Law of Contract

1. Law of Contract

2. Learning outcomes • Discuss letters of intent • Offer may be affected by a counter offer • Cite procurement-related examples • Privity of contract and how contracts may be affected. Procurement Management 642

3. Law of contract-issues • Bids, and the formation of contracts. • Contract, offer and acceptance • Battle of the forms (paper war) • Letter of intent • Estimates and quotations • Privity of contract. Procurement Management 642

4. Byrne v Leon Van Tienhoven & Co • Key points • LVT was based in Cardiff and Byrne were in new York. In 1879 it took 10 or so days for a letter to cross the Atlantic ocean • LVT wrote to Byrne on 1 October offering to sell goods subject to acceptance prior to 15 October • Byrne accepted by telegram on 11th and post on 15th • It seems there was a binding contract • Due to price increases LVT had revoked their offer on 8th October by letter (not telegram) • On 20th October Byrne received LVT’s revocation and demanded performance • In Byrne’s view a contract still existed. They had sold on the consignment • LVT maintained there was no contract due to their letter of cancellation Procurement Management 642

5. LVT held • Byrne was always ready to perform • LVT refused to undertake their part of the contract • Byrne succeeded in its claim against LVT. Procurement Management 642

6. Questions arising from LVT[1 of 3] • Can an offer be withdrawn prior to acceptance? • An offer can be withdrawn prior to acceptance • The method of withdrawal can lead to problems. Procurement Management 642

7. Questions arising from LVT[2 of 3] • Is the withdrawal or cancellation of an offer effective from the moment it is done, or from when it is communicated by the offeror to the offeree? • General rule that withdrawal of an offer only effective when communicated to the offeree • The offeree may impose special conditions of communication. Procurement Management 642

8. Questions arising from LVT[3 of 3] • Does the posting of a letter of withdrawal amount to communication of that withdrawal to the offeree? • When postal communication is the accepted mode of communication a contract is formed from the time the letter is posted • In the example it was found that the postal communication was not sufficient and there should have been actual communication or revocation. Procurement Management 642

9. Battle of the forms(paper war) • Acceptance that does not exactly reject the offer is known as a counter offer • When work is finally carried out a court may well rule that the last letter prevails. Procurement Management 642

10. Butler Machine Tool Co Ltd v Ex Cell O Corporation • Key points • Butler quoted a price and delivery conditions. • Contract terms that stated the terms shall prevail over the buyers terms • An order was placed subject to ex cell O’s (ECO) terms and conditions. Eco’s order had a tear off slip that indicated that the supplier accepts the order together with terms and conditions stated • Butler completed and signed the tear off slip and returned it with a covering letter that drew ECO’s attention to their own terms and conditions. Procurement Management 642

11. Ex Cell O held • Found in favour of Butler. Procurement Management 642

12. Points arising from Ex Cell O • The judge did not use traditional analysis • Indicated that certain clauses in butler’s quotation appeared very clear and that they should prevail • Appeal judge overturned the first instance decision. Procurement Management 642

13. Rules for resolving Battle of Forms • In general the party firing the last shot prior to performance of the contract wins the battle • In exceptional circumstances the party firing the first shot may win • In some cases neither one nor two give a satisfactory result • There is a contract and implied mutual terms replace the terms from either party. Procurement Management 642

14. Letter of Intent (LOI) • Delay associated with the signing of a contract • Contractor may request the proprietor to write a letter of intent • Quantum meruit basis for whatever is done Procurement Management 642

15. LOI or Instruction to proceed • LOI simply delays the finalising of the contract document • Instruction To Proceed is • conditional acceptance of a tender • counter offer that requires an unconditional acceptance. Procurement Management 642

16. Turriff Ltd v Regalia Knitting Mills Ltd • Key points • Turriff had tendered for the design and construction of a factory for regalia • Told they were successful and asked for a letter of intent. • "To cover us for the work that we will now be undertaking." • Letter sent stating; “The whole to be subject to agreement on an acceptable contract." • Turriff then carried out the detailed design work necessary to seek planning permission and obtain estimates • Six months later regalia abandoned the project. Procurement Management 642

17. RKM held • Turriff had made it clear they wanted payment for their preparatory work in any event • There was a contract under which Turriff were to be paid. Procurement Management 642

18. British Steel Corp v Cleveland Bridge and Engineering • Key points • Negotiations take place before and after the issue of a letter of intent. • The principal requested performance • The works performed but there was no written (formal) contract. Procurement Management 642

19. CBE held • Letter of intent has no contractual effect • The contractor was entitled to a reasonable sum in restitution. Procurement Management 642

20. Monk Construction Ltd v Norwich Union Life • Key points • As CBE LOI issued, work completed with no formal contract • LOI covered preliminary work, not the main contract work. Procurement Management 642

21. NUL held • Main contract work was to be completed on a quantum meruit basis as restitution. Procurement Management 642

22. Estimates and Quotations • An estimate is an invitation to treat • A quotation is an offer • This distinction is very clear according to law • The distinction often becomes clouded • This point is clearly illustrated by the case of Croshaw v Pritchard. Procurement Management 642

23. Crowshaw v Pritchard • Key points • Pritchard responded to an architect's invitation to tender in competition for work. • Wrote a letter headed "estimate" which stated: "our estimate to carry out the...Alterations to the above premises according to the drawings and specification amounts to $1230". • Crowshaw’s employer replied, "accepting" this figure. • Pritchard withdraw their "estimate" due to a mistake. • Crowshaw sued for the extra cost involved in having the work done by another contractor. Procurement Management 642

24. Pritchard held • The defendants (Pritchard) were liable • Notwithstanding their heading (estimate – “guide price”), their letter was an offer. Procurement Management 642

25. Estimates and Quotations • “Estimate” is commonly used in many industries as a guide price • Consider the facts in Pritchard • The wording of an estimate needs to be very clear to avoid it becoming an offer. Procurement Management 642

26. Privity of Contract • Parties to a contract have rights and obligations under that contract • No person can sue or be sued on a contract without being a party to it. Procurement Management 642