Boots introduced self-service including the purchase of its patent medicines and was prosecuted by the Pharmaceutical Society under the Pharmacy and Poisons Act 1933 which made it illegal to sell certain drugs ‘without the supervision of a registered pharmacist.

Held: no offence had been committed. The medicines on display were merely an invitation to treat. The customer made an offer when handing the goods to the checkout operator. A pharmacist was present at this point and could refuse the customer’s offer if appropriate.

The defendant shopkeeper displayed a ‘flick knife’ (knife with a retractable blade) in his shop window and was charged with offering for sale an offensive weapon in breach of the Restriction of Offensive Weapons Act 1959, s 1(1).

Held: he was not guilty since, in contract law, a display of goods is an ‘invitation to treat’ and not ‘an offer for sale’.

The defendant put an advertisement in a magazine saying ‘Bramble finch cocks and hens 25 shillings each’. The Wild Birds Act 1954 made it a criminal offence to offer such birds for sale and he was convicted of the offence and appealed.

Held: the defendant was found not guilty since he had not made an offer but merely encouraged others to do so. Lord Parker stated there was ‘business sense’ in such adverts generally being interpreted as invitations to treat.

The defendants advertised a sale by tender of the stock in trade belonging to Eilbeck & Co. The advertisement specified where the goods could be viewed, the time of opening for tenders and that the goods must be paid for in cash. No reserve was stated. The claimant submitted the highest tender, but the defendant refused to sell to him.

Held:
Unless the advertisement specifies that the highest tender would be accepted there was no obligation to sell to the person submitting the highest tender. The advert amounted to an invitation to treat, the tender was an offer, and the defendant could choose whether to accept the offer or not.
http://www.e-lawresources.co.uk/Spencer-v-Harding.php

The defendants published an advertisement, which claimed that their product would prevent influenza, and promised that they would pay £100 to any person who, having used the product correctly, still caught influenza. The advertisement also stated that £1,000 had been placed in a separate bank account to ‘show their sincerity in the matter’. Mrs Carlill bought a smoke ball from her local chemist. When she became ill with influenza despite regularly sniffing her smoke ball as instructed, she claimed £100 from the manufacturers.

Held: the advertisement was a unilateral offer by the manufacturers to the world at large. This could be accepted by any person who knew of it and who contracted influenza after using the product as directed. The £1,000 bank deposit showed intention to enter a contract and was evidence that the advertisement was not just puffing the goods.

The claimant had submitted the highest (and only) bids at an auction stated to be without reserve. The items were two Alan Smart engine analysers which were worth £14,000. The claimant had submitted bids of £200 each. The auctioneer refused to sell them at that price. The claimant brought an action for breach of contract claiming damages of £27,600.

Held:

The claimant was entitled to damages. Where an auction takes place without reserve the auctioneer makes a unilateral offer which is accepted by submitting the highest bid. There was thus a binding contract and the claimant entitled to damages covering the loss of bargain.

The facts: Brokers for Golden Ocean and SMI exchanged a number of emails in which the terms of a charter party by SMI’s Singaporean chartering arm, Trustworth, were negotiated, but were never formalised into a written agreement. Emails early in the exchange had stated that the charter would be ‘fully guaranteed’ by SMI. When Trustworth refused to take delivery, Golden Ocean sued SMI on the guarantee.

Held: The Court of Appeal recognised that contracts are often negotiated informally by email (particularly in the shipping industry) and held that a single document was not necessary. Nor was it material that no documents had been signed in the traditional way. The typed name of the broker for SMI in the final email had clearly signified his agreement to all negotiated terms and constituted a valid signature.

The council sent their tenants details of a scheme for the sale of council houses. The plaintiff immediately replied, paying the £3 administration fee. The council replied: “The corporation may be prepared to sell the house to you at the purchase price of £2,725 less 20 per cent. £2,180 (freehold).” The letter gave details about a mortgage and went on “This letter should not be regarded as a firm offer of a mortgage. If you would like to make a formal application to buy your council house, please complete the enclosed application form and return it to me as soon as possible.” G filled in and returned the form. Labour took control of the council from the Conservatives and instructed their officers not to sell council houses unless they were legally bound to do so. The council declined to sell to G.

Held:
In the House of Lords, Lord Diplock stated that words italicised seem to make it quite impossible to construe this letter as a contractual offer capable of being converted into a legally enforceable open contract for the sale of land by G’s written acceptance of it. It was a letter setting out the financial terms on which it may be the council would be prepared to consider a sale and purchase in due course.
https://www.australiancontractlaw.info/cases/database/gibson-manchester

Facts:
Walter Carwardine was murdered in Hereford. The plaintiff, Mrs Williams, gave evidence at the Hereford Courts of Assize against two suspects, but withheld information. The suspects were subsequently acquitted. On April 25, 1831, the victim’s brother and defendant, Mr Carwardine, published a handbill stating there would be a £20 for whoever would give such information as would lead to the conviction of the murderer of his brother.
It was apparent that after the first murder trial, Mrs Williams had been savagely beaten by Mr Williams. Mrs. Williams believed that she did not have long to live and in order to ease her conscience, she gave a statement that led to conviction of Mr. Williams for the murder of Walter. Afterwards, she tried to claim the reward, but Mr Carwardine refused to pay.

Issue:
Was there a contract whereby D (the defendant) was obligated to pay P (the plaintiff) the money promised?

Ratio:
There can be a contract with any person who performed the necessary condition(s) in an advertisement. All that was necessary to fulfil the contract was that she knew of the reward before giving the information (even if her only motive to give the information was for the reward).

Analysis:
At the trial Mrs. Williams’ motives were examined. It was found that she knew about the reward, but that she did not give information specifically to get the reward.
Anyone who brought themselves within the terms of the advertisement was entitled to the reward. It was an offer to the whole world.
Where a party is apprised of an offer of a reward, it goes to her account that she performed the requested act (acceptance) for some motive other than for gaining the reward.

See: Carlill v Carbolic Smoke Ball: Mrs. Carlill in sniffing the smoke ball was essentially to avoid catching influenza, NOT the reward in offer. But the court held that she was entitled to the “reward” because she was aware that it was promised/offered by the Smoke Ball Co.

Holding:
Plaintiff was successful.

Comments:
Does this mean that one can be party to contract, i.e., accept an offer even though one has no knowledge of the offer?

Not necessarily so. In one report Denman, C.J. asked if she knew of the advertisement/offer at the time of giving the information … and it was said (presumed) that she must have known because the poster was printed all over the place where she lived.
https://finlawportal.com/williams-v-carwardine-1833-a-case-summary

———————–
The plaintiff gave evidence to the court out of bitterness to her boyfriend and not necessarily out of a duty to society. On this basis, the police refused to give her the reward.
However, the court concluded that knowledge of the reward was important and her motives for providing evidence were not relevant. What’s important is that the plaintiff was aware of the reward before giving evidence and therefore was entitled to it.

Facts:
Clarke sued the Crown to recover a reward of £1000 for giving information that led to the arrest of persons who murdered two police officers.
It was found as of fact that Clarke was not acting in reliance of the reward when he gave the information “but exclusively in order to clear himself from a false charge of murder”.

Issue:
Did the information supply by Clarke amount to acceptance of the offer of £1000 by the Crown?

Ratio:
The intention of the offeree to consistently/unwaveringly desire a reward is necessary to be sufficiently ‘aware’ of the reward when giving the information to meet the condition of the reward. If the purpose of giving the information is for a purpose or goal that is not specifically to accept the reward, no contract is made, and the reward cannot be claimed.

Analysis:
Information was exclusively given in response to or as an incidence of specific criminal charge against the respondent and not regarding the reward.
Clarke did not seem to have any thoughts of the offer at the time he gave the information. Therefore, even though he knew about the reward, he did not act in any sense in reliance on the offer of £1000.
Because the Plaintiff was so concerned about his criminal charge, his intention to give the information was regarding the criminal charge and not to accept the offer.

Holding:
Clarke had neither a legal nor a moral claim to the reward. The defendant (the crown) was successful.
https://www.australiancontractlaw.info/cases/database/crown-v-clarke

——————
Comments
The plaintiff made a claim for the reward after being made aware of it, after giving evidence that was sufficient to arrest the remaining gang members. So, his claim was rejected by the police.
The court said that knowledge of the reward was important, and the plaintiff was not aware of it before giving evidence. The plaintiff was only concerned about himself to avoid the gallows.

The defendant offered to sell his house to the claimant and promised to keep the offer open until Friday. On the Thursday the defendant accepted an offer from a third party to purchase the house. The defendant then asked a friend to tell the claimant that the offer was withdrawn. On hearing the news, the claimant went round to the defendant‘s house first thing Friday morning purporting to accept the offer. He then brought an action seeking specific performance of the contract.

Held:

The offer had been effectively revoked. Therefore, no contract existed between the parties. There was no obligation to keep the offer open until Friday since the claimant had provided no consideration in exchange for the promise. 

The offeror is free to withdraw the offer at any time before acceptance takes place unless a deposit has been paid.

http://www.e-lawresources.co.uk/Dickinson-v-Dodds.php

Byrne v. Van Tienhoven (1880)

Facts:

On 1 October, the defendant (D) mailed an offer to plaintiff regarding tin plates.
On 8 October, the defendant (D) mailed a revocation of the offer.
On 11 October, the plaintiff (P) received the original offer and immediately telegrammed acceptance of it.
On 15 October, the plaintiff (P) confirmed acceptance by mail.
On 20 October, the plaintiff (P) received a letter of revocation; the plaintiff (P) then sued the defendant (D) for breach of contract.

Issue(s): 

Was a valid contract formed?

Does a withdrawal of an offer have any effect before it is communicated to the person to whom the offer was sent?

Ratio: 

The mailbox rule (postal rule) does not apply to revocation; revocation sent by post does not take effect until received by the offeree. An offer cannot be revoked after it has been accepted.

Analysis: 

An uncommunicated revocation is no revocation at all.

Normally, acceptance occurs when the letter is delivered to the post office or put into the post box. However, that is inapplicable to the withdrawal of an offer. There is no legal principle stating that revocation occurs when the letter is posted. Therefore, the offer was accepted on 11 October. An offer cannot be revoked after it has been accepted.

Holding: 

The court decided in favour of the plaintiff.

https://www.oxbridgenotes.co.uk/law_cases/byrne-v-van-tienhoven

The defendant offered to sell a farm to the claimant for £1,000. The claimant in reply offered £950 which the defendant refused. The claimant then sought to accept the original offer of £1,000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance.

Held:
There was no contract. Where a counteroffer is made this destroys the original offer so that it is no longer open to the offeree to accept.

http://www.e-lawresources.co.uk/Hyde-v-Wrench.php

The defendant offered to purchase shares in the claimant company at a certain price. Six months later the claimant accepted this offer by which time the value of the shares had fallen. The defendant had not withdrawn the offer but refused to go through with the sale. The claimant brought an action for specific performance of the contract.

Held: 
The offer was no longer open because due to the nature of the subject matter of the contract, the offer lapsed after a reasonable period of time. Therefore, there was no contract and the claimant’s action for specific performance was unsuccessful.

http://www.e-lawresources.co.uk/Ramsgate-Victoria-Hotel-v-Montefoire.php

———————–
Comments

– Shares advertised in a prospectus indicate an invitation to treat to purchase shares.

– If an offer is made and no communication of the acceptance is made within a reasonable time, the offer will lapse.

– The court will therefore agree with the defendant

On Saturday, the defendant offered to sell iron to the plaintiff at 40 shillings a ton, open until Monday. On Monday at 10am, the plaintiff sent a telegram asking if he could have credit terms. At 1.34pm the plaintiff sent a telegram accepting the defendant‘s offer, but at 1.25pm the defendant had sent a telegram: ‘Sold iron to third party’ arriving at 1.46pm. The plaintiff sued the defendant for breach of contract and the defendant argued that the plaintiff‘s telegram was a counter-offer so the plaintiff‘s second telegram could not be an acceptance.

Decision:
It was held that the plaintiff‘s first telegram was not a counter-offer but only an enquiry, so a binding contract was made by the plaintiff‘s second telegram.
https://www.oxbridgenotes.co.uk/law_cases/stevenson-v-mclean

The plaintiffs sent a telegram to the defendant, “Will you sell Bumper Hall Pen? Telegraph lowest cash price”.
The defendant‘s reply was “Lowest price £900”.
The plaintiffs telegraphed “We agree to buy… for £900 asked by you”.

It was held by the Privy Council that the defendant’s telegram was not an offer but simply an indication of the minimum price the defendants would want, if they decided to sell. The plaintiff’s second telegram could not be an acceptance.

http://www.e-lawresources.co.uk/Harvey-v-Facey.php

Comments

The defendant did not make an offer concerning selling at the lowest price. He merely responded to a request for information from the plaintiff.

JM Leigh requested Bradbury & Co to give credit to HJ Leigh, his brother. JM Leigh guaranteed his brother’s account to the extent of £100. Bradbury thereafter credited HJ Leigh in the usual way of their business. JM Leigh died but Bradbury, having no notice or knowledge of his death, continued to supply HJ Leigh with goods on credit. JM Leigh’s executors (Morgan) refused to pay, arguing that they were not liable as the debts were contracted and incurred after the death of JM Leigh and not in his lifetime.

Decision:

Judgment was given for the plaintiffs, Bradbury.

Key point
This case suggests that contracts cannot be automatically revoked by death of the offeror alone and notice must be given to the offeree
However, where there is an offer of an unilateral contracts, such contract is automatically revoked by death of the offeror alone

Bradbury v Morgan (1862) 1 H. & C. 249

The claimant agreed to be a courier for the defendant for 3 months starting on 1st June 1852. On the 11th May the defendant wrote to the claimant stating he no longer wanted his services and refused to pay compensation. The claimant obtained a service contract elsewhere but this was not to start until 4th July. The claimant brought an action on 22nd May for breach of contract. The defendant argued that there was no breach of contract on 22nd May as the contract was not due to start until 1st of June.

Held:
Where one party communicates their intention not to perform the contract, the innocent party need not wait until the breach has occurred before bringing their claim. They may sue immediately or they can choose to continue with the contract and wait for the breach to occur.
http://www.e-lawresources.co.uk/Hochster-v-De-la-Tour.php

The crankshaft broke in the claimant’s mill. He engaged the services of the defendant to deliver the crankshaft to the place where it was to be repaired and to subsequently return it after it had been repaired. Due to the neglect of the defendant, the crankshaft was returned 7 days late. The claimant was unable to use the mill during this time and claimed for loss of profit. The defendant argued that he was unaware that the mill would have to be closed during the delay and therefore the loss of profit was too remote.

Held:
The damages available for breach of contract include:

Those which may fairly and reasonably be considered arising naturally from the breach of contract or

Such damages as may reasonably be supposed to have been in the contemplation of both parties at the time the contract was made.
If any special circumstances exist which were actually communicated to the defendant, the claimant may recover any damages which would ordinarily follow from a breach of contract under the special circumstances communicated.
http://www.e-lawresources.co.uk/cases/Hadley-v-Baxendale.php

Comment

In this case in law, the claimant has to prove that there was a loss caused by the defendant.
The claim failed on (1) above in the decision by the court, because this was not a natural consequence of the breach because the claimant could have a spare crank shaft to use until the repair is complete

The claimant purchased a large boiler for use in their dying and laundry business. The defendant was aware that they wished to put it to immediate use and knew the nature of their business. The delivery of the boiler was delayed in breach of contract and the claimants brought an action for the loss of profit which the boiler would have made during the period in which the delivery was delayed. The claim contained a sum for a particularly lucrative contract which they lost due to the absence of the boiler.

Held:
The claimants could only recover losses which were in the reasonable contemplation of the parties which included the loss of profit that could be expected from the lack of use of the boiler, but the claimant could not recover for the loss of the exceptionally lucrative contract since the defendant was unaware of this contract.
http://e-lawresources.co.uk/cases/Victoria-Laundry-v-Newman.php

The claimant, Anglia Television, engaged Oliver Reed to play the leading role in a television play. Subsequently, Reed pulled out and Anglia was unable to find a replacement. They abandoned the play but had incurred expenses amounting to £2,750.

Held:
Whilst damages generally seek to put the parties in the position they would have been in had the contract been performed, the parties may elect to claim reliance loss and recover expenses incurred in an abortive transaction. Thus, Anglia was able to recover their expenses from the defendant.
Source: http://www.e-lawresources.co.uk/cases/Anglia-Television-v-Reed.php
So far in the cases in law above, you can see that they illustrate damages are about compensation for financial loss.

Mr Jarvis, a solicitor, booked a 15-day ski-ing holiday over the Christmas period with Swan Tours. The brochure in which the holiday was advertised made several claims about the provision of enjoyment relating to house parties, a friendly welcome from English speaking hotel owner, a variety of ski–runs, afternoon tea and cakes and a Yodler evening. Many of these either did not go ahead or were not as described.

Mr Jarvis brought a claim for breach of contract based on his disappointment. At trial, the judge awarded him £30 damages on the basis that he had only been provided with half of what he had paid for and that no damages could be recovered for disappointment. Mr Jarvis appealed.

Held:
Where a contract is entered for the specific purpose of the provision of enjoyment or entertainment, damages may be awarded for the disappointment, distress, upset and frustration caused by a breach of contract in failing to provide the enjoyment or entertainment.
Source: http://www.e-lawresources.co.uk/cases/Jarvis-v-Swan-Tours-1972.php

By the terms of the contract, the defendant was to deliver goods to the claimant on a monthly basis and the claimant was to pay for the goods within one month of delivery. The contract was to run for nine months. The claimant received the goods at a discounted price because he had committed to purchase from the supplier over the nine-month period.

The claimant was late in making the first instalment (This amounted to a breach of warranty not entitling the defendant to repudiate the contract). The defendant refused to continue with the original contract but told the claimant that he would deliver the goods in future if the claimant paid cash on delivery and would still let him have the goods at the discounted price. The claimant rejected this offer and purchased the good elsewhere at a higher price. He then sued the defendant claiming the difference between the contractually agreed price and what he actually paid for them.

Held:

The claimant was not entitled to damages. He was given the opportunity to purchase at the discounted price but rejected this. He was under a duty to take reasonable steps to mitigate his loss. The offer was a reasonable one and one which the claimant could easily have complied with.
Source: http://e-lawresources.co.uk/cases/Payzu-v-Saunders.php

Ford was a car manufacturer. It agreed to sell cars to Armstrong, a car dealer, for on sale. In return, Armstrong agreed not to resell any car or any car part at a price under a listed price; not to resell the goods to other dealers; and not to exhibit a car without Ford’s permission. Further, Armstrong agreed to pay Ford £250 in ‘agreed damages’ for any breach. Armstrong sold five cars at a price below that listed by Ford. A dispute ensued as to the terms validity.

The facts: D had undertaken not to sell C’s cars below list price, not to sell Ford cars to other dealers and not to exhibit any Ford cars without permission. A £250 penalty was payable for each breach as being the agreed loss which C would sustain.

Decision: A majority of the English Court of Appeal held the clause was penal. Since the same sum was payable for different kinds of loss and was considered to be arbitrary and excessive, it was not a genuine pre-estimate loss, which took into account the cost of alternative accommodation and could not be described as a penalty.

Source: ICAEW (2021), Law Study Manual, 14th Edn.
https://ora.ox.ac.uk/objects/uuid:4bdd452a-08cf-42cd-a1eb-8b3be516c4f5/download_file?file_format=application%2Fpdf&safe_filename=DPhil%2BThesis%2B-%2BDissemination%2BVersion%2B%2819-7-16%29.pdf&type_of_work=Thesis

The claimant, Dunlop, manufactured tyres and distributed them to retailers for resale. The contract between Dunlop and New Garage contained a clause preventing New garage from selling the tyres below the list price. In the event that they were in breach, the contract specified that £5. would be payable for each tyre sold below the list price. The defendants sold some tyres below the list price and the claimant brought an action for damages based on the amount specified in the contract. The defendant argued that the relevant clause was a penalty clause and thus unenforceable. The trial judge held it was a liquidated damages clause and awarded the claimant £5 per tyre. The Court of Appeal reversed this holding that the clause was a penalty clause and awarded the claimant £2 per tyre representing the actual loss suffered. The claimant appealed to the House of Lords.

Held:

The clause was a liquidated damages clause, not a penalty clause.

Lord Dunedin set out the differences between a liquidated damages clause and a penalty clause:

Though the parties to a contract who use the words “penalty” or “liquidated damages” may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.

The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y Castaneda)

The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach (Public Works Commissioner v. Hills and Webster v. Bosanquet)

To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (Illustration given by Lord Halsbury in Clydebank Case)

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kemble v. Farren)This though one of the most ancient instances is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, – a subject which much exercised Jessel M.R. in Wallis v. Smith.

(c) There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage” (Lord Watson in Lord Elphinstone v. Monkland Iron and Coal Co)

(d) On the other hand: It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties (Clydebank Case, Lord Halsbury; Webster v. Bosanquet, Lord Mersey).

Source: http://www.e-lawresources.co.uk/Offer-and-acceptance-contract.php

The facts: A husband and wife booked a hotel room in advance. As they entered their bedroom, they saw an exclusion clause notice on the wall by which the hotel disclaimed liability for loss of valuables, unless handed to the management for safe keeping. A thief got hold of the key and stole the wife’s fur from the bedroom.

Decision: The court held that the exclusion clause was invalid since the contract had been made when they checked in and the disclaimer was too late.

The courts will often interpret any ambiguity in the clause against the person, who uses the exclusion clause as a defence, especially once an exclusion clause can be shown to be part of the terms.

The facts: D entered into a contract to guard C’s factory. The contract purported to exclude D from liability for damage caused by any of their employees.
One of the guards deliberately started a small fire which destroyed the factory and contents.
C argued that D could not rely on any exclusion clause in the contract because they had completely failed to carry out their contract.

Decision: The court held that there is no principle that total failure to carry out a contract deprives the party at fault, of any exclusion from liability provided by the contract.
The exclusion clause in this case was drawn up widely enough to cover the damage which had happened.

A principal instructed his agent to buy shares in a particular company. Unknown to the principal, the agent owned some shares in the company and sold these to the principal instead of obtaining them elsewhere.

Held: the agent had failed to avoid a conflict of interest and must pay the principal the profit obtained on the sale.

The facts: D agreed to store C’s furniture in his storage. After a considerable time had elapsed D needed the storage space for his own use. Unable to trace C, he sold the furniture and C sued him for conversion. D pleaded agency of necessity in making the sale.

Decision: The court held that there was no agency of necessity, since the furniture was not in imminent danger and D had sold the furniture for his own convenience. The court also held that if D’s house had been destroyed by fire and the furniture left in the open, then D would then be justified in selling it.
Source: ICAEW (2021) Law Study Manual 14th Edn.

P employed D, a stockbroker, to buy some shares for him. The fact is that D actually sold his own shares to P instead of obtaining them elsewhere. It was held that P could terminate the contract.

It obviously shows the conflict between duty and interest, as the agent’s interest as a seller, was to sell at the highest possible price but, his duty as an agent, was actually to buy at the lowest possible price. The agent had failed to avoid a conflict of interest and must pay the principal the profit obtained on the sale.

Source: Armstrong v Jackson 1917, see Adams, A., Caplan, S., & Lockwood, G. (2020). Law for business students (11th ed.). Pearson Education. [accessed 9 January 2016]

The facts: K and H are in partnership business as property developers. H lived abroad and the business of the company was left entirely under the control of K. As a director, K had no actual or apparent authority to enter
into contracts as agent of the company and he was never formally approved as managing director. However, H and the other two directors allowed him to act as if he were MD, contracting on the company’s behalf. The claimants sued the company for work done on K’s instructions.

Decision: The court held that although there had been no actual authority and delegation, the company had, by its directors’ agreement, led the claimants to believe that K was the MD and, as such, was authorised to act as agent and the claimants had relied on it. Therefore, the company was bound by the contract made by K under the principle of ‘holding out’ (or ‘estoppel‘).
The company was estopped from denying that K was its agent. Although K had no actual authority to contract on behalf of the company, he had ostensible, or apparent, authority to do so.
Source: ICAEW (2021), Law Study Manual, 14th Edn.

Salomon conducted his business as a sole trader. He sold it to a company incorporated for the purpose called Salomon and Co Ltd. The only members were Mr Salomon, his wife, and their five children. Each member took one £1 share each. The company bought the business with a purchase price of £38,782: Mr Salomon subscribed for 20,000 shares at £1 each, £10,000 issue of debentures and gave him a floating charge on its assets, for example a secured creditor, and the remainder in cash.
When the company failed the company’s liquidator contended that the floating charge should not be honored, and Salomon should be made responsible for the company’s debts.
Lord Halsbury LC stated (at 30-31):
“… it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.”
From this case comes the fundamental concept that a company has a legal personality or identity separate from its members. A company is therefore a legal ‘person’.
Source: https://www.academia.edu/19605685/Salomon_v_Salomon_Case_Summary [accessed 20 January 2023]

Let’s see more details on the courts’ decision:
Decision
The Court of Appeal held that since the other shareholders were ‘mere puppets’ and that the company had been irregularly incorporated, Salomon should indemnify the company against its liabilities. The Supreme Court however held that the business was owned by, and its debts were liabilities of, the company. The claimant was under no liability to the company or its creditors, his debentures were validly issued, and the security created by them over the company’s assets was effective. This was because once the company had been found to have been formed in compliance with the formal procedures set out in the Companies Act the company was regarded as a legal entity in its own right, notwithstanding the dominant position of Salomon within the company.
Source: ICAEW (2016) Law Study Manual 2016, 10th Edn

The owner of a timber estate sold all the timber to a company which was owned almost solely by him. He was the company’s largest creditor. He insured the timber against fire, but in his own name. After the timber was destroyed by fire the insurance company refused the claim.

The House of Lords held that in order to have an insurable interest in property a person must have a legal or equitable interest in that property. The claim failed as “the corporator even if he holds all the shares is not the corporation… neither he nor any creditor of the company has any property, legal or equitable, in the assets of the corporation.” (per Lord Wrenbury, at pg 633).

Source: http://ijssm.org/vol_3/Waqas_and_Rehman_3.1.pdf [Accessed 20 January 2023]

An American company, Akron, formed a wholly-owned subsidiary in Brentford, London for the purpose of manufacturing tyres and distributing them to their European customers. This subsidiary was wholly controlled by Akron, as they were responsible for obtaining the orders. Clause 4 of the agreement between the parent and the subsidiary provided that the subsidiary having received its costs plus a 5% commission would transfer the balance of the selling price/profit back to Akron. When Akron was assessed for UK tax on its profits, it claimed that it was a separate entity from the UK subsidiary company.

Held:
The Court in lifting the corporate veil held that the UK subsidiary had acted as an agent of Akron, and therefore Akron was liable to pay tax on all UK profits.

As per Evershed L.J. the rationale for this conclusion was that the London subsidiary:

“… though a separate entity, is in fact wholly controlled by Akron, and in the making of what may be described as Akron proprietory branded articles it acts under the close direction of Akron in all respects, and in selling those articles to Akron’s customers it does so on terms fixed by Akron so that after allowing Brentford its costs and a percentage thereon the whole of the profits on the transactions go to Akron.”

Facts
Smith, Stone and Knight Ltd (SSK) owned some land, as a subsidiary company of Birmingham Waste Co Ltd (BWC). BIRMINGHAM CORPORATION (BC) issued a compulsory purchase order on this land. Any company which owned the land would be paid for it, and would reasonably compensate any owner for the business they ran on the land. Since the subsidiary company (SSK) of (BWC) did not possess the land, Birmingham Corporation (BC) claimed that SSK was entitled to no compensation.

Held:
The courts held that the subsidiary company was an agent and BC must pay compensation. In Smith, Stone and Knight Ltd case Atkinson J, lifted the veil to enable a subsidiary company operating business on land owned by the holding company to claim compensation on the ground of agency.

In Kelner v Baxter, where the promoter on behalf of an unformed company accepted an offer of Mr. Kelner to sell wine, subsequently, the company failed to pay Mr. Kelner, and he brought the action against the promoters.

Erle CJ found that the principal-agent relationship cannot be in existence before incorporation, and if the company was not in existence, the principal of an agent cannot be in existence. He further explains that the company cannot take the liability of the pre-incorporation contract through adoption or ratification; because a stranger cannot ratify or adopt the contract and the company was a stranger because it was not in existence at the time of the formation of a contract. So he held that the promoters are personally liable for the pre-incorporation contract because they are the consenting party to the contract.
Source: https://www.lawteacher.net/free-law-essays/contract-law/pre-incorporation-contracts-and-the-promoter.php [Accessed 20 January 2023]

In the case of Eley v Positive Government Security Life Assurance Co Ltd, the articles stated that Mr. Eley was to be the company’s solicitor. Mr. Eley later became a member. The directors then chose to use other solicitors and Eley sued for breach of the statutory contract on the term of the articles.

Held
It was held that Eley could not enforce the provision in such a way, as he was attempting to enforce his rights as a solicitor, not as a member. The court rules that the provision in the articles was “either a stipulation which would bind the members or else a mandate to the directors. In either case, it is a matter between the directors and shareholders, and not between them and the plaintiff”

Source: https://www.lawteacher.net/free-law-essays/contract-law/contract-between-company-and-members.php [accessed 5 May 2017]

Facts:
The defendant owned a hotel pub that employed Humble to manage the establishment. Humble was the exclusive face of the business; Humble’s name was on the bar and the license of the pub. Defendant explicitly instructed Humble not to make any purchases outside of bottled ales and mineral waters, but Humble still entered into an agreement with Plaintiff for the purchase of cigars. Plaintiff discovered that Defendant was the actual owner and brought an action to collect from Defendant.

Issue:
The issue is whether Defendant is liable for damages resulting from an agreement between Plaintiff and Humble, who is knowingly acting outside his actual authority as an agent for Defendant

Held:
The defendant is liable for damages. Humble was acting with an authority that was inherently reasonable for an agent in that position. The situation is analogous to a partnership wherein one partner is silent but is still liable for actions of the partnership as a whole.

Source: http://www.casebriefs.com/blog/law/corporations/corporations-keyed-to-klein/agency/watteau-v-fenwick/

The facts: K and H are in partnership business as property developers. H lived abroad and the business of the company was left entirely under the control of K. As a director, K had no actual or apparent authority to enter
into contracts as agent of the company and he was never formally approved as managing director. However, H and the other two directors allowed him to act as if he were MD, contracting on the company’s behalf. The claimants sued the company for work done on K’s instructions.

Decision: The court held that although there had been no actual authority and delegation, the company had, by its directors’ agreement, led the claimants to believe that K was the MD and, as such, was authorised to act as agent and the claimants had relied on it. Therefore, the company was bound by the contract made by K under the principle of ‘holding out’ (or ‘estoppel‘).
The company was estopped from denying that K was its agent. Although K had no actual authority to contract on behalf of the company, he had ostensible, or apparent, authority to do so.
Source: ICAEW (2021), Law Study Manual, 14th Edn.

The Facts
In December 1991 Mr Robinson and his wife entered into a contract with P.E. Jones (the contractors) for the purchase of a house then still under construction. The contract incorporated building conditions between the parties which provided (at clause eight) that the parties would enter into a standard form NHBC agreement (1986 edition). This provided a ten-year warranty for certain structural defects. Clause 10 further provided that the builder would not be liable for any defect, error or omission in the execution or completion of the work, save to the extent and for the period it was liable under the provisions of the NHBC agreement.

The works were completed in April 2002 and the Robinson family moved into the property. In September 2004 a British Gas service engineer attended to service the gas fires at the property and disconnected them for safety reasons as they had a “poor flue run”. A surveyor later reported that the flues had not been constructed in accordance with good building practice and the relevant Building Regulations. Substantial remedial works were required at a cost of £35,000.
Proceedings were finally commenced in 2006 (in the County Court) following extensive correspondence. Mr Robinson claimed for the cost of the remedial works and general damages for loss of use of the gas fires in both contract and/or tort.
Two and a half years later (following the transfer of the case to the Manchester TCC), the claim was struck out on the basis that any tortious duty had been excluded by contract and the claim under contract was statute barred.

Mr Robinson appealed.

The Issues
Can a builder owe his client a concurrent duty of care in tort in relation to pure economic loss and did the contractors owe a duty to prevent pure economic loss on the facts?
Did the limitation provisions within the contract satisfy the reasonableness requirements in sections 2 (2) and 3 of UCTA?

The Decision
In relation to the issue of whether a builder can owe his client a concurrent duty of care in tort, the court held that they could. In accordance with Henderson vs Merrett Syndicates there was no reason why the existence of a contract should prevent a tortious duty from arising. The law does not however automatically impose upon every contractor tortious duty of care that are co-extensive with the contractual terms and carry liability for economic loss. The tortious duty imposed on a contractor is in general much more limited namely to take care to protect the client (and others who would foreseeably own or use the property) from personal injury or damage to other property.

The court went on to hold that there could only be a liability for pure economic loss if there had been an assumption of responsibility along the lines of that in Hedley Byrne coupled with reliance by the owner. There was nothing on these facts to suggest there had been such an assumption of responsibility. There was no professional relationship and the builder had not provided any professional reports to the Robinson family. Lord Justice Jackson was of the opinion that, even if clauses 8 and 10 had not existed, he would have been disinclined to find that the contractors owed Mr Robinson a duty of care to prevent economic loss in these circumstances.

The court further held that the provisions of clauses 8 and 10 and the NHBC agreement passed the UCTA reasonableness tests. The NHBC agreement did not provide total protection for defects, but it did provide very substantial benefits. This included substantial protection in the event that a builder became insolvent. It was therefore “quite impossible” to say that the terms of the NHBC agreement were unreasonable.

Comment
This case finally provides Court of Appeal guidance on the thorny issue of the extent to which contractors owe duties of care which are co-extensive with their contractual liabilities. Whilst there is no reason why in principle a builder cannot owe tortious duties of care alongside their contractual liabilities, it is clear that absent an assumption of responsibility, these will be limited to a duty to protect the client (and those who foreseeably own or use the property) from personal injury or damage to other property.

Practitioners should also take note of Lord Justice Jackson’s warning regarding the need to issue claims in the appropriate forum. As Lord Justice Jackson stated:
“I deplore the fact that this litigation ran on for two and a half years before it was transferred to the Technology and Construction Court and placed before a judge with appropriate expertise.”
Even where claims are for modest amounts, they should still be issued in the TCC if their subject matter falls within the meaning of TCC Claim under the CPR.

Case Details:
James Andrew Robinson vs P.E. Jones (Contractors) Limited, Lord Justice Jackson
http://www.building.co.uk/duty-of-care-in-tort-james-andrew-robinson-vs-pe-jones/5013319.article

Facts: 

Friend of Donoghue (P) purchased a dark, opaque bottle of ginger-beer and gave it to P. P drank some before her friend discovered a decomposed snail in the bottle. P sued the manufacturer for psychological harm (shock) and gastroenteritis (stomach flu).

Issue(s): 

Does the manufacturer of a product have a legal duty to the consumer to take reasonable care that the product is free from defect likely to cause injury?

Ratio: (ratio decidendi)

Classical neighbour principle:

The manufacturer of a product has a legal duty to the consumer to take reasonable care that the product is free from defect likely to cause injury.

Analysis: 

Majority:
→ Classical neighbour principle: you must not injure your neighbour – where a neighbour is any person so directly affected by your act that you must keep them in mind when acting or omitting to act.
→ The manufacturer put food into a container with the intention of having it be opened by a consumer; the consumer could not inspect the contents because of the type of container. The relationship is close enough for a duty of care to arise. Therefore, the manufacturer demonstrated negligence when a snail was allowed into the bottle.
→ Also, a consumer should have recourse against a manufacturer that provides a flawed product to the consumer – to deny such a legal remedy would be a social wrong.

Minority (Dissent):
→ There is no special duty attaching to the manufacture of food found in statute, and there was no contract between the consumer and the manufacturer.
→ It is a slippery slope to say that a manufacturer should be responsible for all the subsequent uses and consequences of its products.
→ It would not be practical for the manufacturer to be responsible for the quality of every single item it produces.

Holding: 

Appeal allowed in favour of the plaintiff.

Comments: 

Lord Atkin:
→ “The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer’s question, ‘Who is my neighbour?’ receives a restricted reply.
You must take reasonable care to avoid acts or omissions which you reasonably foresee would be likely to injure your neighbour.
Who, then, in law is my neighbour? The answer seems to be – persons who are so closely and directly affected by my act that I ought reasonable to have them in contemplation as being so affected when I am directing my mind to the acts or missions which are called into question.”

Source: http://casebrief.me/casebriefs/malister-donoghue-v-stevenson/