DMII – MNRB SCHOLARSHIP & PUBLIC PROGRAM –[ NOVEMBER 2011 INTAKE ] – SUBJECT 105 – LAW

Assignment 3 Chapter 4 November 2011

Answer all 5 questions. Total 100 marks( as far as possible, use your own words to elaborate the points )

1. a) How may an offer be made, and to whom? (10 marks)

• an offer can be made in writing, orally of by conduct• it can be made to one person, a group of persons or the public at large as in the

case of Carlill v Carbolic Smoke Ball Co (1893).• it must be distinguished from an invitation to treat (i.e. an invitation to male

offers) e.g. circulars, advertisements and display of price-marked goods

In Fisher v Bell (1960) a shopkeeper who was charged with offering for sale a flick-knife, contrary to the Restriction of offensive Weapons Act 1959 escaped conviction when the court held that displaying the knife in his shop window was not an offer but merely an invitation to treat (this was a criminal case, and thus further legislation quickly followed to close this loophole).

In Pharmaceutical Society of Great Britain v Boots Cash Chemists 1953 it was held that a customer did not accept an offer when he took items from the shelves of a self-service store. Taking the goods to the cashier was the offer to buy, which the cashier accepted when money was taken in payment.

An advertisement can be an offer in law if it is aimed at the public at large. In Carlill v Carbolic Smoke Ball Co (1893) the manufacturer of carbolic smoke balls (a medicine which they claimed would prevent all sorts of illnesses) were held to have made an offer (to the public at large) when they promised in an advertisement to pay 100 pounds to any person who caught influenza after having used one of their smoke balls as instructed.

b) How an offer may end? (10 marks)

An offer does not remain open indefinitely. Once it comes to an end, it can no longer be accepted. The ways an offer may end are:

A time limi or a ‘reasonable time’

o Lapse of Time – an offer will lapse if the offeror imposes a time limit for acceptance and the other party does not accept within that time

Deatho death of either party before acceptance will usually terminate the offer.

Death after acceptance will not affect most contracts, unless they are for personal services

Acceptanceo acceptance of an offer will complete the contract and bring the offer to an

end Revocation

o the offer may be revoked (ie. withdrawn) by the offeror at any time before acceptance

o the offeror may do this even if he has promised to keep the offer open for a definite period of time

o In Routledge v Grant (1828) - Grant offered to buy Routledge’s house, giving him six weeks in which to decide whether to accept. When Grant withdrew his offer before the end of the six-week period, the court held that he was entitled to revoke at any time before acceptance

o the situation will be different if the offeree has paid a sum of money or given something of value in return for the promise to keep the offer open (ie. buying the option). If the offeror withdraw in this circumstance, he will be in breach of a subsidiary contract to keep negotiations open, and may have to pay damages

o revocation must be communicated to the offeree either by words or by conduct (e.g. selling goods to a person other than the original offeree when the offeree learn of the sale)

o communication of the revocation may be made by the offeror or by any other reliable source

oIn Dickinson v Dodds (1876) the defendant offered to sell his house to the claimant but, before the claimant accepted, sold the house to another person. The claimant learned of the sale from a friend and the court held that since the friend was a reliable source, the offer had been duly revoked and could no longer be accepted

2. a) Briefly explain what is the ‘posting rule’? Support your answer with case laws.

(10 marks) where the ‘posting rule’ applies

o acceptance is effective when it is posted and not when it is receivedo the letter must be properly addressed, stamped and posted and it must

be reasonable to use the posto the rule would not apply where the offeror made it clear that an instant or

urgent response was required or that acceptance must be communicated to them – Holwell Securities v Hughes (1974)

o the rule applies only to acceptance, not to an offer, revocation or rejection of the offer

o Byrne v Van Tienhoven (1880) – defendants, a firm in Cardiff, offered by letter on 1 Oct to sell tin plate to a firm in New York. On 11 Oct, the

claimants received the letter and accepted immediately by telegraph. On 8 Oct the defendants sent a letter of revocation which the claimants received on 20 Oct. the court held that a good contract was formed on 11 Oct. to be effective the revocation had to be communicated before acceptance

o the rule applies to telegrams or telemessages but not to instantaneous methods of communication like telephone or telex

o Entores v Miles Far East Corporation (1955) – an acceptance sent by telex from Amsterdam to London was held to be effective only on receipt in London. The effect was that the contract was deemed to be made in England and could, therefore, be brought before the English Courts the rule could possible apply to an acceptance sent by fax, a contract would come into existence when the message was transmitted, even though it was illegible when received. There would be no contract if the sender knew that the transmission had failed.

b) Briefly explain how and when the principle in Promissory Estoppel can

be applied? (10 marks)

Promissory estoppel is a special rules under Consideration. A promise made without consideration cannot be enforced and will not complete a contract; it may be used as a defence.

In Central London Property Trust v High Trees House (1947) - the landlords of a block of flats had let them to the defendants at a rental of 2,500 pounds a year. Owing to the outbreak of war, the defendants could find few tenants for the flats and considered ending the lease. The claimants then agreed in writing to reduce the rental to 1,250 pounds a year, with effect from 1941. The defendants continued with the lease under these circumstances but in 1945, the claimants claimed again the original rent from 1941 on the basis that no consideration had been given for their agreement to reduce it. The judge held that the claimants were entitled to the full rent from 1945 (since the agreement implied that the full rent should be payable when the abnormal war-time situation ended) but that it would be inequitable to allow them to go back on their promise and recover the full rent from 1941.

The defendants had relied on the promise to accept a lower rent and had acted upon it by reducing the rent payable by their own tenants during the period in question This principle operates only ‘as a shield and not a sword‘. It is also an equitable principle; hence the defendant will not be allowed to claim relief unless they have acted fairly D & C Builders Ltd v Rees (1966) – the claimants, a small firm of builders, were owed 482 pounds by Mrs Rees. Knowing they were in desperate of money, she offered them a cheque for 300 pounds and said that if they did not take it they would receive nothing. They reluctantly accepted but later sued for the balance. It was held that they could recover, since no consideration had been given for their promise to accept a smaller sum and the were not estopped from claiming the balance because Mrs Rees had herself acted inequitably in putting pressure on the builders and the defence is not allowed.

3. a) Briefly explain what is the difference between void, voidable and

unenforceable contracts? (10 marks)

A void contract has no binding effect in either party. Because a void contract is no contract at all, the expression is really a contradiction in terms. However, the expression is useful to describe agreements which neither party can fully enforce.

A voidable contract is binding but one or possibly both of the parties will have the right, if they wish to set it aside. Contracts may be voidable on a number of different grounds, such as misrepresentation, drunkenness or insanity.

An unenforceable contract is valid but it cannot be enforced in a court if one party refuses to keep to the agreement. Such a contract may nevertheless be useful for other purposes; it may for instance be used as a defense to a claim.

b) What is the difference between Unfair Contract Terms Act 1977 and

Unfair TermsConsumer Contract Regulations 1999? (5 marks)

The relationship between The Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms In Consumer Contract Regulations 1999 (UTCCR) is rather complicated. To a large extend, they are separate regimes with different scopes of application and different concepts and terminology.

Differences between UCTA and UTCCR are:- UCTA applies to consumer and business-to-business contracts, is restricted

mainly to exclusion and limitation clauses, and makes frequent reference to ‘reasonableness’ test, with the burden of proof of reasonableness on the party seeking to rely on it.

UTCCR apply only to consumer contracts, cover all types of term (except ‘core’ terms) and subject to a ‘fairness’ test, with the burden of proof (of unfairness) on the consumer

c) Explain the term “innominate” in relation to condition and

warranties? (5 marks)

The classification is based on the importance of the terms in question and the consequences if they are broken.Warranty (in contract law) is a term that affects only some relatively minor aspect of the agreement, giving the injured party the right to claim for damages but not to avoid the contract.

Condition (in contract law) is a term that relates to an important aspect of the agreement and goes to the ‘root of the contract’ allowing the victim to sue for damages and to avoid the agreement.Case examples:Poussard v Spiers & Pond (1876) – Leading female soprano prevented by illness from singing on opening night was held a breach of condition and dismissal was justified Bettini v Gye (1876) – Tenor engaged to sing for a season at Covent Garden missed four out of six days in rehearsals due to illness was held to be a mere breach of warranty and dismissal was unjustifiedThe courts have adopted a flexible approach and focus on the effects of a breach on the injured party to ascertain whether a condition or warranty has been broken. This has led to the recognition of a third class known as ‘intermediate’ or ‘innominate’ terms.Innominate terms - there cannot be classified as either conditions or warranties in advance and it is only when the effects of a breach are considered that the true nature of the term is revealedCase examples of Innominate term:Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962) – The courts held that the defendant had wrongly terminated the contract on the grounds that the ship chartered from the claimants was ‘unseaworthy’ for twenty weeks out of a two year charter. The question asked by the court was whether, looking at the events which had occurred as a result of the breach, the defendants had been deprived of the whole benefit of the contract. In this case they had not.The Hansa Nord (1976) – It was held that even in a contract for sale of goods, it is wrong to assume that a term is necessarily either a condition or a warranty

4. Briefly explain what is the common law defence of ‘non est factum’ about? (20 marks)

Non est factum means “it is not his deed”. It is the common law defence which permitted a person who had executed a written document in ignorance of its character, to plead that notwithstanding the execution, it is not his deed.10 It is a plea which denies that a deed is that of the defendant e.g. where there has been a failure by the illiterate party in understanding the nature of the transaction.

The doctrine/plea of non est factum started life as a device for the protection of illiterates and blind contractors. In modern times, however, it has been modified and adapted for the protection of a person, who in the absence of negligence on its part, has been fraudulently induced to sign a document radically different from that which he was made to believe he was signing.

The application of the doctrine to persons who can read in the 19th Century has been qualified by the fact that it should not apply to persons of full age and capacity. But this very narrow view of the doctrine was rejected by the House of Lords in Gallie v. Lee. In the words of Lord Reid it may apply to:

“Those who are permanently or temporarily unable, through no fault of their own, to have without explanation any real understanding of the purport of a particular document whether that be from defective education, illness or innate incapacity”.

Mistaken signing of written documentsThe general rule is that a person is bound by the terms of a document which they signed, whether they have read it or not.However, in situations where the signer is illiterate and the contents of a document have been read to them wrongly, common law developed a defence known as ‘non est factum’ or ‘not my deed’.The scope of this defence is very limited.Saunders v Anglia Building Society (1971) – held that the defence of ‘non est factum’ is available only when:

the signer has ‘no real understanding’ of the document because of ‘defective education, illness or innate capacity’;

there is a fundamental difference between the document actually signed and the one which the signer believed it to be;

the signer can show that they were not careless in signing the document

Mistakes in recording statements – rectification If the parties put their contract in writing but make an error in recording what they have agreed, the court may rectify the document to make it accurately reflect the true agreement. The mistake must be that of both parties. The courts can only rectify documents, not contracts.

5. a) Briefly explain what are the ingredients for actionable misrepresentation?

(10 marks)

A misrepresentation is a false statement of fact which induces the other party to enter into the contract. It may be fraudulent, innocent or negligent.The following requirements must be met, to have a damaging effect on the contract:

The misrepresentation must be one of fact - This is to be contrasted with statements of law and statements of opinion or belief, requiremento Statement of opinion or belief may amount to actionable misrepresentation if

the maker does not actually hold the opinion or belief, since they misrepresent their own state of mind.

oIn Edgington v Fitzmaurice (1885) per Bowen LJ – There must be a misstatement of existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. A misrepresentation as to the state of a man’s mind is therefore, a misstatement of fact.

The misrepresentation must be made by a party to the contract - statements made by a third party is not actionable, requirements

the misrepresentation must be materialo misrepresentation must concern something which would influence a

reasonable person in deciding whether to proceed with the contract or what terms to accept. This requirement of materiality does not apply if the representation is fraudulent

the misrepresentation must induce the contracto the person seeking redress must have relied and acted upon the statement

in question

the claimant must suffer damage as a result of the misrepresentation

b) What are the remedies for misrepresentation? (10 marks)

The broad effect of misrepresentation is to make the contract voidable, not void as in mistake. However the remedies depend to a certain extent on whether the misrepresentation was fraudulent or innocent.

Fraudulent misrepresentation is where the person making in knows that it is false, has no belief in its truth or makes it recklessly not caring if it is true or false.Innocent misrepresentation is a false statement which the maker honestly believes to be true. The remedies are: rescission, damages, refusal of further performance or affirmation

RescissionThe claimant may bring an action to rescind (or cancel) the contract.This remedy is available for any type of misrepresentation but S 2(2) Misrepresentation Act 1967 allows the courts to award damages in lieu of rescission at its discretion, where there is no fraud.This is an equitable remedy and must be exercised reasonably promptly.The remedy will be lost if the parties cannot be restored to their original position before the contract e.g. where the goods have been resold by the buyer.

DamagesIn the case of fraud, damages are based on the tort of deceit, not on contract, in addition to rescission.In the case of innocent misrepresentation, an award of damages in lieu of rescission.Damages and rescission are alternatives, where there is no fraud.

Refusal of further performanceWhere the injured party refuse to perform their part and if sued, misrepresentation can be raised as a defence.

AffirmationSince the contract is voidable, the injured party may choose to affirm the contract. However once affirmed, the contract cannot be rescinded.

Submission Date: 8th December 2011