MANG1014 – Commercial Law

Lecture 3: Contract Law 1

Dr. Hosam Al Kaddour

 How judges interpret statutes
• Recap: statutes are written laws created by a legislative authority
e.g. Act of Parliament

• Statutes have to be written in a manner that ensures they are

flexible enough to cover different situations

• There are several different ways in which a judge can interpret

what is written in a statute

• 1 - The literal rule

• 2 – The golden rule

Rules of statutory interpretation
• 3 – the mischief rule

• Judge examines the common law that existed

before statute was passed to see what was the
problem (or ‘mischief’) that existed which the
common law did not adequately deal with, and
what remedy the statute was trying to offer

• Used in the days when statutes set out their

purpose and proposed remedy
Corkery v Carpenter (1950)

• C was charged with ‘being drunk on the highway

in charge of a carriage’

• C was riding a bicycle, so question was whether a

bicycle could be regarded as a carriage

• Verdict: court looked to see what the statute

intended and decided that a ‘carriage’ could be
interpreted as including a bicycle
Rules of statutory interpretation
• 4 – The contextual rule

• The meaning of a word is taken from its surrounding

text in a statute.

• E.g. ‘footballs, football boots, goalposts, corner flags

and other equipment’ would only include other
football-related equipment
 Topics being covered today:

• What is a contract? Essential elements of a

contract

• The offer

• Acceptance of an offer

• Intention to create legal relations

 What is a contract?

• Agreement between two or more persons that is

legally binding

• Social and domestic agreements not usually legally

binding (will discuss later)

• To be legally binding, it doesn’t necessarily have to

be in writing (will discuss form of a contract later)
Business contracts
 Elements of a contract
• To form a valid contract the following 5 elements
are required:

• 1 – Agreement (offer and acceptance of

definite terms)

• Some terms may be:

• implied (e.g. quality of goods)

• non-negotiable (standard form contract)

• unenforceable (e.g. personal injury clauses)

 Elements of a contract

• 2 – An intention to create legal relations

• In a business transaction, this is usually

presumed

• 3 – Compliance with required formalities

where applicable

• Some contracts can be made orally, but others

must be made in writing or by deed
 Elements of a contract

• 4 - Consideration

• A promise to give, do, or refrain from doing

something

• In return, the other party(ies) will make a

similar promise
 Elements of a contract

• 5 – Capacity to contract

• Parties must have the capacity to enter into a

contract

• Contract may be voided if the party did not have

capacity e.g. they are a minor, are mentally
incapable of understanding the contract etc.
Elements of a contract

13
 Form of a contract
• Simple contracts – contracts that can be made in
any form

• Speciality contracts – contracts that have to be

in a particular form to be legally enforceable by the
courts

• Some contracts required to be made by deed (e.g.

land conveyance), in writing/evidenced in writing
 Bilateral or unilateral?
• Bilateral contract – where one party promises a
certain action in response to the other party’s
action

• E.g. buying goods in a store, fixing someone’s car

for an agreed price

• Unilateral contract – one party makes a promise

of an action if another party (or parties) executes
an action, but no obligation to execute said action

• E.g. a reward for lost property, an insurance policy

 The Offer
• Agreement of a contract exists with an offer and
an acceptance

• Usually, one party makes an offer, which sets out

the proposed terms of the contract (the offeror)

• It is up to the other party whether they want to

accept this or not (the offeree)

• Offers can be made to one person, a group of

persons or the whole world
 When is an offer an offer?
• Offer must be clear without terms that are too
vague

• Must be distinct from an invitation to treat

– Shop displays, adverts etc. are generally
regarded as invitations to treat and not offers in
themselves
Pharmaceutical Society of GB v Boots

– It was an offence to sell drugs without the

presence of a pharmacist

– The defendant had self-service shelves which

customers could take drugs to the till for
payment (operated by a pharmacist)

– The contract is completed when the customer

pays for goods at counter, not when they have
put goods in their basket

– Therefore defendant was not committing an

offence
 Fisher v Bell (1961)
• Remember the ‘literal rule’ from last week?

• A statute dictated that it was an offense to ‘offer for

sale’ an offensive weapon

• A shop displayed flick knives for sale in their window

Verdict: As contract law principles stipulate that displaying items in a

shop window constitutes an ‘invitation to treat’ and not an offer for
sale, the defendant (shop) was acquitted
 When is an offer an offer?
• However, a unilateral offer could be made in an
advert etc. to everybody without communication
of acceptance

• Carlill v Carbolic Smoke Ball Company (1893)

Carlill v Carbolic Smoke Ball Company (1893)
 When is an offer an offer?
• However, a unilateral offer could be made in an
advert etc. to everybody without communication
of acceptance

• Carlill v Carbolic Smoke Ball Company (1893)

• For a unilateral contract to be valid,

the requested action is both

acceptance and consideration

 When is an offer an offer?
• An offer must be distinct from a statement merely
giving information to a party or expressing an
intention to do something in the future

• Harvey v Facey (1893)

• H to F: ‘Will you sell us Bumper Hall Pen (plot of land)?

Telegraph lowest cash price’

• F to H: ‘Lowest price for BHP, £900’

• H to F: ‘We agree to buy Bumper Hall Pen for £900 asked by you’

• Second telegram = statement of price, not clear as an offer to

sell.
 When is an offer an offer?
• An offer must be distinct from a mere puff or
boast

• See Leonard v Pepsico Inc.

• https://www.youtube.com/watch?v=U_n5SNrMaL8

• Contrast the mere puff just seen with the claims and
detail of Carlill v Carbolic Smoke Ball Company
(1893), which formed part of the offer
 When is an offer an offer?

• An offer must be communicated to the other

party

• A person cannot accept an offer they do not

know about

• For example, if a reward is given for information,

but the informant is not aware of the reward, they
cannot retrospectively claim the reward after the
time of executing the action
 Termination of an offer

• There are a number of ways an offer may be

brought to an end (besides the offer being
accepted)
 Termination by revocation
• The offer is withdrawn by the person making the
offer

• An offer can be revoked at any time up until the

offer is accepted, even if the offeror informs the
offeree they will keep the offer open for a period of
time

• Routledge v Grant (1828)

• Although the offeror said that the offer to buy their

house would be open for six weeks, they were within
their right to sell to someone else before then
 Termination by revocation

• However, if the offeror makes a promise to keep

the offer open and the offeree gives them
something in return (consideration in law), they
are contractually bound to keep their promise
 Termination by revocation
• The withdrawal of the offer must be communicated
to the offeree – until then the offer remains open
and can be accepted

• This applies to postal communication, see Byrne v

Tienhoven (1880) – withdrawal is only effective
once the offeree knows it has been withdrawn

• This withdrawal can be communicated by a reliable

third party
 Termination by rejection and counter offer
• If a counteroffer is made, this is regarded as a rejection of the
original offer

• Hyde v Wrench (1840)

– The defendant offered to sell his farm to the claimant for £1,000
– The claimant replied, offering to buy a farm for £950
– Defendant refused £950 offer
– The claimant then attempted to buy the farm for £1,000

Verdict: Because a counteroffer was made, it means that the original

offer was rejected and, therefore no longer open
Withdrawal of offers in unilateral
contracts

• If an offer is made unilaterally and the offeree has

started to execute the action (part-performance),
there is generally an implied obligation not to
withdraw the offer

• See Errington v Errington and Woods (1952),

regarding part performance of mortgage payments
 Termination by lapse of time

• If the offer has a time limit, it will expire at the

end of that limit

• If no specified time limit, it will still expire after

a reasonable time (could be weeks, months, or
years depending on the nature of the offer)

• See Ramsgate Victoria Hotel v Montefiore (1866),

the defendant offered to buy in June but claimant
did not accept the offer until November – the
claimant unsuccessful
 Termination by death

• The deceased offeree is unable to accept an

offer because they are dead

• If the offeror dies, then the offer terminates

once the offeree knows of the death

• If the offeror dies and the offeree does not

know of the death, could be legally uncertain,
particularly if there is an element of part
performance
 Acceptance
• Acceptance of an offer is the unconditional
acceptance to all the terms of an offer

• Acceptance can be made:

• Orally

• In writing

• Hammer fall at an auction

• Indicated by the conduct of the offeree

 Acceptance is Unconditional

• Any introduction or amendment of terms will be

seen as a counter-offer, therefore a rejection
of the original offer

• If the counter-offer is accepted, that will form

the terms of the contract
Acceptance must be a positive act

• In a bilateral contract, the silence of the offeree

cannot be regarded as acceptance

• In a unilateral contract, the offeree does not need

to communicate acceptance to the offeror as long
as the terms of the offer are understood and
executed by the offeree (e.g. part performance)
 Communication of acceptance

• Generally, acceptance must be communicated to

the offeror

• Acceptance must be communicated by the offeree

or an authorised agent – an ordinary third party
would not be effective
 Methods of (showing) acceptance

• If the offeror does not state a particular

method, the court will usually accept any
reasonable method of communication by the
offeree

• If the offeror does state a particular method,

acceptance will only be valid if communicated
in that method (or an equally effective manner
that does not disadvantage the offeror)
 Communication of acceptance
• There exist some exceptions to the rule that
acceptance must be communicated

• Unilateral contracts – e.g. Carlill v Carbolic Smoke,

acceptance did not have to be communicated

• Postal acceptance – the general rule is that

acceptance is valid as soon as the notice of
acceptance enters the postal system i.e. put in the
post box
 Intention to create legal relations
• In order for an agreement to be legally binding,
the parties must intend for legal relations (i.e.
rights and obligations) to be imposed on them

• Intention doesn’t necessarily have to be stated

• If there is a dispute over the agreement, court

needs to decide if there was an intention to create
legal relations or not
 Social, domestic & family arrangements

• Generally presumed that these arrangements are

not legally binding

• Key cases: Balfour v Balfour (1919) – agreement

between separated husband & wife to pay
maintenance

• Jones v Padavatton (1999) – payment of

allowances to daughter on condition she passes
barristers’ exams
 Exemptions to the presumption
• If there is clear evidence that legal relations were
intended to be created

• Simpkins v Pays (1955)

• Two family members and a lodger jointly enter

newspaper competitions, sharing cost of entry

• When defendant won £ 750, refused to pay claimant

Verdict: as they had all equally contributed to entering

competitions, there is an expectation that the prize
would be shared equally
Lottery syndicates – intention?
Commercial or business arrangements

• Generally, a presumption that both parties intend

to create legal relations

• As citizens, this is important to remember when

entering into non-monetary transactions with
business entities, for example:

• Competitions

• Free gifts

• Using social media

Rebutting the presumption

• Occasionally, some companies use an ‘honour

code’, which can specifically state that the
agreement is not legally binding

• Rose and Frank v Crompton Bros Ltd (1925)

• Parties agreed to an honourable pledge that

was not legally binding – this was ultimately
agreed by the Court
Intention – a summary

In situations where it is
not obvious whether
there was intention to
create legal relations,
the court will consider
the individual
circumstances of the
arrangement

i.e. it depends from

case-to-case