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English Law of Contract (JUR1260/5260)
Exam 18th May 2007
Exam question
Please answer all of the following questions. Each question will be given equal weight in the
marking of the answers.
1. Peter (P) put the following advertisement in the local newspaper that was distributed on
Monday: “Motorcycle for sale. Excellent condition. Price: £3000. Tel. 1902 655 655. Fax.
1902 652 652”. On Tuesday morning, Robert (R) telephoned the number provided in the
advertisement. P was away at the time and the call was answered by P’s girlfriend, Jill (J),
with whom P had just had an argument. R explained to J that he was calling in response to the
advertisement and added: “I want to buy the motorcycle. I’ll send a fax to confirm”. J replied:
“Fine. I’ll tell P when he comes back home”. R sent immediately thereafter a fax stating: “I
am interested in buying your motorcycle at the advertised price. I assume it is registered”. P’s
fax machine was not loaded with paper at the time, so R’s message was not printed out. When
P arrived home early Tuesday evening, J said to him: “Your stupid motorbike isn’t
particularly popular. Only one person has rung about buying it”. P asked her if the person had
provided their contact details, and she replied “no”. P, feeling irritated, then went upstairs to
his study where he discovered that the fax machine was out of paper. He loaded it with paper,
and received the print-out of the fax from P. He noticed that there was an email address in the
letterhead used by R, so he immediately emailed R stating: “I agree to your offer to buy my
motorcycle”. R received only part of this message due to a defect in the modem in his
computer. The next day, R saw another motorcycle advertised for sale which appeared to be a
better buy.
Advise R whether he has already entered into a valid contract to buy P’s motorcycle.
Answer:
Issue 1 = status of newspaper advertisement. The ad. is an invitation to treat, not an offer –
see, e.g., Partridge v. Crittenden.
Issue 2 = status of R’s phone call. The call is unlikely to be treated as an offer as it is too
vague – it apparently failed to identify the offeror or mention the price, and the statement
about confirmation by fax suggests that the offer will come by fax. There is also an issue as to
whether J has authority to receive an offer. If, in the unlikely event R’s phone call is to be
treated as an offer, J’s reply is too vague to constitute acceptance.
Issue 3 = status of R’s fax. The fax might be treated as an offer, but there are some factors that
detract from such a view. First, the phrase “I am interested in …”, which is somewhat
indefinite in terms of commitment to buy. Secondly, the assumption about registration could
be argued to cast the entire fax as a request for information, rather than an offer – cf., e.g.,
Harvey v. Facey. However, the latter argument is tenuous. The better view is that the fax
constitutes an offer to contract on certain terms, one of these being that the motorbike is
registered.
Issue 4 = whether R’s offer (assuming the fax = offer) has been communicated to P. Fax is to
be treated as instantaneous communication: See J.S.C. Zestafoni Nikoladze Ferroalley Plant
v. Ronly Holdings Ltd. Thus, the rule here is that the offer is communicated when it has been
actually received by P – Entores v. Miles Far East Corp.; Brinkibon Ltd. Stahag Steel. We
can assume that the offer has been received by P; the precise time of reception is not material
in this case, but it is, at the very latest, when the P received the printout from the fax.
Issue 5 = whether R’s offer (again, assuming the fax = offer) has been accepted by P. P replies
by email, and this email is most likely to be treated as an acceptance. A possible issue is
whether email is a valid form of communicating acceptance. It might be argued that as offer
was made by fax, acceptance should also be by fax. This line would build on old case of
Quenerduaine v. Cole, which is authority for proposition that offer by telegram is evidence of
desire by offeror for prompt/quick reply, so that sending acceptance by ordinary post may be
treated as invalid. However, one should not apply this decision as necessarily meaning that if
offer made by telegram (or, say, fax), then acceptance must also be by telegram (or, say, fax).
The law is more flexible than that. General rule = offeree must adhere to mode of acceptance
stipulated by offeror: Eliason v. Henshaw. But if stipulation not precise, offeree may choose
equally expeditious mode of communication: Tinn v. Hoffmann & Co. Here stipulation is not
made, so considerable margin for manoeuvre here. Likely that speed is required, but email is
usually as fast as fax. Thus, the better view is that email in this case = valid form of
communicating acceptance.
Another question related to issue 5 is whether P has accepted R’s (putative) condition that the
motorbike be registered. Most likely that P has implicitly accepted this.
Issue 6 = whether the (putative) acceptance has been effectively communicated to R. This is
relatively difficult to resolve here. General rule = acceptance must be “communicated” to
offeror (Entores); i.e., actually received and comprehended by offeror. But rule can be
departed from in some circumstances. E.g., if offeror is at fault b/c of defective
communications equipment or b/c of careless employee, then acceptance deemed to occur
when it would normally have been received (Brinkibon; The Brimnes). No case law dealing
directly with e-mail communication in offer/acceptance context. So need to extrapolate from
existing case law dealing with faxes. Note, though, difference between faxes and email in that
latter is not as instantaneous as former (need to switch on computer; read email; transmission
can take a while). Arguably, email is more like opening envelope to read contents. So email
might not be governed by Entores rule. If it is not, then postal rule applies, meaning that
acceptance occurs as soon as the email is sent. Probably the better view, though, is that email
is to be treated as instantaneous communication.
An important point of departure is that offeree must believe, as reasonable person, that
acceptance has been received: Brinkibon. Here P should be entitled to believe that his email
has been received – the modem problem is not reasonably foreseeable, and is, in any case, the
fault of R. P receives no immediate notice of the problem. Denning’s estoppel-based line of
argument in Entores also weighs in favour of P.
A major problem in arriving at a firm conclusion is that we do not know how much of the
message is not communicated due to the modem fault. So it will be necessary to take an “even
if” line.
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Assuming that, despite the modem problem, the substance of the email is communicated to P,
what is the result? In The Brimnes, Ct. of App. suggested that letter (which was not protected
by postal rule) delivered during normal business hours is assumed to be read within a
reasonable time after its delivery. Could not same be argued here? But here the email is sent
in the evening, so arguably it could not be assumed to be read until next morning, at the start
of normal business hours. This might mean that if R informs P of his desire to retract the
offer, before 9a.m., the revocation may reach P before P’s acceptance is deemed as
communicated to R.
2. In January 2006, an elderly married couple, Margaret and John, decided to build a large
sailing boat. They hoped they would be able to use the boat for a lengthy sailing trip when
they became pensioners at the end of 2006. They engaged their son, Mark, to construct the
boat. Mark was a professional boat builder. They agreed with Mark that he would be paid
£40,000 for his work and that the boat would be “finished by 31st December 2006”. In early
June 2006, Mark became seriously ill and realized that he would have difficulties in finishing
the boat by the agreed date. He informed his parents of his difficulties at the end of June. He
told them also that he had been able to find a sub-contractor to complete the work but that he
would need to be paid an extra £10,000 to cover the costs of the sub-contractor. Margaret and
John agreed to pay the extra money, and Mark hired the sub-contractor. By the beginning of
September, Mark had fully recovered from his illness. He did not tell his parents of his
recovery until the beginning of November. Margaret and John then told Mark that they did
not wish to pay the extra £10,000. In their view, there was enough time left for Mark to finish
building the boat himself at the originally agreed price. On Christmas Eve, the workshop in
which the boat was being built, caught fire and both the workshop and the boat were
destroyed. Police investigations afterwards revealed that the fire was probably caused by
faulty electrical wiring in the workshop.
Advise Mark of his legal position and what legal remedies, if any, he might have.
Issue 1 = whether intention to create legal relations. No contract can be made without
intention to create legal relations. General test of intention = whether reasonable people
regard agreement as intended to be legally binding: Merritt v. Merritt. In family situations,
there is rebuttable presumption that no legal relations intended: Balfour v. Balfour; Jones v.
Padavatton. Here the better view is that the presumption is rebutted. There is a commercial
contract; the son = professional boat builder.l
Issue 2 = whether boat-building contract has been discharged due to frustration. It could be
argued that, due to fire, the contract has been frustrated. However, frustration doctrine only
applies if frustrating event is not fault of parties. Here the police investigations could indicate
fault on the part of Mark, but it is not possible to draw firm conclusion about fault on the facts
given. Thus, need to take “even if line”. If frustration held to occur, then need to look at
consequences. Basic rule is that contract is terminated from when frustrating event occurs;
obligations cease to exist from that point. Liability for resulting losses under common law is
traditionally that “loss should lie where it falls”. However, this has been modified by Law
Reform (Frustrated Contracts) Act. Relevant provisions are section 1(2) and 1(3) of that Act.
Former basically stipulates that, in case of obligations to pay money, advance payments are
recoverable even if partial consideration given. Section 1(2) also states that if party to whom
money was paid (before frustrating event occurred) has incurred expenses as result of contract
(before frustrating event occurred), the court has discretionary power to deduct these expenses
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(or part of them) from money that is due to be paid back to other party. Section 1(3) stipulates
that if one party has obtained “valuable benefit” (other than money) by reason of anything
done by the other party in performance of the contract, and this benefit was obtained before
frustrating event occurred, then that party may be ordered to pay a just sum in compensation
for that benefit. In determining the sum, the court must look at all circumstances of the case.
On basis of section 1(2), if parents have made advance payments to Mark, they can recover
these, subject to reasonable expenses incurred by Mark.
As for section 1(3), this may have problematic consequences for Mark’s ability to recover his
expenses. In BP Exploration v. Hunt, Robert Goff J held: “where the services rendered by the
[claimant] have an end-product, s. 1(3) shows that the value of the end-product is the valuable
benefit. Where a contract is frustrated by a fire which destroys a building on which work has
been done, the award will be nil”. In other words, according to Goff, the valuable benefit in
this case will not be the provision of Mark’s boat-building services but the end result of those
services. And, due to the fire, the parents have not gained a valuable benefit and will not have
to pay for it. One should ask: Is this a sensible or desirable result de lege ferenda?
Assuming that fire is fault of Mark, frustration is not applicable. Mark may be liable to pay
damages for breach of contract.
Issue 3 = whether Mark can claim the extra £10,000. As point of departure, note general rule
that consideration must be provided to make contract (including alteration contracts – as in
present case) legally enforceable (Dunlop v. Selfridge). This forms basis for rule in Pinnel’s
case – as represented in, e.g., Foakes v. Beer (creditor’s promise to accept lesser amount from
debtor is not legally binding on creditor, hence latter may subsequently sue for arrears).
However, this point of departure has been modified in respect of certain promises to accept
more – these can be binding if creditor has received practical benefit or obviated disadvantage
(Williams v. Roffey). So, one needs to analyse whether the rule in Roffey is applicable here.
First, it is important to note that the doctrine in Roffey only pertains with respect to contracts
for services and with respect to promises to pay more. Here, we have such a contract and such
a promise. Secondly, the rule in Roffey only pertains when no duress or fraud is involved and
the parties are involved in genuine renegotiations of the contract. Again, this would appear to
be the case here, though there is some deceit on Mark’s part due to the delay in informing his
parents of his recovery. That deceit may suggest initial dishonesty as well, but it would most
likely appear to have occurred only a considerable time after the alteration agreement was
made. Thirdly, the rule in Roffey only pertains when the promisor gains in practice a benefit
or obviates a disbenefit, from the new promise. Again, this is probably the case here, though
one will also have to look into the evidentiary issues raised by Mark’s recovery – particularly,
whether he could have in fact finished the boat by the agreed date, without having hired the
sub-contractor, given his fairly quick recovery.
3. Critically discuss the following claim: “The English courts have made it difficult for the
parties to a contract to reliably predict when and how the contract may be discharged under
the doctrine of frustration”.
The temptation with this sort of question is for students to write everything they know about
frustration. Marks should be deducted for that sort of answer. The focus of an answer should
be on the impact of case law on foreseeability of the application of the doctrine.
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A good answer would note that the doctrine has developed somewhat unevenly, from
Paradine v. Jane through to Taylor v. Caldwell and subsequent cases. It would further note
that there has been disagreement and uncertainty over the exact rationale for the doctrine, and
compare in this regard the so-called “implied term” theory with “just solution” theory and
“construction” theory. It would also note that several of the criteria for applying the doctrine
are relatively subjective – e.g., assessment as to whether frustrating event is foreseeable, and
assessment as to when a contract is rendered pointless. Elaborating on the latter, the answer
would then focus on a group of case decisions where the fact situations are similar but the
outcomes different. Comparing, e.g., the coronation cases would be apposite here (Krell v.
Henry contrasted with Herne Bay Steam Boat Co. v. Hutton). Finally, a good answer would
try to draw up a relatively clear standpoint in relation to the claim in question.
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