Contract formation and breach: the four boxes
Introduced| English | Meaning |
|---|---|
| offer | an intention to be bound on specified terms |
| acceptance | unqualified assent to an offer, communicated |
| consideration | something of value moving each way - existence counts, adequacy does not |
| expectation damages | the sum that puts the innocent party where performance would have |
| liquidated damages | a clause fixing a genuine pre-estimate of loss |
| penalty clause | a clause that deters rather than compensates - unenforceable |
Four words before the breach
- Nimbus buys 2,000 kg of flour a fortnight at 2.00 a kilogram. When the mill delivers twenty days late, recovery turns on offer, acceptance, consideration and intention.
- Jurisdiction: England and Wales, contract formed and broken here.
Formation: the four boxes
- Offer 要约: the mill's quote - an intention to be bound on specified terms. Acceptance 承诺: Nimbus's signed order, unqualified and communicated.
- Consideration 对价: 4,000 pounds moves for flour - existence counts, adequacy does not (Chappell v Nestle: the wrappers counted). Intention is presumed between businesses.
Which element does the argument turn on?
Route each scenario to the element it actually tests.
Contract: 2,000 kg at 2.00. The price, in pounds?
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2,000 x 2.00 = 4,000.
Chappell v Nestle decided that:
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Existence counts, adequacy does not.
A reply that changes the delivery date is acceptance.
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It is a counter-offer; acceptance must be unqualified.
The breach arithmetic
- Cover purchase at 2.40: 4,800 - the 4,000 contract price = 800 price-difference loss.
- The festival date was in the contract, so the 2,100 lost weekend is within contemplation (Hadley v Baxendale). Expectation damages: 800 + 2,100 = 2,900.
Cover loss 800 plus festival loss 2,100. Expectation damages?
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800 + 2,100 = 2,900.
The 2,100 festival loss is recoverable because:
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Hadley v Baxendale: losses arising naturally or within contemplation.
The clause and the penalty test
- The late-delivery clause: 250 a day x 20 days = 5,000 - 2,100 more than the loss.
- Liquidated damages 预定违约金 survive; penalty clauses do not. The Cavendish test: does the sum protect a legitimate interest proportionately, or just deter?
The clause charges 250 a day for 20 days. Its face value?
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20 x 250 = 5,000 - 2,100 above the loss.
Match each remedy to its use.
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Money first; compulsion rare; punishment never.
A clause worth more than the loss is automatically a penalty.
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Cavendish: the test is legitimate interest proportionate to loss, not the gap alone.
Three contract slips
- Judging consideration by adequacy. A peppercorn can be consideration; nothing cannot.
- Claiming the clause and skipping the loss proof. The penalty test needs both legs.
- Letting one proceeding's defence contradict another's. Write every answer with all three in view.
Recap
- Offer + acceptance + consideration + intention = enforceable.
- Damages within contemplation: 800 + 2,100 = 2,900.
- Liquidated protects, penalty punishes: 250 a day lives or dies on its evidence.