Professional Development: Institute and Faculty of Actuaries 1 © The University of Law Limited 2019

Professional Development
Institute and Faculty of Actuaries
A practical guide to contract law
Workbook
Institute and Faculty of Actuaries 1 © The University of Law Limited 2019

A. FORMATION
1. Introduction
If you were to ask the average man or woman in the street about what is required for a
binding contract the answer you get would probably involve somebody signing something.
This is a misconception. All of us enter into contracts every day without anything being
signed, e.g. when you buy a paper or a train ticket. The vast majority of contracts do not
need to be in writing to be valid. However, all contracts require the following to be
enforceable:
 Agreement by the parties (which is evidenced by an offer from one party which is
accepted by the other); and
 Consideration: and
 Intention to create legal relations
Let’s look at each of these components in turn.
2. Agreement
Offer
A promise can only be an offer if it is specific enough to be accepted without further

negotiation. As with most areas of contract law this is judged objectively not subjectively.
What this means is that it’s not what you think or intend that determines whether
something you said or wrote constitutes an offer. It is determined by what a reasonable
person (the lawyer’s favourite fictional character!) would think looking at what was said or
written and the circumstances in which words were said or written.
Test yourself
You have applied for a place at university. A university makes you an unconditional
offer which you accept. Your acceptance means you can no longer seek a place
through clearing. The university has just written to you saying it made a mistake
and it has withdrawn its offer.
Question: Has the university made you a contractual offer which you have
accepted?
Answer
© The University of Law Limited 2019 2 Institute and Faculty of Actuaries

Offers should be distinguished from invitations to treat. An invitation to treat is incapable of

being accepted. The easy way to think of an invitation to treat is that it is a statement
intended to get negotiations going or to induce the other party into making an offer. The
following are usually invitations to treat:
 Advertisements on TV, in papers and magazines, and on websites.

 Items for display in shop windows
 Invitations to tender
Test yourself
You see a current model ipad for sale in a shop with a £99.99 price next to it. You take it
to the counter and say you want to buy it. The shop assistant tells you the price is a
mistake and refuses to sell it to you for £99.99.
Question: Has the shop made an offer to sell you the ipad for £99.99 which you
have accepted?
Answer
Ordinarily an invitation to tender is an invitation to treat. However, beware of making

express promises in an invitation to tender that are capable of being an offer. An example
is a promise to accept the highest/lowest price in an invitation to tender. In such a case
the person making the highest/lowest bid accepts the offer to contract on that basis:
Harvela Investments Ltd v Royal Trust Co of Canada [1984] 2 All ER 65.
Offers are terminated in by different means and in different circumstances including:
 Lapse of time (it is always best to explicitly state when an offer lapses)
 Withdrawal of the offer (revocation – you can revoke an offer any time before it is
accepted)
 Rejection by the offeree (the recipient of the offer)
 Failure of condition precedent (see below)
 Death of offeror (the person making the offer)

Test yourself
I offer to sell you a case of oranges and a case of wine. I don’t say when my offer is
intended to lapse.
Question: Is it likely that the offers will lapse around the same time?
Answer
3. Acceptance
This is an unqualified ‘yes’ to the offer. If further terms are introduced or the terms of the
offer are varied there is no acceptance.
Test yourself
You and I are in a legal dispute. You offer to settle the dispute on the following terms:
 You will accept payment of £1000 from me
 I must accept your offer by 1 December
 I must pay you by 10 December
I respond to your offer on 28 November agreeing to pay you £1000 to settle the dispute
and that I will pay you by 20 December.
Question: In law have I accepted your offer?
Answer

A counter offer terminates the original offer: Hyde v Wrench (1840) 3 Beav 334
Test yourself
Let’s progress the example above.
You respond to my ‘acceptance’ by telling me “no way, I wanted payment by 10

December not 20 December”
I reply “ok, it’s 10 December then”
Question: Do we have a binding agreement?
Answer
Acceptance must be communicated (i.e. received and read) to be effective. However,

when acceptance is posted it can be effective from the moment of posting (i.e. when a
letter is put in a Royal Mail post box). This is called the ‘postal rule’: Adams v Lindsell
(1818) 1 B & Ald 681). The postal rule applies even if the letter is lost in the post. It is easy
to displace the postal rule by using words such as ‘received’ or ‘notified’ in the offer. In
such cases the offeror (the person making the offer) is making clear he/she must receive
the acceptance for it to be effective.
Test yourself
I make an offer to you by e-mail. You accept by post. Your letter is lost in the post.
Question: Is the postal rule likely to apply?
Answer
With instantaneous methods of communication the rule is that acceptance takes effect
when read/deemed to have been read.

Test yourself
The simplified facts of Thomas v BPE Solicitors [2010] EWHC 306 were:
The parties were working on a corporate deal. The deal had been gathering momentum
with the parties’ lawyers sending and replying to e-mails at all hours.
A’s lawyers made an offer to B.
B accepted by e-mail sent to A’s lawyers at 6pm on the Friday before the August bank
holiday.
A’s lawyers said that they had all gone home for the bank holiday weekend.
A’s client revoked the offer on the Saturday.
Question: When do you think acceptance occurred – 6pm(ish) on Friday or 9am

(ish) on Tuesday (when A’s office reopened after the bank holiday)
Answer
If a method of acceptance is prescribed then it should be followed. However, the mode of

acceptance can be waived. In Reveille Independent LLC v Anotech International (UK) Ltd
[2016] EWCA Civ 443 the High Court held that a signature block for parties to sign was
not a prescribed mode of acceptance and even if it was its function was to protect the
claimant and the claimant was free to waive the protection.
4. Consideration
Unless a contract is executed as a deed both parties must provide each other with
consideration for an agreement to be binding. All lawyers mean by consideration is
something of value. Contract law does not enforce a promise to make a gift.
Consideration can be doing something or promising to do something. For example, if you

and I agree that I will sell you my car for £10,000, my promise to deliver the car to you is
consideration for your promise to pay and vice versa.
Test yourself
I agree to pay you £10,000 in return for you agreeing to waive a claim you have against
me for breach of contract.
Question: Have we both provided each other with consideration?
Answer

Consideration must be sufficient but need not be adequate. What this means is that the
parties need only exchange something of value. The law does not insist on an equal
bargain being made.
Test yourself
Question: Going back to the facts above – would it make any difference if our
lawyers rated your chance of success in litigation against me at less than 5%?
Answer:
Whilst consideration need not be adequate under contract law, if a party is insolvent
consideration needs to be carefully considered to avoid a transaction being set aside as a
transaction at an undervalue under the Insolvency Act 1986. For example, if there is a
hearing next week where a creditor seeks to make me bankrupt and I agree to sell my
house worth £500,000 to you for £100,000, in contract law the agreement stands but it
may be successfully challenged under insolvency law. The agreement has effectively
removed £400,000 from my assets available to meet the claims of creditors.
What about the position if I owe you a debt of £100 and ask you whether you will take £50
and waive your right to the balance? The law is strict here - part payment of a debt is
generally not regarded as good consideration – Foakes v Beer (1886) 9 App Cas 605.
The creditor can always come back for the balance even though he/she may have said
he/she will not. The way the law analyses this is as follows:
 You are giving me something valuable in promising not to sue for the balance of
£50
 To bind you to your promise I must provide you with consideration for your promise
 My consideration is paying you’re the £50. However, the law says that this is not
consideration for the promise not to sue. This is consideration for how the debt
arose in the first place
 Therefore I have provided you with no consideration for your promise not to sue
You may think the rule on part payment above is harsh. There are many exceptions to the
rule:
 Compositions (If put money in pot for lots of creditors proposing to pay them Xp in
the £ and all my creditors agree, one cannot break ranks and sue me for the
balance)
 Payment by third party – e.g. if you agree to accept £50 from my brother in
satisfaction of my debt of £100 to you, you cannot sue me for the balance (Welby v
Drake (1825) 1 Car & P 557)
 Debtor varies performance – if the debtor pays less but earlier than due or the
creditor agrees to accept money and some other consideration then the creditor
cannot sue for the balance
 Settlement of disputed claims – if I owe you £100 for goods you have sold me but I
argue those goods are defective and we settle by me paying you £50 and me not
agreeing to sue you for breach of contract, we have both provided consideration.
You have released your claim for £50 against me and I have released my claim for
damages (compensation) for breach of contract against you. Neither of us can sue
the other
 Promissory estoppel Central London Property Trust Ltd v High Trees House Ltd
[1947] KB 130 (see below)
 Settlement by deed (see below)
Note that Williams v Roffey Bros (below) practical benefit arguments cannot be used to
get round the rule in Foakes v Beer –see Re Selectmove Ltd [1996] 1 WLR 474.
What if I promise you extra money to complete a job you have already contracted to do?
Lawyers call this performance of an existing duty and it can be good consideration as long
as there is a practical benefit to the promisor and there has been no fraud/duress. In
Williams v Roffey Bros Contractors [1990] WLR 1153, a developer contracted with a
builder to build a block of flats. The contract contained a liquidated damages clause in it
which provided that if the builder was late finishing the work it would have to pay damages
(compensation). The builder sub-contracted the joinery work out to a sub-contractor. It
soon became clear that that the sub-contractor would not finish on time. The builder,
fearful delay by the sub-contractor would mean the builder was late completing work,
promised the sub-contractor extra money if it finished the joinery work on time. The Court
of Appeal held the promise of extra payment was enforceable because the builder
obtained a practical benefit (not getting hit by the liquidated damages clause) and the
practical benefit was the consideration. There was no duress in this case as the builder
voluntarily approached the sub-contractor with a promise of extra payment.
If you pause for a moment’s thought, if a person promises another extra payment for
doing what they have already contracted to do and the promise was not procured by
duress (i.e. illegitimate pressure), then it is highly likely there will be some practical benefit
as someone doesn’t usually promise extra payment to get a result unless there is
something in it for him/her.
5. Intention
There is a presumption that parties intend to be legally bound in commercial

circumstances. The presumption can be rebutted (i.e. the facts of a case may show the
parties did not intend to be legally bound. For example, in Blue v Ashley [2017] EWHC
1928 a consultant argued there was a binding agreement to pay him £15m if he could get
the share price of a company from £4 to £8 per share. The High Court found there was no
binding agreement. Key factors included:
 There was nothing in writing (not even one e-mail)

 The ‘agreement’ was made in a pub (and everyone had been drinking)
 The ‘negotiations’ were banter
 The meeting in the pub was not intended to discuss consultant remuneration
 The ‘negotiations’ were partly conducted by a third party
 The consultant’s role was too vague
Using the words ‘subject to contract’ on a document will usually negative intention. In this
case parties don’t intend to be bound until a formal agreement is drawn up and signed
(and sometimes exchanged between the parties)
Beware acting on a subject to contract agreement. In RTS Flexible Systems v Muller

[2010] UKSC 14 two parties entered into a subject to contract agreement whereby one
would design and install a production line at the other’s factory. The parties then started
work without finalising and signing the formal contract. The Supreme Court held that the
parties were bound by the terms they had agreed. By starting work the parties had waived
the subject to contract provision.
In a domestic or social situation the presumption is that parties did not intend their
agreement to be legally binding.
Test yourself
You lend your brother £50 on terms that he will pay it back in one month together with a
drink as a favour for you lending the sum. Your brother defaults and refuses to pay the
money back.
Question: Is your loan agreement legally enforceable?
Answer
6. Certainty of terms
If the terms of a contract aren’t sufficiently certain the contract may be unenforceable. For
example, in Kowalashin v Roberts & Tech 21 UK Ltd [2015] EWHC 1333, an agreement
to invest in company in financial difficulty was not binding as key terms such as the
percentage of shares to be taken up had not been agreed.
Agreements to negotiate to bring a contract into existence are generally unenforceable: in

Walford v Miles [1992] 1 All ER 453 an open ended agreement to negotiate to bring a
contract about was held to be too uncertain to be enforceable. Lawyers tend to call these
arrangements ‘agreements to agree’.

Test yourself
You lend your brother £25,000 repayable over 36 monthly instalments to be paid on the
first day of each month together with interest at 3% above the Bank of England base rate
from time to time. The interest rate is to be increased by 1% on default. Your brother
defaults.
Answer
Agreements to negotiate terms within an existing contractual framework may be

enforceable. In Emirates Trading Agency LLC v Prime Minerals Export Ltd [2014] EWHC
2104 a clause that provided that parties were to seek to resolve disputes by ‘friendly
discussion’ before proceeding to arbitration was held to be enforceable.
Best/reasonable/all reasonable endeavours obligations will nearly always be enforceable.

In Astor Management AG v Atalaya Mining plc [2018] EWCA Civ 2407 one party bought a
mine on terms that payment was to be made when the buyer raised money to buy by
borrowing money. The contract provided that the buyer was to use ‘all reasonable
endeavours to obtain a senior debt facility’. The court held that this was a binding and
measurable obligation.
7. Variation
Variation of a contract requires the same as for forming a contract – i.e. agreement,
consideration and intention.
Many commercial contracts contain anti-oral variation clauses. These are clauses that say
a variation can only be made in writing (and often signed off by a particular person such
as a director). The Supreme Court declared these clauses effective in MWB Business
Exchange Centres Ltd v Rock Advertising Ltd [2018] UKSC 24.
8. Conditions precedent
A condition precedent is a clause setting out a condition that must be satisfied before a
contract becomes effective. Until that point the condition obligation is the only binding part
of the contract.
There is no need to use the words ‘condition precedent’ to create a condition precedent.
A condition precedent must be certain in order to be binding. In Lee-Parker v Izett (No 2)

[1972] 2 All ER 800 the court held that sale of property subject to obtaining satisfactory

mortgage was unenforceable as what was meant be a satisfactory mortgage was too
uncertain
A condition precedent should:
 Put a deadline in for fulfilment

 Set out the consequences for non-fulfilment
 Set out what a party has to do to fulfil
9. Other jurisdictions
All common law jurisdictions have similar rules on formation of contract to those under
English Law.
For example, In India the Indian Contract Act 1872 defines, offer, acceptance and
consideration and whilst the definitions are rather old fashioned they broadly correspond
with the position under English law. As well as offer, acceptance and consideration being
required Indian law requires intention to create legal relations, free consent (in English law
this is dealt with under duress) and the object of a contract must be legal.
Under Singaporean law offer, acceptance, intention, consideration and certainty of terms
must exist for a binding contract.
Civil law jurisdictions vary in the requirements for a valid contract. In France three things
are required for a valid contract:
 Consent of the parties (this involves offer and acceptance and no duress, mistake
or misrepresentation)
 Capacity to contract
 Definite subject matter
B. FORM, CAPACITY, AUTHORITY AND EXECUTION
1. Form
Some contracts require a particular form to be effective, e.g.:
 Guarantees must be in writing or evidenced in writing, and signed by guarantor: s.

4 Statute of Frauds Act 1677
 Contracts for the sale of land and legal mortgages must be in writing and all the
terms of the contract have to be in one document: s. 2 Law of Property
(Miscellaneous Provisions) Act 1989
Some contracts must or should be executed as a deed – e.g.:
 Land transfers – s.53 Law of Property Act 1925

 Most leases – s. 52 Law of Property Act 1925
 Powers of Attorney – s 1(1) Powers of Attorney Act 1971
 Where there are doubts as to consideration

2. Capacity
Minors, drunks and those lacking requite mental capacity lack capacity to contract.
Age alone is not a reason to query mental capacity: Thorpe v Fellowes LLP [2011] EWHC
61.
Illiteracy or poor understanding does not connote lack of mental capacity. In Barclays
Bank plc v Schwartz (The Times 2 August 1995) a Romanian national sought to have a
guarantee set aside on the ground he lacked capacity due to his poor grasp of English.
The court held that capacity is determined by the ability to understand a transaction not
whether an individual actually understood it. In this case Mr Schwartz was an experienced
businessman who had entered into contracts previously. He was well capable of
understanding the nature of a guarantee and the court refused to set it aside.
A contract made by an individual without capacity is not void. It is voidable (i.e. it can be
made void by a court setting it aside) if the counterparty is aware of the lack of capacity:
Fehily v Atkinson [2016] EWHC 3069
A company’s capacity may be restricted by something in its constitution, for example its
articles of association. s.39 Companies Act 2006 protects third parties in this case. If a
company enters into a contract which it did not have capacity to make the contract is still
valid. However, it is always wise to check capacity rather than rely on s.39.
Capacity of entities other than individuals or companies will depend on the entity in
question.
Test yourself
Trustees of a pension fund wish to instruct their investment advisors to sell and acquire
assets.
Question: What document will set out the capacity of the trustees?
Answer
3. Authority
An agent is someone who has authority to contract on behalf of another (the principal).
Directors are agents of their company (who is their principal).
An agent may have actual or apparent authority to bind a principal.
Actual authority is either express or implied. Express actual authority occurs where the
principal expressly provides an agent with authority to contract. In the case of a director
the rest of the board may, for example, confer authority on him/her to enter into on
contract on the company’s behalf. Implied actual authority arises from either:

 Appointment to a position, e.g. a managing director has the authority to enter into
transactions it would be usual for a managing director to enter
 Not being appointed to a position but entering transactions usual to that position
with the approval of the principal
Test yourself
In Ramsay v Love [2015] EWHC 65 Gordon Ramsay’s father in law (‘H’) executed a
guarantee on behalf of Gordon Ramsay personally. The guarantee was in respect of
Ramsay’s company’s obligations under a lease of premises used for one of Ramsay’s
restaurants. H had no actual authority from Ramsay to execute the guarantee on his
behalf. However:
 Ramsay gave H near total authority to deal with his business affairs
 It was Ramsay’s policy to provide a personal guarantee if landlords would not
accept his company being solely responsible for obligations under a lease
 H had executed 42 different legal documents on Ramsay’s behalf over the years
Question: Did H have authority to execute the guarantee on Ramsay’s behalf?
Answer
Apparent authority is judged from how authority appears to others. It derives from a
representation by the principal that the agent has authority. A person with authority binds
his/her principal
Test yourself
X Ltd’s board sends a director to a meeting at which all parties believe a contract will be
concluded. The board tell the director that he should negotiate terms and seek board
approval before signing a contract. The director signs a contract at the meeting.
Question: Did the director have authority to bind X Co?
Answer
s.43 Companies Act 2006 makes it clear that any person with authority can contract on
behalf of a company.

Apparent authority arises where a principal (e.g. a company) represents to a third party
that an agent (e.g. a director) has authority to contract on its behalf. The representation is
by words or conduct. For example, if you responded to an advert from a company to sell
goods which asked you to call a number to place an order you would assume that the
person taking the call had authority to contract on the company’s behalf. The company
represented that the person had authority to contract by putting them in a position to take
your call.
4. Execution
By execution we mean formalities required when signing a document
If a contract is to be executed as a deed certain requirements must be met:
 It must be in writing
 It must be clear on the face of the document that it is a deed - s.1 (2)(a) Law of
Property (Miscellaneous Provisions) Act 1989. This means using the word ‘deed’
somewhere in the execution clause
 It must be delivered
 It must be signed and in the case of an individual the signature must bel witnessed
A party to a deed cannot witness it (Seal v Claridge (1881) 7 QBD 516). However, a
witness need not be disinterested – Log Book Loans Ltd v OFT [2011] UKUT 280 (AAC).
This means family members can witness a signature, although it is usually inadvisable.
The witness should be present to attest the signature of an individual (Garguilo v

Gershinon [2012] EWLand.RA 2011_0377). In practice this means the witness must see
the party sign the contract and then sign as a witness to the signature
Test yourself
In Briggs v Gleeds [2014] EWHC 1178 partners in a general partnership (not a LLP)
executed deeds of variation to a pension trust deed and rules without getting a witness to
attest to their signature.
Question: Were the variations validly executed?
Answer
The significance of delivery of a deed is that it is the point at which a deed becomes
effective. A deed is delivered when the parties intend it to be delivered. There is a
rebuttable presumption for companies that a deed is delivered on execution (ss74A Law
of Property Act 1925 and 46(2) Companies Act 2006.) If this is not to be the case then a
contract should specify when a deed is to be delivered – e.g. when the contract is dated
not when it is signed.
5. Position in other jurisdictions
Under Indian law a minor, someone of unsound mind and persons prohibited by law are
incapable of entering into contracts, In India some contracts require registration and
therefore must be in writing. Such contracts include sale or gift of real estate and most
leases.
In India certain contracts are usually executed as deeds. These include transfers of land
and powers of attorney. Deeds must be clear they are deeds and must be in writing.
Some deeds need to be witnessed (witnessing requirements differ from state to state)
In India a director entering into a contract on behalf of a company must be authorised to

do so under the company’s constitution (its memorandum and articles of association)
In Singapore statute requires certain contracts be in writing such as mortgages and most
leases. Other contracts such as guarantees have to be evidenced in writing (i.e. there
must be a written note of the terms).
Guarantees, confidentiality agreements and indemnities are examples of documents

executed as deeds in Singapore. The requirements for a valid deed in Singapore are
similar to those in England – it must be in writing, clear it is a deed and properly executed.
In France certain contracts, for example temporary contracts of employment and land
transfers have to be in writing. Land contracts must be executed as an authenticated
deed. This means it must be in writing and authenticated by a notary. A notary is
independent and checks the parties’ capacity and explains the effect of the contract to
both parties.
All the systems above allow agents to contract on behalf of principals if they have
authority to do so.
C. TERMS OF THE CONTRACT
1. Express terms
The most important issue with express terms is construction, i.e. what the parties meant
by the words they used.
Start with a literal interpretation of words used – BCCI v Ali [2001] UKHL 8. In most cases
this will resolve the issue of construction. If a contract has a clear literal meaning then
commercial common sense should not be used to override the clear literal meaning:
Arnold v Britton [2015] UKSC 36 This is more so if lawyers have been used to draft the
contract.

Test yourself
The service charge provisions in a 99 year lease of a holiday chalet in South Wales
provide:
“The Tenant must pay a proportionate part of the Landlord’s expenses in the yearly sum
of £90 in the first year of the lease and increasing by 10% per annum for every
subsequent year thereafter”
Question: reading this clause literally what is going to happen to the service charge
figure over time?
Answer
If a literal interpretation makes absolutely no commercial common sense it can be

dispensed with in favour of a more commercial approach: In Sutton Housing Partnership
Ltd v Rydon Maintenance Ltd [2017] EWCA Civ 359 figures in a contract which
determined one party’s right to a bonus and the other party’s right to terminate were
expressed to be ‘examples’. The court made the point that the figures would be
meaningless if merely examples and that if they were just examples both parties would
lose valuable rights under the contract. The only common sense approach was to
construe the figures as being mandatory.
Negotiations cannot be used to aid construction: Chartbrook v Persimmon Homes Ltd

[2009] UKHL 38. In practice this means correspondence and previous drafts of contracts
cannot be used to show what the final contract means.
Subsequent conduct cannot be used to determine what a contract means: James Miller &
Partners v Whitworth St Estates Ltd [1970] AC 583. The reason for this may be obvious to
non-lawyers: whilst lawyers spend their whole time negotiating and drafting contracts,
clients have an alarming habit of putting them in a drawer and doing something
completely different! Therefore what parties do after a contract has been signed is little
use in determining what the contract means.
2. Implied terms
The important thing about implied terms is that the parties to a contract haven’t written
these terms down or talked about them but they are in the contract anyway.
Terms can be implied through regular and consistent course of dealings:
Terms can be implied through custom and usage.
Terms can be implied by the courts by implication of fact. The key case in this area is now
Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015]
UKSC 72. The key points that emerge from the M&S case are:
 Implying terms can be intrusive so the law imposes strict constraints

 A court should not imply a term based on hindsight value judgment

 Fairness and the fact the parties would have been likely to agree to it is not a
reason to imply a term
 Any test based on intention is assessed objectively
The more specific principles are:
 It must be reasonable and equitable to imply the term

 It must be necessary to give business efficacy (i.e. the contract wouldn’t work
without the implied term) or because it satisfies the officious bystander test
(i.e. the term is so obvious that the parties never spoke about it or wrote it
down)
 It must be capable of clear expression
 It must not contradict an express term of the contract
Test yourself
The facts of the M&S case were that M&S was tenant of a shop and BNP was the
landlord. The lease provided that M&S could end the lease early on 24 January 2012 if (i)
it served a notice at least 6 months before 24 January 2012 and (ii) there were no arrears
of rent as at 24 Jan 2012 and (iii) it paid BNP £919k.
M&S served a break notice on 7 July 2011 and paid the £919k on 18 January 2012. On
25 December 2011 M&S paid the quarter’s rent up to 24 March 2012. This meant there
were no arrears of rent. M&S argued that a term should be implied into the lease to the
effect that if M&S served a notice to break the lease it should be entitled to a refund of
rent for the period 25 January – 24 March 2012
Question: Do you think the Supreme Court was prepared to imply such a term?
Answer
Statute may also imply terms into contracts. For example, where a business supplies
services to another business section 13 Supply of Goods and Services Act 1982 implies a
term that the supplier will use reasonable care and skill when supplying the services. This
would clearly apply to a firm of actuaries providing services to clients.
In France the common i9ntention of the parties prevails over literal construction of a
contract which is in marked contrast to Arnold v Britton.
In India the case of Nabha Power Ltd v Punjab State Power Ltd (2017) 12 Scale 241
effectively provides the same test for the courts implying terms as the M&S case did in
England. This means that it will be relatively rare for the courts to imply terms into
commercial contracts in India.

As with most jurisdictions in both India and Singapore statute implies terms into contracts,
usually for the protection of consumers.
D. VITIATING FACTORS
A vitiating factor is something which, if present, can lead to a contract becoming void, i.e.
having no effect.
1. Misrepresentation
This is an untrue statement of fact or law which induces the other party to enter into the
contract. For example, if you sell your car and say to the buyer the car has 10,000
genuine miles on the clock, you are making a statement of fact to induce the buyer into
entering a contract with you. If the car has in fact 100,000 miles on the clock then the
representee (the person to whom you made the statement) may bring an action for
misrepresentation.
You cannot sue someone for a statements of opinion but a statement of opinion can carry
with it a statement of fact
Test yourself
I am selling my business to you. I state that in my opinion the future profits of the business
will double over the next 5 years.
Question: What statements of fact might I be making along with my statement of
opinion?
Answer
The statement must material and it must be relied on. In Lloyd v Browning [2013] EWCA
Civ 1637 the seller of a house made a misrepresentation to the buyer about planning
permission. The court held that the buyer was so determined to buy the house come what
may that the misrepresentation did not influence the buyer’s decision to purchase the
house. The buyer’s claim in representation failed as there had been no reliance on the
statement as to planning permission.
Silence cannot be a misrepresentation unless:
 It is a misrepresentation by conduct. In Spice Girls Ltd v Aprilia World Service BV

[2002] EWCA Civ 15 the Spice Girls were negotiating with Aprilia to sponsor their
forthcoming world tour. Geri then told the band she was leaving. The whole band
then did a photoshoot with Aprilia. The court held that by doing the photoshoot the
band were representing to Aprilia that they were a five piece band and knew
nothing that would change that fact. This was clearly untrue.

 A duty to correct a statement applies. If a statement is true when you make it but
becomes untrue before a contract then you are under a duty to correct the
statement
 There is a duty to disclose. This only arises in contracts of utmost good faith, e.g.
insurance contracts.
Misrepresentation can be fraudulent, negligent or innocent.
With a fraudulent misrepresentation the maker of the statement knows the statement to be
untrue or is reckless as to the truth of the statement. Reckless means you don’t give any
thought to the statement or care whether or not it is true.
With a negligent misrepresentation the maker of the statement believes it to be true but
has no reasonable grounds for the belief.
Innocent misrepresentation occurs where the maker of a statement believes it to be true

and has reasonable grounds but the statement turns out to be untrue.
Rescission is the primary remedy for misrepresentation. It is available for all types of
misrepresentation. Rescission puts the parties back in the position they were in before the
contract was made – i.e. the contract is treated as never having existed. Rescission
cannot be awarded where:
 The contract has been affirmed – i.e. the representee knows the statement is false
but takes no action to rescind the contract
 Too long a time has lapsed
 It is impossible to rescind
 Third party rights have intervened
Damages can be awarded for misrepresentation although they are not assessed a breach
of contract basis.
Most commercial contracts have got entire agreement clauses in them which exclude
liability for negligent and innocent misrepresentation. A party cannot exclude liability for
fraudulent misrepresentation.
2. Mistake
Common mistake as to subject matter renders a contract void e.g. we both contract to
use a ship but the ship doesn’t exist. It is rare to encounter common mistake.
Mutual mistake is where the parties are at cross purposes. A court may declare the
contract void or uphold the contract and disregard the term depending on the nature of the
mistake. In Triple Seven MSN 27251 Ltd v Azman Air Services Ltd [2018] EWHC 1348 A
leased aircraft from TS. A’s business model was based on flying pilgrims to the Hajj in
Saudi Arabia. Flights to the Hajj needed approval by the Saudi authorities. Both parties
thought approval would be forthcoming but it was not given for the 2016 Hajj. The court

refused to set aside the contract for mistake. The contract could still be performed as A
could still have made a profit on the contract without the 2016 Hajj business.
Unilateral mistake is where one party makes a mistake and the other knows about the
mistake (or is taken to know about It.) and chooses not to bring it to the other’s attention
because there is a benefit in not doing so. The mistake must be as to one of the terms of
the contract. If you what is normally a very expensive TV advertised for 1000th of its usual
price in circumstances which suggest no promotion is being made then if you managed to
buy it for that price there is an argument the contract would be set aside for unilateral
mistake
3. Duress
Duress makes a contract voidable. Duress can involve physical violence – e.g. enter this
contact with me on these terms or I will beat you up. Duress involving physical violence is
rare.
Economic duress involves illegitimate pressure which causes a party to enter a contract.
In deciding what is illegitimate the courts look at a number of factors such as:
 Good or bad faith
 Absence of practical choice
 How grave the threats were
 Protest at the time
In Atlas Express Ltd v Kafco Ltd [1989] QB 833 A had a contract to transport K’s goods. K
had a contract to supply Woolworths. A realised it had made a mistake in calculating how
many of K’s boxes it could fit in its trucks. A then demanded K sign a variation to the
contract to correct A’s error stating it would not make any further deliveries until K did. K
signed the variation under protest knowing that if it A refused to deliver K would lose its
contract with Woolworths. The court held that A’s request was in bad faith and it gave K
no choice but to sign the variation. K’s protests at the time made clear that it thought A’s
actions were illegitimate. The court set aside the variation.
In India and Singapore a party who is induced to enter into a contract by reason of a
misrepresentation has a claim in misrepresentation. A contract entered into as a result of
a misrepresentation is voidable.
In India a common mistake as to fact (see above) makes a contract void. Mutual or
unilateral mistakes make a contract voidable.
In France a contract is not binding if it was procured by violence or wilful

misrepresentation or if there is a mistake as to an essential part of the contract.

E. REMEDIES
1. Types of damages
Damages are compensation for breach of contract.
Compensatory damages are the most common. The principal measure is expectation
loss, i.e. putting the claimant in the position he would have been in had the contract been
properly performed – i.e. as far as money can you compensate the claimant (the person
suing) for the loss of bargain.
Test yourself
You buy a car for £10,000. You got a good deal. If you were to buy the same car
anywhere else in town it would cost you £12,000. In breach of contract the car has a
defect which means it is only worth £8,000.
Question: If you sued for compensation, how much will your damages for breach of
contract be?
Answer
An alternative to expectation loss is reliance loss, i.e. compensating the claimant for
expenses incurred: Anglia TV v Reed [1972] 1 QB 60. This is usually claimed as an
alternative to expectation loss when it is hard to show expectation loss.
Test yourself
In the Anglia TV case an actor was engaged to appear in a TV series and in breach of
contract refused to turn up.
Question: What is the problem in assessing Anglia TV’s losses on an expectation
loss basis?
Answer
Nominal damages (usually £1 or £2) will be awarded where there has been a breach but
the claimant has suffered no loss.
In commercial cases parties cannot claim damages for inconvenience, distress and
anxiety.
In certain consumer contracts parties may claim for non-pecuniary loss, so in holiday
cases if your holiday turns out to be not as expected you can claim a small amount for
loss of enjoyment as the contract was for enjoyment.
2. Time of assessment of damages
Usually damages are assessed at the date of breach of contract unless it is unreasonable
to do so.
Test yourself
In Hooper v Oates [2013] EWCA Civ 91 a seller contracted to sell a house to a buyer for
£605,000. When the time came to complete the purchase the buyer refused. At the date
of completion the house was now worth £595,000. The seller tried to sell the house up
until trial but could not die to the 2008 financial crisis. At trial the house was worth
£495,000
Question. The buyer and seller both used different calculations to work out
damages. What were they? Which calculation do you prefer?
Answer
In assessing damages, a court can take into account what would have occurred after
breach: In Golden Strait Corp v Nippon Yusen Kubiska Kaisha [2007] UKHL the hirer of
ship returned it early. The owner wanted damages to represent the profit it would have
made on the remaining hire period. The contract contained a ‘war clause’ in it which
entitled the hirer to terminate the contract if war arose in certain areas on the world. After
the hirer returned the ship but before the end of the hire period the first Gulf war broke out.
The court accepted the hirer’s argument that it would have returned the ship on the
outbreak of war and that it should only be liable for damages up to that point.
3. Remoteness
Loss cannot be recovered if it is too remote.
The test of remoteness is set out in Hadley v Baxendale (1854) 9 Ex 341. A party can
recover loss that was within the reasonable contemplation of both parties at the time of
the contract. If the loss is one which you would expect to arise from breach it is presumed
to be within the usual contemplation of the parties (lawyers tend to call this limb 1 of
Hadley v Baxendale). If the loss is not something you would expect to arise then it must
actually have been in the reasonable contemplation of the parties to be recoverable
(lawyers call this limb 2 of Hadley v Baxendale).

Test yourself
1. A agrees to supply electricity to B’s building site. B is building a viaduct. In breach of

contract A stops the electricity supply to B’s building site. B is using an unusual method of
construction which means that if concrete supply to the structure is stopped the structure
must be demolished and rebuilt. When A stops the electricity supply the concrete supply is
stopped with the result that the structure must be demolished.
Question: Is A liable for the cost of rebuilding the viaduct?
Answer
2. A gets a contract to supply a boiler for B’s laundry business. A knows B is going to use
the boiler for its business. A delivers the boiler late. B claims damages for loss of usual
profits it would have made had it been able to use the boiler and loss of profits on a very
lucrative industrial laundry contract it had just entered into. The losses on the industrial
contract are ten times the loss of profits on domestic laundry business.
Question: Can B recover both sets of profits?
Answer
It is the type of loss and not the extent of it that must be within the parties’ reasonable
contemplation. In Parsons (Livestock) Ltd v Utley Ingham & Co Ltd [1978] QB the
defendant sold a defective hopper which was to be used by the claimant to feed its pigs.
The hopper’s defects turned nuts mouldy. The pigs died from e-coli as a result of eating
the nuts. The defendants argued they should not be liable as they could not have
contemplated a defective hopper would result in e-coli infection and death of the pigs. The
Court of Appeal disagreed and found that it would have been within reasonable
contemplation that a defective feeding device would render food unsuitable which in turn
would make the pigs ill. The extent of the illness was irrelevant.

4. Agreed remedies
Sometimes the contract itself will set out compensation if a party breaches it. These
clauses have lots of different names e.g. agreed damages clauses, specified damages
clauses, and liquidated damages clauses
Such a clause must not be a penalty. If the courts classify a clause as a penalty the
clause is ignored and damages are assessed on the standard expectation loss basis
instead. The law on penalties was reviewed and explained by the Supreme Court in
Beavis v Parking Eye Ltd [2015] UKSC 67. In determining whether a clause is a penalty,
the following should be borne in mind:
 The law on penalties applies only to secondary obligations (i.e. clauses which
compensate a party for breach of another obligation in the contract)
 The legitimate interest being protected by the primary obligation should be
identified.
 The court should ask whether the clause is disproportionate in protecting the
identified interest being protected.
In the Beavis case B parked his car in a retail car park which was near to a town centre. B
was provided with two hours free parking but if he overstayed he was charged a fee of
£80. B overstayed by an hour and was charged £80. B argued the charge was a penalty
because the car park owner had suffered no loss (if he had gone within the two hours
someone else would have parked there for free) and that the £80 charge was the same
whether his overstay was one second or 10 hours in length.
The Supreme Court held the clause was not a penalty. £80 was not disproportionate to
protect (i) the owner of the land’s interest in attracting customers to the retail centre and it
not becoming a commuter car park, and (ii) the company administering the parking
scheme’s interest in maintaining a viable business
Under French law a party can seek damages for breach of contract. Damages are only
available for foreseeable loss. However, this does not apply where the contract breaker
has been guilty of serious or wilful misconduct. This is different to English law where the
conduct of a party in breach is largely irrelevant.
Damages in common law jurisdictions are generally assessed on the same basis as they
are in England.
F. EXCLUSION OF LIABILITY
All contractual terms must be incorporated to be effective. This means they have to bind
the parties. The easiest way to bind someone is to get them to sign the contract.

In business to business (‘B2B’) negotiated contracts parties are bound by what they have
signed even if they have not read the contract.
Test yourself
Question: How do you get someone to bind themselves to terms when contracting
over the internet?
Answer
The Unfair Contract Terms Act 1977 (‘UCTA 1977’) applies to most B2B contracts.
Attempts to exclude or limit liability for death or personal injury caused by negligence are
void (s.2(1) UCTA 1977). For example, a train operator could not rely on a clause in its
terms and conditions which said that if a passenger was injured due to the train
company’s negligence the company had no liability to the customer.
Attempts to exclude/limit liability in B2B contracts for the following are only valid if they
satisfy a reasonableness test:
 Monetary/property damage caused by negligence (s2(2) UCTA 1977)

 Non fraudulent misrepresentation (s.3 MRA 1967)
 Breach of statutory implied terms as to quality of goods (s.6 UCTA)
 Breach of contract where one party deals on the other’s written standard terms
(s.3 UCTA 1977)
For the reasonableness test the court will take into account:
 Bargaining position: If a party in a stronger negotiating position imposes an

onerous exclusion clause on a party in a weaker commercial position it is more
likely to be unreasonable
 Inducement: if a party pays less for a product/service in return for accepting an
exclusion of liability then the exclusion is more likely to be reasonable
 Knowledge of the clause: if a clause is tucked away in a contract and difficult to
find it may be unreasonable. However, courts tend not to rely on this factor too
much
 Insurance: If a party subject to an exclusion clause is better placed to insure
against a loss then an exclusion clause is more likely to be valid
 The clause itself: courts look more favourably on clauses which limit liability than
totally exclude it
In France parties can limit or exclude liability but the exclusion/limitation must not
effectively deprive the contract of obligations.

There is no specific statute in India dealing with attempts to exclude liability unlike
England and Singapore which both have Unfair Contract Terms Acts. However, s. 67A
Indian Contracts Act 1872 provides that a contract is likely to be unenforceable as
unreasonable or unconscionable if it attempts to exclude liability for negligence or wilful
(i.e. deliberate) breach of contract.

ANSWERS TO ‘TEST YOURSELF’
A. FORMATION
Test yourself
You have applied for a place at university. A university makes you an unconditional offer
which you accept. Your acceptance means you can no longer seek a place through
clearing. The university has just written to you saying it made a mistake and it has
withdrawn its offer.
Question: Has the university made you a contractual offer which you have
accepted?
Answer
Yes. Whether an offer has been made is not judged by what the university thinks but by
whether a reasonable person would believe the university was expressing a willingness to
be bound in these circumstances. The communication from the university does not need
any further negotiation or clarification to be accepted. The facts of this question are similar
to those of Moran v University of Salford (No2) [1994] ELR 187 where the Court of Appeal
held that an unconditional offer made by mistake by Salford University was likely to be a
contractual offer which Mr Moran had accepted. Mr Moran’s consideration for the contract
was forgoing the right to seek places elsewhere through clearing.
Test yourself
You see a current model ipad for sale in a shop with a £99.99 price next to it. You take it
to the counter and say you want to buy it. The shop assistant tells you the price is a
mistake and refuses to sell it to you for £99.99.
Question: Has the shop made an offer to sell you the ipad for £99.99 which you
have accepted?
Answer
No. Items in shop windows are invitations to treat. The shopper makes the offer by
requesting the goods/taking the goods to the till. The shop is then free to accept/reject the
shopper’s offer. In this case the shop has rejected your offer to buy the ipad for £99.99
Test yourself
I offer to sell you a case of oranges and a case of wine. I don’t say when my offer is
intended to lapse.
Question: Is it likely that the offers will lapse around the same time?

Answer
No. Where no time is stated for an offer to lapse it lapses within a reasonable time.
Oranges are perishable. Wine is not (or is less so). The offer to sell the wine is likely to be
available longer than the offer to sell the oranges.
Test yourself
You and I are in a legal dispute. You offer to settle the dispute on the following terms:
 You will accept payment of £1000 from me

 I must accept your offer by 1 December
 I must pay you by 10 December
I respond to your offer on 28 November agreeing to pay you £1000 to settle the dispute
and that I will pay you by 20 December.
Question: In law have I accepted your offer?
Answer
No. I have not accepted your offer as I have now introduced a different payment date. You
wanted payment by 10 December. I have stated 20 December. My communication is a
counter offer not acceptance.
Test yourself
Let’s progress the example above.
You respond to my ‘acceptance’ by telling me “no way, I wanted payment by 10

December not 20 December”
I reply “ok, it’s 10 December then”
Question: Do we have a binding agreement?
Answer
This is more difficult. I made a counter offer by stating 20 December. This destroyed your
previous offer to settle. The only way we can now have a binding agreement is if your
statement is a new offer. It is probably not a new offer. Your statement is probably
confirming your rejection of my counter offer
Test yourself
I make an offer to you by e-mail. You accept by post. Your letter is lost in the post.
Question: Is the postal rule likely to apply?

Answer
No. The postal rule has probably been impliedly excluded by circumstances. If you choose
to make an offer by e-mail you have not accepted the risk that any acceptance may be
lost in the post. You are entitled to expect acceptance via e-mail and the rules on
acceptance by e-mail will apply.
Test yourself
The simplified facts of Thomas v BPE Solicitors [2010] EWHC 306 were:
The parties were working on a corporate deal. The deal had been gathering momentum
with the parties’ lawyers sending and replying to e-mails at all hours.
A’s lawyers made an offer to B.
B accepted by e-mail sent to A’s lawyers at 6pm on the Friday before the August bank
holiday.
A’s lawyers said that they had all gone home for the bank holiday weekend.
A’s client revoked the offer on the Saturday.
Question: When do you think acceptance occurred – 6pm(ish) on Friday or 9am

(ish) on Tuesday (when A’s office reopened after the bank holiday)
Answer
6pm(ish) on Friday. The postal rule does not apply to acceptance by e-mail. Therefore the
acceptance does not occur when B’s lawyers sent the acceptance e-mail. It occurs when
A’s lawyers read or should have read the e-mail. Usually, if an e-mail is sent outside office
hours it would not be reasonable for it to be deemed to have been read until the start of
business the following day. However, on the facts here we are told that the parties have
been e-mailing and replying to e-mails at all hours. The sender of an e-mail could
therefore legitimately expect it to have been read within a reasonable time of sending it. In
the Thomas case above the court held that acceptance occurred around 6pm. The
significance of this is that acceptance occurred before revocation of the offer and there
was therefore a binding contract.
Test yourself
I agree to pay you £10,000 in return for you agreeing to waive a claim you have against
me for breach of contract.
Question: Have we both provided each other with consideration?
Answer
Yes. We have both provided each other with something of value. I have given you
£10,000 you have given me something of value by waiving my claim against you.

Test yourself
Question: Going back to the facts above – would it make any difference if our
lawyers rated your chance of success in litigation against me at less than 5%?
Answer
No. Consideration must be sufficient but need not be adequate. What this means is that
the parties need only exchange something of value. The law does not insist on an equal
bargain being made
Test yourself
You lend your brother £50 on terms that he will pay it back in one month together with a
drink as a favour for you lending the sum. Your brother defaults and refuses to pay the
money back.
Answer
No. This is a domestic/social situation and the courts are would likely conclude the parties
did not intend to create legal relations and that the money was lent because of family ties
rather than with it was intended to be legally binding.
Test yourself
You lend your brother £25,000 repayable over 36 monthly instalments to be paid on the
first day of each month together with interest at 3% above the Bank of England base rate
from time to time. Interest is to be increased by 1% in the event of default. Your brother
defaults.
Answer
Yes. Despite this being a loan between family members the facts are very different from
the previous scenario. Here a significant sum has been lent and the parties have gone to
the trouble of drawing up a detailed repayment schedule and applying what looks like a
commercial rate of interest. A court would most likely conclude the parties intended the
loan agreement to be legally binding
B. FORM, CAPACITY, AUTHORITY AND EXECUTION
Test yourself
Trustees of a pension fund wish to instruct their investment advisors to sell and acquire
assets.
Question: what document will set out the capacity of the trustees?

Answer
The pension fund trust deed and rules will set out the trustees’ capacity.
Test yourself
In Ramsay v Love [2015] EWHC 65 Gordon Ramsay’s father in law (‘H’) executed a
guarantee on behalf of Gordon Ramsay personally. The guarantee was in respect of
Ramsay’s company’s obligations under a lease of premises used for one of Ramsay’s
restaurants. H had no actual authority from Ramsay to execute the guarantee on his
behalf. However:
 Ramsay gave H near total authority to deal with his business affairs
 It was Ramsay’s policy to provide a personal guarantee if landlords would not
accept his company being solely responsible for obligations under a lease
 H had executed 42 different legal documents on Ramsay’s behalf over the years
Question: Did H have authority to execute the guarantee on Ramsay’s behalf?
Answer
Yes. Whilst Ramsay had not officially appointed H as his agent to enter into transactions
on his behalf, H had effectively assumed that position and Ramsay was aware of this and
had acquiesced to H executing legal documents on his behalf. H had implied actual
authority to execute documents on behalf of R.
Test yourself
X Ltd’s board sends a director to a meeting at which all parties believe a contract will be
concluded. The board tell the director that he should negotiate terms and seek board
approval before signing a contract. The director signs a contract at the meeting.
Question: Did the director have authority to bind X Co?
Answer
Yes. The director in question has apparent authority to enter into the contract on behalf of
the company. Apparent authority is created by a representation by the principal (the
company) that the agent (the director) has authority and which is relied on by the third
party. In this case the company has represented that the director has authority by sending
him to the meeting. Put yourself in the position of the other side – what would you assume
about the director sent to negotiate on behalf of the other side? Presumably you would
think he/she had power to do a deal unless you were told otherwise.
Test yourself
In Briggs v Gleeds [2014] EWHC 1178 partners in a general partnership (not a LLP)
executed deeds of variation to a pension trust deed and rules without getting a witness to
attest to their signature.

Question: Were the variations validly executed?
Answer
No. There is no corporate entity in the case of a general partnership therefore the partners
are executing the deed as individuals and their signatures must be witnessed. The court
held the deeds were ineffective. The result was that many amendments to a pension trust
deed and rules made over 20 years had no effect. This was a high price to pay for not
observing proper formalities when executing a document!
C. TERMS OF THE CONTRACT
Test yourself
The service charge provisions in a 99 year lease of a holiday chalet in South Wales
provide:
“The Tenant must pay a proportionate part of the Landlord’s expenses in the yearly sum
of £90 in the first year of the lease and increasing by 10% [per annum] for every
subsequent year thereafter”
Question: Reading this clause literally what is going to happen to the service
charge figure over time?
Answer
The figures are going to get very large indeed! Read literally the clause starts the service
charge at £90 per year and then compounds at 10% per year after for 99 years. The
tenant argued this would lead to commercially absurd levels of service charges for holiday
chalets. However, the Supreme Court held that the clause was literally clear and that
commercial common sense should not be used to overturn strict literal meaning.
Test yourself
The facts of the M&S case were that M&S was tenant of a shop and BNP was the
landlord. The lease provided that M&S could end the lease early on 24 January 2012 if (i)
it served a notice at least 6 months before 24 January 2012 and (ii) there were no arrears
of rent as at 24 Jan 2012 and (iii) it paid BNP £919k.
M&S served a break notice on 7 July 2011 and paid the £919k on 18 January 2012. On
25 December 2011 M&S paid the quarter’s rent up to 24 March 2012. This meant there
were no arrears of rent. M&S argued that a term should be implied into the lease to the
effect that if M&S served a notice to break the lease it should be entitled to a refund of
rent for the period 25 January – 24 March 2012
Question: Do you think the Supreme Court was prepared to imply such a term?
Answer
No. The Supreme Court ruled that the contract worked perfectly well without the implied
term even if M&S lost out. The implied term was not so obvious that the parties had just
not mentioned it. Put another way, if both parties had been asked whether M&S would get
their money back in they exercised the break clause it is likely it would have been the
subject of negotiation and not met with ‘Yes, of course’.
D. VITIATING FACTORS
Test yourself
I am selling my business to you. I state that in my opinion the future profits of the business
will double over the next 5 years.
Question: what statements of fact might I be making along with my statement of

opinion?
Answer
The statement of fact I am making is that I hold that opinion. If it can be shown that I did
not hold the opinion when I made it then I have made a misrepresentation.
E. DAMAGES
Test yourself
You buy a car for £10,000. You got a good deal. If you were to buy the same car
anywhere else in town it would cost you £12,000. In breach of contract the car has a
defect which means it is only worth £8,000.
Question: How much will your damages for breach of contract be?
Answer
£4000. Contract law seeks to put a party in the position they would have been in had the
contract been performed. Had this contract been performed you would have a car worth
£12,000. Giving credit for what you hold it will take £4000 to compensate you.
Test yourself
In the Anglia TV case an actor was engaged to appear in a TV series and in breach of
contract refused to turn up.
Question: What is the problem in assessing Anglia TV’s losses on an expectation

basis?
Answer
Nobody knows how well the programme would have been received. Therefore damages
based on putting Anglia TV in the position it would have been in are too speculative to
calculate. Anglia TV therefore looked to recover on a reliance loss basis for expenses
incurred in performance of the contract.
Test yourself

In Hooper v Oates [2013] EWCA Civ 91 a seller contracted to sell a house to a buyer for
£605,000. When the time came to complete the purchase the buyer refused. At the date
of completion the house was now worth £595,000. The seller tried to sell the house up
until trial but could not die to the 2008 financial crisis. At trial the house was worth
£495,000
Question. The buyer and seller both used different calculations to work out
damages. What were they? Which calculation do you prefer?
The buyer argued loss was £10,000. The breach of contract occurred on failure to
complete therefore to put the seller in the position if completion had occurred would cost
£10,000
The seller argued that loss should be calculated at trial date which was £110,000.
The court found for the seller. Normally loss is assessed at breach but here the seller had
done everything she could to mitigate her loss by keeping it on the market.
Test yourself
1. A agrees to supply electricity to B’s building site. B is building a viaduct. In breach of

contract A stops the electricity supply to B’s building site. B is using an unusual method of
construction which means that if concrete supply to the structure is stopped the structure
must be demolished and rebuilt. When A stops the electricity supply the concrete supply is
stopped with the result that the structure must be demolished.
Question: Is A liable for the cost of rebuilding the viaduct?
Answer
No. the loss is too remote. The cost of demolishing and rebuilding a structure are not
within the reasonable contemplation of a party when entering into a contract to supply
electricity to a building site. The facts of this scenario are similar to those in Balfour Beatty
Construction (Scotland) Ltd v Scottish Power plc [1992] SLT 811.
2. A gets a contract to supply a boiler for B’s laundry business. A knows B is going to use
the boiler for its domestic business. A delivers the boiler late. B claims damages for loss of
usual profits it would have made had it been able to use the boiler and loss of profits on a
very lucrative industrial laundry contract it had just entered into. The losses on the
industrial contract are ten times the loss of profits on domestic laundry business.
Question: Can B recover both sets of profits?
Answer
The facts of this case are similar to Victoria Laundry Ltd v Newman Industries Ltd [1948] 2
QB 548. The court held no. Ordinary trading profit is usually recoverable under limb 1 of
Hadley v Baxendale. However, the court held that exceptional profit is not within limb 1
and needs to be within the reasonable contemplation of the parties to be recoverable. In
this case the defendant did not know about the exceptionally lucrative contract entered
into by the buyer.

F. EXCLUSION OF LIABILITY
Test yourself
Question: How do you get someone to bind themselves to terms when contracting
on the internet?
Answer
Get the contracting party to tick a box agreeing to the terms and conditions attached. This
is the equivalent of signing a contract.

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Institute and Faculty of Actuaries

A practical guide to contract law

Institute and Faculty of Actuaries 1 © The University of Law Limited 2019

Let’s look at each of these components in turn.

A promise can only be an offer if it is specific enough to be accepted without further

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Offers should be distinguished from invitations to treat. An invitation to treat is incapable of

 Advertisements on TV, in papers and magazines, and on websites.

Ordinarily an invitation to tender is an invitation to treat. However, beware of making

Offers are terminated in by different means and in different circumstances including:

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Let’s progress the example above.

You respond to my ‘acceptance’ by telling me “no way, I wanted payment by 10

I reply “ok, it’s 10 December then”

Question: Do we have a binding agreement?

Acceptance must be communicated (i.e. received and read) to be effective. However,

Question: Is the postal rule likely to apply?

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A’s lawyers made an offer to B.

A’s client revoked the offer on the Saturday.

Question: When do you think acceptance occurred – 6pm(ish) on Friday or 9am

If a method of acceptance is prescribed then it should be followed. However, the mode of

Consideration can be doing something or promising to do something. For example, if you

Question: Have we both provided each other with consideration?

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There is a presumption that parties intend to be legally bound in commercial

 There was nothing in writing (not even one e-mail)

Beware acting on a subject to contract agreement. In RTS Flexible Systems v Muller

Question: Is your loan agreement legally enforceable?

Agreements to negotiate to bring a contract into existence are generally unenforceable: in

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Question: Is your loan agreement legally enforceable?

Agreements to negotiate terms within an existing contractual framework may be

Best/reasonable/all reasonable endeavours obligations will nearly always be enforceable.

A condition precedent must be certain in order to be binding. In Lee-Parker v Izett (No 2)

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A condition precedent should:

 Put a deadline in for fulfilment

B. FORM, CAPACITY, AUTHORITY AND EXECUTION

Some contracts require a particular form to be effective, e.g.:

 Guarantees must be in writing or evidenced in writing, and signed by guarantor: s.

Some contracts must or should be executed as a deed – e.g.:

 Land transfers – s.53 Law of Property Act 1925

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An agent may have actual or apparent authority to bind a principal.

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Question: Did H have authority to execute the guarantee on Ramsay’s behalf?

Question: Did the director have authority to bind X Co?

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By execution we mean formalities required when signing a document

If a contract is to be executed as a deed certain requirements must be met:

The witness should be present to attest the signature of an individual (Garguilo v

Question: Were the variations validly executed?

5. Position in other jurisdictions

In India a director entering into a contract on behalf of a company must be authorised to

Guarantees, confidentiality agreements and indemnities are examples of documents

C. TERMS OF THE CONTRACT

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If a literal interpretation makes absolutely no commercial common sense it can be

Negotiations cannot be used to aid construction: Chartbrook v Persimmon Homes Ltd

Terms can be implied through regular and consistent course of dealings: