A casebook on contract

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Citation

Burrows, A. S. (2020). A casebook on contract (7th ed.). Hart Publishing, an imprint of Bloomsbury Publishing.

Chapter Summary

Part One: The Formation of a Contract

Offer and Acceptance

Introduction to the concepts of offer and acceptance as fundamental elements in contract formation.
Examination of what constitutes an offer and how it is distinguished from invitations to treat through cases such as Harvey v Facey and Gibson v Manchester City Council.
Discussion on the acceptance of offers, including methods of communication and the “battle of the forms” (Butler Machine Tool Co Ltd v Ex-Cell-O Corporation).

Certainty and Intention to Create Legal Relations

Analysis of the necessity for certainty in terms of contractual agreements, illustrated by cases like Hillas & Co Ltd v Arcos Ltd and Scammell and Nephew Ltd v Ouston.
Exploration of the intention to create legal relations, distinguishing between social/domestic agreements and commercial agreements with cases such as Balfour v Balfour and Esso Petroleum Co Ltd v Commissioners of Customs and Excise.

Consideration and Promissory Estoppel

Explanation of the concept of consideration, its necessity, and its various forms, including past consideration and pre-existing duties (Williams v Roffey Bros & Nicholls (Contractors) Ltd).
Introduction to promissory estoppel as a tool to prevent unfair revocation of promises, demonstrated by Central London Property Trust Ltd v High Trees House Ltd and subsequent cases.

Part Two: The Terms of a Contract

Identifying the Terms

Differentiation between terms and representations through key cases such as Oscar Chess Ltd v Williams and Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd.
Methods of incorporating terms into contracts, including signature and reasonable notice (L’Estrange v F Graucob Ltd, Parker v The South Eastern Railway Company).

Interpreting the Terms

The modern approach to contractual interpretation, focusing on the intentions of the parties and the context, with notable cases like Investors Compensation Scheme Ltd v West Bromwich Building Society and Arnold v Britton.
Special rules for construing exemption clauses and limitations of liability, highlighted by Canada Steamship Lines Ltd v R and Photo Production Ltd v Securicor Transport Ltd.

Statutory Control of Exemption Clauses and Unfair Terms

Overview of statutory regulations controlling exemption clauses, particularly the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.
Case studies illustrating the application of these statutes, such as Smith v Eric S Bush and Director General of Fair Trading v First National Bank Plc.

Part Three: Remedies for Breach of Contract

Termination

Examination of the conditions under which a contract can be terminated for breach, including anticipatory breach and termination clauses (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd).
Discussion on the effects of termination and restitution.

Damages

Detailed analysis of compensatory damages, including the calculation and limitations (e.g., remoteness, mitigation) through landmark cases such as Hadley v Baxendale and Victoria Laundry (Windsor) Ltd v Newman Industries Ltd.
Exploration of other forms of damages, including account of profits and negotiating damages (Attorney General v Blake).

Direct Enforcement

The conditions under which specific performance and injunctions may be granted as remedies for breach of contract (Beswick v Beswick).

Part Four: Privity of Contract and Third-Party Rights

Privity of Contract and Third-Party Rights

Examination of the privity doctrine and its exceptions, with key cases like Tweddle v Atkinson and Beswick v Beswick.
Analysis of the Contracts (Rights of Third Parties) Act 1999 and its impact on third-party rights.

Part Five: Factors Allowing Escape from a Contract

Misrepresentation

Identification of different types of misrepresentation and the remedies available, including rescission and damages (Derry v Peek, Hedley Byrne & Co Ltd v Heller & Partners Ltd).

Mistake

Analysis of the role of mistake in contract law, differentiating between unilateral and common mistake (Smith v Hughes, Bell v Lever Brothers Ltd).

Frustration

Discussion on the doctrine of frustration, its application, and the effects on contractual obligations (Taylor v Caldwell, Davis Contractors Ltd v Fareham Urban District Council).

Duress

Exploration of duress as a factor invalidating contracts, including economic duress (North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd).

Undue Influence and Exploitation of Weakness

Examination of undue influence and the exploitation of weakness in contractual relationships (Barclays Bank plc v O’Brien).

Key Concepts

Offer

Definition: An expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
Key Cases:
- Harvey v Facey (distinction between offer and invitation to treat).
- Carlill v Carbolic Smoke Ball Company (unilateral contracts).

Acceptance

Definition: An unequivocal statement or act that indicates agreement to the terms of an offer.
Key Cases:
- Entores Ltd v Miles Far East Corporation (communication of acceptance).
- Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (battle of the forms).

Certainty

Requirement that the terms of the contract must be clear and unambiguous.
Key Cases:
- Hillas & Co Ltd v Arcos Ltd (vagueness and enforcement).
- Scammell and Nephew Ltd v Ouston (terms must be clear to be enforceable).

Intention to Create Legal Relations

Parties must intend for their agreement to be legally binding.
Social and Domestic Agreements: Typically presumed not to be legally binding unless proven otherwise.
- Balfour v Balfour (presumption in domestic agreements).
Commercial Agreements: Presumed to be legally binding.
- Esso Petroleum Co Ltd v Commissioners of Customs and Excise (commercial presumption).

Consideration

Definition: Something of value exchanged between parties that is necessary for a valid contract.
Key Principles:
- Must be sufficient but need not be adequate (Chappell & Co Ltd v Nestlé Co Ltd).
- Past consideration is not valid consideration (Eastwood v Kenyon).
- Performance of an existing duty is not good consideration unless it exceeds the duty (Williams v Roffey Bros & Nicholls (Contractors) Ltd).

Promissory Estoppel

Doctrine preventing a promisor from going back on a promise which the promisee has relied upon.
Key Cases:
- Central London Property Trust Ltd v High Trees House Ltd (establishing the doctrine).
- Combe v Combe (promissory estoppel as a shield, not a sword).

Identifying Terms

Terms must be clearly identifiable as part of the contract.
Key Cases:
- L’Estrange v F Graucob Ltd (signed documents).
- Parker v The South Eastern Railway Company (reasonable notice).

Interpreting Terms

Interpretation aims to determine the intent of the parties and the meaning of the terms.
Modern Approach:
- Investors Compensation Scheme Ltd v West Bromwich Building Society (principles of interpretation).
- Chartbrook Ltd v Persimmon Homes Ltd (contextual and purposive interpretation).

Unfair Contract Terms Act 1977 (UCTA)

Regulates clauses that exclude or limit liability in contracts.
Key Provisions:
- Sections 2 to 7, covering negligence, breach of contract, and statutory implied terms.
Reasonableness Test: Determines whether exclusion clauses are enforceable.

Consumer Rights Act 2015

Protects consumers against unfair terms and ensures rights in sales and service contracts.
Key Sections:
- Part 2 on unfair terms, particularly focusing on consumer contracts.

Damages

Compensatory Damages: Aimed at putting the injured party in the position they would have been in if the contract had been performed.
Key Cases:
- Hadley v Baxendale (remoteness of damage).
- Victoria Laundry (Windsor) Ltd v Newman Industries Ltd (loss must be foreseeable).

Termination

Allows an aggrieved party to end the contract due to a significant breach.
Key Concepts:
- Conditions and warranties (Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd).
- Anticipatory breach (Hochster v De La Tour).

Privity of Contract

Only parties to a contract can sue or be sued on it.
Key Cases:
- Tweddle v Atkinson (establishing the doctrine).
- Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd (reinforcing the principle).

Contracts (Rights of Third Parties) Act 1999

Allows third parties to enforce contract terms if the contract expressly provides for it or if the term purports to confer a benefit on them.

Misrepresentation

False statement inducing another to enter into a contract.
Types: Fraudulent, negligent, and innocent misrepresentation.
Key Cases:
- Derry v Peek (fraudulent misrepresentation).
- Hedley Byrne & Co Ltd v Heller & Partners Ltd (negligent misrepresentation).

Mistake

Contract can be void if there is a fundamental mistake.
Types: Common, mutual, and unilateral mistakes.
Key Cases:
- Smith v Hughes (unilateral mistake).
- Bell v Lever Brothers Ltd (common mistake).

Frustration

Contract is discharged if an unforeseen event renders performance impossible or radically different.
Key Cases:
- Taylor v Caldwell (impossibility).
- Davis Contractors Ltd v Fareham Urban District Council (performance becomes onerous).

Duress

Contracts entered under duress are voidable.
Types: Physical, economic, and illegitimate pressure.
Key Cases:
- North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd (economic duress).

Undue Influence and Exploitation of Weakness

Contracts entered due to undue influence or exploitation are voidable.
Key Cases:
- Barclays Bank plc v O’Brien (undue influence).

These key concepts lay the foundational understanding of contract law principles as discussed in “A Casebook on Contract” by Andrew Burrows.

Critical Analysis

Offer and Acceptance

Offer vs. Invitation to Treat: The distinction between an offer and an invitation to treat is crucial but can often be blurred. Cases such as Partridge v Crittenden and Fisher v Bell highlight the nuanced nature of this distinction. The implications of these distinctions are significant, as they determine when a binding agreement can be said to have been formed.
Communication of Acceptance: The complexities surrounding the communication of acceptance are well-documented, particularly in the context of instantaneous communications versus postal rule scenarios (Entores Ltd v Miles Far East Corporation vs. Adams v Lindsell). The evolution of technology and the rise of digital communications further complicate these issues, requiring continual reassessment of traditional principles.

Certainty and Intention to Create Legal Relations

Vagueness and Incomplete Agreements: Courts have consistently grappled with the enforceability of vague or incomplete agreements (Hillas & Co Ltd v Arcos Ltd, Scammell and Nephew Ltd v Ouston). The modern approach leans towards upholding agreements wherever possible by interpreting them in a manner that reflects the parties’ intentions, even if some terms remain ambiguous.
Social vs. Commercial Contexts: The presumption that social agreements are not intended to be legally binding (Balfour v Balfour) versus the opposite presumption for commercial agreements (Esso Petroleum Co Ltd v Commissioners of Customs and Excise) demonstrates the importance of context in contract law. However, this binary approach may oversimplify the diverse range of agreements that exist in practice.

Consideration and Promissory Estoppel

Adequacy and Sufficiency of Consideration: The principle that consideration need not be adequate but must be sufficient (Chappell & Co Ltd v Nestlé Co Ltd) ensures that courts do not delve into the fairness of the bargain, thus respecting contractual freedom. However, this can sometimes result in the enforcement of agreements where one party has provided only nominal consideration.
Promissory Estoppel as a Shield: The doctrine of promissory estoppel, as established in Central London Property Trust Ltd v High Trees House Ltd, operates to prevent injustice by holding parties to their promises even in the absence of consideration. The limitation that it cannot be used as a cause of action (Combe v Combe) ensures it does not undermine the requirement of consideration, maintaining a balance between flexibility and certainty in contract law.

Identifying and Interpreting Terms

Parol Evidence Rule: The parol evidence rule, which prevents the introduction of extrinsic evidence to alter written contracts, is often circumvented by exceptions such as fraud, mistake, or incomplete agreements. This demonstrates the tension between upholding the integrity of written contracts and ensuring justice.
Modern Interpretative Approaches: The shift towards a contextual and purposive approach in interpreting contract terms (Investors Compensation Scheme Ltd v West Bromwich Building Society) reflects a more realistic understanding of commercial transactions. However, this approach can sometimes lead to unpredictability, as it relies heavily on judicial interpretation.

Statutory Control and Unfair Terms

Reasonableness Test under UCTA: The reasonableness test under the Unfair Contract Terms Act 1977 ensures that exclusion clauses are scrutinized for fairness, providing a safeguard against abuse. However, the subjective nature of this test can lead to inconsistent application.
Consumer Rights Act 2015: The Consumer Rights Act 2015 strengthens consumer protection by addressing unfair terms comprehensively. Its impact is significant in rebalancing the power dynamics between consumers and businesses, yet it places additional compliance burdens on businesses.

Remedies for Breach of Contract

Expectation vs. Reliance Damages: The preference for expectation damages in contract law aims to put the injured party in the position they would have been if the contract had been performed (Robinson v Harman). However, this can sometimes lead to overcompensation, particularly in cases where the expectation interest is speculative.
Liquidated Damages and Penalties: The distinction between enforceable liquidated damages and unenforceable penalties (Cavendish Square Holding BV v Makdessi) ensures that contractual provisions serve as genuine pre-estimates of loss rather than punitive measures. This distinction, however, can be difficult to apply in practice, as it often requires a detailed analysis of the parties’ intentions.

Privity and Third-Party Rights

Challenges to Privity Doctrine: The privity doctrine has been challenged and reformed to reflect modern commercial realities, particularly through the Contracts (Rights of Third Parties) Act 1999. This statutory reform allows third parties to enforce terms intended for their benefit, addressing the limitations of traditional privity rules.

Factors Allowing Escape from a Contract

Balancing Doctrines of Mistake and Frustration: The doctrines of mistake and frustration provide mechanisms for escaping contracts that have become unworkable due to unforeseen circumstances. However, the narrow scope of these doctrines (Bell v Lever Brothers Ltd, Davis Contractors Ltd v Fareham Urban District Council) ensures that they are not used as easy escape routes, maintaining the sanctity of contracts.
Duress and Undue Influence: The recognition of duress and undue influence as factors invalidating contracts ensures that agreements are entered into freely and voluntarily. However, proving these factors can be challenging, requiring a delicate balance between protecting vulnerable parties and upholding contractual certainty.

Conclusion

The critical analysis of key concepts in contract law reveals a complex interplay between upholding contractual freedom and ensuring fairness. While traditional principles provide a foundation for certainty and predictability, modern developments and statutory reforms reflect an evolving understanding of commercial realities and the need for flexibility. The challenge lies in striking a balance that respects both the sanctity of contracts and the protection of parties from unfair practices.

Real-World Applications and Examples