Common Law of Contract

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McQueen and Thomson

Contract Law in Scotland 2012

Definition
Contract An agreement between two or more parties having the capacity to make it, in the form demanded by law, to perform, on one side or both, acts which are not trifling, indeterminate, impossible or illegal.

Context

A contract is freely entered into Limited interference by the state Good for commercial transactions Good for parties to be held to their contract Generally there is mutuality

Essential Elements

for a valid contract:

agreement (consensus in idem) on all material aspects Capacity (e.g. age 16 with safeguards to 18) Form which is enforceable (contains the essential elements) Purpose not illegal etc.

Contract formation

in writing Orally exchange of words inferred from the actings of the parties

Enforceable Form
Essential elements: Offer and acceptance Identity of the Parties Proper identification of the subject matter (in construction what is to be constructed and where)
Highly desirable elements: The Price or a method of determining it (in the absence of an agreed price quantum meruit is a fall back) Start date and time to complete or a method of determining it (in the absence of agree times reasonable times can be established)

Offer

a proposal from one party definite terms an offer must be distinguished from an invitation to treat.

Invitation to treat

An invitation to treat is not an offer. It is an indication of the partys willingness to negotiate and not to be bound by a simple acceptancethe distinction can be fine but important. Advertisements are generally invitations to treat (otherwise multiple
acceptances would be possible but see Carlill v Carbolic Smokeball Co)

Cases
Harvey v Facey [1983] A.C. 522
(intimation of lowest price which would be considered for the sale of a property was an invitation to treat (ItT) not an offer)

Philp v Knoblauch 1907 S.C. 994

(price quoted for linseed was an offer not an ItT)

Carlill v Carbolic Smokeball Co (1893) 1 QB 256 CA

(advertisement to pay 100 if anyone caught flu after using the smokeball found to be a contract not ItT because defendant had deposited money to cover claims)

Tenders

Invitation to Tender normally treated as an Invitation to Treat A tender or quotation (as opposed to an estimate) is usually regarded as an offer, not an invitation to treat

Acceptance

The final unqualified agreement to the terms stipulated in the offer Usually in words but can be inferred from the positive conduct of the offeree Silence is not normally enough demonstrate acceptance

Modes of communication of acceptance

telephone Fax E-mail Post

All of above except post involve instantaneous intimation. Postal acceptance is a special case.

Instantaneous Intimation
Acceptance occurs when communicated to the offerror.

Telephone instantaneous but contract not formed if communication unintelligible for any reason. Fax and E-mail generally considered to occur when should have been picked read in the ordinary course of business.

Postal Rule

Here the rule is that acceptance takes effect at time of posting irrespective of when the letter is received (although the position is uncertain if acceptance is never received) Surprisingly, an acceptance can be withdrawn after posting but before arrival. Countess of Dunmore v Alexander (1830) 9 S. 190 an acceptance followed by a later revocation arrived simultaneously.

Revocation of offer

If an offer is being revoked, revocation must be received by offeree BEFORE he accepts or posts acceptance (otherwise posting of acceptance forms contract) Jacobsen & Sons v Underwood (1894) 21 R 654 (acceptance posted but not received before expiry of offer) Implied revocation in one of three cases: Time limit for acceptance in offer passes without reply, or, where none, a reasonable time passes and no acceptance Where counter offer received (see below) Where either party dies or goes insane prior to acceptance

Counter offer

Where a qualified acceptance is received (also known as a counter offer), this kills the original offer. A qualified acceptance is one that contains additional terms, contradictory terms or one in which not all terms in the offer are accepted
See, for example: Wolf and Wolf v Forfar Potato Co. Ltd. 1990 S.L.T. 465

Battle of the forms

Problems with offer and acceptance

Pre-printed terms
Conflicting standard terms Use by parties as a matter of course Last shot wins

Error & Misrepresentation in Formation of Contract

Menzies v Menzies (1893) 20R HL 108

Lord Watson: "Error becomes essential whenever it is shown that but for it one of the parties would have declined to contract. He cannot rescind unless his error was induced by the representations of the other contracting party, or of his agent, made in the course of negotiation, and with reference to the subject matter of the contract"

Statements not amounting to misrepresentation

Exaggerated/optimistic statements of the nature of advertisement Expressions of opinion Expression of hope/expectation

Types of Misrepresentation

Innocent remedy reduction & restitution parties put back to their original position Negligent or Fraudulent reduction plus damages in delict.

Fraudulent Misrepresentation

Derry v Peek (1889) 14 AC 337 Lord Herschell: "fraud is proved where it is shown that a false representation has been made (1) knowingly, or (2) without belief in it's truth, or (3) recklessly, careless whether it be true or false."