In this report, the following issue will be discussed: • Different types of business agreement and the importance of key elements • Rules of offer and acceptance • The importance of contracting parties having appropriate legal capacity to enter into a binding agreement • Specific contract terms with reference to their importance and impact • The Law on standard form of contracts • The effect of exemption clauses in attempting to exclude contractual liability
COMMON LAW Transmitted to: North Shore Law Firm Prepared for: Ms Doti Chee (Lecturer) Unit 5: Common law Banking Academy, Hanoi BTEC HND in Business (Finance) Prepared by: Kim Thai Ha - Kim Registration No.: ITP F02-50 (F02A) December 2010 Executive Summary My clients, Mr Robinson has come and is seeking advice on several claims and legal issues which have recently arisen Therefore, as being a legal executive of a solicitors firm, my responsibilities is to come up a legal report form for Mr Robinson The report provides a general discussion on Mr Robinson problems The report is the analysis and suggestion on several claim and legal issues is given, allowing Mr Robinson to understand his legal position This report contains 4 claims arise from Mr Robinson and 1 claim arises from Emily who is a 16 years old minor The five claims are as follow: • Claim 1: The claim between Mr Robinson and Alvin and Nguyen • Claim 2: The claim between Mr Robinson and the Carpenter, Douglas • Claim 3: The claim of Emily as a minor with the London South Bank, supplier of equipments, dancing and singing teacher and mobile telephone company • Claim 4: The claim between Robinson and Yen on the supply of mixed seafood • Claim 5: The claim between Robinson and Sam who was injured in Mr Robinson’s restaurant In each claim, Robinson and Emily have been gotten different effect by different kind of contracts and rules, such as voidable contract, valid contract, unenforceable contract, Unfair Contract Terms, fundamental breach, etc Introduction This report is the discussion on the law of contract Everyday, we enter into many contracts with each other, therefore, understanding the law of contract is very important The report will point out the seven essential elements of a valid contract, as well as specific terms in a business contract In terms of the essential elements, it is important to provide agreement, consideration and intention, capacity and form In business contract, the law of contract classifies the different terms in a contracts as well as exclusion clause In this report, the following issue will be discussed: • Different types of business agreement and the importance of key elements • Rules of offer and acceptance • The importance of contracting parties having appropriate legal capacity to enter into a binding agreement • Specific contract terms with reference to their importance and impact • The Law on standard form of contracts • The effect of exemption clauses in attempting to exclude contractual liability Along with discussing on the theories, the report has also applied the theories, law of contract, and other rules to suggest and advice Mr Robinson on his legal position All the resources of the report was selected carefully from the world wide web and the course book BPP Professional Education However, because of the word limit, all the case examples are recapitulated in the appendix 1a – Explain the different types of business agreement and the importance for the key elements required for the formation for a valid contract 1a.1: Explain the different types of Business Agreement 1a.1.1 Definition of contract As the book BPP Professional Education (2004,p.36), a contract may be defined as an agreement which legally binds the parties A party to a contract is bound, because he has agreed to be bound Parties are judged by what they have said, written and done, not what is in their minds 1a.1.2 Formation of a contract for agreement In any contract, the first requisite is an agreement which consist of an offer and acceptance It must have one party makes an offer, when the other is offeree accepts (A level law, nd) 1a.1.3 Different contract types of agreement Types of agreement Bilateral contract is a promise made by one party in exchange for the performance of some act by the other party; both parties are bound by their exchange of promises (Jrank, nd) Unilateral contract is where a promise only on one side, the consideration on the other side having already been executed (Chestofbook, nd) Express contract is in which both parties have Howe Vs 1a.1,p.20) Case example O'Mally (1893) (Appendix Reif Vs Paige (1882) (Appendix 1a.2,p.20) Fibrosa Spolka Akcyjna v Fairbairn Lawson explicitly stated the terms of their bargain, either orally or in writing, at the time that the contract was created (Doti chee, 2010) Implied contract is resulted from surrounding facts and circumstances that suggest an agreement (Doti chee, 2010) Promissory estoppel applies where there may not otherwise be an enforceable contract, because one party has relied on the promise of the other, it would be unfair not to enforce the agreement (US Legal, nd) Quasi contract is a binding obligation that is imposed by the courts to avoid injustice or unjust enrichment (US Legal, nd) A simple contract is merely oral, or in writing, not under seal, nor of record The promisor must have obtained some advantage; the promisee must have sustained some injury or inconvenience in consequence of such promise (Lectlaw, nd) A specialty contract is a formal contract, it does not require any consideration and has the seal of the signer attached A contract under seal must be in writing or printed on paper (US Legal, nd) A standard-form contract is a preprinted contract containing set clauses It is used by a business or within a particular industry to make slight additions or modifications in order to meet the specific situation (US Legal, nd) Business agreements exist as the versatile legal tool that allows strangers to do business together by guaranteeing legal enforcement of its terms (Ehow, nd) Example is employment agreement and sale agreement Employment agreement is an agreement between employee and employeer It must contents work rules, duration of employment, remuneration, grounds for termination and job duties Sales agreement is between merchants and consumersi It should have detailed description Combe Barbour, Ltd., (1943) (Appendix 1a.3,p.21) Hertzog v 1a.4,p.21) Hertzog (1857) (Appendix Salsbury v Northwestern Bell Telephone Co., (1997) (Appendix 1a.5,p.22) Cotnam v 1a.6,p.22) Wisdom (1907) (Appendix Shaughnessy v Eidsmo (1946) (Appendix 1a.7,p.22) In re Estate of Michael 1966 (Appendix 1a.8,p.23) Woodburn v Northwestern Bell Telephone Co (1979) (Appendix 1a.9,p.24) Employment agreement: Al-Othaim company (Appendix 1a.10,p.25) Sales agreement: Nanjing International Trade Co., Ltd and Nanjing PV-Tech Co., Ltd (Appendix 1a.11,p.26) of the goods or services for sale; the total payment due, along with the time and manner of payment or warranty, guarantee information for the goods or service (All business, nd) There are nine different types of contracts bilateral vs unilateral; express vs implied; promissory estoppels; quasi; simple; specialty and standard form, and business agreement 1a.2: Explain the importance for the key elements required for the formation for a valid contract 1a.2.1 The essential key elements To have a valid and enforceable contract, it must contain 7 key elements, which are: agreement, consideration, intention to create legal relations, legal capacity, form and content (Law teacher, nd) 1a.2.2 Effect when key elements are absent, and on affected parties When a key elements missing, the contract will be invalid (BPP Professional Education, 2004,p.38) Case example: Felthouse v Bindley (1862) (Appendix 1a.12,p.28) An invalid contract may be a void contract, a voidable contract or unenforceable contract A void contract is not a contract, the parties are not bound Meanwhile, a voidable contract is a contract that one party may avoid, can terminate at his option; so the contract is valid unless and until it is avoided The last is unenforceable contract, it is a valid contract but incapable of being sued upon or proved (BPP, 2004,p.39) In conclusion, without essential elements, the contract will become invalid contract which consists of three types: void contract, voidable contract and unenforceable contract Each of these contracts makes difference effect to the parties involve 1b - You are required to analyze the scenario from the perspective of the law of contract Apply the rules of offer and acceptance in a given scenario also considering any impact of new technology 1b.1: The rules of offer and acceptance and the impact of new technology 1b.1.1 Agreement as an essential element of contract Agreement is the first essential element to make a binding contract, without agreement the contract become invalid (Law teacher, nd) The formation of agreement is by offer and acceptance, it can make orally or in writing, or implied by the conduct of the parties An offer is a definite promise to be pound on specific term, while an acceptance is the unqualified agreement to the terms of the offer As an element of agreement, if one of the element missing, there is no agreement and no contract at all (BBP, 2004,p.41,42,49) 1b.1.2 Validity of agreement for online contract With contract concluded in the Internet, the principles governing the formation of written or oral contracts also applied This has been confirmed by s.11 of the Electronic Transactions Act Cap88, the act also provides that “a proposal to conclude a contract is to be considered as an invitation to treat” (Electronic Transactions Act Cap88, nd) 1b.1.3 Invitation to treat Invitation to treat is an indication that someone is prepared to receive offers with the view to forming a binding contract, and it not an offer in itself Case example: Partridge v Crittenden 1968 (Appendix 1b.1,p.29) In the case of Robinson’s website, his action selling the antique book online was an invitation to treat However, Alvin made offer to Robinson, and the automated reply had accepted this offer Therefore, between Robinson and Alvin had agreement 1b.2: Defense against Alvin Since the transaction between Robinson and Alvin was a valid agreement Therefore, if Robinson failed to deliver the books to Alvin, he would breach the contract However, as an antique seller, Alvin was aware the mistake of Robinson shop in the price (only £88), which means he violated the contract by capitalizing on Robinson mistake The book price was changed due to an error of Robinson’s mistake; he did not know this changing So according to the unilateral mistake rule, the contract is void and Robinson is not bound of this online contract The case example is Hartog v Colin & Shields 1939 (Appendix 1b.2,p.29) 1b.3 Prevention of similar incident from happening again in the future Robinson should not use the automated reply stating the transaction was successful to the buyer Instead of that, the automated reply says Robinson is aware of the order; the transaction is successful when the shop communicates back to the customer, to confirm the contract (the quantity, the price) This step is the counter offer, helps the shop terminates the original offer Another way is terminating the automated reply, Robinson will email the customer, so Robinson could identify and fix the mistake 1b.4: Purchase of exceptional Han dynasty tomb potter horse antique Robinson’s antiques were stolen He places a notice in an antique magazine, that paying £2500 against a tomb pottery horse antique The notice is an offer because it is not vague, made to the world, and he also provide the exact amount award; therefore, it is a form of contract The case example: Carlill v Carbolic Smoke Ball Co 1893 (Appendix 1b.3,p.29) However, Nguyen asked Robinson that if he could accept the tomb pottery camel or not Which means, this is a counter offer for the original offer (the horse antique), so Robinson has the right to reject or accept the offer according to the counter offer rule Case example: Hyde v Wrench 1840 (Appendix 1b.4,p.30) 1b.5 Revocation of offer According to the revocation of the offer: the offer may be revoked by the offeror at any time until it is accepted However, the revocation of the offer must be communicated to the offeree (A level law, nd) Therefore, Robinson can withdraw his offer to enter into a unilateral contract by placing another notice in the magazine about his revocation of the previous offer; and this action must before acceptance of Nguyen or Gibson The case example is Dickinson v Dodds (1876) (Appendix 1b.5,p.30) 1c - Assess the importance of the rules of intention and consideration of the parties to the agreement 1c.1 Explain the important of intention Intention is of the essential element of a binding contract, which means it is so important for parties to create the willingness to be bound by the term of the contract The court apply commercial agreement are usually intended to be legally binding (BPP, 2004,p.73) 1c.2 Explain the important of consideration and sufficiency of consideration Consideration is important as an essential element of a binding contract It provides that the parties to a contract must each provide something More than that, consideration need not be adequate but it must be sufficient Sufficient consideration means that the consideration must be something more than the party involved was already intended to do It must be deemed actually to be consideration (BPP, 2004,p.61,71) In the case of Robinson and the carpenter Douglas, both of them have the intention and consideration 1c.3 Douglas vs Robinson In this case, we can apply existing contractual duty which provide that if the performance of an existing contractual duty confers a practical benefit on the other party this can constitute valid consideration (A level law, nd) More than that, as a commercial, agreements, both parties are usually intended to be legally binding (BPP, 2004,p.73) In order to avoid the penalty clause, Robinson promised to pay Douglas extra sum Robinson had received the benefits from his promise, his work completed on time and he did not have to pay the penalty More than that, Robinson action was not under any duress or fraud Douglas’s performance of its existing contractual duty could amount to sufficient consideration for Robinson’s promise of additional payment Hence, Robinson has to pay the extra money for Douglas The case example is Williams v Roffey Bros and Nicholls Ltd (1990) (Appendix 1c.1, p.31) 1c.4 The extra sum money and reducing the contractual price Douglas installed wooden decorative skirtings to the wall, which are not part of the contract so Robinson provided his promise to pay extra sum This promise was said when Douglas finished installing, therefore, it was past consideration According to past consideration rule, Robinson was not be bound by the promise Case example: Re McArdle 1951 (Appendix 1c.2,p.31) In addition, apply the unsupported fresh consideration rule: the contract between Robinson and Douglas was existing; Robinson was only person who made a further promise about paying the extra sum, this does not arise new contract The case example is Roscorla v Thomas 1842 (Appendix 1c.3,p.31) Consequently, Robinson would not have to pay the extra sum Furthermore, Robinson was seeking to reduce the original price from £50,000 down to £40,000 while the contract was still performing Applying the Mirror Image rule, Robinson must follow the clause in the existing contract; he could not raise a new contract Case example: Montgomery v English (2005) (Appendix 1c.4,p.32) Thus, if Robinson paid £40,000, which means he had breach the contract and Douglas could sue him 1d - Explain the importance of the contracting parties having the appropriate legal capacity to enter into a binding agreement Robinson’s youngest daughter, Emily is 16 years old and she borrowed money from London South Bank to set up her own small business Emily has entered in to 4 contracts, which are: - Contract with bank for a loan - Contract for singing and dancing lessons - Contract with supplier for stage clothes and equipment and - Contract for the mobile phone 1d.1: Explain the importance of contracting parties having the appropriate legal capacity 1d.1.1 Explain legal capacity Appendix 1c 1c.1 Williams v Roffey Bros and Nicholls Ltd (1990) -The facts: Roffey had a contract to refurbish a block of flats and had sub-contracted the carpentry work to Williams After the work had begun, it became apparent that Williams had underestimated the cost of the work and was in financial difficulties Roffey, concerned that the work would not be completed on time and that as a result they would fall foul of a penalty clause in their main contract with the owner, agreed to pay Williams an extra payment per flat Williams completed the work on more flats but did not receive full payment He stopped work and the work on more flats but did not receive full payment He stopped work and brought an action for damages In the Court of Appeal, Roffey argued that Williams was only doing what he was contractually bound to do and so had not provided consideration - Decision: It was held that where a party to an existing contract later agrees to pay an extra "bonus" in order to ensure that the other party performs his obligations under the contract, then that agreement is binding if the party agreeing to pay the bonus has thereby obtained some new practical advantage or avoided a disadvantage In the present case there were benefits to Roffey including (a) making sure Williams continued his work, (b) avoiding payment under a damages clause of the main contract if Williams was late, and (c) avoiding the expense and trouble of getting someone else Therefore, Williams was entitled to payment 1c.2 Re McArdle 1951 - The facts: under the terms of a will, children were entitled to a house after their mother’s death In the mother’s lifetime one of the sons andhis wife lived in the house with the mother The wife made improvements to the house The children later agreed in writing to repay to the wife the sum of £488 ‘in consideration of your carrying repay to the wife the sum of £488 ‘in consideration of your carrying out certain alterations and improvements’ to the property At the mother’s death they refused to do so - Decision: the work on the house had been completed before the documents were signed At the time of the promise the improvements were past consideration 1c.3 Rosorla v Thomas 1842 - The facts: the claimant agreed to buy a horse from the defendant at a given price When negotiations were over and the contract was formed, the defendant told the claimant that the horse was ‘sound and free from vice’ The horse turned out to be vicious and the claimant brought an action on the warranty - Decision: the express promise was made after the sale was over and was unsupported by fresh consideration 1c.4 Montgomery v English (2005) - The facts: English offered to buy the Montgomery’s home and included in the offer a request to purchase several items of personal property The Montgomerys received the offer and deleted certain items from the personal property section of the contract English then received the counteroffer but failed to accept the changes made by the Montgomerys in the counteroffer - Decision: Applying the mirror image rule to these facts, the appellate court found that the parties failed to reach an agreement on the terms of the contract and thus no enforceable contract was created This occurred because of the failure of English to accept the counteroffer made by the Mongomerys with respect to the items of personal property Appendix 1d 1d.1 Steinberg v Scala (1923) - The facts: The claimant bought share in the defendant company but repudiated the contract after paying some of the money The company agreed to remove her name from the register of member but refused to refund her money - The decisions: the claimant had benefited from membership rights as consideration, and was not entitled to a refund 1d.2 Clements v London & North Western Railway (1894) In this case a young railway porter agreed to join an insurance scheme and to forgo any claims he might have under the Employers' Liability Act He had forfeited his rights under the Act, the contract as a whole being for his benefit It was held that the contract was for the minor's benefit and that he should be able to obtain employment which would be difficult if he could not make a binding contract 1d.3 Robert and Gray (1913) The infant defendant had agreed to go on a world tour with the plaintiff, a professional billiards player After the plaintiff had spent much time and some money organizing the tour, the infant changed his mind and refused to some money organizing the tour, the infant changed his mind and refused to go The plaintiff sued for breach of contract The Court of Appeal held that this was essentially a contract to receive instruction Since this was for the infant’s benefit the contract was valid The plaintiff was awarded 1,500 pounds 1d.4 Cowern v Nield (1912) Nield was an infant hay and straw dealer He refused to deliver a quantity which had been paid for by Cowern It was held that, provided the infant had not acted fraudulently, he was not liable to repay Cowern 1d.5 Nash v Iman (1908) Nash was a London tailor who sued Inman on bills totaling 145 euros for clothes, including eleven fency waistcoasts It was conceded that the clothes were suitable, but it was shown that he already had plenty of them Therefore, the clothes were not necessaries Appendix 2a 2a.1 L'Estrange v F Graucob Ltd (1934) The representatives of the defendant (Graucob) called on the plaintiff (L'Estrange), who was the owner of a café and suggested she buy a cigarette vending slot machine After discussion one representative produced a form printed on brown paper, headed "Sales Agreement" Blanks were filled with particulars of the purchase and the plaintiff signed the form The contract provided for payment by a deposit and installments The machine was delivered and installed, but did not work satisfactorily After a few days it became jammed and unworkable The defendant sent a mechanic twice, but problems persisted and L'Estrange purported to terminate The defendant declined to accept termination This action was brought by the plaintiff for recovery of money paid for total failure of consideration The defendant counterclaimed for the balance of the price By amendment, the plaintiff claimed for breach of an implied warranty of fitness At trial the plaintiff put her claim in three ways: recovery of money for total failure of consideration; return of money for breach of implied condition of fitness for purpose and damages for breach of warranty of fitness for purpose The defendant argued that there was no total failure of consideration; there was no implied condition, property having passed under the Sale of Goods Act s 11(1)(c); and there was no implied warranty because it was expressly excluded Finally in return the plaintiff replied she was induced to sign the document believing it to be an order form; and at the time she signed she did not know of the exclusion clause The country court judge gave judgment for the plaintiff The court overturned the initial judgment - Scrutton LJ stated "Reference was made to Richardson, Spence & Co v Rowntree But this case is not a "ticket case" and is distinguishable The law as stated by Mellish LJ in Parker v South Eastern Ry Co applies – where the document is signed, it matters not that the party has not read it." He continued "Here the plaintiff signed a document headed "Sales Agreement", knowing it had to do with an intended purchase She cannot say she is not bound by the terms, because she did not read them." Accordingly the plaintiff's case failed and judgment for the defendant on the counterclaim was entered 2a.2 Photo Productions v Securicor Transport 1980 The facts: Securicor agreed to guard the claimants’ factory under a contract by which Securicor were excluded from liability for contract by which Securicor were excluded from liability for damage caused by any of their employees One of the Securicor guards deliberately started a small fire which got out of hand and destroyed the factory and contents, worth £615,000 It was contended (on the authority of earlier decisions of the Court of Appeal) that Securicor had entirely failed to perform their contract since they had not guarded the factory and so they could not rely on any exclusion clause in the contract Decision: there is no principle that total failure to perform a contract deprives the party at fault of any exclusion from liability provided deprives the party at fault of any exclusion from liability provided by the contract It is a question of interpretation of the exclusion clause whether it is widely enough expressed to cover total fail to perform In this case the exclusion clause was wide enough cover the damage which had happened (As the fire occurred before the UCTA came into force in 1977 the Act could not apply here But if it had done it would have been necessary to consider whether the exclusion clause was reasonable) 2a.3 Glynn v Margetson 1893 Facts: Carriers agreed to take oranges from Malaga to Liverpool under a contract which allowed the ship to call at any port in Europe or Africa The contract which allowed the ship to call at any port in Europe or Africa The ship sailed 350 miles east from Malaga to pick up another cargo When it arrived in Liverpool the oranges had gone bad The defendants attempted to rely on an exclusion clause Held: The House of Lords held that the main purpose was to deliver a perishable cargo of oranges to Liverpool and in the light of this the wide words of the clause could be ignored and the ship could only call at ports en route Therefore the carriers were liable Appendix 2b 2b.1 Sale agreement AGREEMENT OF SALE THIS AGREEMENT, dated this _ day of , 200_ is made by and between _ ("SELLER") and _ ("BUYER") BUYER Details: SELLER Details: Name: Name: Address: Address: HORSE Details: Veterinary Examination: (to be paid for by the Buyer) Name: Contingency examination: Age: Coggins test: Colour: Date of test: Markings: Breed: Sex: Height: PAYMENT Details: Purchase Price £: _ Deposit £: _ Balance Due £: _ Deposit Date: _ Balance Due Date: _ SELLER Warrants: (Check which of the following warranties are to be included in the agreement) The SELLER covenants that he/she is the lawful owner of said equine; that he/she has the right to sell said equine; and that he/she will warrant and defend the equine against lawful claims and demands of all persons The SELLER makes no other promises, express or implied, including the warranties of fitness for a particular purpose unless further provided in this Agreement Buyer waives any claim for damage should said equine fail to meet the above warranties at the time of delivery, unless such a defect is discovered within (X) days from delivery to BUYER HEALTH warranty: To the best of his knowledge, the HORSE has no unsoundness or health problems on date of sale which would cause the HORSE to be unfit for regular training Other: DISPUTES: Will any disputes be settled through arbitration? YES/NO Legal disputes shall take place and be governed by the laws of _ (state country/state) In witness whereof the Parties, intending to be legally bound, hereby have set their hand and seal on the day above written SELLER BUYER (Signature) _ (Signature) Appendix 2c 2c.1 Olley v Marlborough Court 1949 Facts: The plaintiff booked in for a week's stay at the defendants' hotel A stranger gained access to her room and stole her mink coat There was a notice on the back of the bedroom door which stated that "the proprieters will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody” Held: The Court of Appeal held that the notice was not incorporated in the contract between the proprietors and the guest The contract was made in the hall of the hotel before the plaintiff entered her bedroom and before she had an opportunity to see the notice 2c.2 Chapelton v Barry 1940 Facts: Deck (folding) chairs were stacked by a notice asking the public who wished to use the deck chairs to get tickets and retain them for inspection The plaintiff paid for two tickets for chairs, but did not read them On the back of the ticket were printed words did not read them On the back of the ticket were printed words purporting to exempt the council from liability The plaintiff was injured when a deck chair collapsed Held: The clause was held to be ineffective The ticket was a mere receipt; its object was that the hirer might produce it to prove that he had paid and to show him how long he might use the chair Slesser LJ pointed out that a person might sit in one of these chairs for an hour or two before an attendant came round to take his money and give him a receipt References 4Lawschool (no date) Mirror Image Rulei [online] [cited on 29th November 2010] Available from: A level law (no date) Agreement [online] [cited on 30th November 2010] Available from: A level law (no date) Consideration [online] [cited on 29th November 2010] Available from: A level law (no date) Formation Of a Contract [o nline] [cited on 4th December 2010] Available from: A level law (no date) Incapacity [online] [cited on 21 st October 2010] Available from: A level law (no date) Mistake [online] [cited on 29th November 2010] Available from: All business (no date) What Should Be Included in a Sales Agreement? 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Barbour, Ltd., (19 43) (Appendix 1a.3,p. 21) Hertzog v 1a.4,p. 21) Hertzog (18 57) (Appendix Salsbury v Northwestern Bell Telephone Co., (19 97) (Appendix 1a.5,p.22) Cotnam v 1a.6,p.22) Wisdom (19 07) (Appendix... scenario also considering any impact of new technology 1b .1: The rules of offer and acceptance and the impact of new technology 1b .1. 1 Agreement as an essential element of contract Agreement is the first... or accept the offer according to the counter offer rule Case example: Hyde v Wrench 18 40 (Appendix 1b.4,p.30) 1b.5 Revocation of offer According to the revocation of the offer: the offer may be