injured party will be limited to the remedies
for misrepresentation and will not be entitled to a remedy for breach of contract.

There are a number of factors taken into account in distinguishing a contractual term
from a mere representation.

i) Where the statement is of such major importance the promisee would not
have entered the agreement without it.

Bannerman v White (1861)

In negotiations for a sale the buyer of hops asked the seller whether
sulphur had been used in the treatment and stated that if it had he would
not buy them. Seller assured him sulphur had not been used but it had.
 The court decided that the use of sulphur was vital to the contract and
therefore the statement was a term of the contract.

ii) Where there is a time gap between the statement and the contract, the
statement is usually a representation.

Routledge v Mckay (1954)

Statement made on 23 October was not a term of the written contract
made on 30 October.

iii) Where the statement is oral and the contract is written the statement
is usually a representation.

iv) Where one of the parties to an agreement has special knowledge or

skill the statements made by them will be terms but statements made to
them will not.

2. Certainty

An agreement can only be enforced if its terms are clear and complete on all
essential points.
If terms not clear then there is no agreement.

Guthing v Lynn (1831)

G agreed to buy L’s horse for £63 and promised to pay an extra £5 for a horse
if ‘the horse is lucky for me’. The statement about the extra £5 was too
vague to be a term of the contract.

Note: The course of dealings between parties or trade or custom may be sufficient to
indicate the missing terms which the parties intended to adopt but did not express.
Terms may also be implied by statute

3. How important a term is and what happens if it is broken

Terms may be either:

WARRANTY or CONDITION.
Conditions are the important terms and if broken the other party can claim both
damages and treat the contract as at an end. A warranty is a minor term of a
contract and if it is broken the other party only sue for damages but must
continue with the contract.
  In a dispute it is the court that decides whether a term is a condition or a
warranty.
Where it is clear that it was the parties’ intention that a clause should be a
condition or warranty the Court will regard this as an important factor in
coming to its decision.

 Sometimes case law or statute defines particular clauses as conditions.

In some instances it is not possible to discover if a term is a condition or a

warranty until the term is broken and the seriousness of the breach can be
ascertained. These terms are known as - INNOMINATE TERMS (intermediate,
indeterminate)

Hong Kong Fir Shipping Co Ltd. v Kawasaki Kisen Kaisha (1962)

The term ‘in every way fitted for ordinary cargo service’ was an innominate
term – could cover minor (warranty) and major (condition) breaches.

Cehave v Bremer (The Hansa Nord) (1976)

4. Express and Implied terms

Terms of a contract may be express or implied.

Terms may be implied into a contract by common law or statute.

a) Statute.
The most important statutes which imply terms are the Sale of Goods Act
1979 and the Supply of Goods and Services Act 1982 (as amended by Sale
and Supply of Goods Act 1994). In every sale of goods contracts there are
implied conditions relating to title, description, quality suitability and
compliance with sample. It is generally not possible to exclude these terms.
By the Supply of Goods and Services Act 1982, there is an implied term that
the supplier of any service will carry it out with reasonable care and skill and
within a reasonable time if no time specified for a reasonable charge if no
price is fixed. These terms cannot be excluded.

b) Trade Custom
Note: Custom cannot override express terms in an agreement.

c) The Courts.
 Terms may be implied into a contract where the parties have failed to cover a
particular matter, which if not remedied would make the contract
unworkable. The court states what the parties must reasonably have
intended.

5. Exclusion and Limitation Clauses (Also called Exemption Clauses)

Whether a term excluding or limiting a party’s liability for breach is effective.

These are clauses, which attempt to exclude or limit one of the party’s
liabilities under the contract in certain circumstances.
They are usually found in standard terms contracts. These are contracts
frequently used in business, which require the same i.e. standard form to be
used for all customers. It enables the imposition of terms on the other party
to the contract especially if that other party is not in a strong bargaining
position.

The effect of many exclusion clauses is severely limited by statute, but

regardless of any statutory provision anyone seeking to rely on an exclusion
clause must show that it has become a term of the contract.

To determine the validity of an exclusion clause need to ask:

 Has the exclusion clause been incorporated into the contract?

 Does the exclusion clause effectively cover the breach? Is it clear and
unambiguous? Exclusion clauses are interpreted strictly.

 What is the effect of Legislation? Esp see: Unfair Contract Terms Act 1977
and the Unfair Terms in Consumer Contract Regulations

Has the exclusion clause been incorporated into the contract?

There are 3 methods of incorporation.

i) Signed Documents:

ii) Unsigned Documents and Notices:

It must be shown that the document is an integral part of the contract and one
which would be expected to contain terms.
Chappleton v Barry UDC (1940)

Reasonable steps must be taken to bring the exemption clause to the notice of the
other party e.g. “see back” on a ticket.
But the test is objective so if the recipient is illiterate it makes no difference unless
the disability was known.
The notice must be given before the contract is made.

Thornton v Shoe Lane Parking (1971)

Onerous Terms

If one party wishes to rely on a particularly onerous or unusual term, which would
not generally be known to the other party, then the greater the steps will be
necessary to bring the terms to the attention of the other party e.g. very large print.

iii) Previous Dealings

Exceptionally a court will assume knowledge and incorporate an exclusion
clause from a previous course of dealings.

Hollier v Rambler Motors (1972)

Oral contract to have car repaired. While the car was in the garage it was
damaged in a fire caused by the D’s negligence. H had previously had his car
repaired 3-4 times there in the past 5 years. In the past he had been asked to
sign a form excluding the company for damage to cars through fire but this
time he had not signed it.
Decision- D liable as 3-4 times in 5 years did not amount to regular dealings
so exclusion clause was not incorporated.

 Does the exclusion clause effectively cover the breach?

If there is any doubt about the meaning or extent of an exclusion clause the
court will construe it against the party seeking to rely on it. This is known as
the “contra proferentem rule”.

The University of Keele v Price Waterhouse (2004)

Accountants gave negligent financial advice in respect of a profit related pay
scheme. A clause in the contract stated that subject to a cap on liability on
twice the anticipated savings, the accountants accepted liability to pay
damages in respect of loss suffered by the University as a result of providing
their services. The clause further stated that ‘All other liability is expressly
excluded, in particular consequential loss, failure to realise anticipated
savings or benefits.’ First part of clause limited liability and second part
excluded liability. Question: Was liability excluded totally or not?
Court of Appeal interpreted the second part of the clause as relating only to
the loss over the capped amount referred to in the first part of the clause.
Therefore liability was limited (but not excluded) up to a certain amount.

Liability for Fundamental breach

 If a clause is inconsistent with the main object of the contract e.g. one party
attempts to exclude liability even thought he has failed to do basically what
he promised, then it is unlikely the clause can be relied upon

 What is the effect of Legislation?

Unfair Contracts Terms Act 1977:

i) Deals with unfair exemption clauses in contracts (and in situations where
there is no contract between the parties but one party may be bound by
an exemption sign or notice, or statement).

ii) As far as contract is concerned the Act generally applies to clauses

inserted into agreements by commercial concerns and businesses

iii) Gives the greatest protection to consumers.

iv) It does one of two things depending on the contract

It either:
a) prevents an exemption clause from being of any effect in any
circumstances.
b) prevents an exemption clause from being of any effect unless it
satisfies the test of reasonableness.

v) The implied terms in the sale and supply of goods contracts (Sale of Goods
Act 1979 and Supply of Goods and Services Act 1982) cannot be excluded
or restricted where one party is a consumer and s12 (as to title) cannot be
excluded in any sales. Implied terms relate to description, quality and
suitability, and sample. In non -consumer sales exemption clauses are only
valid insofar as they are reasonable.

vi) Liability for negligently causing death or personal injury cannot be

excluded or restricted at all - section 2(1). Liability for other loss or
damage through negligence e.g. to property, can be excluded but only as
far as is reasonable - section 2(2).

vii) Where a business uses a standard form contract it cannot exclude or

vary liability for its own breach of contract unless the exclusion is
reasonable. The same applies whenever a business deals with a
consumer, whether or not on standard terms - . section 3.

viii) It is for the person claiming the exclusion clause is reasonable to

prove that this is so.
Note also that any provision excluding or restricting any liability or remedy for
misrepresentation is of no effect except to the extent that it is fair and reasonable
(Unfair Contract Terms Act 1977)

Watford Electronics Ltd v Sanderson CFL Ltd (2001)

Very wide exclusion clauses relating to software were reasonable as the
contract was negotiated between two experienced businesses which on the
facts had equal bargaining strength. Loss allowed in contract was limited to
£104,596. Actual loss (including expected profit) was £4.5 million.

UCTA s 11 (and schedule 2)– Statutory test of reasonableness

 Relative bargaining strengths of the parties.
 Was there any inducement offered.
 Whether the customer knew or ought to have known of the existence and
extent of the exclusion clause.
 If failure to comply with a condition restricts a customer’s rights consider if it
was reasonable to expect the customer to comply with the condition.
 Whether the goods were made, processed or adapted to the special order of
the customer.

Unfair Terms in Consumer Contracts Regulations 1999

(This regulation is delegated legislation that was enacted implementing an EU
Directive - see lecture on EU law)

 Regulations operate in addition to UCTA.

 Only apply to consumer contracts and to terms that have not been
individually negotiated.

 Govern all terms, not just exclusion clauses.

 Strikes out terms which are unfair. Unfair terms = terms that do not fulfil
the requirement of good faith by causing a significant imbalance of power
between the parties to the detriment of the consumer.

In assessing good faith the courts must take into account:

Did the consumer have an inducement to agree to such terms?
Was it a special order?
Extent which supplier or seller dealt fairly and equitably with the
consumer
Terms are considered to be unfair if:
a) They exclude or limit liability for death or injury to
consumer from act or omission of seller.
b) They exclude or limit liability for partial or incomplete
performance of a contract
 c) Make the contract binding on the consumer but allow the
seller to avoid performing the contract.

 Introduces a requirement that contracts should be made in plain

intelligible language.

 Office of Fair Trading is given power to investigate complaints and to take

legal action to force a business to change or withdraw an unfair term (e.g.
current litigation over excessive bank charges).

 Consumer can ask a court to find the term unfair but it is up to the
consumer to prove the term is unfair rather than for the business to prove
the term is fair.

In groups consider the following:

Mel leaves her fur coat at the cloakroom in the PussyCat Club. She is given a ticket,
which she does not read. When she returns her coat cannot be found and the
manager points out that the ticket states "All items left at owner's risk".
Advise Mel.

Monica took her wedding dress to the Cleaning Co Ltd. for dry cleaning. The receipt
which she was given contained various standard conditions, one of which stated that
the Company would accept no responsibility for damage to the articles handled,
howsoever caused. When Monica handed the dress in, she asked the assistant to
explain the clause to her. The assistant stated that the clause referred to damage to
lace on the dress. When the dress was returned it bore a large red stain.
Advise Monica whether she can claim compensation from the cleaners.

Lily, intending to go to the shops in Brighton, drives to a car park she has used
several times before, owned by Careparcs Ltd. Although there is a notice outside the
car park, the writing on it has been obliterated by graffiti. At the barrier to the car
park Lily puts three pounds in the automatic machine and drives into the car park.
Lily notices a large sign in the car park that reads:
‘Careparcs Ltd accept no liability for any loss or damage to property howsoever
caused.’
When Lily returns to the car park she discovers that Fred, an employee of Careparcs
Ltd. has negligently damaged her car.
Advise Lily in a claim against Careparcs Ltd.

Dr Know, a well-known academic, is due to speak at the London Small Business

Conference. He has attended the conference for the last five years. He arrives early
and books into the Ship Hotel, owned by Leisure PLC. His room is not ready so he
asks the receptionist if he can leave his overnight bag with her. She takes his bag
and gives him a cloakroom ticket, which he stuffs into his pocket without reading.
The back of the cloakroom ticket reads ‘All items left at reception at owner’s risk.’
When Dr Know returns to the hotel he is informed that his bag has gone missing but
would be returned to him as soon as it is found.

Dr Know goes up to his bedroom and sees a large notice that states: ‘Leisure PLC
accepts no responsibility for loss of property or injury to persons, howsoever
caused.’ Dr Know decides to carry his laptop computer to dinner in case it is stolen
from the hotel room. Unfortunately on his way to dinner Dr. Know trips over a
bucket, and falls down the stairs breaking his arm and damaging his laptop. The
bucket had been negligently left at the top of the stairs by Leisure PLC’s cleaner.

Advise Dr Know whether he can claim in law for the loss of his overnight bag (which
has never been found), the damage to his laptop and his broken arm.
 Introduction to contracts for the international sale of goods

The sales contract is the foundation of any transaction because it identifies the
obligations and rights of the parties.

If the parties do not reach agreement on all essential terms the risks of international
buying and selling might bring the business to its knees.

Before the contract goes live will be the last chance the parties have to negotiate
terms.

After that terms can only be negotiates with both parties consent. This will be
difficult to obtain if the parties have fallen into dispute.

Sales law
The law of sales means a legal transfer of ownership and possession of goods in
return for a price. It does not apply to sales of land or buildings, stocks or intellectual
property or to the provision of services. It is also known as the law of trade.

The court is going to look at the agreement and the relevant sales law to determine
if the parties have:
a) An enforceable agreement
b) The interpretation of clauses
c) The remedy available where there is a breach

The unification of sales law

In the section on conflict of laws, it was noted that there are many different factors
that control the choice of country. The first was whether the parties had inserted an
express clause giving a preference. Then we looked at the closest connection rule,
where a party has its business where the goods were delivered. In this type of
contract at least one party will be in a foreign jurisdiction. Therefore it is very
important to either be able to predict that country’s sales law or look to a uniform
system for assistance.

In 1966 the UN created the United Nations Commission in International Trade Law
(UNCITRAL Vienna). This led to a very successful convention known as the United
Nations Convention of Contracts for the International Sale of Goods (CISG) in 1980.
This is now the basis for an accepted body of international sales law in 70 countries.
Although the UK has not yet ratified it, there is a suggestion that this will happen
soon. (reasons for this?) This law is found in the codes of civil law countries and the
common law ones.

The CISG
When will it apply?
a) The contract is for the commercial sale of goods
b) The contract is between parties whose businesses are in different countries
 c) The parties’ place of business are in countries that have ratified the
convention.
If no choice of law clause has been applied by the parties themselves then the CISG
will apply. If one party is not located within a country that has ratified the CISG, then
the usual rules for deciding choice of law and forum will apply. What are these? –
Choice of law first express, implied, closest connection.

If the parties cannot settle on a choice of law and forum they can elect to choose the
courts of Hong Kong and the CISG as the governing law.

Place of business is determined by the country with the closest relationship to the
contract and where it will be performed.

The CISG can be excluded (Art 6) by a choice of law clause. But this opt out must be
in very clear terms. Look at Asante case

There are some contracts that are excluded from CISG such as consumer goods sold
for personal use. This was because consumer protection legislation is very specific to
each country and it was thought consumers are domestic. However is this still true
with the volume of internet purchasing?

Mini Review of Contract law:

What makes an enforceable agreement?

Offer

Acceptance

Consideration

Intention to create legal relations

It must not be illegal and the parties must have capacity.

The CISG only covers the formations of a contract and the rights and obligations of
buyer and seller. It will not determine if a contract is valid. This must be done under
the rules of the individual state.

Under Article 11 a contract does not need to evidenced in writing. However some
countries have elected to take out A 11 this means that in those countries these
contracts must be in writing.

The Parole Evidence rule?

Once parties make a final agreement and sign it as such, then it is deemed an
integrated contract and all prior discussions and paperwork become extrinsic
evidence. Many common law courts will not allow this evidence to be presented in
court if it contradicts the end agreement. However the CISG did not follow this rule
and a court deciding a case under CISG can consider all relevant circumstances of the
case, including prior negotiations (A.8)

The offer and acceptance

All contracts require a statement made by the offeror to the offeree with a clear set
of terms and an intention to be bound. This moves the power to the offeree to give
acceptance of the offer that is a mirror image of the offer.
The intention to be bound: CISG Art 14 it is a proposal for concluding a contract and
it is sufficiently definite and indicates the intention of the offeror to be bound.

“Sufficiently definite”
this means there is an indication of the goods, it expressly or impliedly specifies the
quantity and price

Mirror Image
Common law: Offeree must accept offer with mirror terms, must be firm and
unconditional (Hyde v Wrench)

CISG: Matches this (A.19), but battle of the forms causes some commercial
problems. Terms such as :
Price/place of delivery/quantity

These terms would be considered a counter offer. This rejects the original offer and
the process starts again. Hyde – offer of a farm for £1000 counter offer of £950 then
tried to accept farm at £1000 later.

Battle of the forms is common in commercial transactions and normally it’s just small
immaterial terms that are added by each party. As long as they do not materially
alter the contract then they can be included, terms that do materially alter are:
price, payment, time of delivery, liability to each other, dispute settlement any
changes to these categories would be a counter offer and require acceptance

Question
Beyond price for the goods and amount of goods, identify as many terms as you can
for the shipment of 1000 kgs of sugar.

Performance of the Seller.

Primary responsibility is to deliver conforming goods. To comply with any express
terms and any implied Representations.

The Common Law creates implied warranties on goods.

Under the CISG the seller must deliver goods that are of the quantity, quality, and
description required by the contract.

Performance of the Buyer

Buyer must
  pay for goods
 take delivery
 inspect goods within as short as period as possible under the circumstances.
(A.38)
 give notice of nonconformity as soon as practicable after it was discovered or
should have been discovered. The notice must be specific, and cannot be
vague, such as “poor workmanship.” In any even notice must be given no
later than 2 years from delivery.

The parties can vary this by agreement

Mia Mia -v- Tigeress

We now turn to our task for this topic. Read through the contract provided. Answer
the questions given out by the professor by analysing the contract.