Keenan and Riches’BUSINESS LAW

Chapter 7Introduction to the law of contract

Most domestic arrangements within families are not
intended to be legally binding. An agreement between
husband and wife or parent and child does not normally
give rise to a contract. That is not to say that there can
never be business contracts between members of a fam-
ily. Many family businesses are run as partnerships; a
wife can be employed by her husband.
If the husband and wife are living apart, they can
make a binding separation agreement.

Form

If you ask someone what a contract is, you will probably

be told that it is a written document. Some contracts are

indeed in writing but the majority are created much

more informally either orally or implied from conduct.

Generally, the law does not require complex formal-

ities to be observed to form a contract. There are, however,

some types of contract which are exceptions to this rule.

1 Contracts which must be in the form of a deed.

Certain transactions involving land require the execu-

tion of a deed, i.e. conveyances, legal mortgages and

leases for more than three years. A promise of a gift is

not binding unless in this form.

2 Contracts which must be in writing.The Law of

Property (Miscellaneous Provisions) Act 1989 provides

that a contract for the sale or other disposition of land

can only be made in writing and by incorporating all the

terms which the parties have expressly agreed in one

document, or, where the contracts are exchanged, in

each. The document must be signed by or on behalf of

each party to the contract.

In the following case the Court of Appeal considered

whether the formalities required for the sale of land

under the 1989 Act applied to a so-called ‘lockout’ agree-

ment, i.e. an agreement to deal exclusively with one party

and not to consider other offers for a limited period.

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Simpkinsv Pays(1955)

The claimant, Simpkins, lodged with the defendant, Mrs

Pays, and her granddaughter. Each week all three ladies

jointly completed a competition run by a Sunday new-

spaper. The entries were sent off in the defendant’s name.

One entry won a prize of £750 which the defendant

refused to share with the claimant. It was held that the

parties had embarked on a joint enterprise, expecting to

share any prize money. There was an intention to enter

into a legal relationship and the claimant was entitled to

one-third of the winnings.

Merrittv Merritt(1970)

Mr Merritt had left his wife to live with another woman.

He agreed that if his wife completed the mortgage re-

payments on the matrimonial home he would transfer

the house to her. Mrs Merritt duly completed the repay-

ments but her husband refused to convey the house to

her. The Court of Appeal held that, as the parties were

living apart, the agreement was enforceable.

The context in which a promise is made might indic-
ate that it was not intended to be legally binding.

Judgev Crown Leisure Ltd(2005)

J was employed as an Operations Manager for CL. He

was paid substantially less than a new office manager,

who had been recruited from CL’s sister company. (The

reason for the differential was that the incoming manager

had received assurances that his remuneration would

not be reduced.) A senior manager at CL had informed

all the operation managers that their remuneration would

be brought into line. J claimed that the senior manager

promised at CL’s Christmas Party in 2001 that J would

be put onto the same scale as the transferred manager

within two years. When J was told subsequently that his

remuneration would not be increased to match that of

the transferred manager, he resigned, claiming construct-

ive dismissal in that CL was in breach of contract by not

fulfilling the promises made at the Christmas Party. The

Court of Appeal upheld the decision of the EAT which

held that, even if the alleged promise had been made at

the Christmas Party, it had been made during the course

of a casual conversation at a social event and, given the

‘convivial spirit of the evening’, there was no intention to

create a legally binding contract.

Pittv PHH Asset Management Ltd(1993)

The claimant, Mr Pitt, and a Miss Buckle were both inter-

ested in purchasing a cottage in Suffolk from the defend-

ant, PHH Asset Management. Every time Mr Pitt made

an offer for the property, he was gazumped by Miss

Buckle. On the occasion of Mr Pitt’s third offer for the