Contract Law

Module Aims: This module seeks to provide an introduction to the basics of contract law within the United Kingdom. It will discuss the basic formation rules and then seek to apply them to newer methods of communicating, for instance by email or over the Internet. It will provide an overview of the protection available to consumers, who purchase goods online, or by using a distance means of communication. We will examine the philosophical differences between commercial and consumer law and analyse legislation that sits in the middle of the conflict.

Session Breakdown: Session One Session Two Session Three Session Four Session Five Session Six Session Seven Session Eight Session Nine Session Ten Recommended Textbook: Law of Contract, Paul Richards 7th Edition, Pearson 2006 On top of the suggested reading from this textbook, you will note that for some session the reading of cases and/or articles may be required. It is highly recommended that these are read prior to the session. [Paul Todd, E-Commerce Law, Cavendish Publishing 2005 and Sealy LS & Holley RJA, Commercial Law: Text, Cases and Materials, 3rd Edition, Butterworths 2003 will also be referred to, but do not need to be purchased]. Contract formation principles Modern technology and contract formation Incorporation of contractual terms Distance Selling Regulations Agency The evolution of contract law Commercial law foundations Timed essay assessment Consumer protection legislation Assessment results

SESSION ONE CONTRACT FORMATION PRINCIPLES Required reading: Law of Contract, Paul Richards, Chapter 2 (Pages 12-49)

Session Aims: To give an introduction to the role of contracts in everyday life; To provide an overview of the basic contractual formation rules within the United Kingdom.

Introduction Contracts play an essential part of everyday life; from the purchase of a small item in a supermarket, to a multi-million pound international transaction. It is likely that very recently, by a small purchase in a shop, or maybe the purchase of a car or even the booking of a holiday you have indeed entered into a contract. Treitel in his book The Law of Contract (2003) provides a definition of a contract as: an agreement giving rise to obligations which are enforced or recognised by law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. In essence a contract is based upon a bargain between two or more people and needs to be based on the promise from one person to another in return for another promise. The giving of a gift does not equate to a contract. The majority of contracts can be made in any way, including verbally and in writing. Example: Raj wants to sell his MP3 Player to Bianca. In return she promises to give him 50. This has the basis of a contract. However, if Raj simply gives his MP3 player to Bianca as a gift with Bianca giving nothing in return then this is not a contact. It is important to fully understand contract law as it is a subject that can merge into other legal areas very easily (for instance, commercial law and company law). Therefore a solid understanding of the key legal principles is required.

How do you form a contract? The formalities to a contract have been commonplace in English law for sometime. The basic contract analysis is: OFFER + ACCEPTANCE = AGREEMENT (A VALID CONTRACT) Under English law for a contract to be valid several conditions must be present. There must be:

Offer; Acceptance; Consideration; and Intention to create legal relations.

A key element is that there needs to be an agreement, and for a contract to be in existence knowledge of the exact moment of agreement is needed. Offer An offer is the clear indication of a person to be bound by the terms of the offer once it is accepted. An offer can be communicated in a number of ways, including verbally, in written form or by electronic communications (for instance email or Blackberry). For there to be a successful agreement, a clear, definitive offer must be made to another party, or to the public at large. Carlill v Carbolic Smoke Ball Co. [1892] 1 QB 256 In this case, the defendants made a smoke ball (a form of inhalant medicine) and issued the following advertisement: 100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any other disease caused by taking cold, and having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter. On this basis on this advertisement, Mrs Carlill bought one of the smoke balls and used it as directed, yet she contracted influenza. She sought to claim the 100, but the company refused. The company argued that this advertisement was mere puff and was merely an advertising gimmick and not to be taken literally, and secondly that it was impossible to make an offer to the whole world, as was potentially the case in this situation.

The Court of Appeal rejected both of these arguments. The advertisement was clearly not mere puff as the company had placed money in a bank indicating their intention. Secondly, the court saw no problems with having an offer to the whole world. The judge, Lord Justice Bowen, stated: It was also said that the contract is made with the whole world that is, with everybody and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition?...Although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. For a successful agreement, there needs to be an unqualified acceptance. Therefore, if a person seeks to introduce new terms into a contract, this does not amount to an acceptance, but is termed a counter offer. This is not sufficient for an acceptance and the original offer is destroyed. Hyde v Wrench (1840) 3 Beav 334 Mr Wrench offered to sell his farm to Hyde for 1,000. Mr Hyde at first made a counter offer of 950, but then two days later agreed to pay 1,000. Wrench refused to complete the sale and accordingly Hyde brought an action demanding that the contract be enforced. However, the court ruled that the effect of the counter offer was to destroy the original offer. Furthermore, it is necessary to note that an offer can be revoked at any time prior to acceptance (Payne v Cave (1789) 3 Temp Rep 148). The revocation must reach the offeree. It is important to distinguish between a counter offer and a request for further information, the latter will not destroy the original offer. The distinction between an offer and an invitation to treat The general difference between an offer and an invitation to treat is that an offer is a statement by which a person is willing to contract, whereas if a person is merely seeking to start negotiations, then that is deemed to be an invitation to treat. Examples of an invitation to treat include:
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Tenders (Spencer v Harding (1870) LR 5 CP 561); Advertisements (Partridge v Crittenden [1968] 2 All ER 421); Calling for bids at an auction (the bids are held to be offers, which the auctioneer accepts when he bangs his hammer) (Payne v Cave (1789) 3 Term Rep 148);

Goods on display in a shop window. (See cases below).

An invitation to treat is not intended to be legally binding but unfortunately might be construed by the customer as such. The difference is most clearly seen in the shop-window cases, including Fisher v Bell [1961] 1 QB 394. In this case, it was decided that a flick knife in a shop window was not for offer, but was displayed merely to encourage people to make the offer to purchase it. Furthermore, in Pharmaceutical Society of Great Britain v Boots [1952] 2 QB 795, Lord Goddard CJ stated: I think it is a well-established principle that the mere exposure of goods for sale by a shopkeeper indicates to the public that he is willing to treat but that does not amount to an offer to sell. Acceptance Acceptance has to be communicated by somebody who has the authority to accept the offer in order to be effective. In Powell v Lee (1908) 99 LT 284, the defendant decided to appoint Mr Powell as headteacher as a school. However, this information was not passed to Powell by an authorised person. Mr Lee later changed his mind. Mr Powell brought an action, but the court decided that the there had been no effective acceptance of the offer. Unless specifically stipulated, the method of acceptance can be made by any communication method that is reasonable. The acceptance must be a clear and unequivocal acceptance of the original offer (a mirror image) and there must be an external form of assent on the part of the acceptor. The effect of a valid acceptance to an offer made is that a contract comes into being. Treitel (2003) defines acceptance as a final unqualified expression of assent to all the terms of an offer. The acceptance must accept the offer exactly as it was stated, and this acceptance must be communicated to the offeror. Silence is not sufficient to constitute an acceptance: The case of Felthouse v Bindley (1862) 11 CBNS 869 concerned the sale of a horse. A letter was sent from one party selling a horse, with the line if I hear no more about him, I consider the horse mine at that price. There was no reply to the letter and the owner of the horse sold the horse to another person. The plaintiff brought an action, but the court held that silence was not sufficient for a valid acceptance. There are exceptions to the rule that acceptance must be communicated in order to be effective. The most obvious is the postal rule acceptance. Postal rule acceptance

This was established at the time when post was the main method of communication. The rule states that a contract is made when a posted and stamped acceptance is placed into a post-box (provided it is properly addressed and stamped - Household Fire v Grant (879 4 Ex D 216) and put beyond the reach of the acceptor. This has its roots as far back as Adams v Lindsell (1818) 1 B & Ald 681. In this case, the defendants wrote to the plaintiff offering to sell wool and asked that acceptance be sent in the course of post. The envelope containing the offer was incorrectly addressed, so took longer to reach its destination. When the plaintiff received the offer, he posted back an acceptance. However, the day before the acceptance reached Lindsell (but after the acceptance had been posted), they had sold the wool to a third party. The court held that there had been a breach of contract as the contract was valid the moment the letter was posted. Also, in Byrne v Van Tienhoven (1880) 5 CPD 344 Lindley J stated: It may be taken as now settled that, where an offer is made and accepted by letters sent through the post, the contract is completed the moment the letter accepting the offer is posted, even though it never reaches its destination. The postal rule adds a degree of certainty to the contracting process and exists because the moment the acceptor has put his acceptance in the post box, he has done an act which he cannot revoke, and thus public policy appears to necessitate certainty in this situation. However, it is a somewhat quirky rule of law within the United Kingdom and does lead to uncertainty as the offeror may not know that an acceptance has been posted. Reasons in favour of the postal rule, include that it prevents a person accepting by post, changing their mind shortly afterwards and sending a rejection of the offer by a quicker means of communication. Furthermore, it also adds to the certainty of the offeree, as they will know that they have entered into a contract when they post the letter. It is important to note that there is a potential get-out of using the postal rule. In Howell Securities Ltd v Hughes [1974] 1 All ER 161 if it would result in manifest inconvenience and absurdity the application of the postal rule could be overruled. Instantaneous communication acceptance However, the postal rule is not an universal rule for acceptance, which is not face-to-face. Naturally, it is possible to accept an offer by other means, for instance by telephone, fax or telex. The postal rule is not applicable for these situations, instead there is the instantaneous communication acceptance rule, as found in the cases of: Entores v Miles Far East Corporation [1955] 2 All ER

493, Brinkibon v Stahag Stahl [1983] 2 AC 34 and The Brimnes [1974] 3 All ER 88. The facts of Entores v Miles Far East Corporation [1955] were that an English company made a counter-offer to a company in Holland. The English company needed to prove that the contract for formed in England. The court held that as the acceptance was received in England, the contract could be governed by English Law. Parker LJ in Entores stated: So far as telex messages are concerned, though the despatch and receipt of the message is not completely instantaneous, the parties are to all intents and purposes in each others presence just as if they were in telephonic communications, and I see no reason for departing from the general rule that there is no binding contract until notice of the acceptance is received by the offeror. The rule is that acceptance is deemed to have been communicated instantaneously when the acceptee has received it. This is because as the communication is instantaneous it is deemed to have the same effect as being physically in each others company. Lord Denning, again in the Entores decision develops this idea further: Let me first consider a case where two people make a contract by word of mouth in the presence of one another. Suppose, for instance, that I shout an offer to a man across a river or a courtyard but I do not hear his reply because it is drowned by an aircraft flying overhead. There is no contract at that moment. If he wishes to make a contract, he must wait until the aircraft is gone and then shout back his acceptance so that I can hear what he says. Not until I have his answer am I boundNow take a case where two people make a contract by telephone. Suppose, for instance, that I make an offer to a man by telephone and, in the middle of his reply, the line goes dead so that I do not hear his words of acceptance. There is no contract at that moment. The other man may not know the precise moment when the line failed. But he will know that the telephone conversation was abruptly broken off, because people usually say something to signify the end of the conversation. If he wishes to make a contract, he must therefore get through again so as to make sure that I heard. Suppose next that the line does not go dead, but it is nevertheless so indistinct that I do not catch what he says and I ask him to repeat it. He then repeats it and I hear his acceptance. The contract is made, not on the first time when I do not hear, but only the second time when I do hear. If he does not repeat it, there is no contract. The contract is only complete when I have his answer accepting the offerMy conclusion is that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the

offeror: and the contract is made at the place where the acceptance is received. There is a secondary problem of communications being sent (for instance, by fax) outside of office hours. In The Brimnes [1974] 3 All ER 88 a telex withdrawal was received by the recipients telex machine between 5.30-6pm (within office hours), but was not read until the following day. The Court of Appeal decided that the senders had done everything they possibly could to notify the recipient and the telex was effective when it was received. (However, this is not likely to be the case if the communication is sent outside of office hours). In Brinkibon v Stahag Stahl [1983] 2 AC 34 Lord Fraser stated: I have reached the opinion that, on balance, an acceptance sent by telex directly from the acceptors office to the offerors office should be treated as if it were an instantaneous communication between principals, like a telephone conversation[because it]seems to have worked without leading to serious difficultly or complaint from the business community. Secondly, once the message has been received on the offerors telex machine, it is not unreasonable to treat it as delivered to the principal offeror, because it is his responsibility to arrange for prompt handling of messages within his own office. Thirdly, a party (the acceptor) who tries to send a message by telex can generally tell if his message has not been received on the other partys (the offerors) machine However, Lord Wilberforce offers a view on communications that may be sent erroneously or incorrectly and says: No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgment where the risks should lie Later in the course, we shall be discussing the applicability of these common law rules to newer forms of technology, for instance email and mobile phones.

SESSION ONE SEMINAR QUESTIONS 1. Think of three examples of contracts that you have entered into the last week. 2. Is there a binding contract in the following examples: a) Rahul attends an auction. On seeing a wardrobe that he likes he bids 30. b) Matthew sees a cutlery set on sale in a shop window. He goes to the counter and puts the correct money on the counter and walks out. c) Basil offers to sell his iPod to Sybil for 200. Sybil says she will give him 150. Basil refuses. Later Sybil says she will pay the 200. 3. What justifications can you think of for the postal acceptance rule? 4. Consider the following situations and discuss whether there is agreement leading to a valid contract: a) Humphrey offers to sell his computer to Bernard for 500. It is a top-of-the-range model and comes equipped with a scanner, printer and other accessories. Humphrey says If I dont hear from you by Friday, I will presume you and I are in agreement. Later that week, Bernard becomes unwell and is unable to contact Humphrey to say that he does not want the computer. As Humphrey does not hear from Bernard before Friday is he able to presume there is a valid contract? b) Rene wants to sell his restaurant business to Yvette. He says I will sell you my business for 20,000. Yvette says that she will think about the offer and will let Rene know. Three days later, Yvette decides to accept Renes offer and posts a letter to Rene saying I accept your offer of 20,000 for your business. However, the Post Office was having a one-day strike and the letter did not turn up for two days. In the intervening day, Rene sold his business to Edith. c) Hyacinth runs a business selling cars. Richard, a customer, enters the shops and he spots a car that he really likes. Hyacinth says I will sell you this car for 2,000. Richard says that he would like to think about the offer for a while. He goes home and decides that he would like to purchase the case, so he sends a fax to Hyacinth accepting her offer. However, the fax is sent at 6pm and is not read

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until mid-morning the following day, meanwhile overnight, the car was stolen. 5. Read the front page from the judgement of Brinkibon v Stahag Stahl [1983] 2 AC 34 (to be handed out in class). What were the facts of this case and what were the points of law decided by the court?

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SESSION TWO MODERN TECHOLOGY AND CONTRACT FORMATION Required Reading: As session 1, and Paul Todd, E-Commerce Law, Cavendish Publishing 2005, pages 169182.

Session Aims: This session seeks to build upon work carried out in session one, and in particular examine contract formation in newer forms of technology. This session will focus on acceptance of offers in relation to email and the Internet. [To be successful in this part of the course, it is essential that you have a sound understanding of the area of law covered in session one].

Introduction Although it may appear to be somewhat tedious, the exact moment a contract is formed is of utmost importance. Once there is a valid acceptance, the right of the offeror to withdraw the offer ends. It can also be of assistance in deciding which jurisdiction the contract should be within should a dispute arise. Furthermore, a valid acceptance may demonstrate where taxation liabilities lie. The common law has established some fairly clear rules in relation to traditional forms of communication, for instance, the Postal rule and the instantaneous communication rule. (These were covered in Session one). The question to ask is whether (or how) these rules apply to newer forms of technology like email, the Internet and mobile phones. To date, there has been no case deciding definitively on this area, so we have to proceed by comparison. Internet Offers The Internet has opened a range of new possibilities to the consumer, who can buy virtually any item they want online. The first question to ask is that if a person goes to a website, for instance tesco.com, are the goods displayed on offer (merely requiring the offeree to accept), or an invitation to treat, as was seen in the case of Fisher v Bell (1974) and requiring the consumer to make the offer, which in turn the seller would accept. In general, considering the usual set-up of a website, the context is said to be that of an invitation to treat, although this does not discount the possibility of an

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unilateral offer being made, as was the case in Carlill v Carbolic Smoke Ball Co. [1892], thus meaning that if accepted a contract would be in existence. The Argos experience The company Argos is a United Kingdom based catalogue company that has stores all around the country. In 1999, Argos advertised a television worth 299.99 for only 3.00. Needless to say, Argos received thousands of orders for this deal, the total value was reported to be worth over 1m. Once the error came to light, Argos refused to honour the agreement, saying that they had clearly not intended to sell the television at 3.00, and in any case the display of a product on a website does not amount to an offer, and is merely an invitation to treat. No legal action materialised from this, but it does demonstrate the somewhat uncertain context that the law within this area finds itself. Internet acceptance When making a purchase online, the company will send you a confirmation of order document, detailing the products purchased and the prices. At the very least, you will have opportunity to view your goods in a virtual shopping basket. At this stage you would be able to withdraw from the agreement. There is no doubt that contracts can be completed by electronic means. In 2000, the European Union published the Directive on Electronic Commerce 2000/31/EC. Article 9 of this Directive stated that: Member States shall ensure that their legal system allows contracts to be concluded by electronic means. However, what is less clear and is not answered by this Directive are the acceptance mechanisms involved. The question is therefore, how do the traditional acceptance rules fit into contemporary communication methods? Two main arguments have been put forward. First, that all Internet communication is instantaneous and thus subject to the acceptance rule advocated in Entores and Brinkibon. The rationale for this is that Internet communications take place along telephone lines, e.g.: Customer Telephone line --- --- --- --- ------ Supplier

Second, that email communication is not instantaneous, because there are no direct links between the two people communicating by email, as all communication goes through a server (perhaps similar to a post box?). Furthermore, once you have pressed the send button on your email, there is

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nothing that you can do to retrieve the email (perhaps similar to putting a letter into a post box?), e.g.:

Customer

Mail Server

Mail Server

Supplier

To consider in groups: To what extent do you consider it appropriate that the postal rule and instantaneous communication be used for email and click-wrap acceptances? A third way? Over the past couple of decades, there has been a slight move away from traditional contractual formation rules, instead preferring to use a more subjective approach to contract formation. Cases such as: Butler Machine Tool v ExCello Corp [1979] 1 All ER 965, Gibson v Manchester City Council [1979] 1 All ER 972 and Holwell Securities Ltd v Hughes [1974] 1 All ER 161 suggest a move away from traditional contractual formation rules and a move towards a more subjective intention of the parties involved. Is this practical? What problems/advantages would this have? For instance, in Gibson Lord Diplock stated: there may be certain types of contract, though I think they are exceptional, which do not fit easily into the normal analysis of a contract as being constituted by offer and acceptance, but a contract alleged to have been made by an exchange of correspondence between the parties in which the successive communications other than the first are in reply to one another is not one of these.

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Furthermore, Master of the Rolls, Lord Denning stated in Butler Machine Tool: In many cases our traditional analysis of offer, counter-offer, rejection, acceptanceis out of date. The better way is to look at all the documents passing between the parties and glean from them or from the conduct of the parties whether they have reached an agreement on all material points. It could be argued that a more subjective approach to contract formation in relation to modern technology would be more appropriate, as it would allow more flexibility and freedom. Remember that there have been no specific cases in this area, so there is a large scope for argument and interpretation.

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SESSION TWO SEMINAR QUESTIONS 1. Why is acceptance important? How can acceptance be made and what must it contain? 2. Although there has been no judicial pronouncement on the area, what presumption is made by academics concerning email and Internet acceptance? 3. Compo sends an email to Clegg at 3.50pm offering to buy his pair of Wellington boots for 10.00 as he reads a weather forecast saying that there will be heavy rainfall. However, a few minutes after sending his email Compo discovers that the weather forecaster had got their facts wrong and there was to be no heavy rain. Therefore, Compo sends another email at 4.00pm withdrawing his offer. Clegg receives Compos first email at 4.00pm and sends back an email at 4.05pm accepting Compos offer. Cleggs acceptance is received by the network at 4.07pm and by Compo at 4.10pm. Meanwhile, Clegg received Compos second email at 4.07pm. Is Compo obliged to buy the Wellington boots? 4. Agro Ltd advertise on their website that their 20 televisions are for sale at 2.99 each. This is in fact an error; the actual price is 299 each. Samuel, an Internet surfer, clicks on the I accept button and pays using his credit card for the television. Agro refuse to deliver on the basis that there was no legally binding offer. Discuss. 5. To what extent are the rules relating to acceptance of offers certain?

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SESSION THREE INCORPORATION OF CONTRACTUAL TERMS Required Reading: Paul Richards, Law of Contract, pages 146-151. Nilesh Metha v J Pereira Fernandes S.A [2006] EWHC 813 (Ch). (This judgment is copied in full at the end of this session).

Session Aims To examine the common law rules of incorporating terms into contracts. To apply these common law rules to Internet contracts. To examine the recent case of Nilesh Metha v J Pereira Fernandes S.A [2006] EWHC 813 (Ch) in relation to incorporation by signature.

Introduction The terms of a contract are vital in determining the rights and liabilities of the parties should a dispute arise. Therefore, one of the most important issues for an e-trader is to ensure that its standard terms and conditions are properly incorporated into contracts with its customers. If the terms and conditions are not incorporated the e-trader will not be able to rely on them. This is particularly relevant for clauses which seek to exclude liability. Traditional methods of incorporation There are three main methods of incorporation recognised by the law: Signature Notice, and By course of dealing. Incorporation by signature Generally an individual is bound by the contents of a document they sign even if they did not read it or understand it LEstrange v Graucob [1934] 2 KB 394: When a document containing contractual terms is signed, then, in the absence of fraud, or I will add, misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not. (Scrutton LJ)

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In this case, the Plaintiff purchased an automatic cigarette vending machine from the defendants. She signed an order form, which contained some terms, which although written in small print, did successfully limit liability, even though the plaintiff argued that they had not read the document. There are some limited exceptions to this: if the signature is obtained by misrepresentation Curtis v Chemical Cleaning [1951] 1 KB 805 or by fraud or if the plea of non est factum (it is not his deed) is available. In Curtis, the plaintiff took a white satin wedding dress to the defendants shop to be cleaned. The shop assistant asked the plaintiff to sign a receipt. When asked the reasoning for this by the plaintiff, the shop assistant replied that it limited the liability of the shop for damage to beads and sequins. In fact, it limited liability for all damage caused. The dress returned stained and the defendants sought to rely on the clause limiting liability. However, the court held that as there had been a misrepresentation about the scope of the exclusion clause it was not valid. Furthermore, the person signing the document has to reasonably expect that the document contains contractual terms Grogan v Robin Meredith Plant Hire (1996). In the context of a web-based click-wrap contract can clicking on a button, confirming that the e-traders standard terms have been read and agreed to, be regarded as the equivalent of a signature for the purpose of this rule? The Law Commission (who are a body that make proposals for legislative reform in the United Kingdom) suggest: We do not believe that there is any doubt that clicking on a website button to confirm an order demonstrates the intent to enter into that contract. That will satisfy the principal function of a signature: namely, demonstrating an authenticating intention. (Law Commission Advice (2001) Electronic Commerce: Formal requirements in commercial transactions). Incorporation by notice Terms can be incorporated by reasonable notice. Essentially three factors have to be satisfied:1. Timing - Olley v Marlborough Court [1949] 1 KB 532. In this case, a person checked into a hotel and on entering their room, found terms relating to their stay at the hotel on the back of the door to the room. These were held not be incorporated, as the were only introduced after the contract was formed. 2. The notice has to be in a contractual document, contrast Chapelton v Barry UDC [1940] 1 KB 532 with Parker v South Eastern Railway (1877) 2 CPD 416.

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3. Reasonable steps have to be taken to bring the contractual terms to the notice of the other party Thompson v LMS Railway [1930] 1 KB 41. What amounts to reasonable notice can be affected by the nature of the clause or term in question. The more unusual or onerous it is the more notice will be required: Thornton v Shoe Lane Parking [1971] 2 QB 163, Spurling v Bradshaw [1956] 1 WLR 461 HL, Interfoto Picture Library v Stiletto [1989] QB 433, CA. In Spurling v Bradshaw [1956] the judge stated: Some clauses, which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient Incorporation by course of dealing A term can be incorporated, even if not expressly referred to in a particular transaction, if there has previously been a long, regular and consistent course of dealing between the parties on the basis of that term McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, HL. In Hollier v Rambler Motors [1972] 2 QB 71 three or four contracts over a period of about five years was held not to be a course of dealing for this purpose. Application of rules of incorporation to electronic contracts The key question to ask is how to successfully incorporate terms into a contract, when the contract is agreed by email or via the Internet. Click-wrap contracts E-traders presently use a number of methods. There is a balance needed between legal certainty and commercial attractiveness of the web-site. Reference to a source off-line may not be sufficient. Display of the standard terms at the bottom of the page or in a dialogue box, which the user has to scroll through, are much more legally certain methods. (Although Chissick and Kelman suggest that simply clicking on an I agree button is not sufficient for incorporation). A compromise favoured by many e-traders is a reference statement with a hyperlink. E-mail contracts Standard terms will probably have to be included. References or attachments are likely to be insufficient unless there is a previous course of dealing. Use of mandatory terms in e-contracts

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E-traders need to be aware of mandatory terms which cannot be excluded or where exemption is restricted (for instance, implied terms within the Sale of Goods Act, 1979 we will cover the terms found within this legislation in session 9).

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SESSION THREE SEMINAR QUESTIONS Below you will find the case of Nilesh Metha v J Pereira Fernandes S.A [2006] EWHC 813 (Ch). This case is from the High Court (Chancery Division) and is dated 7th April 2006, so it is likely you are some of the first students in this country to be studying this case in any depth! This seminar will take the form of a case study. Please read the case reprinted in full below and be able to answer the following questions: 1. What are the facts of the case? 2. What is the name of the judge? 3. What do the respondents rely on for a signature? 4. Is the judge of the opinion that the answer to (3) above is sufficient enough to pass as a signature? If not, what would be needed? 5. Does the judge have any problem with the guarantee being sent by Metha to the respondents by an email? 6. To what extent does this decision assist lawyers in trying to ascertain whether or not terms have been successfully incorporated into a contract online?

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Case No: M5X152 Neutral Citation Number: [2006] EWHC 813 (Ch) IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION MANCHESTER DISTRICT REGISTRY Courts of Justice Crown Square Manchester Date: 7th April 2006 Before: HIS HONOUR JUDGE PELLING QC (Sitting as a Judge of the High Court) ____________________ Between: NILESH METHA -and J PEREIRA FERNANDES S.A ____________________ ____________________ Appellant/ Defendant Respondent/Claimant

Mr Metha in person Mr P. Aslett (instructed by Ian Simpson & Co for the Respondent) ____________________ JUDGMENT His Honour Judge Pelling QC: Introduction 1. This is an appeal from the Judgment of District Judge Harrison given on 9 November 2005, by which he gave summary judgment to the Respondent (JPF) in the sum of 24,985.53 and ordered the Appellant (Mr Metha) to pay the costs of the claim which were summarily assessed in the sum of 1080.00. Permission to appeal was given by His Honour Judge Holman on 20th February 2006.
th

2.

JPF is a Portuguese company that supplies bedding products. It supplied such products in July 2002 to Bedcare (UK) Limited (Bedcare) a company of

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which Mr Mehta was a director. Bedcare failed to pay for the products it had received and ultimately it was wound up on JPF's Petition by an Order made on 7th March 2005. 3. The relevant history begins with the presentation of a winding up petition by JPF on 12thJanuary 2005. On 20thFebruary 2005, Mr Mehta asked a member of his staff to send an e mail to JPF's solicitors in the following terms: "... I would be grateful if you could kindly consider the following. If the hearing of the Petition can be adjournedfor aperiod of 7 days subject to the following: (a) A Personal Guarantee to be given in the amount of 25,000 in favour of your client -together with a list of my personal assets provided to you by my solicitor (b) A repayment schedule to be redrawn over a period of six months with a payment of 5000.00 drawn from my personal funds to be made before the adjourned hearing. I am also prepared to give a company undertaking not to sell market or dispose of any company assets without prior consent from your client pending the signing of the Personal Guarantee ... " The e mail was not signed by Mr Mehta but is described in the header as having come from Nelmehta@,aol.com. This e mail address appears on other e mails sent to JPF's solicitors by Mr Mehta, which have been signed by him. 4. The evidence in support of the application for summary judgment was given by Ms Albaster in a witness statement dated 21stJune 2005. Ms Albaster is a clerk employed by JPF's solicitors. At Paragraph 7 of her statement, she says that when she received the e mail referred to above, she telephoned Mr Mehta, accepted his proposal and agreed to adjourn the hearing of the Petition which in the event was adjourned for a period of 14 days. Ms Albaster continues: "Although I sent the Defendant an agreement to cover the instalment payments and Personal Guarantee, I heard nothing further from him, he never returned the documents and he did not pay the 5,000 which had been promised from his personal funds. " 5. Mr Mehta's statement in answer to the application is dated 12th July 2005. Aside from a suggestion that the debt owed by Bedcare was 14,715.00, Mr Mehta sets out his case as to the claim against him in Paragraphs 4-6 of his statement. In essence, he says the claim against him should fail because JPF

23

has failed to produce any signed agreement or Personal Guarantee and that the only maintainable claim that JPF has is against Bedcare. 6. Mr Mehta appeared in person before me as he did before the District Judge. In the course of his initial submissions he told me that the e mail had been sent with his authority by one of his staff who he later identified as a Ms Durkin. Later, in the course of his reply submissions, Mr Mehta told me that the sender name that appears in the e mail had been typed by his employee Ms Durkin without his authority. There was no evidence to support such a contention (or to explain how, technically, it could be right) and the application by Mr Mehta to adduce such evidence was strongly resisted by Mr Aslett who appears for the Respondent. For reasons that I gave at the conclusion of the hearing, I dismissed that application. In summary, there was no satisfactory explanation as to why the evidence had not been adduced at a much earlier stage. The evidence in support of the application for summary judgment and in particular Paragraph 7 of Ms Albaster's statement made clear that the application was based on the contention that the e mail I have referred to in Paragraph 3 above constituted the guarantee and in any event it was or ought to have been entirely clear to Mr Mehta as to how JPF's case was being put at the latest by the time when the District Judge gave judgment. It is also fair to say that Mr Mehta had accepted that he had authorised the sending of the e mail in the form it was sent until a very late stage in his reply submissions. In those circumstances, it seemed to me that the application to adduce further evidence ought to fail. The Issue Concerning The Amount Owed by Bedcare 7. Ms Albaster's evidence is that Mr Mehta had agreed the sum due from Bedcare as being 24,709.33. This is clearly evidenced by the run of e mails at pages 21-26 of the Bundle. No evidence has been produced by Mr Mehta to support his contention that the true sum owed by the company is less than 24,709.33 or to explain why, if this was the case, he had agreed to the figure advanced by JPF's solicitors. This point is not mentioned by Mr Mehta in his Grounds of Appeal at Section 7 of the Appeal Notice. In those circumstances, it is not open to him to argue this point on the appeal. However, even if I am wrong on that point, for the reasons set out earlier in this paragraph, I am satisfied that on the evidence before the District Judge he was correct to conclude that Mr Mehta has no reasonable prospect of success on this issue. The Issues In The Appeal 8. The only issue of substance that was considered by the District Judge concerned the assertion by Mr Mehta that there was no guarantee signed by Mr Mehta. The District Judge concluded that the e mail I have referred to in paragraph 3 above was sufficient to satisfy the requirements of the Statute of Frauds. He said that "The e mail document in itself is the guarantee ". He concluded that the presence of Mr Mehta's e mail address on the copy of the e

24

mail received by JPF's solicitors constituted a sufficient signature for the purposes of Section 4 of the Statute of Frauds and he entered judgment accordingly. 9. Section 4 of the Statute of Frauds provides that "no action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person ... unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised ". It follows that: 9.1. The agreement in question must be in writing or, if the agreement is made orally, there must be a memorandum or note evidencing the oral agreement; and 9.2. The agreement or memorandum must be signed by either 9.2.1. The guarantor, or 9.2.2. Someone authorised by the guarantor to sign the agreement or memorandum on his behalf. The effect of a non compliance with Section 4 is that the contract is unenforceable. 10. There were thus two issues that were argued at the hearing of the appeal namely: 10.1. whether the e mail constituted a sufficient note or memorandum of the alleged agreement for the purposes of Section 4; and 10.2. Assuming the e mail was a sufficient note or memorandum, whether it was sufficiently signed by or on behalf of Mr Mehta, it being contended on behalf of JPF that the presence of the e mail address on the copy of the e mail received by JPF's solicitors was a sufficient signature for these purposes. Was The E Mail A Sufficient Note Or Memorandum? 11. The e mail relied on contains an offer. That this is so is apparent from the opening words of the operative part which starts with the words " ...I would be grateful if you could kindly consider the following. If the hearing of the Petition can be adjourned ... subject to the following ... ". It is also apparent from the fact that the e mail contemplates that formal documents will be entered into by the use of the phrase "... pending the signing of the Personal Guarantee". It is clear

25

12.

13.

from the evidence of Ms Albaster that it was regarded as such -see the part of Paragraph 7 of her witness statement referred to in Paragraph 4 above. As a matter of first impression, such a document ought not to be sufficient to constitute a memorandum for Section 4 purposes. I say this because what has to be signed under Section 4 is " ... the agreement upon which such action shall be brought or some memorandum or note thereof ... ". As Cave J said in Evans v. Hoare[I892] 1 QB 593 the effect of these words is that " ... there must be a memorandum of a contract, not merely a memorandum of a proposal ...". However, that is not the way the law appears to have developed. I was referred to the current edition of The Law of Contract by Sir Guenter Treitel. At page 184 he says "... an offer signed by one party and orally accepted by the other ... ha[s] been held sufficient". That this is the current state of English law is acknowledged (in relation to the old law under Section 40 of the Law of in Property Paragraph 4027 of Chitty On Contract (29th Ed., Volume 1), where however it is described as "exceptional ". Four cases are cited by Chitty in support. Of those, only Lever v. Koffler [1901] Ch 543 was cited to me by Mr Aslett. That case was concerned with an offer in writing by the Defendant to sell two parcels of real property on alternative bases, where one of the alternatives was accepted both orally and by letter by the Plaintiff. In that case, there were two grounds on which it was submitted that Section 4 was not satisfied -first that the reply letter did not define which alternative was being accepted and secondly that the letter from the Defendant did not sufficiently set out the terms of the agreement. The first point failed as a matter of construction and the latter argument was rejected by reference to an earlier judgment of the House of Lords (Hussey v. Horne-Payne 4 App. Cas. 311) in which it had been concluded that an exchange of letters which together constituted a binding agreement would satisfy the requirements of Section 4 as it then applied to contracts for the sale of land. Neither Lever v. Koffler nor Hussey v. Horne-Payne addresses the issue of written offers orally accepted and neither considers the position in relation to guarantees. However, there is a high level of commonality between the treatment of contracts for the sale of land and guarantees under Section 4 as it stood when those cases were decided and so I am not persuaded that this last point assists Mr Mehta. The position in relation to written offers accepted orally was considered in the latest of the cases cited by Sir Guenter and in Chitty - Parker v. Clark [1960] 1 WLR 286. That case concerned a written offer that was accepted in writing by a letter that was lost. Although it was recognised that oral evidence of the written acceptance might provide an answer, the case was argued on the basis that the written offer was a sufficient memorandum -see the Judgment at 295. The argument that the statute required a concluded agreement to be existing when the memorandum was signed was rejected by Devlin J as he then was. He held that a written offer is capable of being a memorandum providing the language shows an intention to contract as opposed to being a mere statement of expectation. Devlin J relied on two earlier authorities, neither of which was cited to me. I have not been able to obtain copies of either in the time available to me.

14.

26

However, each is referred to in Chitty at footnote 126 to Paragraph 4-027. They are Smith v. Neale (1857) 2 CB(NS) 67 at 88 and Reuss v. Picksley (1866) LR 1 Ex. 342. 15. Cave J's observation which I have referred to in Paragraph 12 above was not cited to Devlin J. Although it would appear that Cave J made the observation he did without the citation to him of Smith v. Neale (1857) 2 CB(NS) 67 at 88, Reuss v. Picksley (1866) LR 1 Ex. 342 was cited to him -see the argument in Evans v. Hoare (ante) at Page 595. Given that nothing has been formally cited to me other than Lever v. Koffler, identifying some generally applicable principle is not easy. The purpose of the statute of frauds is to protect people from being held liable on informal communications because they may be made without sufficient consideration or expressed ambiguously or because such a communication might be fraudulently alleged against the party to be charged. That being so, the logic underlying the authorities I have referred to would appear to be that where (as in this case) there is an offer in writing made by the party to be bound which contains the essential terms of what is offered and the party to be bound accepts that his offer has been accepted unconditionally, albeit orally, there is a sufficient note or memorandum to satisfy Section 4. I say nothing about the position where there is a dispute as to whether or not the written offer has been accepted orally. Such a situation does not arise on this appeal. In the result, subject to the signature issue to which I turn below, I conclude that the e mail referred to in Paragraph 3 above is capable of being a sufficient note or memorandum for the purpose of Section 4 because it is in writing, and it is not disputed by Mr Metha that the offer was accepted orally on behalf of JPF as described by Ms Albaster in Paragraph 7 of her witness statement. It is true to say that the email contemplates the preparation of formal documentation in relation to the guarantee. No argument was advanced by Mr Mehta to the effect that this qualification precluded the email from being a note or memorandum for Section 4 purposes. I have considered it only because he appears in person. An agreement to do something which is expressed to be subject to the execution of formal documentation has been settled and signed see by way of example Winn v. Bull (1877) 7 Ch. D. 29. However, I do not see that this rule would prevent an offer qualified in this manner from being a Section 4 note or memorandum if Devin J's reasoning in Parker v. Clarke (ante) is correct. If it is not, then the document would not be a Section 4 note or memorandum irrespective of the Winn principle. The Signature Issue 18. The email referred to in Paragraph 3 above is not signed by anyone in a conventional sense. Mr Mehta's name or initials do not appear at the end of the email or, indeed, anywhere else in the body of the email. Inevitably, therefore,

16.

17.

27

JPF must contend that the presence of the email address at the top of the email constitutes a signature sufficient to satisfy the requirements of Section 4. 19. As well know to anyone who uses email on a regular basis, What is relied upon is not inserted by the sender of the email in any active sense. It is inserted automatically. My knowledge of the technicalities of email is not sufficiently detailed to enable me to know whether it is inserted by the ISP with whom the sender or the recipient has his email account. However, I accept Mr Aslett's submission that as a matter of obvious inference, if it is inserted by the latter it can only be from information supplied by the former. Mr Mehta suggested that the address was inserted by his employee. I do not see how this could be so and certainly Mr Mehta was not able to give me a coherent explanation of how that might be so. It is possible that Mr Metha's employee was authorised to use Mr Metha;s email account remotely but, even if that is so, I do not see how that can impact on any of the issues I have to resolve since it is not in dispute that the email was sent on the instructions of Mr Metha and the method by which the sender address came to be inserted would not be affected even if that was the position. It is submitted on behalf of JPF that the appearance of the sender's address at the top of the document constitutes a signature either by the sender or by "... some otherperson thereunto by him lawfully authorised ... " because it is well known to all users of e mail that the recipient of the e mail will always be told the e mail address of the e mail account from which the e mail is sent in the form it appears on the e mail referred to in Paragraph 3 above. That being so, it is submitted that by authorising an agent to send an e mail using the sender's e mail account, to a third party the sender knows that his her or its e mail address will appear on the recipient's copy and that is sufficient for it to be held to be a signature for the purposes of Section 4. It was submitted by Mr Aslett that intention was irrelevant -all that was required was a document that constituted a sufficient memorandum (which, as I have held, the e mail was) and the signature somewhere on the note or memorandum of either the person to be bound or his duly authorised agent. In support of this contention, Mr Aslett relied on the decision of the House of Lords in Elpis Maritime Company Limited v. Marti Chartering Company Limited [1991] 3 WLR 330. The facts of that case were very different to the facts of this case. There was no dispute in that case that the party to be charged had signed the document. The dispute in that case concerned whether or not the fact that the party to be bound signed the relevant document as agent made any difference given that there was a clause within the document that purported to create a guarantee by the party purporting to sign only as agent. It had been contended that if such was the case then the fact the agreement contained a clause under which the signing party personally agreed to guarantee certain obligations was not relevant. It was this last argument that was rejected by the House of Lords by reference to In re Hoyle [1893] 1 Ch 84 in which A.L. Smith LJ said: "The

20.

21.

28

question is not what is the intention of the person signing the memorandum but is one of fact, vis is there a note or memorandum of the promise signed by the party to be charged?". It is because this is so that in other cases the courts have accepted letters to third parties, instructions to telegraph companies signed by the sender, and affidavits in unconnected actions as being a sufficient memorandum providing they are signed by the parties to be bound. It was this that led the House of Lords to conclude that it was irrelevant in what capacity or with what intention the document there being considered was signed. 22. In my judgment, the issue that arises in this case is not the issue that the House of Lords considered in Elpis Maritime. Here the issue is not with what intention or with what capacity did Mr Mehta or his employee sign the relevant document -rather the issue is whether it has been signed at all. What is relied upon is an e mail address. It is the e mail equivalent of a fax or telex number. It is well known that the recipient of a fax will usually receive a copy that has the name and/or number of the sender automatically printed at the top together with a transmission time. Can it sensibly be suggested that the automatically generated name and fax number of the sender of a fax on a faxed document that is otherwise a Section 4 note or memorandum would constitute a signature for these purposes? If Mr Aslett is right then the answer depends solely upon whether the sender (or the sender's principal where the sender was an agent) knew that the number or address would appear on the recipient's copy. Mr Aslet, relies on Evans v. Hoare (ante) in support of this argument. The issue in that case was whether the Defendant was hound by the relevant document. The evidence in that case established that the relevant document had been drawn up by a duly authorised agent of the Defendants. The document was in the form of a letter from the Plaintiff and the words "Messrs Hoare, Marr & Co, 26,29 Budge Row, London EC" appeared after the Plaintiffs address at the head of the letter. The question was whether these words constituted a signature of ". . . some person ...thereunto lawfully authorised ... " by the Defendants. It was argued on behalf of the Plaintiff in that case that the appearance of the Defendant's name in the letter tendered to the Plaintiff for signature on behalf of the Defendant was sufficiently signed on behalf of the Defendant because the Defendant's name had been "... written ... with the defendant's authority, with the intention of designating the party to be charged and for the purpose of making a contract which should be binding on the Plaintiff' -see Pages 594-5 of the reported argument. It was this argument that succeeded. Cave J, said: "I am of opinion that the principle to be derived from the decisions is this. In the first place, there must be a memorandum of a contract, not merely a memorandum of a proposal; and secondly, there must be in the memorandum, somewhere or other, the name of the party

23.

24.

25.

29

to be charged, signed by him or by his authorized agent. Whether the name occurs in the body of the memorandum, or at the beginning, or at the end, if it is intended for a signature there is a memorandum of the agreement within the meaning of the statute. " [Emphasis supplied] As was emphasised by Cave J, the appearance of the name of the party to be bound must be "intended for a signature ". It is noteworthy that that this case was cited to the House of Lords in Elpis Maritime but was not disapproved by Lord Brandon. I do not think it can be said (and, in any event, there is no evidence) that either Mr Mehta's employee or the ISP either sending or receiving the e mail intended Mr Mehta's e mail address to be a signature in the sense identified above. 25. There are dicta that support the approach of Cave J in Caton v. Caton (1867) LR 2 HL 127. In that case, the House was concerned with a document that started by referring to "the under mentioned parties" and then referred to the parties in question by name in relation to various promises. Neither party signed the document and the question was whether the document constituted a sufficient note or memorandum signed by the parties to be hound within Section 4. The House of Lords held that it was not. In arriving at this conclusion, Lord Chelmsford C said at 139-40: "The cases on this point ... establish that the mere circumstances of the name of a party being written by himself in the body of a memorandum of agreement will not of itself constitute a signature. It must be inserted in the writing in such a manner as to have the effect of "authenticating the instrument" or "so as to govern the whole instrument" ... The name of the party, and its application to the whole of the instrument, can alone satisfy the requisites of a signature. Lord Westbury said (Page 143) that what is alleged to constitute the signature must " ... be so placed as to show that it was intended to relate and refer to, and that in fact it does relate and refer to, every part of the instrument. ... It must govern every part of the instrument. It must shew that every part of the instrument emanates from the individual so signing, and that the signature was intended to have that effect. It follows that if a signature be found in an instrument incidentally only, or having relation and reference only to a portion of the instrument, the signature cannot have legal effect and force which it must have in order to comply with the statute, and to give authenticity to the whole of the memorandum, [Emphasis supplied]

30

26.

In the light of the dicta cited above, it seems to me that a party can sign a document for the purposes of Section 4 by using his full name or his last name prefixed by some or all of his initials or using his initials, and possibly by using a pseudonym or a combination of letters and numbers (as can happen for example with a Lloyds slip scratch), providing always that whatever was used was inserted into the document in order to give, and with the intention of giving, authenticity to it. Its inclusion must have been intended as a signature for these purposes. I agree with Mr Aslett's analysis in Paragraph 4 of his supplementary written submissions that in Caton the names were included in the document under consideration to describe intended performance. I also accept his submission in Paragraph 6 of his supplementary written submissions that the meaning of "incidental" in this context means "... where the signature or name just happens to appear somewhere ". I do not accept his submissions that Godwin v. Francis (1870) LR 5 CP 295 or McBlain v. Cross (1871) 25 LT 804 have relevance to the issue I have to decide. Godwin plainly involved a Section note or memorandum in the form of Section 4 instructions to a telegraph company signed by the party to be charged on whose behalf the telegram concerned was sent. Bovill CJ then proceeded to consider the position in the event that this was wrong and concluded that "... the mere telegram written out and signed in the way indicated by the telegram clerk, if done with the authority of the vendors, would have been a sufficient signature". This is not this case -no name or signature or any sort appears in the body of the e mail. McBlain takes the issue no further because the telegram in that case stated that it came from the sender and did so with his express authority. That is not this case. I have no doubt that if a party creates and sends an electronically created document then he will be treated as having signed it to the same extent that he would in law be treated as having signed a hard copy of the same document. The fact that the document is created electronically as opposed to as a hard copy can make no difference. However, that is not the issue in this case. Here the issue is whether the automatic insertion of a person's e mail address after the document has been transmitted by either the sending and/or receiving ISP constitutes a signature for the purposes of Section 4. In my judgment the inclusion of an e mail address in such circumstances is a clear example of the inclusion of a name which is incidental in the sense identified by Lord Westbury in the absence of evidence of a contrary intention. Its appearance divorced from the main body of the text of the message emphasises this to be so. Absent evidence to the contrary, in my view it is not possible to hold that the automatic insertion of an e mail address is, to use Cave J's language, "... intended for a signature... ". To conclude that the automatic insertion of an e mail address in the circumstances I have described constituted a signature for the purposes of Section 4 would I think undermine or potentially undermine what I understand to be the Act's purpose, would be contrary to the underlying principle

27.

28.

29.

31

to be derived from the cases to which I have referred and would have widespread and wholly unintended legal and commercial effects. In those circumstances, I conclude that the e mail referred to in Paragraph 3 above did not bear a signature sufficient to satisfy the requirements of Section 4. 30. Before leaving this issue I ought to mention the Electronic Communications Act 2000. This Act empowers the appropriate Minister to issue statutory instruments in order to modify any other stature or statutory instrument in order to facilitate electronic communications. My understanding is that this Act was enacted in order to give effect to the EU Directive on E Commerce (2000/31/EC). No relevant statutory instrument made under this Act has been drawn to my attention. It is noteworthy that the Law Commission's view in relation to this Directive is that no significant changes are necessary in relation to statutes that require signatures because whether those requirements have been satisfied can he tested in a functional way by asking whether the conduct of the would be signatory indicates an authenticating intention to a reasonable person. This approach is consistent with what I have said so far in this Judgment. Thus, as I have already said, if a party or a party's agent sending an e mail types his or her or his or her principal's name to the extent required or permitted by existing case law in the body of an e mail, then in my view that would be a sufficient signature for the purposes of Section 4. However that is not this case. Conclusion 31. In those circumstances, whilst I conclude that the e mail referred to in Paragraph 3 above is in principle capable of being a Section 4 note or memorandum notwithstanding that it contains an offer and thus came into existence before not after the contract which it is said to memorialise, it does not bear the signature within the meaning of Section 4 of the Statute of Frauds of either Mr Mehta or his duly authorized agent. Accordingly, I allow the appeal and dismiss the application for summary judgment on the guarantee point. There then remains the question of whether or not there should be judgment against Mr Mehta for 5,000 being the alternative claim made against him by JPF. The District Judge made no alternative findings about this claim because he concluded that the 5,000 fell within the sum that he concluded had been guaranteed by Mr Mehta. However, there was no Respondent's Notice served or filed on behalf of JPF in relation to this issue. It was accepted by Mr Aslett that there would have to be such a Notice if this issue was to be disposed of on the hearing of this appeal and for that reason accepts that this issue will have to be dealt with either by fresh application to the District Judge or left to trial. In those circumstances I say no more about it. I will now hear the parties on whether and if so what directions ought to be given pursuant to CPR 24.6.

32.

33.

32

--END OF JUDGEMENT--

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SESSION FOUR DISTANCE SELLING REGULATIONS Required Reading: Paul Todd, E-Commerce Law, Cavendish Publishing 2005, pages 199207.

Session Aims To provide an overview of the protection offered to consumers in distance contracts by the Distance Selling Regulations. To be able to apply the terms of the Regulations to problem scenarios. It would be helpful to obtain a copy of the Distance Selling Regulations, and these are available at: http://www.opsi.gov.uk/si/si2000/20002334.htm

Introduction When a consumer contracts online, there are obvious differences to contracting face-to-face, for instance physical proximity to the seller, the ability to see the product and a reassurance that the buyer knows when to return to if the good/service is faulty. When consumer and professional do not meet, the contract is concluded at a distance creating increased risks for the consumer. He cannot indeed check whether the goods he is about to purchase or ascertain whether the goods meet his expectations or ask questions to the vendor. The European Unions Directive on the protection of consumers in respect of distance contracts imposes requirements on consumer contracts concluded without the parties meeting. It purports to reinforce consumer protection and seeks to harmonise laws within the European Union (see Article 1). The Directive was implemented in the United Kingdom via the Consumer Protection (Distance Selling) Regulations 2000 and came into force on 31st October 2000. Scope of the Regulations Distance contracts are defined in Regulation 3 as: any contract concerning goods or services concluded between a supplier and a consumer under an organised distance sales or service provision scheme run by the supplier who, for the purpose of the contract, makes exclusive use of one or more means of distance communication up to and including the moment at which the contract is concluded.

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Using the above definition, what are the four requirements needed for a contract to come under the Consumer Protection (Distance Selling) Regulations? The Regulations do not apply at all to contracts. Some contracts are excluded. Regulation 5 lists the excepted contracts, which are: Contracts for the sale of land; Construction of a building; Financial services; (See Schedule 2 a non-exhaustive list of financial services) Automated vending machine; Telecommunications operator through a public payphone; and Auctions.

Also, some Regulations only partly apply. For example, Regulations 7 to 20 shall not apply to a contract, which is for the supply of food, accommodation, transport, catering or leisure services (Regulation 6). It was in this area that the European Court of Justice made its first ruling on the legislation: Case C-336/03 EasyCar (UK) Ltd v Office of Fair Trading (10th March 2005) (available on LAWTEL). This case concerned the partial exception under Regulation 6(2)(b), which relates to contracts for the provision of transport services. EasyCar operate an Internet-only car hire service on a book-early pay-less model. The Office of Fair Trading (OFT) argued that EasyCar should give customers the opportunity to cancel the goods (Regulation 10) as the car hire is a vehicle to travel in and not a transport service. However, the European Court of Justice held that consumers should be able to rely on the cancellation right. Regulation 7 Information required prior to the conclusion of the contract Prior to the conclusion of the contract, the seller has to provide certain information to the buyer; specifically: The identity of the supplier and his address (if payment is required in advance) A description of the goods/services The price (including taxes) Delivery costs if applicable The arrangement for payment, delivery and performance The existence of a right to cancel The cost of using the distance communication The period for which the price remains valid The minimum duration of the contract (if applicable)

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This information must be provided in a clear and comprehensible manner and with due regard to the principles of good faith (Regulation 7(2)). Furthermore, it must be provided in writing, or in another durable medium (Regulation 8). Regulation 8 Further to the information in Regulation 7, before the delivery of the goods or during the performance of the service, the supplier has to provide the following information: Information about exercising the right to cancel; The geographical address of the place of business; Information after after-sales services; The conditions for exercising the right to cancel.

Failure to include this information will lead to the period of time for which cancellation can be effected lengthening (to a maximum of 3 months and 7 days). See below and Regulations 11 and 12). Regulation 10 (also Regulations 11-18) The right to cancel This provision is arguable the lynchpin of the Regulations, as it allows consumers to cancel a distance contract for no reason whatsoever within 7 days from the conclusion of the contract. The only conditions are that the cancellation is: in writing or other durable medium; it expresses a clear intention to cancel; it is done within the cancellation period.

Once cancelled, the contract shall be treated as if it had not been made. Notice should be served on the supplier or such other person as the supplier has nominated. Alternatively, notice is deemed to have been served if it is left/faxed/posted/emailed to the last known address of the supplier (Reg. 10(4)). Once cancelled, the parties must be put back into the same situation they were in before the contract. See Regulations 14 and 15. The goods obtained through the cancelled contract must be returned. Prior to the return of the goods taking place, the consumer is expected to take reasonable care of the goods. The professional has the obligation to refund the money paid by the consumer. The cancellation periods are slightly difference between goods and services see Regulations 11 and 12. Exceptions to the Cancellation rule (Regulation 13) Cancellation is not available in the following categories:

36

the supplier of a service has complied with reg. 8 and the service has commenced, with the consumers agreement. the goods or services are subject to fluctuations of the financial market. goods are to the personal specifications of the buyer. audio, video or software materials. newspapers magazines. lottery or betting services.

Unsolicited Goods (inertia selling) Regulation 24 of prohibits the supply of unsolicited goods and services to consumers. Under Reg. 24(2) a recipient may treat the goods as an unconditional gift. Contracting out Regulation 25 outlines that in a business to consumer contract, contractual terms, which are inconsistent with these Regulations are void.

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SESSION FOUR SEMINAR QUESTIONS 1. What information must be provided by a business to a consumer if they form a contract for the sale of goods by means of distance communication? 2. Explain the cancellation rights found within the Regulations.

3. You are approached by a small business, who wants to start selling computers on the Internet. Advise them about their obligations under the Consumer Protection (Distance Selling) Regulations 2000. 4. What is the effect of the judgment in Case C-336/03 EasyCar (UK) Ltd v Office of Fair Trading (10th March 2005)? 5. Mike is the managing Director of a small online business. They have been in operation for three years and are doing a lot of business with UK customers. Mike has heard that he has to provide certain information to all customers and is unsure what he is doing is legal. He approached you for advice. On the website, Mike makes it clear to customers that: The site is operated by Mike and gives a company name and telephone number; Customers buying on the site are bound by the terms and conditions available via mail; All sale of goods and services is final and no reimbursement is available; Buying once on the site gives the company the right to send, every so often, some additional products for which the customer will have to pay.

Advise Mike as to the validity of the above and what actions may be necessary to ensure full compliance. What difference do the reforms made to the Consumer Protection (Distance Selling) Regulations make? If Mike ran a car-hire business how would your advice differ?

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SESSION FIVE Agency Required Reading: Paul Richards, Law of Contract, pages 441-459.

Session Aims To provide an overview of the contractual laws relating to agency. To be able to apply to evaluate some of the common law decisions in this area. To be able to apply the rules to problem question scenarios.

Introduction An agency relationship may arise where one party authorises another party to act or contract on their behalf. The legal terminology is that the main character is the principal and they direct a second party, the agent, to enter contractual relations. The contract will then be formed with the agent and the third party, but only the principal and the third party will be bound (unless the agent acts negligently or in breach of his authorisation). There are many examples of agency relationships used in everyday life, including: - Estate agents (Purchase houses) - Insurance brokers (Purchase insurance) - Stockbrokers (Purchase shares) An agency relationship can also arise informally, for instance if you handle the affairs of a person who is ill, or for whatever reason is unable to act personally. An agency relationship may also exist in basic transactions, for instance if a friend asks you to buy a book for them, you are the agent for that particular arrangement. In normal situations, the principal and the agent will agree the level of authority that the agent has. But sometimes, an agent may transact outside of their permitted authorisation (for instance, they may have a restriction that they cannot enter into contracts over a certain amount) and this could cause problems particularly to the third party (who may not know about the restrictions). Creation of an agency agreement 1. Agreement/Actual Authority

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An agency agreement between an agent and a principal is usually agreed. This is known as actual authority. They could agree the authority formally (for instance, by deed), or informally by written or spoken agreement. The causes no contractual problem, as contracts can be formed verbally as well as in writing. There could also be authority by implication. This exists more often than not, for instance in an employer/employee relationship and a husband/wife relationship. In Chaudhry v Prabhaker (1988) the court held that an agreement between friends for one to purchase a car for the other had created an agency relationship. Also, in Mullens v Miller (1882) the court was of the opinion that an estate agent has the authority to make representations about the property. Actual authority is found in two forms. There can be express or implied actual authority. Express is founded on the explicit instructions of the principal, whereas implied is where the principal has given authority, but has not spelt out specifically every detail and restriction. 2. Apparent or Ostensible Authority

There may be situations where the behaviour of the principal gives the impression that a person is an agent on their behalf, whereas in fact this is not the case. This situation could lead to an injustice on the third party, therefore the courts may prevent the principal from denying that the agency relationship exists, in other words the principal is estopped (or prevented from denying the existence of an agency relationship). This is termed as apparent or ostensible authority. Apparent authority may exist when: An agency relationship has ceased, but the third party has not been informed. An agency agreement never actually existed, but the principal allowed the third party to believe that such a relationship did indeed exist. An agency agreement exists, but the principal allows the third party to believe that the authority of the agent is greater than it actually is.

In Todd v Robinson (1825) a principal instructed his agent to purchase goods on credit from the company of the claimant. His purchasing limit was 31. However, the agent purchased goods totalling 45 and ran away with the products. The court held, that the principal was liable for this, as there was nothing to suggest that the agents authority was limited in anyway. Furthermore, in Spiro v Lintern (1973) a husband asked his wife to find an estate agent and instruct him to sell their house. The estate agents found a purchaser and the wife signed the agreement. The husband did not authorise the sale, but when he found out he took no action. He later tried to deny the existence of a valid contract, but the court estopped him from denying the

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existence of an agency relationship. The case of Rama Corporation v Proved Tin and General Investments Ltd (1952) outlined the three basic criteria for there to be apparent authority: Ostensible or apparent authority which negatives the existence of actual authority is merely a form of estoppel and a party cannot call in aid an estoppel unless three ingredients are present (1) representations, (2) a reliance on that representations and (3) an alteration of his position resulting from such reliance. A good example of apparent authority is found in the case of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. In this case the articles of association of a company held that the board of directors could appoint a managing director. X, with the knowledge and approval of the board carried out the function of a managing director, but his appointment was never confirmed. X entered into a contract with a firm of architects and later the board of directors wanted to withdraw from the contract, and argued that X did not have the authority in the first place to enter into the contract. However, the court held that although he did not have actual authority, he certainly had apparent authority as the board of directors had held him out as a managing director. The company was therefore bound by the contract. But, the issue becomes somewhat muddy when considering agents, who have apparent, or even actual authority, but act beyond what they have authorised to do by their principal. This was the case in Watteau v Fenwick (1893) 2 QB 346. Indeed, the authority in this case is sometimes known as usual authority. In this case Fenwick employed Humble as manager of a public house. He could enter in agreements, but was expressly forbidden from purchasing cigars. But, Humble did buy cigars, from a supplier Watteau. Watteau did not know about the existence of the principal (indeed, Humbles name upon above the door of the public house). However, the court decided that as the cigars were of the type normally supplied to such premises, Fenwick was held to be liable as Humble was acting with the usual authority of someone in that capacity. Will J stated: Once it has been established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies that the principal is liable for all acts of the agent which are within the authority usually confided to an agent of that character notwithstanding limitations, as between the principal and the agent, put upon that authority. It is said that it is only so where there has been a holding out of authoritybut I do not think so. Otherwise in every case of undisclosed principal, or at least in every case where the fact of there being a principal was undisclosed the secret limitation of authority would prevail and defeat the action of the person dealing with the agent and then discovering that he was an agent an had a principal.

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The academic, Paul Richards (1998) states: The decision is striking since, first, it is clear that any restriction placed on an agent by a principal will not bind the third party, unless he is aware of the restriction imposed by the principal. Second, it is clear that there is no question of liability arising under apparent authority since, as has already been seen, there must be a representation to the third party from the principal that the agent has authority to act, when in fact he does not. No such representation was, of course, present in the case. This decision has been heavily criticised as it makes principals liable for acts of their agent which they had been expressed forbidden to do. We will review this case later in the seminar. 3. Agency of necessity

In some situations, an agency relationship may arise in an emergency situation. This is the case when one party spontaneously takes steps to protect another partys interest in property. Certain conditions must be realised for the courts to allow an agency arising from necessity: While one party has possession of another partys goods an emergency occurs, and This forces this person to take action regarding the goods, for the benefit of the owner. Furthermore, the owner of the goods is unable to be communicated with prior to this situation.

In Sachs v Miklos (1948) the defendant stored furniture belonging to the claimant. During the war, he wanted to use the space the furniture was taking up and so sold the furniture. The court held that there was no agency by necessity as the situation was not an emergency and the defendant sold the furniture for his own benefit. Generally, if an agency of necessity arises, the agent can reclaim their expenses from the principal and has a defence for any trespass to the goods. Furthermore, if the goods are sold on to a third party, this third party will have good title to the goods. In Great Northern Railway Co. v Swaffield (1874) LR 9 EX 132 a horse had been transported by train, but when it arrived at its destination, nobody was present to collect it. The court decided that there was an agency of necessity when the railway company looked after the horse and they could therefore reclaim their expenses. The agent must also act bona fide and in the interests of all parties concerned.

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4.

Agency by ratification

There may be situations where an agent has exceeded the authority which he had been given and subsequently the principal may wish to ratify the agreement between his agent and the third party. For there to be a valid ratification, certain criteria must be fulfilled: The agent must indicate that he is acting as an agent. The principal must exist and have the capacity to make the contract when it was made. Ratification must be within a reasonable time. The principal must agree (ratify) all of the agreement, not just bits of it. Notice of ratification must be communicated.

In Keighley, Maxted & Co. v Durant (1901) AC 240, Lord MacNaghten stated an agency of ratification to be: A wholesome and convenient fiction [whereby] a person ratifying the act of another who without authority has made a contract openly and avowedly on his behalf, is deemed to be, though in fact he was not, a party to the contract. This case failed as an agency by ratification. The facts were than an agent purchased corn at a higher price than he was allowed to. The third party was not aware that he was an agent acting for a principal. Afterwards the principal wanted to ratify this contract, but due to the fact that he was undisclosed, the House of Lords held that there could not be an agency of ratification. The effects of an agency by ratification are that: The agent is freed from any liability for acting without authority. The agent is entitled to remuneration, if appropriate. A third party obtains title to any property that has been transferred under the agreement. A contract made by the agent is binding on the principal.

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SESSION FIVE SEMINAR QUESTIONS 1. In your own words outline the main forms of agency agreements that may arise between principals, agents and third parties. 2. Thomas was an employee at a pub in Hatfield. His employer sent him to the local warehouse to purchase (on credit) crisps, nuts and other sundries on a weekly basis. However, at the end of May he was sacked by his employer. But, in early June Thomas goes to the warehouse and gets he normal order, but makes off with it. Is the employer bound to pay for these goods? 3. Read the following article: Rogers, K M A case harshly treated? Watteau v Fenwick ere-evaluated (2004) Hertfordshire Law Journal, Volume 2, Issue 2, pages 26-29. This can be found at: http://perseus.herts.ac.uk/uhinfo/library/d31858_3.pdf. What arguments does the author of this article offer? Do you agree with his conclusions? 4. Nicky was part of a group that went on a two-year around the world trip to search for lost tribes in the Amazon jungle. She left her cat Felix with her friend Marina and asked her to take good care of her and not to let her out in case she got lost. Six months after Nicky left, Felix managed to escape from Marinas house and was run over by a car and badly injured. Marina immediately took Felix to the vet who said that it would cost 1,000 to treat her. If treated she stood a very good chance of survival and full recovery, but the only other option was to put her to sleep. Advise Marina on her legal responsibilities as Nickys agent. 5. In which situations may a principal ratify the authorised act of his agent?

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SESSION SIX The evolution of contract law Required Reading: Paul Richards, Law of Contract, Chapter 1 (Pages 3-11)

Session Aims To provide a historical context for the development of contract law within England and Wales. To examine the relationship between modern contract law and the development of consumer and commercial law.

Introduction This module has concentrated (to date) on practical aspects of contract law; basic contractual formation, incorporation of terms, contracting over the Internet and agency are some of the occurring themes. However, this session will move away from the practical application of the law and examine in detail the philosophical foundations of contract law and how the system that we currently have in place was established. As we examine the evolution, we will also need to consider consumer and commercial law, which are branches of law linked very closely with contract law and analyse the relationship between these two legal disciplines. General History Contract law dates back to the thirteenth and fourteenth centuries. At this time the common law (judge-made law in courts) was expanding. The judiciary of the time exercised a limited jurisdiction in an area of law very similar to contract law based on custom also known as Lex Mercatoria (the law of merchants). These courts met predominantly in local markets or fairs and commercial men would often attend these courts to decide upon disagreements. The earliest form of contractual dispute was based on debt (i.e. one party owned another an amount of money, which had not yet been received). There were a number of deficiencies with the system, one of the main problems was that if a defendant could find a number of oath-swearers (witnesses) to say that he did not owe the money and was innocent of any charge he would be found not-guilty.. Due to this and other inadequacies the Court of Chancery began to get involved and apply their own rules and remedies. By the sixteenth and seventeenth century, some basic contractual principles had been established. Formation principles like, consideration, which says that it is

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not sufficient merely to show a promise, but for contract law to be effective, there needs to be a motive or promise in return for the original promise. The nineteenth century is often regarded as the golden age of contract as it was during this time that contract law evolved into a shape that is very recognisable today. Some commentators suggest that the industrial revolution was responsible for this alteration in contract law, but others suggest it was merely co-incidental. For instance, Atiyah argues that: The emergence of the law of contract is really the result of the adoption of theories of natural law, which propounded the idea of an inalienable right of people to own and deal with property, and that the state via the law should interfere as little as possible with the affairs of individuals. Atiyah argues that there are two underlying foundations to contract law. First that individuals should be able to contract as they want with their own property, and second that the law should interfere as little as possible and only when there is a dispute. This notion of personal autonomy (that a person could deal as they wished) was new to the English culture, as previously a feudal system, based on patronage had been in place. The problem with this individualistic approach was that there were often situations where people would just argue that they did not enter into a contract. Accordingly, the court established a set of principles to ascertain whether or not a contract had been entered into. In some situations a person would argue that they had not expressly agreed to anything, but had to do an act in order to get a good or service (for instance, having to buy a ticket to get on a train or a standard form contract). A second key problem was that although in many cases there was an agreement in place, the terms of the contract could also be decided upon by the parties involved. This caused no problems if the parties were of equal bargaining power, however in many cases, contracts were formed between individuals and wealthy businesses, leading to an inequality of bargaining power between the parties. The modern contractual era The golden age of contracting introduced some new principals altering the law to a context that is more recognisable today. The power of individuals was increasing, and the problems of freedom of contract were coming to the surface. As wider selections of goods were available, individuals were being faced with large companies with great power and wealth, standard form contracts and a lack of knowledge about the product and the law. There became a change in society as consumerism took hold and more protectionist legislation was required. Society was evolving so that people would have to work for a living to enable them to purchase the basic essentials they needed. This was because

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individuals would enter contracts and would find that they would have little understanding of the terms and no available remedy if anything went wrong. Accordingly, philosophies such as social protectionism and consumer protection were gradually introduced giving individuals a safety net in case agreements failed to be realised. Parliament was enacting consumer protection laws to offer protection to the individual against a powerful commercial enterprise, such as the Trade Descriptions Act 1968 (this Act made it a criminal offence to falsely describe goods offered for sale), the Unfair Contract Terms Act 1977 (UCTA) and the Sale of Goods Act 1979. (We shall review the latter pieces of legislation later in the course). The situation today In Printing and Numerical Registering Co. v Sampson (1875) LR 19 Eq, Lord Jessel stated: If there is one thing more than another which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty in contracting and that their contracts, when entered freely and voluntarily, shall be held sacred and shall be enforced by the Courts of Justice. This view is just over 100 years old, and whilst the notion of freedom of contract exists, it is contended that the law has moved somewhat away from this principal towards more protectionist legislation for the benefit of the consumer, and has tried to take the power away from those who exercise economic dominance. There are many advantages to the current system, particularly that the protectionist context, which ensures that there will not be a return to the exploitative system in the medieval era. It is arguable that as consumerism has grown and greater protection has been provided for the individual when they enter contracts, the courts have adopted an objective stance in deciding whether or not there is in fact an agreement. In The Leonides D [1985] 1 WLR 925 Goff LJ stated: In his speech Lord Brightman was, as we understand it, asserting that if one party (O) so acts that his conduct, objectively considered constitutes an offer, and the other party (A), believing that the conduct of O represents his actual intention, accepts Os offer, then a contract will come into existence, and on those facts it will make no difference if O did not in fact intend to make an offer, or if he misunderstood As acceptance, so that Os state of mind is, in such circumstances, irrelevant. However, it is worth reviewing your work from sessions one and two, where it was contended that the courts are moving away from a strict offer-acceptanceconsideration model of contract formation and instead moving towards a more

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subjective stance, as seen in cases like Butler Machine Tool v Ex-Cello Corp [1979] 1 All ER 965, Gibson v Manchester City Council [1979] 1 All ER 972 and Holwell Securities Ltd v Hughes [1974] 1 All ER 161.

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SESSION SIX SEMINAR QUESTIONS 1. In your own words, outline how the law of contract has evolved over the past few hundred years. 2. What problems were there with contract law in the late middle ages? 3. Discuss the changes to the philosophy in contract law which have occurred over the past 200 years. 4. For the most part this apparent conflict between finding for an agreement in objective or subjective terms will not materialise since in the vast majority of contracts there will be [agreement] between the parties. Do you consider this to be the case? Do the courts generally favour the objective or subjective model in deciding if a contract has been formed?

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SESSION SEVEN Commercial Law Foundations Required Reading: Sealy LS & Holley RJA, Commercial Law: Text, Cases and Materials, 3rd Edition, Butterworths 2003, chapter 1 (pages 3-58).

Session Aims To examine the roots of commercial law, including the key principles. To analyse the difference between traditional commercial law and examine its relationship with consumer-favoured contract law. To consider whether contract/consumer law and commercial law should be separated and codified.

Introduction As we discovered in session six, contract law, which is now very pro-consumer, has it roots going back to the early Middle Ages, with the development of the Lex Mercatoria. Commercial law has a very similar background, yet whilst contract law has tended to move towards agreements between individuals and merchants, commercial law is still in existence for merchants, or business people, contracting with each other. Accordingly, in English law both contract law and commercial law and consumer law are related very closely, yet differ through their underlying philosophy. Key Principles In 1998, the academic Roy Goode argued that there are eight fundamental principles of commercial law. These are: 1. 2. 3. 4. 5. 6. 7. 8. Party autonomy Predictability Flexibility Good faith Self-help Facilitation of security Protection of vested rights Protection of third parties

He continues in his Commercial Law Textbook (2004, Butterworths) by stating:

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The underlying motif that marks out the legal treatment of commercial transactions is a recognition of the need to protect the free flow of trade and to avoid as far as possible the application of rules that will operate to the disadvantage of the bona fide purchaser in the ordinary course of business. The key principle forwarded by Goode is that commercial law should allow commercial men to do business as they want to do it, which enforces the idea of party autonomy. It is not only the academic world which have made this point. In Kum v Wah Tat Bank [1971] 1 Lloyds Rep. 439 the judge stated: The function of commercial law is to allow, as far as it can, commercial men to do business in the way they want to do it and not to require them to stick to forms thatmaybe outmoded. The common law is not bureaucratic. Whilst this can be accepted in relation to business to business contracts, the problem arises when the agreement concerns a business and a consumer. Commercial law principles are not appropriate in this situation. The question to ask is what are the key differences between these two stands of admittedly similar law. Sealy and Hooley state: It is important to get some idea of the relationship between consumer law and commercial lawSome see consumer law as an application of general commercial law principles in a specific context, although greatly amended by special consumer legislationBut the differences between the two seem much more fundamental than this approach suggests. Whereas commercial law is concerned with transactions in which both parties deal with each other in the course of business, consumer law is primarily concerned with transactions between ordinary individuals (consumers) and those who provide goods and services on a commercial basis. Whereas commercial law is based on the premise that businessmen are of roughly equal bargaining power, consumer law assumes that the consumer and business enterprise are economically unequal. Whilst commercial law is happy for businessmen to regulate their own affairs through mercantile usage, usage plays only a peripheral role in consumer transactions (a consumer may be bound by the reasonable usage of the market in which the business provider of goods or services deals, e.g. a man who employs a banker is bound by the usage of bakers) These fundamental differences in philosophy mean that whereas commercial law is non-interventionist and essentially pragmatic in nature, consumer law intrudes into contracts made between consumer and business supplier and is essentially an instrument of social policy. It appears from Goodes analysis that the key difference between commercial and consumer law is that of party autonomy the right of commercial men to do business as they want to do it, with limited interference from the courts. Indeed in Re Bank of Credit and Commerce International SA (No. 8) [1998] AC 214,

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Lord Hoffman stated: I think that the courts should be very slow to declare a practice of the commercial community to be conceptually impossible. This stance however clearly cannot be taken in contracts between businesses and individuals where the bargaining power is often far from being equal and in some situations the courts may find that they need to interfere to ensure justice for the consumer. The 20th century approach Despite the differing philosophies, there has been a continual merging of these two strands of law and in many cases, a blurring. This is especially the case with e-commerce advances. As more people purchase goods or services online, there are a whole range of legal problems, which are currently without a definitive answer. We have already addressed in a basic form contracting online (see session two), but also issues to do with inter alia quality and liability are still being addressed in the context of an online world. Bradgate (Commercial Law, Butterworths 2000) argues: The period since the 1960s has seen a considerable increase in the volume of legislation designed to protect the interests of consumers. Whilst, at the same time, the courts have shown an increasing willingness to abandon the concepts of freedom of contract and adopt an increasingly interventionist role in order to protect weaker parties to contracts. As a result it is possible now to recognise a separate category of consumer protection law within commercial law. The problem with this approach is that legislation (for instance the Sale of Goods Act, 1979 see session nine) is then applied as both consumer legislation and commercial legislation. Although the Sale of Goods Act is predominantly a consumer protectionist piece of legislation, most of the terms included are based upon commercial usage of years gone by. A good example is the term satisfactory quality found within section 14 of the Act. Prior to 1995, satisfactory had read merchantable, and as Anderson and Reynolds (1982) state: The term [merchantable quality] is on its face directed towards the requirements of merchants, who can dispose of goods for varying purposes, rather than those of the consumer, who is likely to want them for one self-evident purpose and to have very limited opportunities of resale or use for another purpose. It is contended that the move towards consumer protectionist legislation is to the detriment of commercial men. Returning to Goodes principles, with continuing intervention by the courts, how are principles such as party autonomy and flexibility to be maintained in the interventionist culture we appear to be in? This example does not stand alone. Also, it has been noted that consumer protection legislation is increasing, as is its scope. For instance, the definition of a

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consumer is continuing to widen (see Stevenson v Rogers [1999] 1 All ER 613) meaning that more people will be afforded protection by the consumer protection legislation, at the expense of commercial practice and philosophy. Bradgate suggests: Consumer law is concerned with the modification of commercial law to protect those participants in the market who are seen to be at a disadvantage and to require protection, and the increased willingness of the courts in recent years to modify contract principles and intervene to prevent abuses of market powerThe function of consumer law may therefore be said to be regulatory, in contrast with the essentially facilitative function of commercial law. Should commercial and consumer law be separately codified? Having examined the philosophies of both commercial law and consumer law in some detail, we need to examine whether the legal systems should be separated, and indeed codified. With the growth of consumer protection legislation, commercial men are arguably finding their freedom to contract restricted. However, this is not necessarily completely negative. Bradgate argues: By providing consumers with a measure of legal protection, the law may give them confidence to participate in the market and thus, in effect, by providing a measure of regulation, further facilitate activity. In other words, Bradgate suggests that although there is a difference in the philosophy of commercial and consumer law this difference is important. This is because consumer law encourages individuals to enter the commerce market in the knowledge that there is sufficient protectionist legislation behind them. Commercial law ensures that the commerce market is flexible and fluid enough for consumers to join in with. If commercial law were to be consumed by consumer law, then the market would arguably be stifled, thus restricting trade. At the same time, if consumer protection law were to be removed, consumers would be less keen to enter the commerce market. Although consumer law could be held to restrict commercial law, it is suggested that instead of restricting trade, it facilitates it. Therefore, should commercial law be codified? Codification is where all the law on one particular subject is found in one document. There are various issues to be considered. For instance: What areas of commercial law should be codified? It is a very broad subject area encompassing buying/selling, agency, banking, shipping and insolvency.

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How will a jurisdiction, which has no experience of codification (for instance England), deal with a codified law? Considering that codification would only be for the English jurisdiction, would this be a parochial concern considering that a large amount of commerce takes place over international borders? Who would be responsible for keeping the code up to date? Will a rigid set of rules for commercial practice restrict commerce in anyway?

To date, codification is purely an academic debate in nature, but is an entertaining discussion all the same. Please read Rogers, K. M. Philosophical contrasts in commercial and consumer law should we codify commercial law? Business Law Review, November 2005, pages 262-266, which provides an overview of the advantages and disadvantages of codification.

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SESSION SEVEN Seminar Questions 1. Outline the eight fundamental principles of commercial law, as advocated by academics such as Goode, and provide a brief explanation of the terms. 2. Sealy and Hooley state that it is important to get some idea of the relationship between consumer law and commercial law. What is the nature of this relationship? What differences do you perceive there to be? 3. To what extent do you agree with the opinion that consumer law and commercial law is the same thing and any difference between them is purely academic? 4. Read the following article: Rogers, K. M. Philosophical contrasts in commercial and consumer law should we codify commercial law? Business Law Review, November 2005, pages 262-266. (This article is available through Voyager). Outline the view of the author in relation to the differences between commercial and consumer law. 5. Should commercial codified? Offer reasons both for and against this question. law be

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SESSION EIGHT TIMED ESSAY ASSESSMENT This session will consist of a timed essay of 45 minutes regarding one aspect of this course. This will be the formal assessment of this module.

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SESSION NINE Consumer Protection Legislation Required Reading: Paul Richards, Law of Contract, pages 109-130. Sealy LS & Holley RJA, Commercial Law: Text, Cases and Materials, 3rd Edition, Butterworths 2003, chapter 10 (pages 370-399).

Session Aims To provide an overview of some workable examples of pro-consumer legislation. To examine and apply the terms of the Sale of Goods Act 1979 and the Unfair Contract Terms Act 1977.

Introduction We have spent several sessions during the course of this module examining the difference between commercial law and consumer law. This session seeks to examine two of the main examples of the pro-consumer stance the legislation has taken over the past few decades. Parliament has endeavoured by statute to imply certain terms into contracts (for instance, safeguarding the quality of a certain good) and in turn protecting the often innocent purchaser. The key piece of legislation in this regard is the Sale of Goods Act 1979. Sale of Goods Act 1979 The 1979 tidied-up sale of goods laws dated back to 1893. It did not seek to introduce new law per se, but did clarify the existing legislation. There are three main sections, which are of relevant to this course: sections 12 (right to sell), 13 (sale by description) and 14 (implied terms of merchantable [satisfactory] quality and fitness for purpose. Section 12 Although this maybe considered somewhat simplistic, section 12 outlines that in every contract for a sale of goods, there is an implied condition that the seller has the right to sell the goods and therefore will be legally able to pass title to a third party. In Rowland v Divall [1923] 2 KB 500, a buyer of a car found out that the car he had purchased had been stolen on a previous occasion (prior to him having purchased it). As a result of this he had to return it to the true owner. He sued the

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person he purchased the car from for the full price, despite the fact that the buyer had used the car for 4 months and the value of the car had decreased somewhat. The court held that he was able to reclaim the full purchase price that he paid. This was because he had paid to become the full legal owner of the car, and this was not the case, as the car had previously been stolen. Section 13 Section 13 is relevant if there is a sale by description. A sale by description can arise is several situations, including advertisements, labels, packaging and sales talk. Section 13(1) reads: Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. In other words, if a buyer purchases goods, and this buyer relies solely on the description given to him by the seller, and after purchase the buyer finds that the goods do not in fact correspond with the description, the buyer is entitled to return the goods to the seller and obtain a full refund. In Beale v Taylor [1967] 1 WLR 1193 a private motorist advertised his car as a Herald Convertible, White, 1961, twin carbs. The purchaser bought the car, but later discovered that the car he had purchased was a cut and shut two halves of different cars welded together. Only the rear of the car corresponded with the description given. The court held that section 13 had been breached and the buyer was entitled to a full refund. This was the case even though the buyer had inspected the car and the seller had no idea that it was a cut and shut car. Furthermore, in Acros Ltd v E.A. Ronaasen & Son (1933) the defendant agreed to sell planks of wood to the plaintiff. The wood would be 0.5 thick. However, on delivery 80% of the planks of wood were over 0.5 thick. Even though the wood was still useful and could be used, the court held there had been a breach of section 13. In Re Moore & Co. v Laudauer & Co (1921) the defendant sold a painting to the plaintiff saying it was by Munster. The plaintiff knew the defendant was not an expert on paintings and accordingly the court decided that there had been no breach of section 13the reason being that for a successful action under section 13, there needs to be reliance by the buyer on the sellers description: The Court of Appeal stated in Harlingdon & Leinster Enterprises Ltd v Christopher Hull Fine Art Ltd (1990) 1 All ER 737: where a question arises whether a sale of goods was one by description, the presence or absence of reliance on the description may be very relevant in so far as it throws light on the intentions of the parties at the time of the contract. If there was no such reliance by the purchaser, this may be

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powerful evidence that the parties did not contemplate that the authenticity of the description should constitute a term of the contract; in other words that they contemplated that the purchaser would be buying the goods as they were. If, on the other hand, there was such reliancethis may be equally powerful evidence that it was contemplated by both parties that the correctness of the description would be a term of the contract. Section 14(2) Prior to the Sale and supply of Goods Act 1994, the Sale of Goods Act 1979 stated that when there was a sale of goods in the course of a business, there is an implied condition that the goods sold were of merchantable quality. However, the 1994 Act amended section 14(2) of the 1979 Act slightly, so that it now reads: Where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of satisfactory quality. Only one word has been changed, and although we will be examining many of the cases relating to section 14(2) in the old law, this does give a good example of the change in emphasis in the law to a significantly more pro-consumer stance. Even if goods did not previously meet expectations, the fact that the implied term was merchantable quality meant that there was the possibility they could be resold and used for a different purpose. However, with the introduction of satisfactory quality it places a greater responsibility on businesses to ensure that the goods that they sell are of that quality. An example of this difference can be found in the case of Henry Kendell v William Lillico (1969) 2 AC 31. In this case a farmer purchased farm feed for his pheasants. He discovered that this feed was actually toxic for pheasants, but was suitable for other animals. It could therefore be sold on and the court held the feed to be merchantable. For Section 14(2) to be applicable there must be a sale in the course of a business. Whilst on the one hand this may be easy to ascertain (e.g. the purchasing of an IPOD from a big electrical store would clearly be a sale in the course of a business. At the same time, if I were to sell my car by placing an advertisement in the local paper, this would be a private sale), on the other hand there are slightly grey areas. For instance, what if a solicitor sells an old office computer? He is not selling in the course of a business as his business is to provide legal advice. However, the computer he is selling was used previously in the course of his business. Sealy & Hooley suggest that deciding between whether a person is acting as a consumer or acting within the course of a business is now extraordinarily complex. As you would expect, there are a number of cases on this issue:

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In R & B Customs Brokers Co. Ltd v United Dominion Trust (1988) 1 All ER 847, the court held for a sale to be within the course of a business, the contract had to be one that was regularly entered into as part of the business. This was a very narrow interpretation and was criticised as it restricted the potential scope of the 1970 Act. This was reconsidered in Stevenson v Rogers [1999] 1 All ER 613 where the Court of Appeal decided that the one-off sale of a fishing boat by a fisherman was in the course of a business. This case significantly widened the scope of a sale in the course of a business. After deciding whether a sale is in the course of a business, it must be decided whether the goods are of satisfactory quality. Prior to the 1994 Act, the courts were taking a very incremental approach to deciding what factors could be taken into account to decide whether a good breached the implied term of section 14(2). In Rogers v Parish (Scarborough) Ltd [1987] 2 All ER 232, the plaintiff bought a new Range Rover, which suffered from various minor deficiencies (for instance a misfiring engine, an oil leak, a scratch and a noisy gearbox). Despite the defendant arguing that it still worked, the court held that this would not of merchantable quality (note the date of the case). There was some confusion about what factors could or could not be taken into account until the amendment made by the 1994 Act. It stated that the factors which could be taken in to account include (not exclusively): fitness for all the purposes for which goods of the kind in question are commonly supplied; appearance and finish; freedom from minor defects; safety; and durability.

It is important to note that the section 14(2) implied condition will not be applicable if a defect was brought to the buyers attention prior to sale or on an inspection a defect was present, which the buyer ought to have noticed, but did not. Therefore, what does satisfactory quality mean? The amendments by the 1994 Act offer an objective approach to deciding whether or not a good is of satisfactory quality. There have been several cases which examine what types of grounds are reasonable to make a good unsatisfactory. For instance: Commercial matters. In Britvic Soft Drinks v Messer UK (2002) very small quantities of benzene was found in sparkling water. This was not in sufficient quantity to cause any damage to an individual. Yet, even so, the Court of Appeal judge held that Despite the fact that the

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quantities of benzene present in the sparkling water were in medical terms negligible, they were in commercial termsdynamite. Price. In Clegg v Anderson (2003) a very expensive yacht had been purchased, but was unsafe. Due to the price, the court was of the view that the yacht should be near perfect.

In Jewson v Kelly (2004) 1 Lloyds Rep. 505 boilers were provided for a block of flats. The plaintiff was happy with them and they worked well as boilers. However, they had very poor ratings with regards inter alia omissions and therefore it proved impossible to obtain mortgages for the flats. Despite this, the Court of Appeal held that the boilers were of satisfactory quality and were fit for their purpose. Clarke LJ stated: Section 14(2) is directed principally to the sale of substandard goods. This means that the courts principal concern is to look at their intrinsic quality The question in most cases will be whether the goods are intrinsically satisfactory and fit for all purposes for which the goods of the kind in question are supplied. It could be argued that the decision in Jewson limits the availability of action under section 14(2), as courts will only examine whether the good is satisfactory for the purpose of use. However, the court did recognise other factors which could be taken into account to decide whether a good breaches the implied condition under section 14(2). [Can I recommend the following article to read on this issue: Ervine, W.C.H. Satisfactory quality: what does it mean? Journal of Business Law (2004), pages 684-703]. Section 14(3) The second element of section 14 is known as fitness for purpose. Where the seller sells goods in the course of a business and the buyer makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that goods supplied will be reasonably fit for that purpose. It does not matter whether it is a purpose for which goods of that type are commonly supplied. There must be reliance by the buyer on the seller, unless it is unreasonable to rely on the seller. If the purpose is unusual, then the buyer must make this known to the seller. In Godley v Perry [1969] 1 WLR 9 a six year old boy purchased a plastic catapult from the defendant. While in use, the catapult broke and blinded the boy in the eye. The court held that the defendant was in breach of both section 14(2) and section 14(3). However, in Griffiths v Peter Conway (1939) 1 All ER 685 the buyer of a fir coat suffered an allergic reaction due to her particularly

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sensitive skin, but as she had not advised the seller of these specific needs there was no breach of section 14(3).Also, in Bristol Tramways v Fiat Motor (1910) 2 KB 831 buses, which could not navigate hilly areas around Bristol were held not to be fit for purpose the sellers had been relied upon. Furthermore, in Slater v Finning Ltd [1997] AC 473 the defendant supplied a replacement camshaft for the plaintiffs boat. The camshaft was of a type that worked well in other engines, but not when it was fitter to Slaters as there was excess noise and wear. This was due in the main part to an idiosyncratic engine, and the design of the engine. As Slater had not advised the seller of this, there was no breach of section 14(3). Lord Keith stated: There is no breach of the implied condition of fitness where the failure of the goods to meet the intended purposes arises from an abnormal feature or idiosyncrasy, not made known to the seller by the buyer, in the buyer or in the circumstances of the use of the goods by the buyer. This is the case whether or not the buyer is himself aware of the abnormal feature or idiosyncrasy. In Britvic v Messer (2002), the court held that there could be reliance on the manufacturer and not merely the seller. Finally, in Jewson v Kelly (2003) (see above), an action failed under section 14(3) also, as Mr Kelly had his own team of advisors and there was no evidence that he had relied on the sellers. Exclusion clauses Unfair Contract Terms Act 1977 Section 6(2) of the Unfair Contract Terms Act 1977 (UCTA) states that if a person is contracting with a consumer then the implied terms under sections 12-15 of the Sale of Goods Act 1979 cannot be excluded. (Section 12 of UCTA says that it is the responsibility of the seller to prove the buyer is not acting as a consumer). However, if a person is not buying as a consumer, then the terms in sections 13 and 14 can be excluded, but only if the exclusion terms satisfies the requirement of reasonableness. Remedies If there has been a breach of the implied conditions, then under section 53 of the Sale of Goods Act, the buyer can reject the goods for breach of warranty. However, a consumer is given additional protection by the Sale and Supply of Goods to Consumers Regulations as regulation 5 states that extra remedies available to the consumer include repair/replacement, a price reduction or rescission of the contract.

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SESSION NINE Seminar questions 1. The satisfaction of a diner and of an examiner are not at all the same thing, hence the need to tease out the meaning of the implied term in increasingly complex statutory language. (Michael Bridge What is to be done about the sale of goods? Law Quarterly Review (2003)) In the light of the above statement, and with the use of case law, explain the difference between merchantable quality and satisfactory quality. 2. As a present for passing all his exams, Jamie bought himself a car which was advertised in the local newspaper. The advertisement read: Brand New Hyundai in superb condition a real bargain Three months after purchase, Jamie discovers that the engine misfires, the stereo does not work and the wheel bearings are out. Advise Jamie about the potential claims he may have under the Sale of Goods Act 1979. 3. Read the following article: Hartwell, N The application of the reasonableness test under UCTA 1977: A schism between certainty and fairness Hertfordshire Law Journal (2005), Volume 3, Issue 2, pages 55-60. (This article is available online at: http://perseus.herts.ac.uk/uhinfo/library/l33293_3.pdf). How have the courts addressed the idea of reasonableness in relation to UCTA? Consider this question in the light of the areas we covered in sessions 6 & 7, where we examined the conflict in philosophies between consumer and commercial law 4. Josh Manning Ltd manufactures executive yachts, which sell for just under 1m each. They have recently introduced a new type of engine, which is manufactured by Yachting Engines Ltd. The engines cost 50,000 and to date they have sold 31 of these engines 30 to a holiday company,

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which specialises in boating trips and the other one to Mr Ives, a private individual who enjoys trips out on the Lake District. Although the engines do what they are supposed to a good standard, on closer inspection it has been noted that the engines emit very small doses of carbon monoxide, which does not pose a danger to individuals or animals, but has caused some concern amongst the holiday company and Mr Ives. They have both written to Josh Manning Ltd demanding a full refund of the purchase price. Josh Manning Ltd has denied that the engines are unsatisfactory and say that the engines work perfectly well. Furthermore, they seek to rely on a clause in its standard terms of sale which state: The customer is deemed to be fully conversant with the nature and performance of the goods and accordingly Josh Manning Ltd can accept no liability for any hazardous omissions from the usage of the engines. Advise Josh Manning Ltd as to whether the two claims against them will be successful. Support you answer with statutory provisions and case law.

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SESSION TEN ASSESSMENT RESULTS

This session marks the end of your studies on this particular course. Well done for reaching this far! This session will include the returning of your timed essays, undertaken in Session 8. Time will be taken to examine your work, provide detailed feedback and advice for future assessments. This session will also provide a consolidation of the work we have covered throughout this module.

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GLOSSARY OF TERMS Acceptee Acceptor Acceptance Agent Bona Fide Caveat Emptor Contract Inter alia A person receiving the acceptance (usually the person who made the offer) A person accepting an offer made to him/her. A final unqualified agreement with the terms of the offer. Forms a contractual agreement with a third party for a principal. In good faith Let the buyer beware. A binding agreement between two or more people to be bound to certain terms. Amongst others

Invitation to treat A situation where a person is willing to start a negotiation. (This is to be contrasted with an offer). Offer The clear indication of a person to be bound by the terms of the offer once it is accepted Offeree Offeror Postal Rule A recipient of an offer. A person making an offer. An offer accepted by post (in a letter correctly stamped and addressed) is accepted the moment the letter is dropped into the post box. A person/company who authorises an agent to contract on their behalf An offer can be revoked (cancelled) anytime up to acceptance.

Principal Revocation

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