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CONTRACT FORMATION (+ Intro)

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CONTRACT FORMATION (+ Intro) CONTRACT FORMATION (+ Intro) Introduction Until 1875, Common Law and Equity courts were separate; today, this influences jurisdictional sources (eg equitaBle doctrines). EquitaBle remedies are discretionary, not of right. Injunctions, specific performance, doctrine of account are all important equitable doctrines. Several cases have diminished the CL/equity distinction – The Great Peace (2003), BCCI v Ali (2001) (when interpreting written contracts, use CL – no equitable principles). Burrows (2002) argues that equity should Be aBolished – there should be a single, unified law of obligations and property. General Principles Freedom of contract – Freedom of contract is the fundamental principles of contract law – the court will respect parties’ agreements and will not attempt to re-write them. There are three aspects: 1. All parties must make free, voluntary decisions when entering the transaction 2. Parties can, by agreement, stipulate that the agreement is not legally binding 3. Parties can and do shape the contents of the contract (assuming non-mandatory terms exist in the contract) Objective principle – Parties’ language or conduct must Be assessed according to outward reasonable meaning or appearance. - Crest Nicholson (Londinium) Limited v Akaria Investments Ltd (2010) (issue of whether a party has made an offer is to be objectively determined) Leggatt notes this principle enables courts and third parties to make sense of an agreement without exploring the messy suBjective aspects of the deal (parties’ intentions). Promisee-objectivity means considering how the matter appears from the reasonable and objective perspective of the promisee - McCutcheon v David MacBrayne Ltd (1964) (Reid – what A was reasonaBly entitled to conclude from B’s attitude) - The Hannah Blumenthal (1983) (Diplock – objectivity only requires us to determine whether the recipient drew a psychological inference and whether psychological reliance can be imputed) Detached observer objectivity means the court considers the matter from the perspective of a detached third-party observer (rather than promisee). Since the text of contracts acquires a legal life of its own, external oBjectivity is used to interpret written contracts. This involves reading the whole text, considering context, and applying commercial common sense to give it effect. Objectivity is only how it would look to a reasonable person, not how it did look to a party - Thake v Maurice (1986) (therapeutic comfort for vasectomy ≠ promise) B is not obliged to Bring to A’s attention the fact that A is in error concerning the nature or quality of the contract’s subject matter; however, if B is aware of A’s mistaken belief that there is an implied term or warranty of the contract protecting A, the court will give effect to A’s belief (B cannot use objective principle to prevent A from taking advantage of the term) - Smith v Hughes (1871) (old oats – buyer would have defence if seller knew B thought oats were implicitly warranted to be old; if B merely believed they were (physical mis-analysis), this is B’s error even if S knew of the misanalysis) – Bell v Lever Bros Ltd (1932) (Atkin approved Smith v Hughes) – BCCI v Ali (2002) (Hoffmann – parties can legitimately take advantage of known ignorance of another party) – Statoil ASA v Louis Dreyfus Energy Services LP (‘The Harriette N’) (2008) (unilateral mistakes will only make no Binding contract when as to a term) - Hartog v Colin & Shields (1939) (skins by pound vs piece – B knew A’s mistake ≠ enforceable) - OT Africa Lines v Vickers plc (1996) (Mance suggests if B objectively should have known of A’s mistake ≠ enforceaBle) Binding force of agreement (pacta sunt servanda) – you cannot withdraw from a contract once committed – it is binding. Radcliffe in Bridge v Campbell Discount Co Ltd (1962) noted an English judge cannot ‘serve as a general adjuster of men’s bargains’. Estoppel – Estoppel provides protection against other parties’ inconsistency. (See S1 notes). Estoppel prevents A from unfairly derogating from B’s assumption or understanding which A has induced/encourage/Been aware of or which both parties have informally assumed or explicitly agreed. Note on Estoppel By convention – criteria in Republic of India v India Steamship Co Ltd (No 2) (1998). It arises where parties rely on a shared assumption or an assumption raised by one and acquiesced to by the other; it does not require a binding agreement. The assumption must be communicated between the parties (insufficient that both parties act on uncommunicated assumptions). - Hiscox v Outhwaite (1992) – once the common assumption is revealed to be false, estoppel will not apply to future dealings - Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd (1982) (Denning – where parties to a contract are mistaken in common as to its effect and embark on dealings under this mistake, the original contract is replaced by convention which binds as if an express term) Good Faith and Fair Dealing There is no over-arching doctrine of good faith in contract law, though there as smaller doctrines which arguably substantiate a principle of good faith (not a general doctrine). Good faith has no independent validity, But is used to rationalise several independent doctrines. Implicit reliance on good faith: v Promissory estoppel (equity), waiver and estoppel (CL), estoppel By convention v Protection where party has unconscionaBly acquiesced in the other’s mistake v Specific duties to disclose v Fiduciary duties (fair dealing duties on agents/fiduciaries) v Implied terms (eg implied duty to conduct tender process in good faith) v Equitable relief against forfeiture of proprietary or possessory interests v Decisions denying a party’s right to terminate contract where disproportionate to Breach v Principle that equitaBle relief is withheld if applicant lacks ‘clean hands’ CRA 2015 prescribes ‘good faith’ as a criteria for determining the validity of standard contract clause for the supply of goods or services affecting a consumer (s 62(4)(6)). In Yam Seng Pte Ltd v International Trade Corporation Ltd, Leggatt noted three reasons for English hostility to good faith as a general doctrine: 1. English law proceeds incrementally rather than by enforcing broad principles 2. English law allows parties to pursue their self-interest in negotiations and performance so long as they do not act in breach of terms 3. Fear that a general doctrine would create too much uncertainty If parties agree to perform a contract in good faith, that will be given effect. Good faith may also be required when exercising contractual powers and making decisions affecting the counter-party’s interests - Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] - Braganza v BP Shipping Ltd [2015] What ‘good faith’ requires will Be ‘sensitive to context’ (Leggatt in Yam Seng) and ‘heavily conditioned by its context (Lewison, Mid Essex). It may require relevant considerations to be take in, rationality, communication of facts, certain conduct et. “The test of good faith is objective in the sense that it depends not on either party’s perception of whether particular conduct Is improper But on whether in the particular context the conduct would Be regarded as commercially unacceptable by reasonable and honest people” (Yam Seng). Collins proposes that the GF standard should be understood as a spectrum of norm, requiring honesty in fact at the narrowest and performance taking the other party’s interests into account at its broadest. The context-dependency explains why it is more accepted in actual contracts than negotiations – it is moulded By parties’ agreements and can Be given oBjective meaning – within parties’ control. Contract Formation When determining whether an offer has Been made, an oBjective approach should Be used (how O’s intent would appear to the reasonaBle person) - Crest Nicholson (Londinium) Limited v Akaria Investments Ltd [2010] EWCA Civ 1331 - Tamplin v James (1880) (A bid at auction for mistaken plot; valid contract) In order for a contract to form, there must be both offer and acceptance, but this analysis is often strained (eg where contracts come into existence as a result of performance) - Gibson v Manchester CC (1979) (council’s communication was not offer, but invitation to treat) - New Zealand Shipping v Satterthwaite (The Eurymedon) (1975) (WilBerforce notes strain of O&A model) - Clarke v Dunraven (The Satanita) (1897) (contracts with boat cluB stretched between participants) - Trentham (Percy) Ltd v Archital Luxfer (1993) (Steyn – performance-created contracts don’t fit) Offers and Invitations to Treat An offer is an unequivocal proposal open to acceptance By the offeree without further negotiation. The offer is accepted by the offeree’s response to the offer, which almost always must be successfully communicated to the offeror. The word ‘offer’ does not necessarily mean a contractually valid offer is made – Spencer v Harding (1870) An invitation to treat is an opportunity for further dealings (not a firm proposal capaBle of acceptance) Goods lying on shelves in shops are invitations to treat, not offers available for immediate acceptance. When brought to the till, the person wishing to buy makes an offer (silent offer through conduct of presenting goods), and a contract for sale arises when the cashier accepts (conditional on immediate payment). – Fisher v Bell (1961) (display of illegal knife ≠ offer to sell) – Pharmaceutical Soc of GB v Boots etc Ltd (1953) (drugs required to be sold under pharmacist’s supervision; display ≠ offer of sale, offer to be supervised at till) An advertisement of goods or services is prima facie an invitation to treat, not an offer leading to a bilateral contract, but there are exceptions – Grainger & Sons v Gough (1896) (advertisement for sale is invitation to treat) – Partridge v Crittenden (1986) (advertisement for sale of illegal bird ≠ offer) – Cf. Carlill v Carbolic Smoke Ball Co (1893) (offer for a unilateral contract – acceptance by conduct) Offers can Be made to individuals or to the world at large (Eg Carlill).
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