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Studynotes Contractlaw 111124084629 Phpapp02
Studynotes Contractlaw 111124084629 Phpapp02
Law
Of
Contract
(Study Notes)
Contract
(the law of promises or
expectations)
Tort
(the law of civil wrongs)
Restitution
(the law of unjust
enrichment)
Invitations to treat
An invitation to treat is simply an expression of willingness to enter into negotiations which may lead to the
conclusion of a contract.
A supply of information is a statement that merely provides information to the other party and is not intended to
be acted upon: See Harvey v Facey
Common types of invitations to treat:
Display of Goods: Fisher v Bell & Pharmaceutical Society v Boots Cash Chemists
Advertisements: Partridge v Crittenden & Carlill v Carbolic Smoke Ball & Lefkowitz v Minneapolis Stores
Auctions: Harris v Nickerson & Barry v Davies
Tenders: Harvela v Royal Trust Co. of Canada & Blackpool Aero Club v Blackpool Borough Council
Time Tables and Automated Machines: Wilkie v London Transport & Thornton v Shoe Lane Parking
On the lapse of set time or reasonable time: Ramsgate Victoria Hotel v Montefiore
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On the death of the offeree. It also terminates on the death of the offeror if the contract involves a personal
element or the offeree has knowledge of the offerors death: Bradbury v Morgan
Unilateral offers can be terminated before performance begins: Errington v Errington & Daulia v Millbank
& Luxor v Cooper*
Unilateral offers to the world-at-large can be terminated before complete performance and their revocation
should reach the same audience as the offer (preferably same channel): Shuey v US
Rules of Acceptance
An acceptance is an unqualified expression of assent to the terms proposed by the offeror.
Acceptance must be communicated to the offeror: Entores v Miles Far Eastern Corporation
Acceptance cannot occur if offeree does not have knowledge of the offer: R v Clarke & Gibbins v Proctor
Acceptance must be the last shot in a battle-of-the-forms: Butler Machine Tool v Ex-Cell-O Corporation
Methods of Acceptance:
(a) By post: Adams v Lindsell - the postal rule is established
Hentorn v Fraser - it must be reasonable for the offeree to use the post
Holwell Securities v Hughes the postal rule does not apply where it would lead to manifest absurdity
Byrne v Van Tienhoven - the postal rule does not apply to letters of revocation
Exam tip: Note how the postal rule applies to the following factual scenarios:
If the letter is lost in the post, the postal rule still applies: Household Fire Insurance v Grant; but does
not apply if the letter was lost because of the carelessness of the offeree (e.g. an incorrect address
was used or the letter was not properly stamped): Korbetis v Transgrain Shipping
If the acceptance was posted and then a rejection was made, the postal rule still applies (assuming
it was reasonable for the offeree to use the post in the first place). However, it does not apply if (i) the
rejection reaches the offeror first and (ii) the offeror changes his position in reliance on it. There is no
English law authority on this point.
If a rejection was made and then the acceptance was posted, the postal rule does not apply.
Whichever one reaches first is effective (Its a race!). There is no English law authority on this point.
(b) By instantaneous mediums: Entores v Miles Far Eastern & The Brimnes
Allianz Insurance v Aigaion Insurance
(c) Prescribed method: Manchester Diosecean Council v Commercial Investments
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Consideration
Consideration is defined as, Some right, interest, profit, or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other (per Lush J in Currie v Misa).
Consideration is needed for the formation and variation of a contract. There are three forms of consideration:
Executory consideration: Consideration is called executory where there is an exchange of promises to perform
acts in the future. For example, a bilateral contract for the sale of goods wherein A promises to deliver goods to B
at a future date and B promises to pay on delivery.
Executed consideration: This arises in unilateral contracts where the act of acceptance is also the consideration.
If one party makes a promise in exchange for an act by the other party, when that act is completed, it is executed
consideration. However, this label is also used to describe the situation where, in a bilateral contract, one party has
performed as per his promise in the above example it would be when A delivers the good to B.
Past consideration: Consideration that comes before the promise. If one party voluntarily performs an act and the
other party then makes a promise, the consideration for the promise is said to be in the past. Past consideration is
not a valid form of consideration.
Consideration must be sufficient (of economic value) but need not be adequate:
Chappell v Nestle & White v Bluett
But consideration can be something the promisee is bound to do for a third party: Scottson v Pegg
Consideration must not be part payment of a debt: Foakes v Beer Exception: Pinnels Case
Consideration must not be forbearance to sue for an invalid claim: Wade v Simeons & Cook v Wright
Consideration exists when the variation or discharge is capable of benefiting either party:
WJ Alan v El Nasr
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Promissory Estoppel
Promissory Estoppel is defined as, Where, by words or conduct, a person makes an unambiguous
representation as to his future conduct, intending the representation to be relied on and to affect the legal relations
between the parties, and the representee alters his position in reliance on it, the representor will be unable to act
inconsistently with the representation if by so doing the representee would be prejudiced.
See Central London Property v High Tree House
Exam tip: Consider promissory estoppel only after you are unable to find consideration for a particular promise.
The promisee must have acted in reliance (whether to his detriment or not): WJ Alan v El Nasr
It can only suspend not extinguish rights* : Tool Metal v Tungsten Electric
It must be inequitable to allow the promisor to go back on his promise: D&C Builders v Rees
It can only be used as a defence and not as a cause of action: Combe v Combe
Doctrine of Waiver: Where one party voluntarily accedes to a request by another to forbear his right to strict
performance of the contract, or where he promises another that he will not insist upon his right to strict
performance of the contract, the court may hold that he has waived his right to performance as initially
contemplated by the parties.
See Hickman v Haynes.
Exam tip: Consider the doctrine of waiver if you are being asked to advise a potential claimant. Note that the
doctrine of waiver will factually overlap with promissory estoppel where the promisor is waiving a particular
condition or obligation of the contract but in such a situation the doctrine of waiver, unlike estoppel, can be used by
the promisee as a cause of action.
For example, you are asked to advise a contractor in a claim against a home owner. Homeowners duty to make
monthly payments is conditioned on the contractor providing an architects certificate that the work done the prior
month was acceptable. Homeowner tells the contractor that he will make future payments without a certificate and
so the contractor does not provide the certificate the next month; the homeowner then refuses to pay. The
contractor will be able to successfully sue the homeowner on the grounds of waiver.
Exam tip: In an essay question asking you to consider the relationship between consideration and promissory
estoppel, always cite the analysis of the Australian High Court in Walton Stores v Maher where the court ruled that
in appropriate cases promissory estoppel could be used as a cause of action in the absence of a pre-existing legal
relationship.
* Arguably this principle applies only to contracts that involve periodic performance say when a tenant has to make monthly rent payments. If
the contract stipulates the payment of a single lump sum then the effect can be permanent as in a scenario like the D&C Builders case.
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Social and domestic agreements are presumed not have legal effect:
(i) Husband and wife: Balfour v Balfour & Merritt v Merritt
(ii) Parent and child: Jones v Padavatton
(iii) Friends: Simpkins v Pays & Coward v MIB
Rebuttal: (i) Business context: Snelling v John Snelling
(ii) Detrimental reliance: Parker v Clark
Requirements of Form
A deed is a document which (a) bears the word deed, (b) is signed by the maker of the deed, (c) is
attested by at least one witness and (d) is delivered i.e. some conduct that shows that the person
executing the deed intends to be bound by it.
Certain contracts such as those pertaining to the sale or other disposition of an interest in land must be
made in writing.
At common law, a defect in form renders a contract unenforceable (but not void). This is subject to the
equitable doctrine of part performance.
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Strength of the statement/Need for verification: Schawel v Reade & Ecay v Godfrey
Special knowledge and skill: Bentley Productions v Harold Smith Motors & Oscar Chess v Williams
By common law:
o
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An innominate term can be distinguished from a condition on the ground that breach of an innominate term does
not automatically give rise to a right to terminate performance of the contract and it can be distinguished from a
warranty as the innocent party is not confined to a remedy in damages. This third classification originated in Hong
Kong Fir Shipping v Kawasaki and gives the court an important degree of remedial flexibility.
Example: The Hansa Nord
The following factors will be looked at in order to assess whether or not the breach was sufficiently serious:
(i) Any detriment caused or likely to be caused by the breach
(ii) Any delay caused or likely to be caused by the breach
(iii) The value of any performance received by or tendered to the party not in breach
(iv) The cost of making any performance given or tendered by the party in breach conform with the contract
(v) Any offer by the party in breach to remedy the breach
(vi) Whether the party in breach has previously breached the contract or is likely to breach it in the future
(vii) Whether the party not in breach will be adequately compensated by an award of damages
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2) Interpretation does the clause cover the loss that has arisen?
The Contra Proferentum rule: If there is any ambiguity as to the meaning of an exclusion clause the court
will construe it contra proferentum i.e. against the party who inserted it into the contract and now seeks to
rely upon it. For example: Houghton v Trafalgar Insurance
Rules of construction for excluding negligence liability: Canada Steamship v The King
Doctrine of Fundamental Breach: Photo Production v Securicor Transport
3) Legal Controls is there any rule of law that would invalidate the clause?
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In addition to the guidelines, the following factors may also be taken into account:
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(g) Trusts
A contracting party can specify that the benefit of the contract is held by him in trust for a third party, in which case
that third party will have enforceable rights to the benefit. At one time, the courts seemed willing to imply such a
trust even though there was no specific reference to a trust in the contract: Les Affreteurs SA v Leopold Walford.
But later onwards, in Vadepitte v Insurance Corporation the Privy Council demanded a definitive intention to create
such a trust.
Contracting parties will rarely intend to create a trust because it would mean that they are not free to vary the terms
of their agreement in the future as it would interfere with the beneficiarys rights. As they are unlikely to intend such
a restriction on their right to vary their contractual obligations, this exception is practically of no use.
(h) Restrictive covenants
A restrictive covenant is a legal obligation imposed in a deed by the seller upon the buyer of real estate to not do
something. Such a restriction frequently "runs with the land" and is enforceable on subsequent buyers of the
property. See Tulk v Moxhay.
------------------
The doctrine clearly defines the ambit and enforceability of contractual obligations.
It operates in tandem with the requirement that consideration must move from the promise and that a
gratuitous third party beneficiary should not be given the right to enforce a contractual benefit.
It would not be desirable for a promisor to face actions for breach of contract from both the promisee and
the third party.
If the third party could enforce the contract, this would affect the ability of the parties to vary or terminate
the contract.
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Incapacity
Minors: As a general rule, a contract with a minor is binding only on the other party. Alternatively expressed, such
a contract is not enforceable against the minor (unless he ratifies it after attaining majority). Minority acts as a
defence to a claim brought against the minor by an adult.
The harshness of the rule that a minor can sue but cannot be sued under a contract is mitigated by section 3(1) of
the Minors' Contracts Act 1987 which allows for restitutionary recovery against the minor if it is "just and equitable
to do so".
However, contracts of necessaries (section 3(2) of Sale of Goods Act 1979; Peters v Fleming and Nash v Inman)
and contracts of employment for the benefit of the minor (Clements v London Railway and De Francesco v
Barnum) are valid and binding on the minor.
Note that there is an anomalous category of contracts which are voidable at the option of the minor. This category
includes contracts to lease or purchase land, marriage settlements, contracts to purchase shares and contracts of
partnership. These contracts are binding on the minor unless he repudiates them during minority or within
reasonable time of attaining majority.
Also note that a minor cannot be sued in tort if the effect of the tort action would be to undermine the protection
afforded by the law of contract. So, for example, a minor cannot be sued for the tort of deceit when he fraudulently
misrepresents his age: Leslie v Sheill.
Mentally incapacitated persons: As per section 2 of The Mental Incapacity Act 2005, a person lacks capacity in
relation to a matter if at the material time he is unable to make a decision for himself because of an impairment of
the functioning of the mind; the impairment may be permanent or temporary.
Section 7 states that if necessary goods or services are supplied to a person who lacks capacity to contract, he
must pay a reasonable price for them. Necessaries are defined to mean suitable to a persons place in society and
his actual requirements when the goods or services are supplied.
At common law, if the incapacity is known or ought to have been known to the other party, then the contract is set
aside: Imperial Loan Co v Stone
Where the incapacity is genuinely unknown, the contract can only be set aside in case of an unconscionable
bargain: Hart v O Connor
Drunkenness is treated in the same manner as mental incapacity. A contract may be set aside by a drunken party
where his drunkenness prevented him from understanding the transaction and the other party knew of his
incapacity: Gore v Gibson
Companies: The rule established in Ashbury Railway Carriage v Riche was that a contract which is ultra vires a
company is void. The effect of s. 39(1) of the Companies Act 2006 is virtually to abolish the doctrine of ultra vires in
relation to third parties who deal in good faith with the company.
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Misrepresentation
A representation is a statement which simply asserts the truth of a given state of facts.
A promise is a statement by which the maker of the statement accepts or appears to accept an obligation to do or
not something: Kleinwort Benson Ltd v Malaysia Mining Corporation.
A general duty to disclose does not exist but one should not make active misrepresentations:
Keates v Cadogan.
But a duty to disclose does arise in certain situations:
o
o
o
o
o
o
If the seller is aware that the buyer has misunderstood the terms of his offer i.e. he must disclose
the existence of the unilateral mistake: Smith v Hughes
If the defendants conduct gives a wrong impression he is under an obligation to correct it:
Spice Girls v Aprilia World Service
Subsequent falsity: With v OFlanagan
Statement literally true but misleading (partial disclosure): Notts Patent Brick v Butler
Contracts requiring utmost good faith (Uberrimae Fidei) e.g. insurance contracts
Where there is a fiduciary relationship e.g. lawyer-client or trustee-beneficiary
A misrepresentation is an unambiguous false statement of fact which is addressed to the party misled, inducing it
to enter the contract. A misrepresentation renders a contract voidable.
o
o
o
o
o
The misrepresentation must have been addressed to the party misled: Commercial Banking v RH Brown
The misrepresentation must have induced the representee into making the contract:
o
o
o
o
o
o
If the misrepresentation would have induced a reasonable person to enter into the contract, the
court will presume that it did and the onus of proof is then placed on the representor to show that
the representee did not in fact rely on the misrepresentation: Museprime properties v Adhill
The misrepresentation does not have to be the sole or main factor inducing the representee into
the contract: Edgington v Fitzmaurice
No inducement if the claimant is unaware of the misrepresentation: Horsfall v Thomas
No inducement if the claimant knows the representation to be untrue
No inducement if representation does not affect the claimants judgment: Smith v Chadwick
No inducement if the representation had been verified by the third party and there was reliance on
the verification: Atwood v Small
It is irrelevant that the claimant has the opportunity to verify the veracity of the representation but
does not take it: Redgrave v Hurd*
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Exam tip: Note the three distinct advantages that misrepresentation under statute enjoys: (i) there is no
need to prove a special relationship between the parties or for that matter, any form of fraud (as the word
negligent should clearly indicate), (ii) the onus of proof is on the misrepresentor and (iii) the measure of
damages is the same as that for fraudulent misrepresentation. But also note the distinct limit on the scope of
this form of misrepresentation: it has no applicability where the representation is made by a third party who is
not a party to the contract an uncommon occurrence on the exam. On balance, misrepresentation under
statute will be the form of misrepresentation that you will usually advise the claimant i.e. the representee to
sue under.
There are two remedies for misrepresentation and they are available for all types of misrepresentations:
(a) Rescission
When rescission occurs, the transaction is unwound in order to restore the parties, as far as possible,
back to the position in which they were before they entered into the contract (the status quo ante).
Notice indicating intention to rescind must be given to relevant third parties:
Car and Universal Finance v Caldwell
Right to rescission may be lost in four ways:
(i) By affirmation: Long v Lloyd
(ii) Lapse of time: Leaf v International Galleries
(iii) Where restitutio in integrum* is impossible: Vigers v Pike
(iv) Where it would affect third party rights: Phillips v Brooks
(b) Damages
In the law of tort, damages seek to protect the reliance interest. The test for remoteness of damage
varies for the different forms of misrepresentation.
For fraudulent misrepresentation the defendant is liable for all actual damage flowing directly from the
misrepresentation: Doyle v Olby
For negligent misrepresentation under statue the test is the same i.e. the defendant is liable for all
actual damage flowing directly from the misrepresentation: Royscot Trust Ltd v Rogerson
For negligent misrepresentation under common law, the defendant is liable for damages that were
reasonably foreseeable.
Damages may be available in lieu of rescission in cases of innocent misrepresentation:
William Sindall v Cambridge County Council
An indemnity payment (a personal restitutionary claim) may be ordered: Whittington v Seale Hayne
Section 3 of the Misrepresentation Act 1967 makes a clause excluding liability for misrepresentation
subject to reasonableness as per section 11 of UCTA 1977. An application of this section can be seen in
Walker v Boyle.
Entire agreement clauses seem to fall within the scope of section 3.
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Mistake
Mistake: One or both of the parties believe that a given set of facts exist and this belief subsequently turns out to
be wrong. An operative mistake will render a contract void.
The mistake must exist at the time of contract formation: Amalgamated Investment v John Walker
A common mistake is one which both parties make regarding the same fact(s). It can be of three types:
(a) Mistake as to the existence of the subject matter of the contract (Res Extincta)
Couturier v Hastie & McRae v Commonwealth Disposals Commission
(b) Mistake as to possibility of performing the contract:
Physical impossibility: Sheikh Brothers Ltd v Ochsner
Legal impossibility: Cooper v Phibbs
Commercial impossibility: Griffith v Brymer
(c) Mistake as to quality of the subject matter is usually not a fundamental one:
Bell v Lever Bros & Solle v Butcher* & Leaf v International Galleries & Great Peace v Tsavliris Salavage
Exception: Nicholson & Venn v Smith-Marriot
A mutual mistake occurs where the terms of the offer and acceptance suffer from such latent ambiguity that it is
impossible to impute any agreement between the parties and the parties can be said to be at cross purposes.
Raffles v Wichelhaus & Scriven Brothers v Hindley
A unilateral mistake is one which only one party makes regarding a particular fact.
(a) When one party is mistaken as to the terms of the offer and the other party is aware or ought to be aware of it,
the aware party will be unable to enforce his version of the contract as he had a duty to disclose the existence
of the mistake (snatching a bargain).
Hartog v Colin and Shields & Smith v Hughes & Statoil v Louis Dreyfus
(b) A unilateral mistake as to the identity of the other party will render the contract void. Case law suggests that a
court is more likely to conclude that the contract is void where it has been reduced to writing because in face to
face dealings there is a firm presumption that the party intended to deal with the person physically in front of
him.
Cundy v Lindsay Written contract; rogue assumes identity of real person: contract is void
Kings Norton Metal Co v Edridge Written contract; rogue assumes identity of fictional person: contract is not void
Phillips v Brooks Face to face dealing; telephone directory irrelevant: not void
Lake v Simmonds Face to face dealing; person well known; no steps taken to verify identity: void
Ingram v Little Face to face dealing; telephone directory relevant: void
Lewis v Avery Face to face dealing; identity card irrelevant: not void
Shogun Finance v Hudson Face to face dealing b/w third party and rogue but written contract b/w claimant and rogue: void
Exam tip: In spite of the inconsistent case law, in face to face dealings, look for the following four factors before
labelling a contract void: (i) the claimant intended to deal with someone else (this is easy to establish if the rogue
impersonates an acquaintance); (ii) the party they dealt with knew of this mistake; (iii) the claimant regarded
identity as of crucial importance and (iv) the claimant took reasonable steps to verify the identity of the other party.
* Although this decision is no longer good law as mistakes of law are now recognized and the doctrine of mistake in equity no longer exists, it
is illustrative of the confusing nature of the topic.
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Illegality
Illegality may affect a contract in two principal ways: (i) the contract is illegal at the time of formation and (ii)
the contract is valid but is performed in an illegal manner.
Illegality in performance: If the illegality arises in the performance of an otherwise valid and enforceable
contract, the illegality will not invalidate the contract unless it was the purpose of the statutory or common
law rule that a breach committed in the course of the performance of a contract should invalidate the
contract: St John Shipping Corp v Joseph Rank & Shaw v Groom.
Knowledge of the innocent party is a relevant factor: Archbolds v Spanglett & Ashmore v Dawson
Illegality at formation: A contract is illegal if its formation is expressly or impliedly prohibited by statute or
is contrary to public policy.
(a) Statutory prohibitions:
o
o
Effects of Illegality: Illegality renders a contract unenforceable* and the courts will not usually permit the
recovery of money or property under an illegal contract (as illegality is normally used as a defence to a
restitutionary action which would have otherwise succeeded). See Holman v Johnson
However, the courts have allowed the recovery of benefits under illegal contracts in three scenarios:
(i) Where the parties are not at equal fault (in pari delicto): Oom v Bruce & Hughes v Liverpool Society
(ii) Where the claimant has repudiated the illegal purpose in time: Kearley v Thomson
(iii) Where the claimant does not found his claim on the illegality: Bowmakers v Barnet Instruments
Note that sometimes restitutionary recovery seems to have the same effect as enforcing the contract.
Also note that if a statute specifically provides for the consequences of a contract contravening one of its
provisions, the express statutory language will prevail.
Severance: Severance involves the court in removing the objectionable parts of a contract whilst enforcing
the remainder. Severance of a clause will only be allowed if the clause forms a subsidiary rather than
substantial part of the contract. This power is seldom used as it may be considered tantamount to
condoning unlawful activities. See Goodinson v Goodinson.
* The labels void and unenforceable are not used with any sort of consistency in this area of the law.
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Physical threats or economic pressure amounting to coercion of the will was exerted on the victim.
Whether the victim protested at the time or took steps to avoid the contract once he entered it will be
relevant considerations when determining coercion.
Barton v Armstrong & The Atlantic Baron & Pau On v Lau Long
The claimant had no practical alternative course but to enter or modify the contract:
Pao On v Lau Long & The Universe Sentinel & B&S Contracts v Victor Green Publications
The pressure was illegitimate. A threat to do an unlawful act such as commit a crime or tort or break a
contract will always be illegitimate but lawful acts can also be considered illegitimate in the appropriate
circumstances: The Universe Sentinel & CTN Cash and Carry Ltd v Gallaher
Exam tip: Be prepared to discuss economic duress in an essay question on practical benefit.
Undue influence occurs where one party improperly uses their influence over the other to induce them into a
transaction.
A third party may be affected by undue influence. For example, a husband may persuade his wife to
guarantee his companys overdraft with a bank, using the matrimonial home, of which she is a joint owner,
as security for the debt. In such situations, the creditor may be tainted by the undue influence of the
intermediary. See CIBC Mortgages v Pitt
Exam tip: Remember: undue influence focuses upon the relationship between the parties whereas duress
examines the method used to reach a contract.
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The entire obligations rule: starting position is that complete performance of the contract is required to sue
on it: Cutter v Powell*
But substantial performance allows a party to enforce a contract: Hoenig v Isaacs & Bolton v Mahadeva
If a contract is divisible i.e. capable of severance into separate obligations, a party may claim payment for
the performance of a particular obligation: Roberts v Havelock
A party can sue if his performance is incomplete due to the actions of the other party: Planche v Colburn
Vicarious performance is not permitted where the contract involves the personal skill, judgment or abilities
of the party: Davies v Collins
Time is usually not of essence in the absence of an express provision; delayed performance only gives the
innocent party a right to damages. However, a buyer may make time of the essence after a seller does not
deliver on time by calling on him to deliver within a reasonable time on pain of having the goods rejected if
this does not happen. Provided the court later agrees with the buyers assessment of what was a
reasonable further time for delivery such a notice will be effective: Charles Rickards Ltd. v Oppenheim
The order in which obligations are to be performed may depend on whether the various promissory
conditions are construed as conditions precedent, conditions concurrent or conditions subsequent:
Trans Trust SPRL v Danubian Trading
Discharge by Breach
A breach of contract is committed when a party fails or refuses to perform what is due from him under the
contract or performs defectively or incapacitates himself from performing without lawful excuse.
Breach of a warranty gives the innocent party the right to claim damages.
Breach of a condition or a sufficiently serious breach of an innominate term (a repudiatory breach) gives
the innocent party the option to terminate or affirm the contract in addition to the right to claim damages.
o
A valid reason for termination which is subsequently discovered is okay: The Milhalis Angelos
Decision to terminate operates prospectively i.e. both parties are relieved of their obligations to
perform in the future but the contract is not void ab initio: Photo Production v Securicor Transport
If the option to terminate is wrongly exercised the party will itself be in breach of contract:
Decro-Wall v International Practitioners in Marketing
* Such factual scenarios would now be decided differently as per the Law Reform (Frustrated Contracts) Act 1943
Alternatively described as right of election or right to rescind the latter description is misleading as it connotes a link with the equitable
remedy of rescission. Also avoid the discussion of how affirming a contract is a waiver by election.
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Party in breach cannot usually enforce the contract against the innocent party.
Exception: Independent obligations or conditions: Taylor v Webb
An anticipatory breach occurs where one party informs the other before the time fixed for performance
that he will not perform his obligations under the contract. The renunciation must be such as to prove that
the party in breach acted in such a way as to lead a reasonable man to conclude that he did not intend to
fulfil his part of the contract.
An anticipatory breach entitles the innocent party to terminate performance of the contract immediately
damages can be claimed on the date of the acceptance of the breach: Hochster v De La Tour
o
After affirming the contract, the innocent party may continue to perform even though he knows the
performance is not wanted by the other party: White and Carter v McGregor
However, the innocent party must have a legitimate interest in continuing performance i.e. it must
not act wholly unreasonably: The Alaskan Trader
The innocent party cannot compel the party in breach to cooperate with him so that, where the
innocent party cannot continue without the cooperation of the party in breach, he will be
compelled to accept the breach: Hounslow LBC v Twickenham
There are two potential disadvantages for the innocent party in affirming the contract after an anticipatory
breach: Firstly, the innocent party may lose his right to sue for damages completely if the contract is
frustrated between the date of the unaccepted anticipatory breach and the date fixed for performance.
Secondly, an innocent party who affirms the contract but subsequently breaches the contract himself
cannot argue that the unaccepted anticipatory breach excused him from his obligation to perform under the
contract.
Discharge by Agreement
In general, an agreed discharge will be binding if it contains the same ingredients that make a contract
binding when it was formed.
Where performance has not been completed by either party to the contract, there is generally no difficulty
in finding consideration because, in voluntarily giving up their rights to compel each other to perform, each
party is giving something to the bargain and so consideration is given.
But where the contract is wholly executed on side, an agreement to abandon the contract will not be
automatically supported by consideration as the discharge is for the benefit of one party only. This new
agreement (accord), in order for it to be effective, must be supported by fresh consideration (satisfaction).
Note that there will be no need for fresh consideration if the new agreement is in the form of a deed.
Moreover, if the doctrine of promissory estoppel or the doctrine of waiver applies, the unilateral discharge
will be effective without the need for accord and satisfaction.
Exam tip: Variation of an existing contract or waiver of a particular obligation is usually discussed in a
question on consideration/estoppel.
Novation is a term usually used to describe the act of replacing a party to an agreement with a new party.
In contrast to an assignment, which is valid so long as the person receiving the benefit of the contract is
given notice, a novation is valid only with the consent of all parties to the original agreement: the obligee
must consent to the replacement of the original obligor with the new obligor. A contract transferred by the
novation process transfers all duties and obligations from the original obligor to the new obligor.
For example, if there exists a contract where A will give 100 to B and another contract where B will give
100 to C then, it is possible to novate both contracts and replace them with a single contract wherein A
agrees to give 100 to C. Consideration is still required for the new contract but it is usually assumed to be
the discharge of the former contract.
When the parties have agreed on the occurrence of a contingent condition subsequent, the contract will be
discharged if it indeed occurs.
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Discharge by Frustration
Frustration: A contract is frustrated where, after the contract was concluded, events occurs which make
performance of the contract (i) impossible, (ii) illegal or (iii) something radically different from that which
was in contemplation of the parties at the time they entered into the contract.
When a frustrating event occurs, a contract is terminated. Obligations cease to exist from that point
onwards. The contract is not treated as void ab initio.
Destruction or unavailability of something essential: Taylor v Caldwell & Jackson v Union Marine
Temporary but prolonged unavailability of the subject matter: The Nema
Prescribed method of performance impossible: Nickoll v Ashton
Incapacity or unavailability of a party: Robinson v Davis
Death of a contracting party providing personal services: Whincup v Hughes
There are four limitations upon the operation of the doctrine of frustration:
(i) Mere economic hardship shall not constitute a frustrating event: Davis Contractors Ltd. v Fareham UDC
(ii) Express provision (e.g. a force majeure or hardship clause): Metropolitan Water Board v Dick, Kerr & Co.
(iii) Frustration cannot be a foreseeable event within contemplation of the parties: Walton Harvey v Walker
(iv) Frustration should not be self induced: The Super Servant Two
Effects of frustration:
(a) At common law: Fibrosa v Fairbairn & Appleby v Myers
(b) Modern approach: Law Reform (Frustrated Contracts) Act 1943
Section 1(2): The principal effect of the subsection is to (i) entitle a person to recover money paid under a
contract prior to the frustrating event, (ii) remove any obligation to pay money that existed prior to the
frustrating event and (iii) entitle a payee to set off against the sums so paid, expenses which he has
incurred prior to the discharge, in the performance of the contract: Gamerco SA v ICM
Section 1(3): If before the frustrating event one party obtains a valuable benefit (other than money)
because of something done by the other in performance of the contract, the party receiving the benefit can
be ordered to pay a just sum in return for it. This provision has caused the most problems in practice for
the courts. First, a court has to identify the valuable benefit i.e. value of the end product; secondly, it has to
award a just sum for that benefit: BP Exploration v Hunt
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Damages
The aim of damages is to compensate the injured partys losses and not to punish the party in breach.
Punitive damages cannot be imposed even if the defendant calculated that he would make a profit from his
breach: Cassel v Broome
There are basically three types of interests that damages try to protect i.e. expectation interest, reliance
interest and restitution interest.
A claimant has a right to choose between expectation or reliance interest: CCC Films v Impact Films
An award of damages generally seeks to protect the claimants expectation interest: Robinson v Harman
Non-pecuniary losses are generally not recoverable: Addis v Gramophone & Hayes v Dodd
Exceptions:
o Where the purpose of the contract is mainly pleasure: Jarvis v Swan Tours & Farley v Skinner
o Where the purpose is to relieve a source of distress: Heywood v Wellers
o Where breach leads to mental suffering caused by physical inconvenience: Perry v Sidney
o Where breach leads to a loss of reputation: Johnson v Unisys Ltd
o Where the contract was for the provision of a pleasurable amenity: Ruxley Construction v Forsyth
Difference in value between claimants expectation and what he received: Ruxley v Forsyth
Cost of cure: Ruxley Electronics v Forsyth
Loss of opportunity damages: Chaplin v Hicks
Market Price rule: Thompson Ltd v Robinson & Lazenby Garages v Wright
Reliance loss can include pre-contractual expenditure: Anglia Television v Reed but it can not be used to
compensate for a bad bargain: Haulage v Middleton. It may be claimed instead of expectation loss where
that is too speculative: McRae v Commonwealth Disposals Commission though Chaplin v Hicks states
otherwise.
Damages are to be assessed as at the date of breach: Johnson v Agnew but where the claimant is
unaware of the breach, damages will generally be assessed as at the date on which the claimant could,
with reasonable diligence, have discovered the breach. Similarly, where it is not reasonable to expect the
claimant to take immediate steps to mitigate his loss, the date of assessment will be postponed until such
time as it is reasonable to expect the claimant to mitigate his loss: Radford v De Froberville
Criteria for differentiating between a liquidated damages clause and a penalty clause:
Dunlop Pneumatic Tyre v New Garage & Motor & Phillips Hong Kong v Attorney General of Hong Kong
There are two ways of having a fixed sum payable stipulated in the contract without the clause being
considered a penalty clause:
(i) The clause merely accelerates an existing liability: Protector Loan v Grice
(ii) The amount shall be payable on an event which is not a breach of contract: Alder v Moore
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Other Remedies
Specific performance
An order for specific performance requires the party in breach to perform his obligations under the contract.
It is appropriate only if damages are an inadequate remedy: Cohen v Roche & Johnson v Agnew
Where it is extremely difficult to quantify the claimants loss: Decro Wall v Practitioners
Where defendants are unable to pay an award of damages: Evans Marshall v Bertola
It will not be ordered for a contract for personal services: Giles v Morris
It will not be ordered where constant supervision will be needed: Co-op Insurance Society v Argyll
In lieu of specific performance, damages must construe a true substitute: Wroth v Tyler
Injunction
An injunction is usually sought to enforce a negative stipulation in a contract.
Page One Records v Britton & Lumley v Wagner & Warner Bros v Nelson
Rectification
This is an order which corrects a mistake in the recording of the agreement. The possibility of rectification
exists where a written contract or deed fails to express the common intention of the parties.
Frederick Rose v William Pim
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Law of Restitution
Scope: A restitutionary claim arises when (1) the defendant has received a benefit; (2) its receipt was at
the plaintiffs expense; and (3) the circumstances are such that it would be unjust for the defendant to
retain the benefit.
Note that the phrase at the plaintiffs expense does not necessarily mean enrichment by subtraction i.e.
the enrichment has arisen through a transfer from the plaintiff, leaving him with a loss corresponding to the
defendants gain; it can also mean a gain that was obtained by inflicting a wrong upon the plaintiff.
Note that there is a debate as to whether rescission is a restitutionary or contractual remedy. If rescission
is a restitutionary remedy then it can be said that the act of rescinding a voidable contract is also governed
by the law of restitution.
There is limited scope for restitutionary damages where there has been a breach of contract:
(a) Total failure of consideration: Whincup v Hughes & White Arrow Express v Lameys Distribution
(b) Unjust benefit: Attorney General v Blake & Experience Hendrix LLC v PPX Enterprises Inc.
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A clause in a contract which states that a certain sum of money shall be payable on breach of contract
inevitably runs the risk that it will be held to be a penalty clause. It also has the disadvantage that the
innocent party has to take the initiative to obtain the money. A preferable alternative might therefore be to
obtain payment of a sum of money in advance and then refuse to return it in the event of the other party
breaking the contract.
In such a case, can the party in breach recover the prepayment? The answer to that depends upon
whether the money was paid as a deposit or as a part payment of the price. A deposit is paid by way of
security and is generally irrecoverable, whereas a part payment is paid towards the contract price and is
generally recoverable. The difference between the two is a matter of construction. Where the contract is
neutral then a payment will generally be interpreted as a part payment: Dies v British Mining.
A critical limit upon the ability of parties to stipulate for excessive deposits was firmly established by the
Privy Council in Workers Trust v Dojap Investments. The court held that it was not possible for the parties
to attach the incidents of a deposit to the payment of a sum of money unless such sum is reasonable as
earnest money.
There is some difficulty in establishing what a reasonable deposit is given that even a reasonable deposit
need not represent a genuine pre-estimate of the loss likely to be occasioned by the breach. It is not at all
clear how the courts will decide what constitutes a reasonable deposit where there is no objective
benchmark prevalent in the industry.
Another point that was decided in Dojab was that in the event of the deposit being declared unreasonable,
the court will not rewrite the contract by inserting into it a reasonable deposit. This will provide an
incentive to contracting parties to err on the side of caution when deciding the level of any deposit payable
- thus placing limits upon the ability of contracting parties to provide for excessive deposits.
In Hyundai v Papadopaulos, it was held that where it is clear from the contract that the payee will have to
incur reliance expenditure before completing his performance of the contract, then, in the absence of a
stipulation in the contract to the contrary, the part payment will be irrecoverable. A part payment is
therefore recoverable only where it is clear from the contract that the payee will not have to incur reliance
expenditure before completing his performance of the contract.
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Extinction of Remedies
Where one party has a right to sue for breach of contract, it may be extinguished by agreement between
the parties, either under seal or by accord and satisfaction. Such a right can also be extinguished by the
passage of time, under the Limitation Act 1980. The Act lays down various time limits for different kinds of
action and once these have expired, the claimant is said to be statute-barred or time-barred from
claiming.
Contract proceedings should normally be brought within six years of when the cause of action accrued.
Cause of action means the facts giving rise to the action and will usually be when the contract is
breached.
An action based on a contract made by deed must be brought within 12 years of the date on which the
cause of action accrued.
There are cases where the claimant does not know that there is a cause of action at the time when the
situation occurs and may not know for some time afterwards, possibly not even until the ordinary limitation
period has passed. The issue is addressed in the Latent Damage Act 1986, which provides that where the
cause of action could not be discovered when it arose, the claimant can sue within three years of the time
when it could be discovered. In addition, section 32 of the Limitation Act 1980 provides that when a
claimant is unaware of the cause of action at the time it accrues because of mistake or fraud by the
defendant, the period of limitation does not begin until the claimant has discovered the fraud or mistake or
until such time as they could have discovered it by using reasonable diligence.
Where a claimant is under a disability, for example, he is a minor or is of unsound mind at the time when
the cause of action accrues, the limitation period does not begin until the disability has ceased to operate.
Therefore, a minor can bring proceedings relating to contractual matters that arose while they were a
minor, for six years after their eighteenth birthday.
The limitation period may be extended if, before it expires, the defendant acknowledges the claim or pays
part of it (s.30). If this happens, the limitation period starts again on the date of the acknowledgement or
part payment (s.29). In order for an acknowledgement to have this effect, it must be in writing, signed by
the person making it and must clearly acknowledge the debt, not just the fact that a dispute exists.
Section 36 of the Limitation Act 1980 makes it clear that the statutory limitation periods do not apply to
claims for specific performance, an injunction or other equitable remedies. Instead, the equitable doctrine
of laches (delay) is applied; if taking account of all the circumstances of the case, the court considers that
the claimant has been too slow in bringing the action, the equitable remedy sought will be refused.
It is not possible to lay down strict rules on when laches will prevent a claim; in each case, it will depend on
the length of the delay, how diligent the court believes the claimant ought to have been and the nature of
the contract. Thus, where a defendant is seeking specific performance, a lengthy delay will be less
acceptable if the contract concerns goods whose value fluctuates rapidly than in a case where prices
remain steady.
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