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Unit 2


What is an offer? An offer is a manifestation of an intent to be contractually bound upon acceptance by another party. An offer gives the offeree the power to form a contract by making an appropriate acceptance. Form of Offer 1. Offers can be Express (orally or in writing) Implied (through the offerors conduct) 2. Offers can also form: Unilateral Ks (promise in exchange for an act; creates obligations on one side). Note: in the case of a unilateral K, the acceptor does not have to notify the offerer of his acceptance before performing. Bilateral Ks(exchange of promises; creates obligations on both sides) 3. Offers can be addressed to: One person Several persons The world at large See Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256 What is NOT an offer The following types of communications do not manifest an intent to be contractually bound, and thus DO NOT constitute offers: 1. Opinions about future results, including professional opinions 2. Statements of intention (including letters of intent, which merely memorialize negotiations) 3. Invitations to submit a bid. The process of competitive tendering came under scrutiny in the following cases: Harvela Investments v Royal Trust Co. of Canada [1985] 2 All ER 966 Blackpool Aero Club v Blackpool Borough Council [1990] 3 All ER 25 4. Price Estimates NB: However, where the estimate is deemed to be a factual misrepresentation because it was made by an expert, estoppel may be invoked if the offeree relied to his detriment on the estimate. Advertisements, catalogs and mass mailings These are generally considered an invitation to treat, ie, a statement that invites people to make an offer, but with no intention to be bound. Note: It is generally considered unreasonable for one to believe that the merchant intends to be bound to all whom receive or read such literature unless the power of acceptance is clearly limited to the first person(s) that fulfills the act for which the incentive is offered. Display of goods is also considered an invitation to treat; note: the customer is the one who makes the offer. See P.S.G.B. v Boots Chemists [1953] 1 All ER 482


Fisher v Bell [1960] 3 All ER 731 Partridge v Crittenden [1968] 2 All ER 421. However, advertisements may be construed as offers if they are unilateral, ie, open to all the world to accept (eg, offers for rewards). See Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 (previously mentioned). A statement of the minimum price at which a party may be willing to sell will not amount to an offer. See Harvey v Facey [1893] AC 552 Gibson v Manchester County Council [1979] 1 All ER 972. 6. Auctions with reserve An auction is "with reserve" unless announced to the contrary. In an auction with reserve, the auctioneer solicits offers in the form of bids. However, if the auction is announced to be "without reserve," the auctioneer's request for bids or his statement that an item will go to the highest bidder will be deemed an offer. Payne v Cave (1789) 3 Term Rep 148 a. Receipt of offer: When is the offer effective? An offer is not valid until received by offeree or his agent

b. Duration of offer: If the offer has a stated time within which the acceptance must be made, any attempted acceptance after the expiration of that time will fail and will merely constitute a counter-offer by the offeree. If no specific time is stated within which the offeree must accept, it is assumed that the offeror intended to keep the offer open for a reasonable period of time, to be determined based on the nature of the proposed contract, trade usage, prior dealings and other circumstances of which the offeree knows or should know. Generally, the time for accepting an offer begins to run from the time it is received by the offeree. If there was a delay in delivery of the offer of which the offeree is aware, the usual inference is that the time runs from the date on which the offeree would have received the offer under ordinary circumstances. c. Face to face communications: Generally, courts hold that in telephonic or face-to-face communications in which an offer is made, the offer lapses when the conversation terminates in the absence of a clear indication that the offer remains open beyond the conversation. Counter Offers Where the offeree suggests a new term not included in the original offer, this amounts to a counter offer. A counter offer terminates the original offer; the offeree can no longer accept it. See Hyde v Wrench (1840) 3 Beav. 334 Termination of an Offer An offer can be terminated in the following ways: 1) Acceptance terminates the offer and forms a valid contract. See Hyde v Wrench 2) Rejection. See Hyde v Wrench 3) Counter-Offer impliedly manifests a rejection of the offer. See Hyde v Wrench

4) Lapse of time i) If the offeror states that the offer is open until a certain period of time, it cannot be accepted after that period of time ii) If no period expressed, then it must be accepted within a REASONABLE period of time iii) If the offer is for the sale of perishable goods or commodities that fluctuate in value, offer may only be deemed open for a short period of time (goes to reasonableness) 5) Failure of a condition subject to which the offer was made: i) If the offer is conditional and the condition is not satisfied, the offer cannot be accepted. ii) The condition can be implied or express 6) Death or Insanity i) Death or insanity of the offeror, even without notice to the offeree of such occurrence ii) Death or insanity of the offeree, unless an offer is irrevocable, such as in the case of an option Once offeree has notice of the offerors death, he cannot accept If offeree unaware of offerors death, offeree may only validly accept if the K is capable of performance after death If offeree dies after offer made, offer will likely terminate 7) Rejection/Counter-Offer i) Rejection must be unequivocal and communicated to the offeror ii) After rejection, the offer cannot be reinstated by the offeree's subsequent attempted acceptance 8) Revocation i) With limited exceptions, an offer is generally revocable at any time prior to acceptance. An offer may be revoked by any words that communicate to the offeree that the offeror no longer intends to be bound. An offer is also revoked by action that is inconsistent with the intent to be bound once the offeree learns of such inconsistent action. A second offer may also revoke the first offer Routeledge v Grant (1828) 4 Bing 653 D offered to buy claimants house, and said that he would give him 6 weeks to think it over. Before the 6 weeks was up, D revoked the offer, shortly after the claimant purported to accept. Held: no K. Rationale: a promise to keep an offer open is ineffective unless the offeree provides some consideration to keep the offer open. (This is known as purchasing an option) ii) When does revocation become effective? Revocation is not effective unless it is COMMUNICATED to the offeree. If revocation is communicated by post, then it becomes effective WHEN IT ARRIVES (different from postal rule). Note: some jurisdictions find that revocation is communicated when it is mailed, like the postal rule. Communication does not need to be personal (ie, it can be communicated via 3rd party) Dickinsov v. Dodds Dodds offered (in writing) to sell property to Dickinson, offer to be left open until Friday. Dickinson decided to buy the property, but before he could accept he heard on

Thursday from Berry (3p) that Dodds had sold the property to Allan. Dickinson immediately accepted the original offer and then sought specific performance. His argument was that Dodds himself did not expressly revoke the offer. Court of Appel said no K. He KNEW, therefore no meeting of the minds. iii) An offer is irrevocable where: there is an option contract in which the offeree gave consideration for an irrevocable offer for some period of time; the offeree relied to his detriment upon an implied or express promise by the offeror not to revoke if such detrimental reliance was foreseeable by the offeror; the offeree relied to his detriment upon the offer itself if the such detrimental reliance was reasonably foreseeable by the offeror. in the case of a unilateral contract, the offeree began performance of the promised act to any extent Upon commencement of performance, the offeror must give the offeree the amount of time specified in the offer (or, in the absence of a specified time, a reasonable time) in which to complete the bargained-for promise. However, the offeree's mere preparation to perform does not preclude the offeror from revoking. University of Technology, Jamaica Faculty of Law Law of Contract I What is an Acceptance? A final and unqualified acceptance of the terms of an offer. Once a party accepts, there is no further room for negotiation. - Typically: (a) To have a binding contract, the acceptance must exactly match the offer. (b) The offeree must accept all the terms of the offer. Mirror image" rule: Applied in common law transactions, an acceptance must conform to the terms set forth in the offer. No contract is formed if the acceptance contains terms that are different from or additional to those set forth in the offer. Such communication merely constitutes a counter-offer.


Brogden v. MRC [1977] Gibson v. MCC [1979] Acceptance communicated by:

1. Promise: A party may accept an offer to enter into a bilateral contract by giving a promise in return. Eg. I accept your proposal and promise to perform. 2. Performance: eg. A bounty hunter bringing back a wanted criminal

3. Silence: This can happen only when custom between the particular parties makes an acceptance reasonable. Eg. Allowing a supplier to leave goods on a loading dock

Communicating Acceptance: Acceptance communicated by: Promise: A party may accept an offer to enter into a bilateral contract by giving a promise in return. Eg. I accept your proposal and promise to perform. Performance: eg. A bounty hunter bringing back a wanted criminal (Unilateral K) This can happen only when custom between the particular parties makes an acceptance reasonable. Eg. Allowing a supplier to leave goods on a loading dock Cases. Brogden v. MRC [1977] Gibson v. MCC [1979]

Issues impacting an Acceptance Counter offer Conditional Acceptance Tenders Communication of Acceptance Exceptions to the Communication Rule Method of Acceptance

Counteroffer An offer made in response to a previous offer by the other party during negotiations for a final contract Introduction of additional or varied terms of the offer [rejection of offer]


Discussed last week in Termination 2. See Hyde v. Wrench [1840]. 3. Stevenson v. McLean [1880]

Conditional Offer If the offeree attaches a condition to the acceptance, then it will not be binding. Example: land transactions that are subject to contract Gibson v Manchester City Council the words "may be prepared to sell" were held to be a notification of price and therefore not a distinct offer

Tenders A tender is an offer, the acceptance of which leads to the formation of a contract. However, difficulties arise where tenders are invited for the periodic supply of goods. Communication of Acceptance

In general, an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence. Acceptance is considered communicated when it is actually brought to the notice of the offeror. Exceptions to the Communication Rule 1. In unilateral contracts the normal rule for communication does not apply. Carrying out the task is sufficient to amount to an acceptance of the offer. 2. The offeror may expressly or impliedly waive the need for communication of acceptance by the offeree. 3. The Postal Rule Where acceptance by post has been requested, or where it is an appropriate and reasonable means of communication between the parties, then acceptance is complete as the letter of acceptance is posted, even if the letter is delayed, destroyed or lost in the post so that it does not reach the offeror. Adams v. Lindsell [1818] The question of whether an offeree can withdraw his acceptance after the acceptance has been posted by a later communication which reaches the offeror before the acceptance. A strict view of the postal rule would not permit such withdrawal. Nothing clear in UK, but New Zealand and South Africa support this. Not clear and could very well establish a more flexible position. Postal Rule, Cont. In other words, Acceptance is effective on dispatch. A revocation of an offer or acceptance is effective on receipt. Exceptions: Offer otherwise expressly provides Option deadlines: does not apply to the deadline for an option contract. Acceptance is only valid upon receipt. Letter not properly posted or misaddressed

Note: Post must be a reasonably means of communication (ie, if offer is made via instantaneous means such as email or fax, then it may not be considered reasonable to respond by post)

Knowledge of the Offer An offeree may perform the act that constitutes acceptance of an offer, with knowledge of that offer, but for a motive other than accepting the offer. Rule: An acceptance which is wholly motivated by factors other than the existence of the offer has no effect. R. v. Clarke [1927] (Australian) Cross Offers

Example: where A offers to sell goods and B offers to buy the same goods on the same terms, but both offers are made in ignorance of the other and the offers cross in the mail. These offers do not make a binding contract. Consideration What is consideration? A few definitions A promised action, or omission of action, that the promisee did not already have a preexisting duty to abide by. An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable. **A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the other party, or some forbearance, detriment, loss of responsibility given, suffered or undertaken by the other. Consideration

Forms of consideration: Executory consideration The promise of a monetary payment or a service to be provided in the future

Executed consideration Consideration that has been performed by a party Eg, unilateral Ks (promisor only becomes liable once performance has been completed by the promisee)

Rules Governing Consideration 1. Past consideration is not consideration: Past consideration is a benefit or service previously rendered to the promisor Ie, if one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past, and thus insufficient and cannot be used to sue on a contract.

Past consideration, ctd Roscorla v Thomas (1842) 3 Q.B. 234 Claimant purchased Defendants horse for 30 pounds. After the completion of the sale, the defendant promised that the horse was sound and free from vice. The horse ended up being a vicious one. Claimant brought an action for breach of K,, but it failed because the consideration was considered past consideration. Rules Governing Consideration 2. Consideration Must be Sufficient, but Need not be Adequate Provided that the consideration has some value, the courts will not investigate its adequacy. Where the law recognizes consideration as having some value, it is described as real or sufficient consideration. The courts will not investigate contracts to see if the parties have received equal value. If a contract is a bad bargain for one or both parties, it is still valid. (eg peppercorn rent, or selling property for significantly below its value) To be sufficient, consideration must have some value Rules Governing Consideration 3. Consideration Must Move From the Promisee The person who wishes to enforce the Contract must show that hr or she provided consideration; it is not enough to show that someone else provided consideration. The promisee must show that consideration was provided by him. Price v Easton (1833) 4 B. & Ad. 433. Price owed the claimant 13 pounds. Price agreed to work for the Defendant, who promised to pay Prices wages to the claimant in order to settle the debt. Price worked for the Defendant, but the Defendant didnt pay his wages to the claimant. Held: Claimant could not recover b/c no consideration had moved from claimant to Defendant. Rules Governing Consideration 4. Forbearance to Sue If one person has a valid claim against another, but promises to forebear from pursuing it, this will constitute valid consideration if made in return for a promise by the other to settle the claim. A promise not to pursue an invalid (one that would fail) may also constitute consideration

Rules Governing Consideration 5. Existing Public Duty If someone is under a public duty to do a particular task, then agreeing to perform that task (or performing it) is not sufficient consideration for a contract.

See Collins v Godefroy (1831) 1 B & Ad. 950 D promised to pay the claimant for giving evidence in court. D had been served a subpoena and had a legal duty to attend the trial. Held: no consideration.

Rules Governing Consideration 6. Existing Contractual Duty If someone promises to do something that they are already bound to do under an existing contract, that is not valid consideration.

7. Existing Contractual Duty Owed to a Third Party If a party promises to do something for a second party, but is already bound by a contract to do this for a third party, valid consideration exists.

Rules Governing Consideration Part payment of a Debt If one party owes a sum of money to another and agrees to pay part of this in full settlement, the rule at Common law is that part payment of a debt is not good consideration for a promise to forego the balance.

INTENTION TO CREATE LEGAL RELATIONS The parties must intend the agreement to be legally binding


Social & Domestic Agreements & Business Agreements concept in equity, not common law, and so is discretionary.

INTENTION TO CREATE LEGAL RELATIONS This group covers agreements between family members, friends and workmates. The law presumes that social agreements are not intended to be legally binding. Lens v Devonshire Club (1914) The Times, December 4. However, if it can be shown that the transaction had the opposite intention, the court may be prepared to rebut the presumption and to find the necessary intention for a contract. The cases show it is a difficult task to rebut such a presumption. Agreements between a husband and wife living together as one household are presumed not to be intended to be legally binding, unless the agreement states to the contrary. See: Balfour v Balfour [1919] 2 KB 571.

The presumption against a contractual intention will not apply where the spouses are not living together in amity at the time of the agreement. See: Merritt v Merritt [1970] 2 All ER 760. If a social agreement will have serious consequences for the parties, this may rebut the presumption. See: Parker v Clarke [1960] 1 All ER 93.Tanner v Tanner [1975] 1 WLR 1346. It seems that agreements of a domestic nature between parent and child are likewise presumed not to be intended to be binding. See: Jones v Padavatton [1969] 2 All ER 616. Where the parties to the agreement share a household but are not related, the court will examine all the circumstances. See: Simpkins v Pays [1955] 3 All ER 10.


Business and Commercial Agreements In business agreements the presumption is that the parties intend to create legal relations and make a contract. This presumption can be rebutted by the inclusion of an express statement to that effect in the agreement. See: Rose and Frank Co v Crompton Bros Ltd [1925] AC 445. Similarly, football pools stated to be "binding in honour only" are not legal contracts so that a participant may not recover his winnings. See: Jones v Vernons Pools [1938] 2 All ER 626. Contractual intention may be negatived by evidence that "the agreement was a goodwill agreement made without any intention of creating legal relations": Orion Insurance v Sphere Drake Insurance [1990] 1 Lloyd's Rep 465. If a clause is put in an agreement and the clause is ambiguous then the courts will intervene and interpret it. See: Edwards v Skyways [1964] 1 All ER 494. Contractual intention may be negatived by the vagueness of a statement or promise. See:

JH Milner v Percy Bilton [1966] 1 WLR 1582. :


There are situations where it would appear at first sight that the parties had entered into a commercial agreement, but, nevertheless, a contract is not created. Hughes Case (1877). INTENTION TO CREATE LEGAL RELATIONS 1. MERE PUFFS

For the purposes of attracting custom, tradesmen may make vague exaggerated claims in adverts. Such statements are essentially statements of opinion or "mere puff" and are not intended to form the basis of a binding contract. By contrast, more specific pledges such as, "If you can find the same holiday at a lower price in a different brochure, we will refund you the difference", are likely to be binding (See Carlill's Case [1893]). A statement will not be binding if the court considers that it was not seriously meant. See: Weeks v Tybald (1605) Noy 11.Heilbut, Symons & Co v Buckleton (1913)


2. LETTERS OF COMFORT This is a document supplied by a third party to a creditor, indicating a concern to ensure that a debtor meets his obligations to the creditor. Depending on the terms, such letters may be either binding contracts or informal and uncertain assurances resting entirely upon business goodwill. Olint promised its clubmembers that it would not invest more than 20% of the members principal at any one time, therefore, limiting the members risk. Assuming that they were actually trading and went under, could a member/claimant rely on the letter in court.


3. LETTERS OF INTENT This is a device by which one person indicates to another that he is likely to place a contract with him, but is not yet ready to be bound. A typical example of a situation where a letter of intent might be provided is where a main contractor is preparing a tender and he plans to sub-contract some of the work.

He would need to know the cost of the sub-contracted work in order to calculate his own tender, but would not want to be committed to that sub-contractor until he knows whether his tender has been successful. In these circumstances, the main contractor writes to tell the sub-contractor that he has been chosen. INTENTION TO CREATE LEGAL RELATIONS

Letters of Intent, Cont. Where the language of such a letter does not negative contractual intention, the courts can hold the parties to be bound by the document. They will be inclined to do so where the parties have acted on the document for a long period of time or have expended considerable sums of money in reliance on it (Turriff Constructuion v Regalia Knitting Mills (1971) 22 EG 169 - letter of intent held to be a collateral contract for preliminary work). INTENTION TO CREATE LEGAL RELATIONS

4. COLLECTIVE AGREEMENTS This is an agreement between a trade union and an employer regulating rates of pay and conditions of work. Section 179 of the Trade Union and Labour Relations (Consolidation) Act 1992 states that such agreements are not intended to be legally enforceable unless they are written and expressly affirm that they are to be binding.

Capacity Minors insane Drunkards Corporations At Common law, minors had a limited capacity to contract.

A. Minors -

general principals is that he contract between a minor and an adult is binding on the adult. See. Roberts v. Gray Fawcett v. Smethurst, - Clements v. London & North Western Railway - Lewis v. Alleyne B. Insane - The ancient rule of the common law was that a lunatic could not set up his own insanity (though his heir might) so as to avoid an obligation which he had undertaken. But by 1847 Pollock C.B. was able to say, in delivering the judgment of the Court of Exchequer Chamber in Moulton v. Camroux, 2 Ex 487, that "the rule had in modern times been relaxed, and unsoundness of mind would now be a good defence to an action upon a contract, if it could be shown that the defendant was not of the capacity to contract 'and the plaintiff knew it."' Cf. Imperial Loan Co. v. Stone [1892] 1 QB 599, CA. Section 3 of the Sale of Goods Act 1979 makes the same provision for persons who are incompetent to contract by reason of mental incapacity as for minors (see above).A lunatic so found by inquisition was held to be incapable of making a valid inter vivos disposition of property (although he could make a valid will) since this would be inconsistent with the position of the Crown under the Lunacy Acts: Re Walker [1905] 1 Ch 160. Presumably the position of a lunatic so found with respect to contracts not effecting inter vivos dispositions of his property was the same as that of a lunatic not so found; that is, he would be bound unless he could show that he was not in fact of capacity to contract and that the

plaintiff knew it. The Lunacy Acts have been repealed, but an order under the Mental Health Act 1983, may have the same effect as a finding of lunacy. C. Drunkards- The authorities are scanty; but in Gore v. Gibson (1845) 13 M & W 621; 153 ER 260, it was held that a contract made by a person so intoxicated as not to know the consequences of his act is not binding on him if his condition is known to the other party. It appears, however, that such a contract is not void but merely voidable, for it was held in Matthews v. Baxter (1873) LR 8 Ex 132 that if the drunken party, upon coming to his senses, ratifies the contract, he is bound by it. D. Corporations - In the leading case of Ashbury Railway Carriage and Iron Co. Ltd v. Riche (1875) L.R. 7 H.L. 653 the objects set out in the company's memorandum -Important changes were made by section 108 of the Companies Act 1989, substituting a new section 35 of the Companies Act 1985. Under that new section it remains the duty of the directors to observe any limitations on their powers flowing from the company's memorandum (section 35(3)) and a member of a company may bring proceedings to restrain the doing of an act in excess of those powers (section 35(2)); but, by section 35(1):"The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company's memorandum." Introduction The terms of a contract may be express or implied; where a contractual term has been broken, it will give rise to a claim for damages for breach of the contract.

The Parol Evidence Rule Any oral or other evidence that a party attempts to introduce to show an actual agreement is not admissible if it was to be used either to add to or to contradict, the terms contained in a written contract.

1. If the contract had been produced in written form then it was only logical for the court to suppose that anything ommitted from the written document actually formed no part of the agreement. 2. The clear danger was that adding terms into the agreement after the written agreement was accepted would lead to uncertainty. cf. Webster v. Cecil [1861] 54 ER 812 Exceptions to the Parol Evidence Rule

A. Written Agreement not the whole document B. Validity C. Implied Terms D. Operation of the Contract E. Evidence as to Parties F. Aid to Construction G. To Prove Custom H. Rectification

I. Collateral Contract See J Evans & Sons v. Andrea Merzario [1976] 1 WLR 1078

Exceptions to Parol Evidence Written Agreement not the whole document

If the written agreement was not intended to be the whole contract on which the parties had actually agreed, parol evidence is admissible. Evans v. Andrea Merzario [1976] 2 All ER 930 Validity Parol evidence may be given about the validity of the contract Implied terms Where the contract is silent on a matter on which a term is normally implied by law, parol evidence may be given to support, or to rebut, the usual implication Burgess v. Wickham

Operation of the Contract Parol evidence can be used to show that the contract does not yet operate, or that it has ceased to operate. Pym v. Campbell (1856) 6 E & B 370

Evidence as to Parties Parol Evidence can be used to show in what capacities the parties contracted Agency case. Humfrey v. Dale (1857) 7 E & B 266

Aid to Construction Where the words of the contract are clear, parol evidence cannot be used to explain their meaning, unless they have a special meaning by custom Can be used to explain phrases and technical terms

To prove Custom

Evidence of custom is admissible to annex incidents to written contracts in matters with respect to which they are silent. Smith v. Wilson 1000 rabbits means 1200 rabbits, coffee beans

rectification A document may fail to accurately represent the true meaning of the agreement. Collateral Contracts

The collateral contract is an exception to the basic rules on privity of contract. The process of identifying the existence of a collateral agreement allows a party to sue the maker of a promise on which they have relied on entering a contract, even though that party is not a party to the actual contract. City and West minister Properties Ltd. v. Mudd 2 All ER 733 The Doctrine of Privity A person who is not privy to a contract (ie, a 3rd party) can neither sue or be sued with respect to that contract A contract is considered a private matter between two parties, and any third party involved acquires neither rights nor liabilities, even if they do have some interest in the K. The doctrine of privity is closely linked to the rule that consideration must move from the promisee. Privity Two decisive cases: Tweddle v Atkinson (1862) 1 B&s393 Claimants father and soon-to-be father-in-law entered into a contract whereby each would pay the claimant a certain sum of money. The contract indicated that the claimant had full power to sue the parties. Nonetheless, Claimant was unable to enforce the contract because he had provided NO CONSIDERATION.

Privity Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] A.C. 847 Dunlop sold tyres to Dew & Co, on the terms that Dew & Co would not resell them below a certain price. Dew and Co sold some of the tyres to the Selfridge & Co, who agreed not to sell them below that same price. Selfridge & Co, however, did in fact sell below the agreed price. Dunlops action against Selfridge failed, because Dunlop was not a party to the K between Dew & Co and Selfridge. In addition, Dunlop had no provided any consideration for Selfridges promise not to sell below the agreed upon price.

Exceptions to the Doctrine of Privity Collateral Contract

A contract secondary to a main contract, in which A offers an incentive for B to enter into the main contract. The incentive that is offered becomes enforceable as a separate (collateral) K, since, by entering into the main K, B has provided consideration. The use of collateral contracts is also an exception to the parol evidence rule See Shanklin Pier v Detel Products Ltd [1951] 2 KB 854 Exceptions to the Doctrine of Privity Trust of a Promise A coveys property to B (the trustee) to hold in trust for C (the beneficiary). A trust then arises, and in equity, B must account for Cs interests, since C is the beneficiary of the trust. C therefore has an equitable interest in the property and has enforceable rights against the trustee. Exceptions to the Doctrine of Privity Agency An agency contract comes about where one person (the principal) appoints another person (the agent) to enter into contracts on their behalf with third parties. The agent then removes himself from the transaction once the contract has been made with the third party. The general rule is that the principal, may sue and be sued by a third party, even if the third party is unaware of the principals existence at the time of the contract. Exceptions to the Doctrine of Privity Agency arises where the agent has the authority to invoke change in the principals legal position. Such authority can be acquired in numerous ways: Actual authority (express or implied) Apparent authority Usual authority Agency, ctd Actual authority: Where principal and the agent agree that the agent should have such authority. The third party is not involved in this agreement 2 types of actual authority -- express and implied: Agency, ctd Express where the authority is created orally or in writing Implied: inferred by conduct and circumstances (ie, where a board of directors of a company appoints a member to be managing director)

Apparent authority: Arises from the state of affairs as it appears to the third party Ie the principal represents to a 3p (eg, by conduct) that a particular person has authority to act as an agent In general, the representation must come from the principal and not the agent See Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Agency, ctd The Doctrine of Undisclosed Principle: Even though a principal might be undisclosed (ie unknown to 3p), the 3p is contractually bound to, and has rights against, the principal of whom that they had no knowledge at the time they entered into the K This doctrine does not apply where the agent does NOT have authority at the time that he or she entered into the K If the principal remains undisclosed, then the agent is personally liable on the contract. But once the principal has been revealed, the 3p can sue either the principal or the agent. (Note: once he chooses, he cannot change his mind) An agent who has no authority, or goes beyond his authority, may be liable for breach of warranty of authority.

Execeptions Assignment: Eg: A owes money to B. B as a creditor can assign his contractual rights to receive that money to C, a 3p. C has Bs rights and B can no longer make a claim against A. As consent is not required, though he is usually notified.

Statutory exceptions C(ROTP)A