TABLE OF CONTENTS

UNIT TOPIC PAGE

COURSE OUTLINE i-vi

RECOMMENDED READING vi

RATIONALE 1
UNIT 1 INTRODUCTION TO LAW 3
UNIT 2 SOURCES OF LAW 8
UNIT 3 STATUTORY INTERPRETATION 19
UNIT 4 COMMON LAW AND EQUITY 25
UNIT 5 THE LAW OF CONTRACT 28
UNIT 6 THE OFFER 31
UNIT 7 ACCEPTANCE 43
UNIT 8 THE DOCTRINE OF CONSIDERATION 50
UNIT 9 CAPACITY 55
UNIT 10 INTENTION TO CREATE LEGAL RELATIONS 60
UNIT 11 THE CONTENT OF THE CONTRACT 64
UNIT 12 EXCLUSION CLAUSES 71
UNIT 13 VITIATING FACTORS 76
UNIT 14 MISREPRESENTATION 87
UNIT 15 DISCHARGE OF CONTRACTUAL OBLIGATIONS 96
UNIT 16 RESTRAINT OF TRADE 100
UNIT 17 PRIVITY OF CONTRACT 105
UNIT 18 DURESS 109
UNIT 19 REMEDIES FOR BREACH OF CONTRACT 113
UNIT 20 LAW OF TORT 118
UNIT 21 NEGLIGENCE 122
UNIT 22 DEFENCES IN TORT 125
UNIT 23 SPECIFIC TORTS RELEVANT TO BUSINESS 129
UNIT 24 TRESPASS 135
UNIT 25 AGENCY 138
UNIT 26 BANKING 148
UNIT 27 SECURITIES & BANK SECURITY 157
UNIT 28 SALE OF GOODS 161
UNIT 29 GOODS 165
UNIT 30 REMEDIES & OBLIGATIONS OF BUYERS & SELLERS 174

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RATIONALE

Since 1991, Zambia has undergone a tremendous metamorphosis in the political,

economic and social environments after having come from a commandist economy
controlled by central government to a liberalised economy in private hands.
Zambians have experienced the adverse effects of the government’s liberalisation
policies on the mining, insurance, financial and manufacturing sectors.

The harsh effect of liberalisation has prompted the government to institute measures
aimed at mitigating its effect on the consumer through the introduction of consumer
protection legislation. For example, we have had the Privatisation Act, Investment
and Securities Act, etc passed to meet the changing economic environments. With
the passage of time, parliament has had to enact or amend laws having a bearing on
these changes.

Therefore, an understanding of Commercial Law by those who will participate in the

economic sphere in their professional capacities is not only necessary but imperative.
It is therefore of utmost importance that the students of Commercial Law are
equipped with the necessary knowledge so as to appreciate the basic tenets of law
affecting business activities.

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UNIT 1 INTRODUCTION TO LAW
ELEMENT 1.1 THE NATURE OF LAW
A student of law has to take cognizance that from ancient times to present date, no
jurist has succeeded in formulating a convincingly articulated and universally
accepted definition of the term "law".
However, all the surviving definitions of law attempt to explain the incidence, the
existence and consequence of law as a social phenomenon. The word ‘law’ suggests
the idea of rules, reflecting the lives and activities of people. These rules are made
by the people and developed to control the relationships between members of a
particular group. It is through such rules that the conduct of society is regulated.
However, not every rule is necessarily a law. For a rule to acquire the status of a ‘law’
it has to be enforceable by a person in a position of power in that community. These
laws when applicable to a wider society like a country become a legal system.
In short, we could define law as;
“…..a collection of rules of human conduct prescribed by human beings for the
obedience of human beings.”
Legal rules are those rules which the state seeks to enforce through some sort of
punishment or sanctions for disobedience unlike a social rule which does not
normally carry sanctions.
In summary, we can say that;

1. Law is a body of Rules.

2. Law is a Guidance of human conduct
3. Law is imposed
4. Law is enforced
5. Law is dynamic

ELEMENT 1.2 MORALITY

Simply means the right conduct and which conduct is moral and good.
There are various factors that could influence one’s morality, such as:

1. The country of origin- breast feeding in public, homosexuality, polygamy

2. Religious background
3. The general public’s opinion.

CUSTODIANS OF MORALS
1. Society – will praise good morals and censure that which is bad.
2. Parliament – Is the authority of determining what good morals are.
3. Courts – Will fill in the gaps in the law to reach a moral outcome.

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ELEMENT 1.2.1 LAW AND MORALITY

We could safely say that morality covers a wider scope in society than the law and
hence supplement each other.
In law for instance, a person is not under an obligation to rescue a drowning man
except where there is a special relationship of parent and child, whereas, morality
demands such an act to be done.

ELEMENT 1.3 LAW AND EQUITY

Equity is the term that invokes notions of good conscience, fairness and justice.
Equity has contributed greatly to the development of modern law by filling in the gaps
or providing the flesh on the bare-bones of the law;
1. The Subpoena: Is an order developed by the court to compel a litigant to
appear in person before the court and to be questioned.
2. Estoppel: Stops a party to a contract or other agreement from going back on
their word. Normally forces a party to specific performance.
3. Injunctions – stopping an action
4. Rectification - rewriting of a contract
5. Rescission – Unilateral withdrawal from a contract
6. Appointment of a receiver- To receive income from a business
All these are discretionary remedies and applied only were the common law is
inadequate.

ELEMENT 1.4 RULES AND REGULATIONS

To maintain order and fairness in a community of people, there has developed rules
and regulations and their application is what is theoretically called the ‘legal system’.
This system of laws when accepted by a wide array of communities or societies
becomes a complex maze and has to be broken down for simplicity of being
understood by the people to which it applies. Notable divisions would be:
a) Institutions such as the legislature, executive and the judiciary;
b) Bodies of principles and rules, such as, business or commercial law,
constitutional law, criminal law, law of property, civil law, and so on;
c) Ideas, theories, methods, procedures, techniques traditions and practices
which collectively go to make up a distinct organization, existing to apply law
to the problems of a distinct society or state.
As might be so obvious from our experiences through learning and travels, different
legal systems have evolved in different parts of the world from what is called
customary law and similarly, religion has played a cardinal role in shaping the lives of
people wherever it has been accepted.

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EXAMPLES
1. The Sharia Law – In most Moslem states.
2. Anglo-Saxon - Germanic tribal civil law tradition (major influence on English
and American legal systems)
3. Socialist law tradition.
From ancient legal systems has developed the three major systems of the world
today.
1. Civil Law System - With codification of statutes into a Constitution derived
from the Roman Empire
2. Common Law System – No codification and no written Constitution
3. Religious Law System – Canon Law, Islamic Law or Sharia Law, Jewish Law,
etc.
Zambia and most, if not all Commonwealth countries, is a common law country with
a legal system based on the English common law system even though each of these
countries have developed their legal systems differently reflecting local views of
justice and the prevailing local ethos.

ELEMENT 1.5 ATTRIBUTES OF A GOOD LEGAL SYSTEM

The main attributes of a good legal system are: -
1) Certainty or predictability;
2) Comprehensiveness;
3) Simplicity;
4) Accessibility;
5) Flexibility; and
6) Moral values.

ELEMENT 1.5.1 CERTAINTY

A good law must be certain so that it enables the citizens to know and comply with
what it dictates, so that they do not come into brush with it. Certainty is therefore, a
cardinal and desirable attribute of a good legal system.

ELEMENT 1.5.2 COMPREHENSIVENESS

Most modern legal systems strive to ensure that all potential problems and disputes
are covered by the law. A law that is not comprehensive enough will not be grasped
by the majority of citizens. Also a law that is silent on many critical social issues is
defective and likely to create unnecessary interpretation problems.

ELEMENT 1.5.3 SIMPLICITY

A good law must also be simple, couched in plain language, so it can easily be
understood by the people whose conduct it is intended to control.

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ELEMENT 1.5.4 ACCESSIBILITY
A good legal system must have its laws accessible to the people. For this to happen,
the legal process should be inexpensive, so that the majority of the population is able
to retain lawyers to represent them.

ELEMENT 1.5.5 FLEXIBILITY

A good law must be flexible to keep up with social dynamics. A successful legal
system must be able to bend with the wind of social change, that is to say, it must be
sufficiently adaptable to accommodate new kinds of problems and it must be flexible
enough to adjust to changes in the needs and desires of those whom it serves.

ELEMENT 1.5.6 MORAL VALUES

A legal system should strive to conform approximately to the moral values of the
society which it serves. Unless it does this, it is not likely to be accepted by the
people, with the result that they are not obeyed or respected. (NB: Not creating laws
to target certain individuals in society, e. g Car Theft not bailable)

ELEMENT 1.6 ORGANS OF STATE

The Executive (Cabinet)
The Legislative (MP’s)
The Judiciary

ELEMENT 1.6.1 THE EXECUTIVE

The Executive is established under the Zambian constitution in Part IV which makes
provisions for its operations. It is headed by the Republican President, as provided
under Article 33, who then appoints a team of individuals not only from amongst the
Members of Parliament but also from outside Parliament if the President feels the
individual has the necessary qualification and standing. These selected individuals
form what is called the cabinet which works with the President in the running of all
affairs of the state through government ministries. The cabinet is established under
Article 49 as consisting of the President, the Vice-President and the ministers, with
its functions of policy formulation, government administration and as adviser to the
President being provided for under Article 50 of the constitution.

ELEMENT 1.6.2 THE LEGISLATURE

Also called Parliament, is established under Part V Articled 62 of the Zambian
constitution and is made up of the President and the National Assembly. Parliament
is headed by the Speaker of the National Assembly established under Article 69. The
constitution under Article 63 provides for 150 elected Members of Parliament with
the President being empowered to nominate not more than 8 individuals of his own
choice. The major function of Parliament is to enact laws and also plays a role of
scrutinising the Executive.

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ELEMENT 1.6.3 THE JUDICIARY
The judiciary is established under part VI of the Zambian constitution with its
composition being provided for under article 91(i). It is headed by the Chief Justice
who is appointed by the President from among existing judges of the Supreme Court.

COMPOSITION
a) High Court Judges - appointed by the President and ratified by the National
Assembly.
b) Industrial Relations Court Judges - appointed by the President and ratified by
the National Assembly.
c) Magistrates
d) Local Court Justices
e) Administrative tribunals which perform quasi-judicial functions created by or
under the Acts of Parliament. E.g. The Small Claims Court.

The function of the judiciary is to adjudicate over matters presented to it by the state
in criminal proceedings and private litigants in civil matters. Decisions made by a
court can be challenged by way of appeal to the next higher court up to the Supreme
Court as the highest court in Zambia.

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UNIT 2 SOURCES OF LAW
The following are the major sources of English law today:

- The constitution

– Statute law or legislation

– Case Law or precedent

– Statutory interpretation

– Delegated Legislation

– Treaties

– Custom

– Equity

– Books of authority

ELEMENT 2.1 THE CONSTITUTION

The Constitution is the most important law in the land and binds all persons in
Zambia as well as all organs of the state. It is the law that is said to come directly
from the people and sets out the relationship between the people and the

The Constitution is intended to promote the orderly governance of the country.

Case Law for reference

Thomas Mumba Vs the People (1984) ZR 38

The People Vs Shamwana and Others (1982) ZR 122

Sinabu Vs Attorney-General (1975) ZR 212

Kawimbe Vs Attorney-General (1974) ZR 130

Some of the most important provisions of the constitution are:

1. Citizenship which may be acquired by birth, descent or by naturalization

2. Bill of Rights in Part III of the Laws of Zambia which provides for individual
rights such as:
i) The right to life, liberty, security of the person and protection by the law;
ii) The Right freedom of conscience, expression, assembly, movement and
association;

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iii) Right to protection for the privacy of his home and other property as well as from
deprivation of property without compensation.
However, it is important to note that each right goes with an obligation.

ELEMENT 2.2 LEGISLATION OR STATUTE

ELEMENT 2.2.1 THE NATURE AND EFFECT OF LEGISLATION

Legislation is the primary source of law formally enacted or passed by Parliament
and may be referred to as "Acts of Parliament" or Statute Law.
Many bodies in Zambia have power to lay down rules for limited purposes, for
example social clubs, but fundamentally the only way in which rules can be enacted
so as to apply generally is by an Act of Parliament. For various reasons, some of
Parliament’s legislative functions are delegated to subordinate bodies, which, within
a limited field, are allowed to enact rules. Local authorities, for instance, are allowed
to enact by-laws. But local authorities can only do this because an Act of Parliament
has given them the power to do so.
In constitutional theory, Parliament is said to have legislative sovereignty and,
provided that the proper procedure is followed, the statute passed must be obeyed
and applied by the courts. The judges have had no power to hold an Act invalid or to
ignore it, however, unreasonable or ‘unconstitutional’ they might consider it to be.
In this respect, England differs from many countries, which have written constitutions.
In the United States for instance, the Supreme Court has power to declare legislation
passed by Congress to be invalid if it is, in the opinion of the Court, inconsistent with
the written constitution. The conventional attitude of the courts in this country, on the
other hand, has been expressed in words attributed to Holt, C. J., in a report of City
of London v. Wood in 1702: ‘An Act of Parliament can do no wrong, though it may do
several things that look pretty odd.’

ELEMENT 2.2.2 LEGISLATIVE SUPREMACY OF PARLIAMENT

Legislative supremacy of Parliament is the cornerstone of the constitution of Zambia.
In Packin v British Railways Board [1974] AC 765, HL
The respondent alleged that he had been deprived of an interest in land by the terms
of the British Railways Act 1968, a private Act of Parliament. He claimed that
Parliament had been misled by certain recitals in the Preamble of the Act.
Accordingly, he alleged that the Act was to that extent ineffective to deprive him of
his interest in land.
Held:
That the Court had no powers to impugn the validity of an Act of Parliament or to
enquire into the matter in which the Bill had passed through the procedures of
Parliament.

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The function of the Court is to construe and apply the enactments of Parliament. The
Court has no concern with the manner in which Parliament or its officers carrying out
its standing orders perform these functions.
Hence, Parliamentary democracy is the hallmark of a democratic state and the
peculiar feature of constitutional law is Parliamentary Sovereignty.
The Courts have no power to declare enacted law to be invalid.
The courts have, in fact, evolved rules of interpretation, which they use to discover
the ‘true’ meaning of the words of a statute.
Parliament helped the courts to some extent by passing the Interpretation Act 1889,
which is now repealed and replaced by the Interpretation Act 1978.

ELEMENT 2.2.3 THE LEGISLATIVE PROCESS

The first and most important step in most cases is for the Government to decide that
it wishes the legislation to be passed. On some issues, the Government will first
seek the response of interested parties to its legislative proposals by the publication
of a consultative Green Paper. After considering the response, advance notice of
the more definite proposals upon which the legislation will be used is given in a
White Paper. E.G. The Zambian Media Law Bill

FIRST READING
The Bill is formally presented by reading the short title of the bill. This informs the
members that the Bill exists and that printed copies are now available.

SECOND READING
The Minister or member in charge of the bill moves that the bill be read for the
second time and explains its purpose. This is a debate limited to purpose and its
necessity and the means proposed for giving it effect. This is the most critical stage
where the House votes on the Bill and if it survives it passes to next stage.

COMMITTEE STAGE
The Bill is examined in detail by the Standing Committee. Each clause debated and
may be amended or excluded. The scrutiny is by committee which is Select,
Standing or the whole House as a committee.

REPORT STAGE
The Bill is formally reported to the House by the Chairman of the Standing
Committee. A formal requirement is that the bill must be approved by Parliament,
with ample opportunity for debate. At this stage, Members of Parliament are given an
opportunity to criticize, publicize, explain and amend the detailed provisions of the
bill. This stage ensures detailed scrutiny before the Bill to the Third Reading.

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THIRD READING
The Bill is reviewed in its final form. Debate confined to minor amendments only and
orders not seek to alter the principles of the Bill.

PRESIDENTIAL ASSENT
The after passing all stages it goes for Presidential Assent. This means it is
authorised and signed by the President and by convention cannot be refused.
Immediately the Assent is given the Bill becomes law - a Statute. Note however, it
may not come into effect immediately and this may be stated in the Statute. Those
affected by the Act are thereby given time to adapt to the change in the law.
However, the President may withhold assent and send the bill back to the National
Assembly for amendments after which it should be re-presented to the President
within six months after which it shall be assumed as abandoned.
In the event that the President declines Presidential Assent, the bill with the
comments for rejection will be sent back to the National Assembly and has six
months to re-present for assent. It will be considered as having been abandoned
after this period elapses without action on the bill being taken.

ELEMENT 2.2.4 AMENDMENT AND REPEAL

A statute remains in force unless and until it is repealed, and it can only be repealed
by another statute. The Distress Act of 1276 still appears in the current edition of
Halsbury’s Statutes of England for instance. Similarly, a statute can only be
amended by another Act of Parliament.
Conversely, Parliament can never take away its own power to amend or repeal
earlier legislation. Nor can it abandon its own freedom to legislate in future as it
thinks fit.

ELEMENT 2.2.5 CONSOLIDATING AND CODIFYING ACTS

Government has always tended to introduce legislation as and when some specific
need arises, and several connected Acts on a particular topic may well exist side by
side. In such circumstances the Government will often do some tidying up.
A consolidating Act will be passed which will repeal all the piece-meal provisions,
and re-enact them in one logically arranged Act. This is periodically done, for
instance, with tax legislation. Other examples include Acts dealing with road traffic,
social security, and safety at work, and companies.
Sometimes a Government may decide not only to consolidate all of the legislation,
but also to replace some of the case law on the subject by a new Act. Such an Act is
called a codifying one. It reduces most of the law on the subject into a single code.
Examples include The Bills of Exchange Act 1882 and the Sale of Goods Act 1893.
(The Sale of Goods Act 1893 was subsequently amended by several other Acts, and
this legislation is now consolidated in the Sale of Goods Act (1979).

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Legislative laws in Zambia comprise of Acts of Parliament and delegated legislation.
Apart from these the following also constitute Acts of parliament in Zambia;

i) All statutes which were in force in England on 17th August 1911 (being
commencement of the Northern Rhodesia Order in Council of 1911); - The
English Law (Extent of Application)Act, Chapter 11 of the Laws of Zambia,
and

ii) All British Acts extended to Zambia by virtue of The British Acts Extension Act,
chapter 10 of the laws of Zambia.

ELEMENT 2.3 DELEGATED LEGISLATION

Delegated legislation is also referred to as secondary legislation.

The smooth running of government rests on the delegation of some of its powers to
lower organs such as local authorities and other subordinate bodies. e.g., Lusaka
City Council has made extensive use of the powers given to it under the Local
Authority Act to chase street vendors that are not registered with it for trading.

Other forms of delegated legislation are the statutory instruments normally made by
the President or a cabinet minister, and bye-laws made by local authorities.

Nevertheless, Parliament does still retain some control over the making of delegated
legislation.

 Statutory Instruments – Issued by cabinet ministers and they need to be put

before Parliament for approval and are the most common form of delegated
legislation. "SI 1996 1673" is the way of citing the one thousand, six hundred and
seventy third statutory instrument of 1996.

 Bye-laws of Local Authorities - these rules of law are restricted to the area for
which a Local Authority is responsible. Normally such bye-laws have to be
confirmed by a relevant government minister.

ELEMENT 2.3.1 DISADVANTAGES OF DELEGATED LEGISLATION

1. Because in practice most delegate legislation is prepared by civil servants and

then ‘rubber stamped’ by the elected representatives, this system has been
called ‘the new despotism’ for, in effect, it allows the non-elected civil servants
to legislate.

2. The other disadvantage is the sheer number of statutory instruments made

each year. It is obviously very difficult for the person in the street to be aware
of all of them and so they may unwittingly commit an offence. Ignorance of the
law is no defense!

3. Complexities in a statute lead to less satisfactory drafting

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4. Controls may be inadequate

ELEMENT 2.3.2 ADVANTAGES OF DELEGATED LEGISLATION

1. Frees Parliament to devote itself to the more important tasks of governance.

2. Allows subordinate authorities to make detailed regulations quickly and kept

up to date with prevailing local conditions.

3. Can be quickly rescinded.

ELEMENT 2.3.3 CONTROL OVER DELEGATED LEGISLATION

CONTROL BY PARLIAMENT

There are various Parliamentary safeguards with the most important being the Select
Committee on Statutory Instruments. This committee reviews all statutory
instruments and decides whether any of them should be brought to the attention of
Parliament because it appears they make an unexpected use of powers conferred by
the enabling Act and Parliament may rescind any delegated legislation.

CONTROL BY THE COURTS

Individuals or interest groups could challenge a bye-law by way of a petition or

judicial review and it is for the Courts to determine the reasonableness of such a law
and can declare any exercise of delegated power "ultra vires" i.e. beyond the
Minister's power.

In addition, the courts keep control on both parent and delegated legislation through
the interpretation of statutes during the course of court sittings.

ELEMENT 4.4 CUSTOM AS A SOURCE OF LAW

This is the most primitive source of law.

Even today, custom has its effect in that where the law is silent on an issue, custom
of the community can fill the gap. One specific application of this principle is found in
the interpretation of contracts where custom is commonly used to define specialized
words and to imply unexpressed terms.

In international law, custom is considered to be a material source (Article 38 of the

Statute of the International Court of Justice provides that: “1. The Court, whose
function is to decide in accordance with international law such disputes as are
submitted to it, shall apply: b. international custom, as evidence of a general practice
accepted as law; ).

Reference Case Law: Sithole Vs Sithole (1987) ZR

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ELEMENT 2.5 JUDICIAL PRECEDENT OR CASE LAW

The accumulation of cases over the centuries, in which judges have declared legal
principles which are then followed in subsequent cases, has given us a system
known as the common law.

Case law also gives us the system of judicial precedent, by which a judge in a senior
court arrives at a legal decision that sets a precedent which is then followed by
inferior courts dealing with subsequent cases raising similar issues. In order for this
system to work, accurate reports are needed of case decisions, as is judicial
hierarchy.

A judicial decision under the common law system has two functions;

a) To define and to dispose of the controversy before the court in "accordance with
the doctrine of res judicata”. Courts perform this judicial function and have to create
a law somewhat as a legislature creates law but within the narrower bounds set by
the facts of the case before it. However, in creating the law to resolve the
controversy before it, it creates an impact which extends beyond the parties before it.

ELEMENT 2.5.1 DOCTRINE OF JUDICIAL PRECEDENCE

The second function of a judicial decision and one which is characteristic of the
common law is that it establishes a precedent so that a like case arising in the future
will probably be decided in the same way. This doctrine of precedent is often called
by its Latin tag, stare decisis derived from the Latin phrase 'stare decisis et non
quieta movere' which means to stand by the decisions and not to disturb settled
points. It is the hallmark of any good court decision to be consistent with decisions in
previously decided cases.

Decision of judges must be reasoned, and the reasons will normally include
propositions of law. The judge in a later case is bound to consider the relevant case
law and will normally accept the propositions stated as correct unless there is good
reason to disagree. In some circumstances he or she is required to accept them
even if they are in his or her view obviously wrong.

It should be noted that a precedent which is not binding may nevertheless be

persuasive.

Where the case is to be decided without precedent, the judge will be creating an
original precedent which later judges will have to follow.

Precedent creates a system whereby both common law and equity are constantly
developed and expanded.

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ADVANTAGES

i. Certainty-

ii. The possibility of growth through the use of original precedent

iii. A great wealth of detailed rules

iv. Practical character in nature

v. Saves time

vi. Fairness as similar cases are treated the same.

DISADVANTAGES

i. Rigidity: difficult to depart from a wrong decision- binds judicial discretion

ii. The danger of illogical distinctions

iii. Bulky and complexity

iv. Injustice

ELEMENT 2.5.2 DOCTRINE OF RES JUDICATA

“A rule that a final judgment, on the merits by a court having jurisdiction, is

conclusive between the parties to a suit as to all matters that were litigated or that
could have been litigated in that suit.”

As a tradition, judicial precedence is not a written rule and can therefore not be found
in the Zambian constitution or other statutes. The justification commonly given for the
use of this doctrine may be summarized in four words, namely, equality, predictability,
economy, and respect.

I) Equality - the application of the same rule to successive similar cases results
in equality of treatment for all who come before the court.

ii) Predictability - consistently following precedents contributes to

predictability in future disputes.

iii) Economy - use of established criteria to settle new cases saves time and
energy.

iv) Respect - adherence to earlier decisions shows due respect to the wisdom
and experience of prior generations of judges.

ELEMENT 2.5.3 ROLE OF ADJUDICATION

The term adjudication may refer to the process of trying a matter in court or may
mean the judgment in the case. To adjudicate is to judge or adjudge, or decide a

15
dispute. It comes from the Latin word judex which means a judge. John Bruke
Osborne's Concise Law Dictionary describes the term judgment in the following
words:

"Judgment is a decision or sentence of a court in a legal proceeding. It includes the

reasoning of the judge which leads him to his decision, which may be reported and
cited as an authority, if the matter is of importance, or can be treated as a
precedent".

i) The taking of a dispute to court for adjudication gives the parties the freedom
of having their matter settled by an independent non-partisan person or body of
persons who have no interest whatsoever in the case. The vast majority of such
resolutions of disputes is fair and judicious, and is accepted by the parties, because
the adjudicators do not take sides.

The main reason why over 90% of judicial decisions are accepted as judicious by the
parties is that when issuing an order giving effect to his decision, the judge gives
reasons for arriving at his decision. These reasons are technically known as "ratio
decidendi' (Hood Phillips, A First Book of English Law, 6th edition, sweet & Maxwell,
London). The ratio decidendi is the principle or rule of law which the judge applies in
reaching his conclusion (or reason for the decision and principle of law on which the
judge bases his conclusion). The rest of the judge's remarks are said to be side
issues (obiter dicta) and not part of the actual judgment. One such remark is called
"arbiter dictum" The ratio decidendi of a case may be said to be an authority for all
cases which clearly fall under the same principle as the case decided. In other words,
the ratio decidendi is the part of the judgment which forms the precedent or stare
decisis.

ii) By relying on decided cases of similar facts to decide case currently before
court creates uniformity, stability, consistency and certainty in the law.

iii)

iv)

v) Were the law is silent, a judge may use common law norms, rules or practices
to formulate a new rule of law to fill the gap including applying public policy,
analogy, moral values or writings of eminent legal philosophers to the case.
Thus in this way adjudication promotes growth of the law.

vi) The final role of adjudication may be said to be, bringing the dispute to finality
through the principle of Res Judicata. It also stops parties from taking the law
into their own hands, which might create chaos and disorder in society.

DETERMINING THE RATIO DECIDENDI

Every judicial decision is made up of three distinct parts:

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1. A statement of facts as found by the judge;

2. An account of the judge's reasoning and a review of the relevant law;

3. The actual decision between the parties.

An account of the judge's reasoning is the binding element of the decision and is
what is known as the ratio decidendi or the legal reasoning for the decision. The
ratio states the law and may be binding in later cases. However, it is not just binding
on cases where the facts in dispute are essentially the same. The judges phrase the
ratio in such a way that is lays down a principle which is broad enough to be applied
across a range of facts.

Besides the ratio there are also groups of words known as obiter dicta. These
statements of law which go beyond the limits of the case are merely persuasive.

A proposition of law can only be binding if it forms part of the ratio decidendi of the
case. The ratio decidendi of a case is any rule of law expressly or impliedly treated
by the judge as a necessary step in reaching his conclusion, having regard to the
line of reasoning adopted by him, or a necessary part of his direction to the jury. A
judge may adopt more than one line of reasoning leading to the same result. In such
a case there may be more than one ratio.

RATIO DECIDENDI OF APPELLATE COURTS

For example, in a three member court where two judges support ground A and the
third supports ground B, clearly ground A will be the ratio decidendi of that case. On
the other hand, in a five member court, where three judges support ground A and
two judges supports ground B then that case will have two ratios.

Where a judge offers a dissenting view, his or her views must technically be
disregarded for the purpose of ascertaining the ratio on the ground that his or her
reasons cannot be "necessary" for a decision he or she opposes. Dissenting
judgments may however, carry persuasive weight.

ELEMENT 2.5.4 HOW JUDGES AVOID PRECEDENT

i) DISTINGUISHING

A precedent, whether persuasive or binding, need not be applied or followed if it can

be distinguished, that is, if it can be shown that there is a material distinction
between the facts of the precedent case and the case in question. The major
advantage of distinguishing is that it helps to keep judicial precedent flexible
although this is bound to lead to uncertainty.

The judge in the later case is expected to explain why the distinction is such as to
justify the application of a different rule. There is no test or set of tests for whether a
distinction is legally relevant. It all depends upon the circumstances of the case.

17
The illustration can be found in the cases of Balfour v. Balfour (1919) and Merritt v
Merritt (1971) which involved a wife making a claim against her husband for breach
of contract.

Balfour v Balfour (1919)

The court held that a claim could not be made because there was no intention to
create legal regulations meaning that there was no legally binding contract.

Merritt v Merritt (1971)

The court distinguished the case from Balfour and held that decided that the facts of
this case were sufficiently different in that, while the parties were husband and wife,
the agreement was made in writing and only after they had separated.

ii) OVERRULING

This is where a superior court makes a ruling against its earlier judgment “when it
appears right to do so”.

In the case below, the House of Lords overruled its previous decision that a husband
could not be criminally liable for raping his lawfully wedded wife.

R v. R (1990)

22 days after the wife had left the matrimonial home and returned to live with her
parents, and while the parents were out, the appellant forced his way into the
parents' house and attempted to have sexual intercourse with the wife against her
will. The question which the judge had to decide was whether in those circumstances,
despite her refusal in fact to consent to sexual intercourse, the wife must be deemed
by the fact of marriage to have consented. The appellant was convicted and
sentenced to three years' imprisonment of the attempted rape of his wife. He
appealed against his conviction on the ground that the trial judge had erred in law in
ruling that a man might rape his wife when her consent to intercourse had been
revoked by neither a court order nor agreement of the parties. It was argued that a
husband cannot be guilty of rape upon his lawful wife because of the marriage
contract as held by Sir Matthew Hale in the 1600s that "the husband cannot be guilty
of a rape committed by himself upon his lawful wife, for by their mutual matrimonial
consent and contract the wife hath given up herself in this kind unto her husband
which she cannot retract."

Held

That the present conviction may be upheld by declaring that Hale's statement was
never the law or is no longer the law. Antiquity is no reason in itself to uphold an
outmoded doctrine. The House declares that in modern times the supposed marital
exemption in rape forms no part of the law of England.

18
iii) REVERSING

A higher court may overturn the decision of the lower court on appeal or reverse its
own earlier decision. Re: Pinochet (1999)

UNIT 3 STATUTORY INTERPRETATION

ELEMENT 3.1

Statutory Interpretation is the process by which Judges interpret Acts of Parliament

by trying to establish the intention of parliament when passing the law. In all cases
where ambiguities arise, the courts have the power to resolve disputes concerning
the meaning of statutory provisions. Their decisions are binding on the parties and
may constitute binding precedent for the future. Words in a statute, a will, contract or
any other legal document may be open to alternative construction. Very rarely are
such documents completely free from ambiguity as to be incapable of being used in
more than one sense. Owing to such imperfections of human language and
draftsmen, different people will place different meaning on the same words in the
same documents.

In order to guide the courts and Parliamentary draftsmen in construing various

documents, five principles of interpretation at common law have been developed by
the common law courts:

These are:

I) The Literal Interpretation (litera legis);

ii) Context Interpretation;

iii) The golden Rule;

iv) The Mischief Rule (ratio legis);

v) Purposive Approach

ELEMENT 3.1.1 THE LITERAL INTERPRETATION

This principle states that words of a statute or any other document must be
interpreted according to their natural and primary meaning adding to or taking away
nothing from them. Thus if the words of a statute are in themselves precise, clear
and unambiguous, no more is necessary than to expound those words in their
natural and ordinary sense regardless of the result. O.Hood Philip, A First Book of
English Law, 6th Edition, (1970) p. 123, London, Sweet & Maxwell.

One leading Swiss jurist, Vattel, in his book, “Law of Nations" writes as follows:

19
"It is not allowable to interpret what has no need of interpretation. Plain words in a
statute best declare the intention of the law giver. The object of construction is to
intend the legislature to have meant what they have actually expressed.”

Fisher v Bell (1961)

The defendant displayed flick knives in his shop window. He was charged under The
Restriction of Offensive Weapons Act (1959) which made it an offence to ‘sell or
offer for sale’ an offensive weapon. In contract law the display of goods in a shop
window is not an offer for sale but an invitation to treat. The display of goods thus
invites the customer to make an offer to buy the goods.

Held

That the defendant was not guilty of the offence of offering for sale a flick knife.

Where the interpretation produces an absurd result as in the case above, then it is
up to Parliament which has elected officials to change the law accordingly. The
intention of Parliament was to prevent such behaviour and hence the law was
amended to seal the loophole.

However, this rule is thought of by the courts as being outdated and counter-
productive.

Luke v Inland Revenue Commissioners (1963)

Held

“To apply the words literally is to defeat the obvious intention and produce a wholly
unreasonable result.”

In the concurring case of Engineering Industry Training Board v Samuel Talbot

[1969] 1 All ER 400, Lord Denning said, “But we longer construe Acts of Parliament
according to their literal meaning. We construe them according to the object and
intent”.

ELEMENT 3.1.2 CONTEXTUAL RULE (Noscitur a sociis rule)

Under this rule were a word used is subject to more than one meaning, a Judge
when interpreting a statute that features an elastic word, should construe the
language in its context and in light of the terms surrounding it. See Smith v. United
States, 508 U.S. 223, 229 (1993) or Muir v Keay (1875).

ELEMENT 3.1.3 THE GOLDEN RULE

The Golden Rule allows a judge to depart from a word's normal meaning in order to
avoid an absurd result. The guidance given by this rule is that where words in a
statute are ambiguous and capable of two or more meanings that meaning should be
given which best expresses the intention of Parliament.

20
This rule has been supported in the case of Grey v. Pearson (1857), where Lord
Wensleydale said:

“the grammatical and ordinary sense of the words is to be adhered to, unless
that would lead to some absurdity or inconsistency with the rest of the
instrument, in which case the grammatical and ordinary sense of the words
may be modified, so as to avoid that absurdity or inconsistency, but not
farther.”

For example, imagine there may be a sign saying "Do not use lifts in case of fire."

The literal meaning of this sign is that, people must never use the lifts just in case
there is a fire. However, this would be an absurd result, as the intention of the person
who made the sign is obviously to prevent people from using the lifts only if there is
currently a fire in the building (Golden Rule).

Re Sigsworth (1935)
It was provide under the Administration of Estates Act 1925, that where a person
died without leaving a will (intestate), the deceased’s “issue” should be given the
inheritance. Sigsworth killed his mother so as to inherit the estate as the next of kin
by being her “issue”.
Held
To avoid the absurdity, the court interpreted the statute as meaning that a son who
had murdered his mother could not profit from that crime though there was only one
literal meaning of the word “issue” (blood off-spring) in the Act.
Luke v Inland Revenue Commissioners (1963)

Held

“………….To achieve the obvious intention and produce a reasonable result, we

must do some violence to the words.”

Re Allen (1872)

The defendant married for a second time. He was charged under the Offences
Against the Person Act 1861, which stated that it is an offence to marry again without
the previous marriage being ended by a divorce. Allen argued that it was not
possible to be legally married twice, so he could not have committed an offence. This
interpretation of the word ‘marry’ would mean that the offence is impossible to
commit. The court had to decide whether ‘marry’ means to become legally married to
another person, or whether it means to go through a ceremony of marriage.

Held

That to avoid an absurd, the court would adopt the second meaning and find Allen
guilty under the Act.

21
ELEMENT 3.1.4 THE MISCHIEF RULE (RATIO LEGIS)

The mischief rule is a rule of statutory interpretation that attempts to determine the
legislator's intention. The Mischief Rule essentially asks the question: By creating an
Act of Parliament what was the "mischief" that the previous law did not cover?

This was set out in Heydon's Case (1584) where it was stated that there were four
points to be taken into consideration when interpreting a statute:

1. What the law was before the Act was passed

2. Identify what was wrong with that law

3. Decide how Parliament intended to improve the law

4. Apply that finding to the case before the court.

The application of this rule gives the judge more discretion than the literal and the
golden rule as it allows him to effectively decide on Parliament's intent. It can be
argued that this undermines Parliament's supremacy and is undemocratic as it takes
law-making decisions away from the legislature.

In the case of Smith v Hughes (1960), the issue was the Street Offences Act
1959, which provided that it was a crime for prostitutes to "loiter or solicit in the street
for the purposes of prostitution". The defendants (prostitutes) were calling to men in
the street from their balconies and tapping on windows. They claimed they were not
guilty as they were not in the "street."

Held

The judge applied the mischief rule to come to the conclusion that they were guilty
as the intention of the Act was to cover the mischief of harassment from prostitutes.
Lord parker said, “Everybody knows that this was an Act intended to clean up the
streets…..I am content to base my decision on that ground and that ground alone”.

ELEMENT 3.1.5 PURPOSIVE APPROACH

The purposive rule is a modern version of the mischief rule and focuses on what
Parliament intended when passing the new law. It provides scope for judicial law-
making as judges are allowed to decide what they think was Parliament’s intention
rather than what the Act actually says.

Jones v Tower Boot Co. (1997)

The court had to decide whether the physical and verbal abuse of a young black
worker by his workmates fell within ‘the course of employment’ under s32 of the
Race Relations Act 1976. The employer had argued that these actions fell outside

22
the course of the workmate’s employment, because such behaviour was not part of
their job.

Held

That Parliament’s intention when enacting the Race Relations Act was to eliminate
discrimination in the workplace and this would not be achieved by applying a narrow
construction to the wording.

ELEMENT 3.2 HIERARCHY OF COURTS

Broadly speaking, a court is only obliged to follow the decisions of courts at a higher
or the same level in the court structure. Judicial precedent means that decisions of
superior courts are binding on inferior courts.

Court Making The Decision Courts Bound By Decision

A. Supreme Court All other courts

B. High Court Itself + C + D + E + F

C. Industrial Relations Court Itself + C + D + E + F

D. Magistrates Court None

E. Small Claims Court None

F. Local Court None

a) SUBORDINATE COURTS

Magistrates presiding over these courts cannot bind themselves although it is

expected that an individual magistrate will attempt to be consistent in his or her own
decision making. However, these courts are bound by the decisions of the High
Court and Supreme Court.

b) HIGH COURT

A decision of a High Court judge is binding on inferior courts, that is, the subordinate
courts and local courts, but not technically on another High Court judge. However, it
has been stated that where there are conflicting decisions of judges of coordinate
jurisdiction, the later decision should be preferred, provided that it was reached after
full consideration of the first decision.

c) THE SUPREME COURT

Decisions of the Supreme Court are binding on the High Court judges (including the
Industrial Relations Court), subordinate courts and all other inferior courts such as
the local courts. The Supreme Court is bound by its own previous decisions

23
Abel Banda Vs The People (1986) ZR105

The appellant was convicted of murder by administering a pesticide contained in a

drink of Kachasu. The Prosecution evidence included, inter alia, an interrogation
conducted without administering warn and caution by the village headman.

Held

In order to have certainty in the law, the Supreme Court should stand by its past
decisions even if they are erroneous unless there is a sufficiently strong reason
requiring that such decisions should be overruled.

However, the Supreme Court may depart from its earlier decision in two exceptional
instances;

i) Where there are compelling reasons to depart from its earlier decision (Abel
Banda Vs The People (1986) ZR105 “In the event we are of the view that our
decision in Chibozu v The People was wrong.” This overruled Chibozu and
Anor v The People).

ii) Where a decision of the Supreme Court was given per incuriam, meaning "a
decision given in ignorance or forgetfulness of some inconsistent statutory
provision or of some authority binding on the court concerned, so that in such
cases some part of the decision or some step in the reasoning on which it is
based is found, on that account to be demonstrably wrong". (Young Vs
Bristol Aeroplane company Ltd (1955))

24
UNIT 4 COMMON LAW AND EQUITY
In common law adjudication, the judges use the past (precedent) as the yardstick
against which to measure the propriety of present conduct.

ELEMENT 4.1 THE RELEVANCE OF ENGLISH LEGAL HISTORY TO

ZAMBIA

The legal and political institutions of Zambia find their roots, not in the traditions of its
native inhabitants, but in the traditions of the colonial power (Britain) which imported
its understanding of law and social organisation when it colonised the then Northern
Rhodesia. This is nothing to be ashamed of.

Some people decry the continued reference to English case law as anachronistic, or
as a manifestation of a "cultural cringe". Of course, we should not regard English law
as superior to our own but as a rich supplement to our legal system. Zambia, whilst a
fully independent member of the international community cannot turn back on its
legal and political ancestry as doing so would not only bring about intellectual and
legal impoverishment but condemn our legal system into an abyss of international
legal oblivion. The fact that Zambian lawyers can draw freely upon not only the fruits
of their legal system, but also those of several other countries around the world is a
source of great richness.

ELEMENT 4.2 HISTORY OF THE COMMON LAW

The year 1066 is a watershed date in the history of the common law. This is the year
when William, the Duke of Normandy conquered England and set in motion the
chain of events which resulted in those countries which grew out of the British folds
having the distinctive legal tradition that we now refer to as the common law. The
system of economic and social organisation introduced by the Normans is known as
"feudalism". Stated in simple terms, feudalism was a system of land ownership
based upon a formal social hierarchy.

One of the prime responsibilities of the Norman Kings was to hear complaints from
their subjects. The Kings traveled around the kingdom and would "hold court" to
receive petitions from the people against of acts of injustice committed on them by
local officials. The premise upon which the King dealt with these petitions was that
like cases should be treated alike (precedence). This was the foundation of the
system of stare decisis. This body of rules came gradually to be known as the
common law.

25
From these beginnings there grew up for non-criminal cases a supplementary
system, known as "equity", in which, by the early 15th century, justice was
administered through a separate court, the court of chancery. Among the distinctive
features of a suit in equity as opposed to an action at law were the absence of a jury,
more flexible procedure, and a wider scope of review of appeal. While the law courts
were generally restricted to the award of money damages as relief, equity operated
on the person of the defendant and the court could, for example, issue an injunction,
forbidding specific acts in order to prevent further injury, or it could decree specific
performance, ordering performance of an obligation. A defendant who disobeyed
could be punished by fine or imprisonment for contempt of court until compliance.
But because these equitable remedies were considered to be extraordinary, they
were only available where the remedy at law could be shown to be inadequate, and
money damages remained the standard kind of relief.

ELEMENT 4.3 HISTORY OF EQUITY

As the common law became more systematised, it also became rigid. What had
begun as an informal and comparatively speedy means of dispute resolution had
instead become not only procedurally complex but also often extremely slow.

With the passage of time, the King appointed Chancellors, who were trained priests.
The Chancellor did not, as the common law judges did, base their judgments on the
accumulated body of judicial precedent. They grounded their judgments on Christian
precepts which came to be known as "EQUITY" delivered in the "court of chancery".

In equity, the Chancellor retained a discretion not to grant a 'requested remedy if he

thought the plaintiff was not morally deserving’.

This then created the maxims of equity upon which the equitable doctrine is
supposed to be based:

1. Equity will not suffer a wrong to be without a remedy; e.g.: giving an equity in
the matrimonial home to a deserted wife.

2. Equity follows the law/Equity will not permit a statute to be used as an

instrument of fraud: Prevents a party from relying upon an absence of
statutory formalities. (Where the equities are equal, the law prevails)

3. He who is first in time takes precedence (qui prior est tempore, potior est jure);
/ Delay defeats equity. (The claimant who takes long to exercise his right will
not receive the assistance of equity.)

4. He who comes to equity must come with clean hands: Looks to the past
conduct of the claimant.

5. Equity assists the diligent, not the tardy/ Equity will not assist a volunteer.

26
6. Equity is equity/ Equity is equality- He who seeks equity must do equity:
Looks to future conduct of the claimant.

7. Equity looks to the intent, rather than form- That is the intention of the parties
and not the form in which the contract is in whether oral or written

8. Equity looks on that as done which ought to be done- Looks to impel a party
to a contract to perform their part of the contract as long as the other party
has performed theirs. (The court may order specific performance)

9. Equity imputes an intention to fulfill an obligation;

10. Equity acts in personam: Equitable remedies are exercised against a person
e.g. - contempt of court.

Law and equity procedures were merged in the United Kingdom between the years
1873-75 and hence the introduction of the Judicature Acts. These statutes swept
away the common law courts and the court of chancery and replaced them with one
Supreme Court of Judicature in which each branch had the power to administer both
common law and equity according to the same rules of procedure.

The two systems have also been merged in practically all other commonwealth
countries.

27
UNIT 5 THE LAW OF CONTRACT
ELEMENT 5.1 INTRODUCTION

It is generally acknowledged that any person with the capacity to contract can enter
into a legally binding agreement of their choice and be bound by it (Freedom to
Contract).

There are different types of contracts with some being very big in monetary terms
whilst others are of very small amounts. Contracts can also be of short term, medium
term or long term depending on the agreement by the parties.

TYPES OF CONTRACTS

• Hire Purchase, e.g. Supreme Furnishers

• Sale, e.g. mine suppliers

• Employment

• Supply of services,

• Consumer Credit

• Mortgages

• Tenancy Agreement

• Marriage

The emergence of big and powerful commercial institutions has led to such parties
imposing contractual terms on the less powerful consumers and small businesses
leading the courts and Parliament to regulate contract terms.

All in all, the Law of Contract is based on the ideologies of “market-individualism”

and “consumer-welfarism”

Market individualism holds that the markets are the basic providers of social justice,
employment, services and welfare. In this school of thought, there is minimal state
intervention in the economy and individuals have the freedom to bargain and
contract, though this may be loop sided due to the bargaining powers of the big and
powerful commercial enterprises whilst the courts only act as referees. In short, we
call this the “market economy”. Adams J.N and Brownsword R, Understanding the

28
Law, Sweet & Maxwell, 2004 at chapter 8; Photo Production Ltd v Securicor
Transport Ltd, (1980) HL.

Consumer-Welfarism requires the courts to recognise the weak position held by the
individuals when bargaining with the big commercial institutions and hence the need
to protect them. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, where it was held
that the advertiser was bound by the promise it made to the consumers.
Competition and Fair Trading Act, Cap 417 of the Laws of Zambia

Zambia is a signatory to the United Nations protocol on consumer rights.

Zambia Bureau of Standards- mandated by law to monitor to protect the consumer

against defective or dangerous commodities.

ELEMENT 5.2 THE FORMATION OF A CONTRACT

There are four components to the formation of a valid contract:

• Offer

• Acceptance

• Intention to create legal relations

• Consideration

ELEMENT 5.3 AGREEMENT

It is trite law that the Law of Contract is based upon the agreement of the contracting
parties, consensus ad idem, and can be judged using an objective test (the
reasonable-man test). consensus ad idem is the “meeting of the minds” of the
contracting bargaining parties once they have the same understanding of the
contract terms.

The objective test examines what the parties said and did so as to create certainty in
commercial transactions and estoppe a party from going back on their word by
claiming they had no real intention of entering into a binding contract. (Ref:
consumer-welfarism)

The starting point to identify agreement would be found in the case of

Smith v Hughes (1871) LR6 QB 597, CA, Blackburn J said,

“If, whatever a man’s real intention may be, he so conducts himself that a
reasonable man would believe that he was assenting to the terms proposed by the
other party, and that other party upon that belief enters into the contract with him, the
man thus conducting himself would be equally bound as if he had intended to agree
to the other party’s terms.”

This is what has come to be called an objective or reasonable man test.

29
Butler Machine Tool v Ex-Cell-O Corporation (England) Limited (1979)

The sellers, Butler, offered to sell a machine tool to the buyers, Ex-Cell-O , the offer
being made on Butler’s business terms, which included, inter alia, a price variation
clause. The buyers sent an order for the machine on their own standard terms of
business, which made no provision for the price variation clause and stated that the
price was to be fixed. The buyer’s standard form had a tear-off acknowledgement
slip which stated that, “…we [the Sellers] accept your order on the terms and
conditions stated thereon”.

The Sellers signed and returned the slip to the buyers attached to a letter stating that
the order was being processed on the terms of the original offer.

After constructing the machine but before delivery, the sellers tried to invoke their
“price variation clause” with an additional sum of £2892. The buyers refused the
increased price and claimed the Sellers were contractually bound by the buyer’s
terms. The sellers sued the buyer for the difference.

Held: Court of Appeal by majority- (mirror image rule in contract formation which
creates certainty [battle of the forms])

The sellers were not entitled to recover the difference as the contract was concluded
on the buyer’s terms which did not include a “price variation clause”.

OFFER AND ACCEPTANCE

Party A (Offeror) ------- Party B (Offeree)

The offer and acceptance creates what is termed as the “meeting of the minds” or
consensus ad idem, which is the mutual consent between the parties.

30
UNIT 6 THE OFFER
ELEMENT 6.1 OFFER

An offer is an expression of willingness to contract on specified terms, made with the

intention that it is to become binding on the offeror as soon as it is accepted by the
person to whom it is addressed, called the offeree (Treitel, G.H. The Law of Contract,
Sweet & Maxwell, London, 2003 at p8). There can be two or more parties to a
contract and all parties must exhibit intent to contract. There is no standard format
for an offer and hence could be oral, in writing or by conduct.

An offer has to be clear, definite and without any need for further negotiation and
should be accepted in its entirety to form a contract.

Moran v. University College Salford (2) (1994)

In May 1993 Moran applied for a place on a physiotherapy course at UCS. He later
received notification from PCAS (Polytechnic Central Admissions System) of an
unconditional offer. He returned the reply slip on 29 June, accepting the offer. On 6
July, PCAS acknowledged his acceptance and enclosed a reply slip which Mr Moran
completed and sent on 8 July to the college admissions officer at UCS confirming
that he was taking up the offer. On 16 August, he telephoned the course leader at
UCS but was told he had never been offered a place on the course and there was no
place for him. The clerical error was on the form on which UCS had indicated its
decision on Mr Moran's application to PCAS on which the wrong box, marked
'unconditional', had been filled.

UCS argued that the offer of a place was a mere invitation to enter into discussions
which might lead to an agreement to accept him on the course and that it was not
intended that any contract would come into existence until he had enrolled and
agreed to pay the fees.

Held

That, the unconditional offer by UCS intended to create legal relations between the
parties and appeared to be an offer capable of acceptance. Moran had acted to his
detriment by giving up his eligibility to apply elsewhere and this was his
consideration for the agreement.

31
An offer should be distinguished from an Invitation to Treat, which is an expression
to enter into negotiations to eventually lead to the formation of a contract by
agreement of the terms. E.g. display items

The distinction between a contract and an Invitation to Treat is primarily the intention
of the parties as to whether they intend to be bound by the terms without further
negotiations.

The offer should be clear and definite as to:

• The parties

• The time of performance

• The price

• The subject matter or scope of service.

Gibson v Manchester City Council (1978)

In 1970, MCC prepared and sent a brochure, to which was attached a form, to sitting
tenants explaining how they could purchase the council house. The brochure
advised the sitting tenants to express an interest into buying their council homes. Mr
Gibson completed and returned the form with a request that he be informed of the
price of the house. MCC wrote back that the ‘council may be prepared to sell the
house’ to him at a stated price and he could make a ‘formal application’ to purchase
the house. Mr Gibson completed a further form but left the purchase price blank
because he wished to know if the council would repair the path to the house or if the
cost for repair could be deducted from the purchase price. The council’s reply was
that the price had been fixed according to the property and allowance had been
made at that price to which Mr Gibson agreed.

Mr Gibson asked the council to continue with his application and did his own repair
works to the path and the house as the council had taken the house off its list for
maintenance. There was change of governance at the council from the
Conservatives to the Labour Party who promptly stopped the policy of selling council
houses and the council refuse to sell to Mr Gibson.

Held

No contract had been concluded as the council letter to Mr Gibson stated that the
council ‘may’ be prepared to sell and hence not an offer which could be accepted
but a willingness to enter into negotiations as evidenced by the council’s request for
Mr Gibson to make a ‘formal application’.

ELEMENT 6.2 INVITATION TO TREAT

32
An “invitation to treat” is an invitation to make an offer which could then be accepted
or declined/rejected. It can also be said to be willingness by the offeror to enter into
negotiations with the offeree, which could lead to a contract.

Examples

• Auctions

• Display of goods – Goods on shelves, shop windows, self-service

• Advertisements

• Mere statement of price

• Invitations to Tender or Tenders

AUCTIONS

The Auctioneer’s call for bids is an Invitation to Treat and the bids made by the
bidders at an auction are offers which the auctioneer can accept or reject. The
dropping of the hammer on the table by the auctioneer indicates an acceptance, at
which point there is a valid contract.

British Car Auctions Ltd v Wright (1972)

The BCA sold a car in an unroadworthy condition at an auction sale.

Under the Road Traffic Act 1972 it was an offence to sell such a vehicle and the BCA
were charged and convicted with offering for sale a vehicle in such a condition.

Held

That the car had not been offered for sell as there had only been an invitation to bid
(treat). The bidder makes the offer and the auctioneer accepts the offer by striking
the hammer on the table.

(NB: There is no offer to sell at an auction, but always an offer to buy.)

Sale of Goods Act 1979, s57 (2) provides that,

‘A sale by auction is complete when the auctioneer announces its completion by the
fall of the hammer, or on other customary manner; and until the announcement is
made, any bidder may retract his bid’.

Payne v Cave (1789)

Mr. Cave made the highest bid for Mr. Payne’s goods at an auction. But then, Mr.
Cave changed his mind and he withdrew his bid before the auctioneer brought down
his hammer.

33
Held

That the Defendant was not bound to purchase the goods as his bid amounted to an
offer which he was entitled to withdraw at any time before the auctioneer signified
acceptance by knocking down the hammer.

AUCTION SALE ‘WITHOUT RECOURSE’ (Is an offer to sell)

Means an auction sale without a minimum price to be reached before an offer is

accepted. Hence, the auctioneer sells to the highest bidder. It has been
acknowledged that such a sale equates to an offer to sell to the highest bidder.

Barry v Davies (t/a Heathcote Ball Commercial Auctioneers & Co), 2000

The claimant sought damages from an auctioneer who had failed to accept his bid
and withdrawn the items from the auction sale without reserve.
Held

In an auction without reserve the auctioneer was not entitled to withdraw an item on
the basis that the highest or only bid was too low. The auctioneer himself was liable
in damages to the disappointed bidder in a sum equivalent to the market value less
the rejected bid

Warlow v Harrison (1859)

The Defendant, an auctioneer, advertised the sale without reserve of a horse by

public auction. The Plaintiff attended the sale and bid 60 guineas. The horse’s owner
bid 61 guineas. The Plaintiff refused to make any further bid and the Defendant (who,
it appears, did not know that the bidder was the owner) knocked down the horse to
the owner for 61 guineas. The Plaintiff claimed that the horse was his since he was
the highest bona fide purchaser at an unreserved sale. In his pleadings the Plaintiff
alleged that the Defendant was the Plaintiff’s agent to complete this contract.

Held

That in an auction without reserve, the auctioneer makes the offer which is then
accepted by the highest bidder. The sale ‘without reserve’ means that the property
shall be sold to the highest bidder whether the sum bid be equivalent to the real
value or not.

DISPLAY OF GOODS

Goods with price tags displayed in the shop window or on supermarket shelves are
an invitation for the customers to make an offer at the cashier’s desk.

Fisher v Bell (1961)

A shop-keeper displayed a flick-knife in the shop window behind which was a label
reading "Ejector-Knife 4 shillings". The Offensive Weapons Act (1959) prohibited the

34
‘offering for sale’ of such an offensive weapon. The shopkeeper was prosecuted
under the Act after which he appealed.

Held The prosecution failed as the display of the knife in the shop window is not an
offer to sell but the one who buys makes the offer.

Pharmaceutical Society of GB v Boots Cash Chemists (1953)

The matter under consideration was the statutory requirement under the Pharmacy
and Poisons Act 1933 which required that the sale of some medicines must be
‘under the supervision of a registered pharmacist’.

The question was whether a contract of sale in a self-service store was made when
a customer placed a bottle in a basket provided or only when the cashier rang the
price up.
Held

The offer is made at the till and it is at that point that the sale could still be stopped.

ADVERTISEMENTS

The general rule is that a newspaper advertisement is interpreted as an Invitation to

Treat rather than an offer.

Partridge v Crittenden (1968)

The appellant advertised the sale of live cocks and hens at a stated price in
contravention of the Protection of Birds Act 1954

Held

That the advertisement was an invitation to treat and not an offer and hence the
appellant was acquitted.

But, some advertisements may be interpreted as an offer to the whole world where
the advert involved a unilateral offer.

Carlill v Carbolic Smoke Ball Co (1893)

The defendants, CSB, were manufacturers of the cigarette called carbolic smoke ball.
They advertised and offered to pay £100 to anyone who smoked this brand in the
prescribed manner but still caught influenza and at the same time deposited £1000
in the bank as a sign of goodwill. Carlill caught the flu and sued.

Held

That the advertisement was not an invitation to treat but an offer to the whole world
with a contract being made with anyone who smoked the cigarette and following the
condition ‘on the faith of the advertisement’. The claimant was entitled to the £100.

35
(NB: This may be so in most unilateral contracts were a dominant party promises a
weaker party).

Bowerman v Association of British Travel Agents Ltd (1996)

A school skiing trip was booked with a tour operator, a member of Association of
British Travel Agents (ABTA), in whose offices a notice was prominently displayed,
stating that, where holiday arrangements failed, ABTA arranged the reimbursement
of money paid. The tour operator became insolvent before the trip began and it was
cancelled.

Held

That the ABTA was bound to reimburse the full cost of the holiday. There was a
contract between the ABTA and those members of the public who booked a holiday
with ABTA members in reliance on the scheme. ABTA had said in effect, “If you book
a holiday with one of our members, we undertake…….”

ADVERTS OFFERING REWARDS

Williams v Carwardine (1833)

The defendant offered a reward to any person giving information leading to the
discovery of a particular murderer. Subsequently, the plaintiff was severely beaten
and bruised by one Williams. Believing she had not long to live and to ease her
conscience, she gave information which led to William’s conviction of the murder.

Held

The plaintiff knew of the offer and was within the terms of the handbill. She did the
thing and hence her motive was not material.

This is also true of catalogue and price lists.

PRICE LIST

Grainger & Sons v Gough (1896)

A merchant distributed a price-list ‘among persons likely to give orders’.

Held

The transmission of such a price-list does not amount to an offer to supply an

unlimited quantity of the wine described at the price named, so that as soon as an

36
order is given there is a binding contract to supply that quantity. If it were so, the
merchant might find himself involved in any number of contractual obligations to
supply wine of a particular description which he would be quite unable to carry out,
his stock of wine of that description being necessarily limited.

MERE STATEMENTS OF PRICE

A statement of the minimum price at which the vendor is willing to sell does not
amount to an offer.

Harvey v Facey (1893)

Facey (D) was in negotiations with Kingston regarding the sale of his (Facey’s) store.
Harvey (P) sent Facey a telegram stating: “Will you sell us Bumper Hall Pen?
Telegraph lowest cash price-answer paid.” On the same day, Facey sent Harvey a
reply by telegram stating: “Lowest price for Bumper Hall Pen £900.” Harvey sent
Facey another telegram agreeing to purchase the property at the asking price stating
‘We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by
you.’ Harvey claimed to have accepted the offer. Facey refused to sell and Harvey
sued for specific performance and an injunction to restrain Kingston from taking a
conveyance of the property.

(NB: Legal principle: There was no offer as Facey’s statement was merely a
statement of price.)

Gibson v Manchester City Council (1979) – Council house sale

(See above)

INVITATION TO TENDER

An advertisement for an invitation for sale by tender is an Invitation to Treat. In the

process of competitive tendering, the party inviting tenders are bound to consider all
properly submitted tenders even though they do not necessarily have to accept any
tender.

The person who submits a tender makes an offer and acceptance takes place when
the person who invited the tenders has accepted one of them.

Blackpool & Flyde Aero Club v Blackpool Borough Council (1990)

The appellant council invited tenders for a concession to operate pleasure flights
from the local airport. Among the recipients of this invitation was the respondent
club who in fact had held the concession since 1975. The invitation stated that:

37
‘The council do not bind themselves to accept all or any part of any tender. No
tender which is received after the last date and time specified shall be admitted for
consideration.’

The stipulated date and time was 17th March 1983 at noon. The club submitted their
tender by posting it in the appropriate box on the morning of the 17th March. The box
was normally checked each day at noon but was not checked on this occasion until
the 18th March. The council meeting rejected the application for late submission and
the concession was awarded to another party. The club brought an action for
damages against the council.

Held

The council’s stipulation that tenders received after the deadline would not be
considered gave rise to a contractual obligation (on acceptance by submission of a
timely tender) that such tenders would be admitted for consideration.

However, the party inviting tenders will accept the most favourable and conclude the
contract of the best offer.

Harvela Investments Ltd v Royal Trust of Canada (CL) Ltd (1986)

The Royal Trust Co. owned shares in a company, and invited bids for them. Harvela
bid $2,175,000 whilst Sir Leonard Outerbridge bid "$2,100,000 or $101,000 in
excess of any other offer…. expressed as a fixed monetary amount, whichever is
higher." The Royal Trust accepted Sir Leonard's bid as being $2,276,000. Harvela
sued for breach of contract, saying a referential bid was invalid.

Held (HL)

That the contract should have been awarded to the highest fixed bid.

ELEMENT 6.3 COMMUNICATION OF OFFERS

An offer will only be valid if it is communicated to the offeree so that they are so
made aware of its existence.

Inland Revenue Commissioners v Fry (2001)

Mrs Fry owed the Inland Revenue over £100,000. She had no assets or other means
to pay this amount. Mr Fry wished that his wife avoided bankruptcy proceedings and
so in May 1998 offered the Inland Revenue £10,000 in settlement of its claim. This
was rejected by the Revenue in September 1998. However, no proceedings were
brought and in May 1999 Mr Fry sent a cheque for £10,000 to the Revenue in full
and final settlement. At the Inland Revenue, the procedure for dealing with all
correspondence was that any enclosed cheques went one way to be banked and the

38
letters went another way to be read. The cheque was therefore banked immediately.
The letter was dealt with some four days later at which point the rejection of the offer
was communicated to Mr and Mrs Fry.

Held

That the Inland Revenue were still entitled to claim the full amount from Mrs Fry and
treat the amount received as a payment on account.

Carlill v Carbolic Smoke Ball Co (1893)

The defendants, CSB, were manufacturers of the cigarette called carbolic smoke ball.
They advertised and offered to pay £100 to anyone who smoked this brand in the
prescribed manner but still caught influenza and at the same time deposited £1000
in the bank as a sign of goodwill. Carlill caught the flu and sued.

Held

That the advertisement was not an invitation to treat but an offer to the whole world
with a contract being made with anyone who smoked the cigarette and following the
condition ‘on the faith of the advertisement’. The claimant was entitled to the £100.

(NB: This may be so in most unilateral contracts were a dominant party promises a
weaker party).

ELEMENT 6.4 TERMINATION OF OFFERS

• Acceptance – creates a firm contract as long as all other conditions are met.

• Rejection

• Counter-offer

• Lapse of time

• Death of one of the parties

• Failure to comply with a condition precedent

• Revocation

There is no requirement that the termination of an offer has to be brought to the

attention of the offeree by the offeror, but may use any reliable source.

REVOCATION

Is the rescinding, annulling or withdrawal of an offer at any time before acceptance

and must be communicated to the offeree.

Routledge v Grant (1828) – Revocation prior to acceptance

39
The defendant offered to take a lease of the plaintiff’s premises, “a definitive answer
to be given within six weeks from 18th March 1825”. On 9th April, the defendant
withdrew his offer, and on 29th April, the plaintiff purported to accept it.

Held:

There is no doubt that an offer can be withdrawn before it is accepted and it is

immaterial whether the offer is expressed to be open for acceptance for a given time
or not.

COMMUNICATION OF A REVOCATION

Bryne v Van Tienhoven (1880) 5 CPD 344

On 1st October, a letter offering for sell tinplates was posted from Van Tienhoven in
Cardiff to Byrne in New York.

On 8th October, the offerors changed their minds and posted a letter of revocation
withdrawing the offer made by letter of 1st October.

On 11th October, Byrne received the letter of offer dated 1st October and accepted by
telegram.

On 15th October, Byrne confirmed the acceptance by letter of the 11th October
acceptance.

On 20th October, Byrne received the letter of 8TH October withdrawing the offer.

Byrne sued for non-delivery of the tinplates.

HELD

That the revocation of 8th October was ineffective and Byrne were entitled to accept
the offer on 11th October and hence were entitled to recover damages.

(Legal principle: The offer of 1st Oct had not been withdrawn at the time that it was
accepted and therefore the contract was formed on acceptance on 11th Oct)

LAPSE OF TIME

An offer would usually stay open until a specified time after which it will terminate.
Where there is no set time, it will be taken to terminate after reasonable time using
the “reasonable-man test”.

Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866)

The claimant had offered to buy shares in the hotel company in June, but the
company did not issue the shares for sale until November.

HELD:

40
That the offer would lapse after a ‘reasonable time’. What is reasonable time would
depend on the offer and subject matter of the contract.

(For example, Shares which fluctuate and perishable goods)

FAILURE TO COMPLY WITH A CONDITION PRECEDENT

An offer may terminate if one or more of the conditions agreed by the parties are
broken

Financing Ltd v Stimson (1962)

The defendant on 16th March 1962, at the premises of the dealer signed a form by
which he offered to take a car on hire-purchase terms from the plaintiffs. On 18th
March, he paid a deposit of £70 and was allowed to take the car away from the
dealer’s premises.

He was dissatisfied with the car and on 20th March, returned it to the dealer, saying
he did not want it and believing himself to be bound by a contract to forfeit his
deposit.

In the night of 24th March, the car was stolen from the dealer’s premises and badly
damaged.

On 25th March, the plaintiffs, not having been told that the defendant had returned
the car, signed the hire-purchase agreement.

Held (CA)

That, the defendant had revoked his offer by returning the car to the dealer.

This is the same scenario where there is a job offer subject to satisfactory references,
medical reports or criminal records bureau checks.

DEATH OF A PARTY

DEATH OF THE OFFEROR

If before acceptance, then the offeror’s personal representatives may still be bound
by an acceptance. (NB. Undue influence in offeror’s illness, etc)

DEATH OF THE OFFEREE

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The offer lapses and the offeree’s personal representatives are not bound by the
offer or acceptance on behalf of the deceased.

Reynolds v Atherton (1921)

An offer to sell shares was made to "the directors" of a company in 1911. An attempt
to accept the offer was made in 1919 by the survivors of the persons who were
directors in 1911.

Held

The purported acceptance was ineffective and that where the offeree dies before
acceptance, the offer lapses and the offeree’s personal representatives will be
unable to accept on behalf of the deceased..

Warrington L.J. said: "The offer having been made to a living person who ceases to
be a living person before the offer is accepted, there is no longer an offer at all. The
offer is not intended to be made to a dead person or to his executors, and the offer
ceases to be an offer capable of acceptance.

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UNIT 7 ACCEPTANCE
ELEMENT 7.1 INTRODUCTION

Acceptance must be clearly communicated.

The courts have adopted a “mirror image” rule in determining the formation of a
contract. This means that an offer must be matched by an equally and unequivocal
acceptance and can be in any format.

ELEMENT 7.2 ACCEPTANCE

Hence, an acceptance can be defined as a final and unqualified expression of assent

to the terms of the offer.

This means that an acceptance must accept all the terms and conditions of the offer
whilst the introduction of new terms creates a counter-offer.

Hyde v Wrench (1840)

6th June – The defendant wrote the plaintiff offering to sell his farm for £1000.

Immediately, the plaintiff’s agent called on the defendant and made an offer of £950
to which the defendant wished to have a few days to consider.

27th June- The defendant wrote that he could not accept the offer.

29th June- The plaintiff wrote “accepting” the offer of 6th June.

The defendant refused to sell and the plaintiff brought an action for specific
performance.

Held

There was no binding contract as the plaintiff had rejected the original offer (£1000)
by his counter offer (£950) and hence could not revive the original proposal of the
defendant.

43
NB: Acceptance must be clearly communicated so that the offeror understands the
offer to have been accepted.

COUNTER-OFFER

It should be noted that the introduction of a counter-offer reverses the roles of the
offeror and the offeree and such continues until a final agreement is reached.

STANDARD FORM CONTRACTS

The reliance of the parties on their individual pre-prepared Contracts Forms creates
a “Battle of the Forms”. (E.g. Local authority, the big mine companies, etc)

PARTY A---------------------------PARTY B

Makes an offer on Accepts on own Contract Terms Form

Own Standard Contract

FORMS

The significant variation of Party B’s contract terms in relation to the proposed terms
of the offer brings about a conflict in terms, hence being termed a counter-offer.

Any contract entered into will be on the terms of the final counter-offer and shall
apply to the contract as a whole.

Ref: Zambia Steel & Building Supplies Ltd v James Clark & Eaton Ltd (1986)

British Road Services v Arthur & Crutchley Ltd (1968)

BRS delivered a quantity of whisky to the defendants for storage. The delivery driver
handed the defendants a delivery note which incorporated the claimants’ ‘conditions
of carriage’. The defendants acknowledged receipt by stamping the delivery note
with “Received under [the defendants] conditions”.

Held

This was a counter offer which BRS accepted by handing over the goods and
therefore the contract incorporated the defendants’ and not the claimants’ conditions

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Butler Machine Tool Co Ltd v Ex-Cell-O Corporation (England) Ltd (see above)

ELEMENT 7.3 COMMUNICATION OF ACCEPTANCE

The general rule is that an acceptance has no effect until it is communicated to the
offeror for a contract to come into existence.

Entores v Miles Far East Corporation (1955)

Entores in London made an offer by telex to the agents of Miles Far East in Holland.
Miles Far East was based in New York. The offer was accepted and a telex
acceptance was received by Entores in London.

Miles Far East breached the contract and Entores claimed damages for breach of
contract.

The difficulty was to establish under which jurisdiction the contract was made-
London or Holland.

Held

When a contract is made by post, it is clear law throughout the common law
countries that the acceptance is complete as soon as the letter is put into the post
box, and that is the place where the contract is made.

But in instantaneous communication (email, telex, fax, telephone, etc), the rule is
different and the contract is only completed when the acceptance is received by the
offeror: and the contract is made at the place where the acceptance is received. Per
Lord Denning.

Per Lord Denning

“Let me first consider a case where two people make a contract by word of mouth in
the presence of another. Suppose, for instance, that I shout an offer to a man across
a river or a courtyard but I do not hear his reply because it is drowned by an aircraft
flying overhead. There is no contract at that moment. If he wishes to make a contract,
he must wait till the aircraft is gone and then shout back his acceptance so that I can
hear what he says. Not until I have his answer am I bound.”

The courts have further said that acceptance must be communicated by the offeree
or someone authorised by him.

45
Similarly, where two people negotiate a contract over the phone, the line goes dead
just after the offer is made and the acceptance is incomplete, does not create a legal
contract.

It is expected that the offeree must telephone back the offeror to ensure that he
heard the acceptance.

ELEMENT 7.3.1 TELEPHONE, TELEX, FAX, BY RETURN OF POST

In case of instantaneous modes of communication, the acceptance takes place at

the moment the offeree’s acceptance is received by the offeror and at the place at
which the offeror happens to be (i.e. when and where it is received).

Brinkibon Ltd v Stahag Stahl (1983)

The buyers, an English company, sent a telex out of office hours from London to
Vienna accepting the offer by the sellers, an Austrian Company. The contract fell
through and the Buyers issued a writ claiming damages for breach of contract.

Held

That in the case of communication by telex, the acceptance is effective when it is

communicated with the offeror with the result that the contract is concluded in the
jurisdiction where the offeror is located.

ELEMENT 7.4 METHODS OF ACCEPTANCE

The general rule is that if the offeror prescribes a method of acceptance, the offeree
must comply with this requirement if the offeror is to be bound by the acceptance.

Manchester Diocesan Council v Commercial & General Investments Ltd

for Education (1969)

The plaintiff owned property which could be sold only subject “to the approval of the
Secretary of State for Education and Science.” The plaintiff decided to sell the
property by tender and prepared a form of tender. Clause 4 provided: “The person
whose tender is accepted shall be the purchaser and shall be informed of the
acceptance of his tender by letter sent to him by post addressed to the address
given in the tender.”

The defendant completed the tender form addressed 15, Berkeley Street, and sent it
to the plaintiff’s surveyor who on 1st September informed the defendant’s surveyor
that he would recommend acceptance. On 15th September, the defendants tender
was accepted and a letter was sent to the defendant’s surveyor at a different
address to the tender address.

The defendants wanted to pull out of the contract.

46
Held

The communication to the address in the tender was not the sole permitted means of
communication of acceptance and therefore a valid contract had been concluded.

ELEMENT 7.4.1 SILENCE CANNOT AMOUNT TO ACCEPTANCE

The general rule is that silence cannot imply acceptance of an offer and the offeror
cannot put a contractual obligation on the offeree that their silence meant
acceptance (mirror-image rule applies).

Felthouse v Bindley (1861)

NB: The Leonidas D (1985), per Lord Goff LJ commented that it was

“…it was axiomatic that acceptance of an offer cannot be inferred from silence, save
in the most exceptional circumstances”.

CONTRACT REPUDIATION ACCEPTED BY SILENCE

Vitol SA v Noreft Ltd (1996)

The seller (Norelf) was to deliver a cargo of propane c.i.f. north-west Europe to be
shipped from the United States by a ship set to leave on a certain date. The market
was falling. The buyer, when it was clear that the ship would be unable to leave on
the day fixed, sent a telex to say that the contract was repudiated. The seller did
nothing but later sued for the loss on a later sale of the cargo at a loss. The buyer
said that the seller’s mere failure to carry out his side of the contract was sufficient to
be an acceptance of the repudiation.

Held

That saying and doing nothing at all, other than a continuing failure to perform,
cannot constitute an acceptance of a repudiation of a contract. However, silence can
at times be held to be an acceptance of a contract and also can in exceptional
circumstances amount to an acceptance of repudiation.

ELEMENT 7.4.2 ACCEPTANCE BY CONDUCT

Acceptance may be inferred from the conduct without it being expressly

communicated.

Brogden v Metropolitan Railway CO. (1877)

Brogden owned a colliery and supplied the Metropolitan Railway with coal. In
November 1871, Metropolitan Railway prepared a draft contract and sent it to the
Brogden who filled in an arbitration clause, nominating an arbitrator. Brogden
returned the draft contract marked “Approved”.

The railways did not acknowledge receipt.

47
In December 1871, the Railway Company placed an order on the terms of the
document which Brogden fulfilled and such trading continued until December 1873.

Thereafter, Brogden refused to supply any coal and the Railway Company brought
an action for breach of contract.

Held

Whilst the addition of an arbitrator’s name technically rendered it a counter-offer, the

parties had continued trading on those terms and therefore, Brogden could not claim
that there was no contract.

ELEMENT 7.4.3 ‘THE POSTAL RULE’ - ACCEPTANCE BY POST

This is an exception to the general rule that acceptance must come to the attention
of the offeror before it is valid.

Adams v Lindsell (1818)

Lindsell made an offer by post to sell Adams some wool, asking for a reply “in course
of post”. The offer letter was sent of 2nd September, but did not arrive until 5th
September. Adams accepted and sent the acceptance at once.

The letter of acceptance took a lengthy time to arrive finding that the wool had
already been sold as Lindsell assumed his offer had been rejected.

Adams sued for breach of contract.

Held

The contract was made at the time the letter was posted.

Therefore, the ‘Postal Rule’ is that acceptance by post is effective upon posting
rather that delivery. (NB: The Post Office is to be treated as an agent of both parties.)

Also, note that “The Postal Rule” only applies to acceptances and not to the
revocation of an offer, in which case it has to be brought to the attention of the
offeror.

Adams v Lindsell (1818)

As above.

The following conditions must be fulfilled for the rule to apply:

• Postal acceptance must be requested by the offeror or must be normal

business practice.

Henthorn v Fraser (1892)

48
 Held

"Where the circumstances are such that it must have been within the
contemplation of the parties that, according to ordinary usage of mankind, the
post must be used as a means of communicating the acceptance of an offer,
the acceptance is complete as soon as it is posted." Per Lord Herschell.

• Letter of Acceptance must be properly stamped and addressed.

Re London & Northern Rock, ex-parte Jones (1990)

Dr Jones made an offer to the bank, at 07.00hrs. At 09.30hrs, Dr Jones delivered

letter to bank revoking his offer. At 19.30hrs a letter of acceptance handed to a
delivery postman was delivered to Dr Jones.

Held

That the “Postal Rule” did not apply due to incorrect posting, a letter must be posted
in post box or handed to post office employee authorised to receive mail and not a
delivery postman who was not meant to collect mail for posting.

• The Letter of Acceptance must be posted- i.e. must be in the control of the
post office or whatever postal service.

Adams v Lindsell (1818)

NB: Re London & Northern Rock, ex-parte Jones (1990),

Therefore, postal acceptance will only be valid at the time of posting the letter of
acceptance if it is reasonable for the offeror to expect an acceptance by post. This
then means that an acceptance should be communicated by a comparable method
as the communication of an offer, e.g. an offer delivered by hand; email, fax or
telegram should be responded to using a similar method unless it is not practicable
or reasonable to do so.

Quenerduaine v Cole (1883)

The defendant made an offer by telegram which the plaintiff purported to accept by
letter.

Held:

That the “Postal Rule” did not apply as an offer made by telegram (instantaneous
communication) implied that an equally quick acceptance was required

49
However, an offer by e-mail for instance could be accepted by an equally fast
and reasonable method like a telephone.

UNIT 8 THE DOCTRINE OF CONSIDERATION

ELEMENT 8.1 INTRODUCTION

The orthodox interpretation of consideration is that it is based upon the idea of

‘reciprocity’. The essence of consideration is that the ‘promisee cannot enforce a
promise unless he has given or promised to give something in exchange for the
promise or unless the promisor has obtained (or been promised) something in return.

DEFINITION

Consideration may be defined as ‘a right or benefit to one party or a loss or detriment

suffered by another.’ Currie v Misa (1875)

Both parties to a contract must give consideration for it to be legally binding.

This means that both parties must receive something of value for a legally binding
contract to be effective.

money / services

money / goods

The receipt of something of value by both parties is what distinguishes a contract

from a gift.

ELEMENT 8.2 TYPES OF CONSIDERATION

There are three types of consideration:

- Executory

- Executed

- Past consideration

ELEMENT 8.2.1 EXECUTORY CONSIDERATION

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Executory consideration arises where promises are exchanged to perform an act in
the future. This is more of a bilateral contract, that is to say, a promise for a promise.

Example:

I promise to deliver that particular item tomorrow and you promise to pay on delivery.

This means that there is a legally enforceable contract if either party does not
perform their part of the contract.

ELEMENT 8.2.2 EXECUTED CONSIDERATION

Executed consideration is where one party performs an act in order to fulfil a promise
made by another.

Example

‘Reward contracts’ :- These are unilateral contracts.

‘I will pay £100 to anyone who finds and brings back my calculator’

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

ELEMENT 8.2.3 PAST CONSIDERATION

Past consideration means that a promise must be made before an act and not after,
for it to constitute consideration.

Example

Being promised £100 for having swept the classroom would not be enforceable as
the promise was after the act.

Re McArdle (1951)

A son and his wife lived in his mother’s house. On the mother’s death, the house
was to pass to her four children.

The son’s wife paid for repairs and improvements to the house during their stay.

Before her death, the mother made the children sign an agreement to repay her
daughter-in-law from the estate in the event of her demise.

She died but the children refused to pay.

Held

The daughter-in-law had already performed the act before the promise to pay had
been made, hence this was past consideration and unenforceable.

51
It then follows that, if parties to a contract have already made a legally binding
contract and one party subsequently promises to confer a benefit on the other party
that promise is not legally binding as it is considered that the promisee’s
consideration is in the past.

Roscorla v Thomas (1842)

The defendant agreed to sell a horse to the claimant. After this agreement, Thomas
then added on, that he would give a warranty as to the soundness of the horse.

Held

The claim failed as Roscorla had not provided consideration to the promise as his
consideration to the original agreement was in the past.

EXCEPTION TO PAST CONSIDERATION

Where services are rendered on request and where both parties understand that
payment will be made.

Eg. Car wash- The promise in this case may be enforced though consideration is in
the past.

Pao On v Lau Yiu Long (1980)

Pao On owned all the shares in a company in Hong Kong. Its main asset was a 21
storey building. The defendant and his brother were majority share-holders in a
separate company which had just gone public and needed a building.

An agreement was reached where the companies swapped shares so that each
company owned part of the other.

Pao agreed not to sell 60% of the shares for at least one year but later realised that
they would lose out if the shares rose in price. They then tried to go back on their
promise.

Held

1. The act must have been done at the request of the promisor.

2. The parties must have understood or implied that the promisee would be

rewarded for doing the act.

3. The payment, or conferment of a benefit, must have been legally enforceable

had it been promised in advance.

ELEMENT 3.3 RULES OF CONSIDERATION

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1. Consideration must move from the promisee.

2. Consideration must not be past

3. Consideration must be sufficient but need not be adequate.

ELEMENT 3.3.1 CONSIDERATION MUST MOVE FROM THE PROMISEE

This maxim means that the promisee can only enforce the promise if they
themselves, and not a third party, provided consideration for that promise. Such
consideration must be either that the promisee incurs some detriment or confers a
benefit on the promisor.

Tweedle v Atkinson (1861)

William, the son of Tweedle, and the daughter of William Guy intended to marry.
Tweedle the father of William agreed with William Guy, in writing, that both should
contribute money to William Tweedle. Guy died and his executors refused to pay the
money. William Tweedle sued the executors of the estate.

Held:

The claim failed as William had not given consideration as a third party and also due
to the doctrine of ‘Privity of contract’.

(NB: Such agreements can now be subject to Contracts (Rights of Third Parties) Act
1999)

E.g.: An employee dies intestate- Family must claim from the employer even if they
have not provided consideration.

ELEMENT 3.3.2 CONSIDERATION MUST BE SUFFICIENT BUT NEED NOT

BE ADEQUATE

The consideration needs to be real, tangible and valuable.

This means that the courts will only ask if something of value had been given in
return and not its value.

Example:

A £1000 car being sold for £50 is sufficient consideration even though it is
inadequate.

Chappell & Company v Nestle (1960)

Nestle, a chocolate maker, offered for sale a gramophone record for a nominal value
(1s 6d) and three chocolate wrappers. The record normally sold for 6s 8d.

53
Chappell, the record company, sued to prevent the promotion as this would entail
receiving lower royalties since they held the copyright.

Held:

This was sufficient consideration even though the wrappers were of trivial economic
value and Nestle just threw them away.

PERFORMANCE OF AN EXISTING DUTY

A party performing a duty to which they are already bound to do, will not confer this
as sufficient consideration for a new agreement.

Collins v Godefroy (1831) - Performance of a public duty.

A police officer had been sub- poenaed to appear before court and give evidence.

Collins, not knowing of this, promised the policeman a sum of money if he testified
on his behalf.

Held:

The promise to pay was unenforceable since there was no consideration given by
the police officer as he was already under a legal duty to attend court.

Comment: EG Public workers who demand payment (corruption, gratification, etc.)

from a member of the public for them to perform their duty eg collecting a personal
file from personnel dept of any ministry.

Stilk v Myrick (1809)

A team of eleven sailors had a contract to crew a ship from London to the Baltic and
back. Eleven sailors was the full compliment to fulfil the contract. Two sailors
deserted hence putting pressure on the remaining nine sailors. They claimed
increased wages and was agreed but once back the employer refused to pay.

Held:

The Captain’s promise to pay extra was unenforceable since the sailors were
already contracted to sail the ship back to London. Therefore, there was no
consideration given by he sailors in return for the Captain’s promise to pay higher
wages.

Exceptions

1. Where a public duty is exceeded.

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2. Where a contractual duty is exceeded.

3. Where there is an existing contractual duty owed to a third party.

UNIT 9 CAPACITY
ELEMENT 9.1 INTRODUCTION

For protectionist reasons, apparent contracts with some categories of persons are at
common law or by statute deemed to be void or voidable.

These are:

 Minors (less than 18 years)

 Drunken people

 Mentally disordered/ incapacitated people

 Corporations/companies which have limited contractual capacity

However, adults of sound mind have full contractual capacity.

Contract law seeks to protect the vulnerable people from the consequences of their
own inexperience and inability, and hence be exposed to hardships.

However, contract law does not equally want to expose the people who deal with
these vulnerable people, in good faith and fairly to unnecessary hardship.

ELEMENT 9.2 MINORS

These are persons under the age of 18 years.

The General Rule is that minors are not bound by a contract they enter into during
minority.

EXCEPTIONS - Where a contract may be held to be valid

With mentally-challenged persons, the contract may be void or voidable at the

minor’s or mentally-challenged person’s option. With children, contracts can be
voided at their request if they are not beneficial to the child. One exception exists
and that is a contract for necessaries of life.

55
1. A contract to supply a minor with ‘necessaries’ is binding if it is for the benefit
of the minor.

Necessaries are defined as “goods suitable to the condition in life of the

minor…………….and to his actual requirements at the time of the sale and delivery.”
(Sale of Goods Act 1979, Section 3 (3))

Necessary included:

 Food
 Clothing
 Education

The courts will look to the wealth of an individual. What is necessary for one minor is
not necessarily for another.

The rule was stated in a 1925 case, Miller v. Smith & Co., in which the judge said an
“infant may bind himself to pay for his necessary meat, drink, clothing, medicines
and likewise for his teaching or instruction.”

Note that the requirements defer from minor to minor and the stage in life of a minor.
The higher the status, the greater the range of necessaries.

Peters v Fleming (1840)

Held:

That pins, rings and a watch chain were necessaries for an undergraduate who had
a rich father.

2. Similarly, a minor is bound by a contract of employment if that contract is

generally for his benefit. Benefits contracts of service are those that serve to assist
the minor a career, eg. Apprenticeship.

3. Certain contracts of minors are not void but voidable unless he repudiates
liability before majority or within a reasonable time thereafter.

 Where a minor acquires shares in a company.

 Where a minor acquires an interest in land.

 Where a minor enters into a partnership agreement.

The effect of repudiation is to release a minor from liability to perform when he

reaches majority.

However, a minor will incur liability once they reach majority in the following
exceptions:

 If the minor ratifies the contract on reaching majority.

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  Where the contract is unenforceable on a minor or he repudiates it, the court
may force performance if “it is just and equitable to do so” to transfer any
property acquired or property representing it. (Minor’s Contracts Act 1987,
Section 3 (1))

This is to prevent unjust enrichment of the minor.

Nash v Inman (1908)

A tailor sold 11 fancy waistcoats to a minor, who was a Cambridge University

undergraduate. The minor refused to pay for them.

The tailor took legal action to recover his money.

Held:

The action for payment failed as the minor (Defendant) was already amply supplied
with clothing and hence the waistcoats were not ‘necessaries’.

(NB: In such a scenario, the Court may order the return of the property “if it is just
and equitable”.)

4. Where the minor has performed his side of the contract may still be unable to
recover the benefits which he has conferred upon another party.

5. A minor may incur liability in tort as long as it does not undermine the
protection accorded by the law.

R Leslie Ltd v Shiell (1914)

A minor obtained a £400 loan by fraudulently misrepresenting his age.

Held

The minor could not be sued in the tort of deceit as this action would be to indirectly
enforce the contract and thus undermine the protection afforded by contract law.

NB: This might not be followed today.

Remember also that if a minor ratifies a contract upon reaching the age of majority,
he or she is then bound to it.

VOIDABLE CONTRACTS

Voidable contracts are valid contracts until avoided by a minor. Contracts involving a
minor and an adult or company will only be avoided at the volition or option of the
minor.

The courts take into consideration the value of the contract.

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ELEMENT 9.3 MENTAL INCAPACITY

The contract is voidable where a person is judicially declared as mentally

incompetent and at the option of the incompetent person if the other party knew
about the mental incompetency or ought to have known under the circumstances.

Persons with mental incapacity are protected under the Mental Health Act 1983.

Further, the Sale of Goods Act 1979, Section 3 (2) provides that ‘where necessaries
are sold and delivered…………..to a person who by reason of mental incapacity or
drunkenness is incompetent to contract, he must pay a reasonable price for them’.

However, a contract entered into by a person of unsound mind is voidable if the

incapacity in known to the other party to the contract.

Imperial Loan Company Ltd v Stone (1892)

A person of unsound mind was sued on a promissory note which he had signed as
surety. The jury found that he was insane when he signed the note but there was no
finding as to the creditor’s knowledge of such insanity.

Held

“In order to avoid a fair contract on the ground of insanity, the mental incapacity of
the one must be known to the other of the contracting parties. A defendant who
seeks to avoid a contract on the ground of insanity, must plead and prove, not
merely his incapacity, but also the plaintiff’s knowledge of that fact, and unless he
proves these two things he cannot succeed.”

Where the incapacity is unknown, the contract is binding unless it is an

unconscionable bargain between two persons of sound mind.

Hart v O’Connor (1985) AC

The defendant, Mr Hart, agreed to purchase farm land from Mr O’Connor, who was
then the sole trustee of his father’s estate and who farmed the land in partnership
with his brothers. Mr O’Connor, was then aged 83 years but, unknown to the
defendant, was of unsound mind. He agreed to sell land to the defendant under an
agreement which was drawn up by the defendant’s solicitor. The agreement stated
that the price to be paid was the market value of the land as determined by an
independent valuer.

Held

That in equity, if someone is insane and the other party is not aware of this, the
contract can be set aside due to insanity if the contract was deemed to be "unfair".
However, there are two types of "unfair" contracts one being of "procedural
unfairness" where a benefit is obtained through undue influence i.e. victimisation,

58
and secondly "contractual imbalance" where one party got a more favourable
outcome than the other party i.e. a bargain. For such a contract to be set aside for
unfairness, the other party had to be active in obtaining an unfair contract. In this
case it was said Mr Harts conduct was "beyond reproach".

Similarly, a totally drunk person also lacks the ability to consent to a contract and has
the option of voiding a contract signed while intoxicated, providing it is done at the
earliest opportunity upon sobriety.

Gore v Gibson (1843)

It was held that a contract for necessaries made by a person so intoxicated and
incapable of knowing the consequences of his act was not binding on him as long as
the other party was aware of the drunken condition.

However, where the incapacity is unknown, the contract is binding unless it is an

unconscionable bargain between two persons of sound mind.

ELEMENT 9.4 COMPANIES

Companies are governed by the Companies Act cap 388 s22 which provides that a
company shall have the capacity, rights, powers and privileges of an individual. A
company will only have contractual limitations if self-imposed by its Articles of
Association (Companies Act Cap 388 sec 22(3)).

Ashbury Railway Carriage & Iron Co. Ltd v Richie (1875)

The objects clause set out in the company’s memorandum of Incorporation were;

“To make and sell, or lend on hire, railway carriages and wagons, and all kinds of
railway plant, fillings, machinery and rolling stock; to carry on the business of
mechanical engineers and general contractors, to purchase, lease, work and sell
mines, minerals, land and buildings, to purchase, lease, work and sell as merchants,
timber, coal, metals or other materials on commission or as agents.”

The Directors purchase a concession for making a railway in Belgium and purported
to contract with Richie that he should have the construction of a railway.

There was a breach of contract and Richie sued.

Held

That the construction of a railway line was ultra-vires the company objects clause
and therefore the contract was void.

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UNIT 10 INTENTION TO CREATE
LEGAL RELATIONS
ELEMENT 10.1 INTRODUCTION

The fact that the parties have reached an agreement does not necessarily indicate
that there is a legally binding and enforceable contract even if it can be proved that
there was consideration. The ‘intention to create legal relations’ is an essential
element in any binding contract.

The courts have come up with three categories of contracts so as to distinguish

between legally binding contracts and those which should not be legally enforceable.

 Social and domestic Agreements

 Commercial Contracts
 Advertisements

ELEMENT 10.2 DOMESTIC AGREEMENTS

Domestic agreements are not presumed to create legal relations.

HUSBAND AND WIFE

Agreements between husband and wife are presumed not to be legally enforceable
unless stated in the agreement itself.

Balfour v Balfour (1919)

The wife tried to enforce a promise by her husband to pay her £30 monthly whilst he
worked abroad.

Held:

That, “Agreements such as these are outside the realm of contracts

altogether………… The consideration that really obtains for them is that of natural
love and affection……….each house is a domain into which the King’s writ does not
seek to run and to which his officers do not seek to be admitted…….” per Atkin LJ

60
NB: Also, there was no consideration by the wife.

However, a couple who are separated at the time of the agreement may find such an
agreement being considered legally binding.

Merritt v Merritt (1970)

The husband left the matrimonial home which was in the joint names of husband and
wife. The husband agreed to be paying £40 towards the repayment of the mortgage
and signed an agreement to transfer the property into her sole ownership.

Held

There was an intention to create legal relations.

This is also true were the family agreements involve:

 Large sums of money which would indicate significance.

 Involvement of large business corporations.

PARENTS AND CHILDREN

Jones v Padavatton (1969)

A daughter had a good job in Washington DC whilst the mother lived in Trinidad. The
mother offered the daughter £200 monthly allowance if she moved to England to
study for the Bar. She agreed and moved to England in 1962. There was no written
contract, nor an agreement as to the duration of the contract.

Later, in 1964, the mother bought a house in London for the daughter to live in and
rent out some rooms to raise an income to maintain herself in place of the £200
allowance.

Years later, in 1967, the mother returned to England and claimed possession of the
house whilst the daughter had not yet passed her Bar examinations.

Held:

The agreement was not intended to be legally binding and the mother was entitled to
possession.

Snelling v John G Snelling Ltd (1973)

Three brothers where directors of a family company, and were all owed substantial
amounts by the company. Differences arose between the brothers leading to an

61
agreement that if one of them resigned, he should forfeit the monies due to him by
the company.

The plaintiff resigned and brought an action to recover his money.

Held

Legal relations where created when the three brothers, who were directors of a
family company, entered into an agreement relating to the running of the company.

ELEMENT 10.3 SOCIAL AGREEMENTS

The courts presume there is no intention to create legal relations in social

agreements.

PARTIES SHARING A HOUSE

Where there is a passing of money between unrelated parties sharing a dwelling,

would be considered as there being an intention to be legally bound.

Simpkins v Pays (1955)

The landlady, her daughter and a lodger shared a dwelling. The lodger had a hobby
of entering competitions. The landlady and her daughter suggested to contribute
some money so as to bet more and increase the chances of winning.

They won but the lodger did not want to share the winnings as his name was the
only one appearing on the payment cheque.

Held:

There was a legally binding contract.

ELEMENT 10.4 CLUB COMPETITIONS

Lens v Devonshire Club (1914), The Times 4 December 1914.

Held:

That the winner of a competition held by a golf club could not sue for his prize
because no one involved in the competition intended that legal consequences should
flow from entry into the competition.

This presumption may be rebutted by objective evidence of contrary intention.

The courts will look at:

 The context in which the agreement is made.

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  The reliance that has been placed upon the agreement and one party
has acted to his detriment

 The certainity of the agreement that has been entered into by the
parties.

ELEMENT 10.4 COMMERCIAL AGREEMENTS

The courts presume that parties to a commercial agreement/contract intended to

create legal relations.

Esso Petroleum Ltd v Commissioners of Customs & Excise (1976)

Esso filling stations gave one 1973 World Cup token per every four gallons of petrol
sold. They were not part of the sale and hence not supplied under a contract of sale.
The advert posters stated that the coins were ‘going free’.

Held:

By majority, that there was an intention to create legal relations.

In such a situation, the presumption could be rebutted by an express term of the

contract that the parties do not intend to create legal relations hence making their
intentions clear.

NB:

The agreements for the sale of land are usually made ‘subject to contract’ so as not
to create legal relations until the contract is signed.

This presumption can only be rebutted by an express provision in the agreement.

Rose & Frank Co v Crompton Bros (1925)

The claimants and defendants entered an agreement for the supply of some
carbonised tissue paper. Under the agreement the claimants were to be the
defendant's sole agents in the US until March 1920. The contract contained an
honourable pledge clause which stated the agreement was not a formal or legal
agreement and shall not be subject to the jurisdiction of the courts in neither England
nor the US. The defendants terminated the agreement early and the claimants
brought an action for breach.

Held
The “honourable pledge clause” rebutted the presumption which normally exists in
commercial agreements that the parties intend to be legally bound by their
agreements. The agreement therefore had no legal affect and was not enforceable.

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ELEMENT 10.4 ADVERTISEMENTS

“We will match or lower the price if you find a similar item cheaper somewhere else.”

This statement is likely to be binding-

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

UNIT 11 THE CONTENT OF THE CONTRACT

So far we have considered what the law recognises as a valid and enforceable
contract and who is bound by that contract.

Contracts are made up of contractual terms which are agreed by, and bind the
parties to the contract. However, contracts may also include terms which are not
expressly stated, but which are implied to give effect to the intention of the parties, or
implied by custom or by law.

ELEMENT 11.1 REPRESENTATIONS

The parties to a contract will make various statements in the course of negotiation
before a contract is formed. Hence, it is important to distinguish between contractual
terms and mere statements of opinion or mere “puffs”. (Puffs are boastful statements
made in advertising)

A representation is a statement that induces a party to enter into a contract (but does
not form part of it).

A term is a promise or undertaking which forms part of a contract.

Ecay v Godfrey (1947) 80 L1 LR 286

A seller of a boat stated that the boat was sound but advised the buyer to have it
surveyed.

Held:

The statement was a mere representation and not a contract term.

In deciding whether a statement amounts to a term or representation the courts look

at four factors:

1. The parole evidence rule

2. Relative expertise of the parties

3. Importance of the statement

4. Time

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11.1.1 THE PAROLE EVIDENCE RULE

Where the contract has been put into writing, only the terms included in the written
document are terms, whilst any verbal statements will be representations.

Jacobs v Batavia & General Plantations Trust Ltd [1924] 1 Ch 287

Held:

That, as a general rule, the parties cannot adduce extrinsic evidence, add to, vary or
contradict the written document; the document is the sole repository of the terms of
the contract.

Routledge v McKay (1954)

The claimant acquired a Douglas BSA motorcycle and sidecar by exchanging
another motorcycle and paying £30. The registration documents stated that it was a
1942 model and this is what the defendant stated the year of the motorcycle to be
when the claimant cam to look at it. The motorcycle was in fact a 1936 model but
had been modified and re-registered by a previous owner. The purchaser went away
to think about it and then returned a few days later a written agreement was
produced to the effect of the exchange which ended with the words "It is understood
that when the £30 is paid over that this transaction is closed".

Held
That the statement was a representation and not a contractual term. None of the
parties was an expert, and there was a lapse of time between the making of the
statement and entering the contract giving the claimant the opportunity to check the
statement.

11.1.2 RELATIVE EXPERTISE

Where the representor has the greater knowledge, it is more likely to be a

contractual term. Conversely if the representee has the greater knowledge it is more
likely to be a representation.

Oscar Chess Ltd v Williams (1957)

Mrs Williams purchased a second hand Morris car on the basis that it was a 1948
model. The registration document stated it was first registered in 1948. The following
year her son used the car as a trade in for a brand new Hillman Minx which he was
purchasing from Oscar Chess. The son stated the car was a 1948 model and on that
basis Oscar Chess offered £290 off the purchase price of the Hillman. Without this
discount Williams would not have been able to go through with the purchase.

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8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and
worth much less than thought. They brought an action for breach of contract arguing
that the date of the vehicle was a fundamental term of the contract thus giving
grounds to repudiate the contract and claim damages.

Held
That the statement relating to the age of the car was not a term but a representation.
The representee, Oscar Chess Ltd as a car dealer, had the greater knowledge and
would be in a better position to know the age of the manufacture than the defendant.

Dick Bentley Productions v Harold Smith Motors (1965)

Dick Bentley knew the defendant, who was a car trader specialising in the prestige
market, for some time. He had asked him to look out for a well vetted Bentley car.
The defendant obtained a Bentley and recommended it to the claimant. He told him
that the car had been owned by a German Baron and had been fitted with a
replacement engine and gearbox and had only done 20,000 miles since the
replacement. Mr Bentley Purchased the car but it developed faults. The defendant
had done some work under the warranty but then more faults developed. It
transpired that the car had done nearer 100,000 miles since the refit. The question
for the court was whether the statement amounted to a term in which case damages
would payable for breach of contract, or whether the statement was a representation,
in which case no damages would be payable since it was an innocent
misrepresentation and the claimant has also lost his right to rescind due to lapse of
time.

Held
The statement was a term as the car dealer had greater expertise and the claimant
relied upon that expertise.

THE IMPORTANCE OF THE STATEMENT AND RELIANCE

Where the representee indicates to the representor the importance of the statement,
this is likely to be held to be a term.

Bannerman v White (1861)

The claimant agreed by contract to purchase some hops to be used for making beer.
He asked the seller if the hops had been treated with sulphur and told him if they had
he wouldn't buy them as he would not be able to use them for making beer if they
had. The seller assured him that the hops had not been treated with sulphur.
In fact they had been treated with sulphur.

Held
That the statement that the hops had not been treated with sulphur was a term of the

66
contract rather than a representation as the claimant had communicated the
importance of the term and relied on the statement. His action for breach of contract
was successful.

TIMING

The longer the time lapse between making the statement and entering the contract
the more likely it will be a representation.

Routledge v Mackay [1954] 1 WLR 615

See above.

ELEMENT 11.2 SOURCES OF CONTRACT TERMS

There are two main sources of contract terms:

1. Express Terms

2. Implied Terms

ELEMENT 11.2.1 EXPRESS TERMS

Express terms are those which are specifically agreed by the parties and may be
oral or in writing or both.

Jacobs v Batavia & General Plantations Trust Ltd (1924)

Held:

That, as a general rule, the parties cannot adduce extrinsic evidence, add to, vary or
contradict the written document; the document is the sole repository of the terms of
the contract.

This general rule has been called the “Parole Evidence Rule”. The rule promotes
certainty as the parties commit themselves once they put the perms in writing as a
person is bound by a document that he signs, whether ‘he reads it or not’.

The courts have made clear that considerable weight has been added to the idea
that a person should be able to rely on the signature of a contracting party.

L’ Estrange v F Graucob Ltd (1934)

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The claimant bought an automatic slot machine from the defendants. She signed an
order form which contained a clause which excluded liability for all express and
implied warranties.

The claimant discovered that the machine did not work and brought an action for
implied warranty that the machine was not fit for purpose for which it was sold.

Held: The defendants had excluded liability by virtue of the exclusion clause which
was incorporated in the contract by the claimant’s signature.

ELEMENT 11.2.2 INCORPORATION OF WRITTEN TERMS

Contracting parties may agree to incorporate a set of written terms into their contract.

1. The party or parties must give notice of the terms before the contract is
concluded.

Olley v Malborough Court ltd (1949) 1 KB 532

Olley booked in a hotel and concluded the contract at the hotel reception, whilst
there, he had her furs stolen from her bedroom.

In the bedroom was a notice which purported to exempt the hotel from any liability
for articles lost or stolen from the hotel.

Held

The notice in the hotel bedroom was not incorporated into a contract with the guest
as it was only seen by the guest after the contract had been concluded at the hotel
reception.

2. Terms must be contained or referred to in a document which is intended to

have contractual effect.

3. Reasonable steps must be taken to bring the terms to the attention of the
other party (Parker v South Eastern Railway (1877))

INCORPORATION BY A COURSE OF DEALING

Terms in a contract may be incorporated by a course of dealing.

McCutcheon v Davis MacBrayne (1964) HL.

The plaintiff’s agent had dealt with the defendants on a number of occasions.
Sometimes he had signed a risk note for the carriage of goods and sometimes not.

Held

The course of dealing must be both regular and consistent.

INCORPORATION OF ORAL TERMS

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Oral agreements should be read with the written terms where there is a written
document so as to form one comprehensive contract.

Couchman v Hill (1947)

The defendant’s heifer was put up for sale at an auction. The catalogue described it
as “unserved”, but added that the sale was “subject to the auctioneers” usual
conditions and that the auctioneers would not be responsible for any error in the
catalogue. The plaintiff asked both the auctioneer and the defendant to confirm that
the heifer was unserved to which they both agreed. He then bid and bought the
heifer which later was discovered to be carrying a calf at too young an age.

Held

The oral assurance could be laid down side by side with the “auctioneers” usual
conditions” so as to constitute a single binding contract. There was a breach of
contract.

ELEMENT 11.3 IMPLIED TERMS

Implied terms are assumed terms which could be unwritten and uncommunicated.

Contract terms may be implied from three sources:

 Statute

 Custom

 Common law – By courts

The courts will generally enforce implied terms in a contract by finding out the
intention of the parties.

ELEMENT 11.3.1 TERMS IMPLIED BY STATUTE

Statutory implied terms are not based on the intention of the parties but on the rules
of the law or public policy e.g. Sale of Goods act 1979.

Section 12 (1) - There is an implied condition in a contract of sale that the seller
has the right to sell the goods.

Section 12 (2) - There is an implied warranty that the goods are free from
charges or encumbrances in favour of third parties.

Section 13 (1) - There is an implied condition that goods sold by description shall
correspond with the description.

Section 14 (2) - Where the seller sells in course of business, there is an implied
condition that the goods supplied under the contract are of satisfactory quality.

69
These implied terms do not give effect to the intention of the parties but provide
protection for the expectations of consumers.

ELEMENT 11.3.2 TERMS IMPLIED BY CUSTOM

A contract may be deemed to incorporate any relevant custom of the market, trade
or locality in which the contract is made. A custom will be implied in the contract
where it can be shown that the custom was generally accepted by those doing
business in a particular trade and place. Evidence is admissible to prove a custom
and hence this is an exception to the Parole Evidence Rule.

Such a custom binds both parties, whether they knew of it or not.

Hutton v Warren (1836)

By local custom, the tenant was bound to farm according to a certain course of
husbandry and at quitting was entitled to a fair allowance of seed and labour on the
arable land.

Held

That, in commercial transactions, extrinsic evidence of custom and usage is

admissible to annex incidents to written contracts in matters to which they are silent.

However, a custom must not contradict the express terms of the contract as it does
not come to destroy but to fulfil the law. (Les Affreteurs Reunis SA v Walford (1919)).

ELEMENT 11.3.3 TERMS IMPLIED BY COMMON LAW

The courts can assume any uncommunicated terms in a contract using logic,
reasonableness and business efficacy as the parties may have intended.

The Moorcock (1889)

The contract involved the ship’s owner being allowed to dock at a particular harbour,
unload the cargo and pay for the facility. The owner of the harbour was aware of the
details of the ship as to size, weight, amount of cargo, etc and expected the ship to
dock without a problem. However, the depth of the sea in the harbour was not deep
enough and the ship was grounded and damaged. The ship owner sued for
damages.

Held

That, there was an implied term in the contract that the ship would dock and not be
damaged. This term was necessary in order to give the contract business efficacy.

The Defendants were liable for breach of implied term.

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UNIT 12 EXCLUSION CLAUSES
ELEMENT 12.1 INTRODUCTION

Suppliers of goods and services have sought to exclude or limit liability by inclusion
of far-reaching exclusion clauses in their standard form contract. The supplier’s
impose these on customers as there is no “equality of bargaining power” with the
weaker party. Such injustice has attracted the attention of parliament with the
enactment of the Consumer Protection Act 2010.

Exclusion clauses are contract terms aimed at excluding or limiting one party’s
liability for breach, misrepresentation or negligence. They are a common feature of
contract today and take a number of different forms.

e.g. -“No liability is accepted for any damage, however caused, to the
goods during the cause of transit”.

- “Goods transported at owner’s risk”.

Not only should the exclusion clause be introduced before or at the time of the
contract but the party subject to it must be made sufficiently aware of its existence.

Olley v Marlborough Court hotel (1949)

Mr and Mrs Olley booked into the Marlborough Court hotel. The contract was
formed at the reception before the guests went to the room. The couple went to the
room allocated to them and found a notice on the wall which read that:

“The proprietors will not hold themselves liable for articles lost or stolen unless
handed to the manageress for safe custody”.

Mrs Olley left the room for a while on to find her fur coats stolen and she claimed
damages.

Held

The exclusion clause was clear but it was only communicated after the contract had
been entered into. The Olley’s were unaware of the clause at the time of the
contract and hence had not been incorporated into the contract.

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ELEMENT 12.2 FUNCTIONS OF EXCLUSION CLAUSES

1. Help in the allocation of risks under the contract.

2. Help to reduce litigation costs by making clear the division of responsibility

between parties.

3. Helps reduce the cost of negotiations and of making contracts.

COMMON LAW CONTROL OF EXCLUSION CLAUSES

An exclusion clause will only be valid at common law if it satisfied the following
conditions

1. It must be a term of the contract (it must be in corporate in the contract)

2. It must cover the loss or damage that was caused.

3. It must be reasonable (there must be no other rule of law which would

invalidate it).

At common law, liability can be excluded and the exclusion clauses are binding on
the parties to a contract. However, every exclusion clause is to be communicated to
the other party pre-contract.

ELEMENT 12.3 INCORPORATION OF EXCLUSION CLAUSES

Similar as those which apply to the incorporation of ordinary contractual terms

ELEMENT 12.3.1 INCORPORATION BY SIGNATURE

Once the document containing contractual terms is signed, then those terms are
incorporated into the contract whether the party signing did not read it or understand
it.

L’Estrange v F Grancob Ltd (1934)

The claimant bought an automatic slot machine from the defendants. She signed an
order form which contained an exclusion clause which excluded liability for all
express and implied warranties. The claimant discovered that the machine did not
work and brought an action for breach of an implied warranty that the machine was
fit for the purpose for which it was sold.

Held

The defendants had excluded liability by virtue of the exclusion clause which was
incorporated into the contract by the claimant’s signature even though it had not
been read by the claimant.

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(NB: As long as there is an n absence of fraud, or misrepresentation) in which case
the contract can be `` invalidated in whole or in part”.

Curtis v Chemical Cleaning & Dyeing Co. Ltd (1951) (Misrepresentation)

The Claimant took a wedding dress to be cleaned. She signed a document

purporting to exempt the dry cleaners for liability for any damage “however caused”.
When asked, the shop girl said that the clause only referred to exclusion of liability to
damage to beads or sequins on the dress. The dress got damaged by staining.

Held

A party could not rely on an exclusion clause the effect of which he has
misrepresented to the other party. (The statement made by the assistant was a
misrepresentation).

ELEMENT 12.3.2 INCORPORATION BY NOTICE

The exclusion clause must be brought to the attention of the other party pre-contract,
i.e. before or at the time of the contract.

Olley v Marlborough Court hotel (1949)

Mr and Mrs Olley booked into the Marlborough Court hotel. The contract was
formed at the reception before the guests went to the room. The couple went to the
room allocated to them and found a notice on the wall which read that:

“The proprietors will not hold themselves liable for articles lost or stolen unless
handed to the manageress for safe custody”.

Mrs Olley left the room for a while on to find her fur coats stolen and she claimed
damages.

Held

The exclusion clause was clear but it was only communicated after the contract had
been entered into. The Olleys were unaware of the clause at the time of the contract
and hence had not been incorporated into the contract.

Not only should the exclusion clause be introduced before or at the time of the
contract, the party subject to it must be made sufficiently aware of its existence.

Parker v South Eastern Railway Company (1872) 2 CPD 416 (Reasonable

notice)

Mr Parker left luggage in the cloakroom at a railway station and was given a ticket in
return for payment of a fee. The ticket had a clause which provided that the railway
company would not be liable in respect of loss or damage of any luggage exceeding
£10 in value. Mr Parker’s luggage of more than £10 was stolen

73
Held

The defendant did not take reasonable steps to bring the notice to the attention of
the plaintiff, and it was not known whether the claimant actually read the notice.
Therefore the claimant was not bound by it.

ELEMENT 12.3.3 INCORPORATION ON A TICKET

Thornton v Shoe Lane Parking (1971)

There was a sign at the entrance to a car park which stated the parking fees and a
notice that parking was “At owner’s risk”. The driver was required to stop at the
barrier and take a ticket from the machine. The barrier would then lift. The ticket
contained a statement that;

“This ticket is issued subject to conditions of issue as displayed on the premises”.

The exclusion clauses were displayed inside the car park which excluded liability for
damage to property and personal injury.

The claimant was injured in the car park and sued.

Held

“The customer has no chance of negotiating. He pays his money and gets a ticket.
He cannot refuse it. He cannot get his money back. He may protest to the machine,
even swear at it …. He is committed beyond recall …. The contract was concluded
at that time.” Per Lord Denning

The operators of the car park had not taken sufficient steps to draw the exclusion
clause to the claimant’s attention before the contract was made.

INDEMNITY CLAUSE

An indemnity clause is another type of exclusion clause under which one contracting
party promises to indemnify (reimburse) the other party for any liability incurred by
him in the performance of the contract. It ma function as an indemnity clause or a
exclusion clause depending on the circumstances in which it is sought to apply
(Gillespie Bros & Co v Roy Bowles Transport Ltd (1973))

ELEMENT 12.4 THE CONTRA PROFERENTEM RULE

Provides that if the wording of an exclusion clause is unclear or ambiguous, then its
meaning will be interpreted against the party seeking to rely on the exclusion clause
(this serves to assist the buyer)

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In the event of any doubt in the wording of the clause, the benefit of that doubt will be
given to the claimant.

Houghton v Trafalgar Insurance Co Ltd (1953)

The claimant’s motor insurance policy provided that the defendant insurers would not
be liable if the vehicles carried an ‘excess load’. The claimant had an accident when
overloaded with 6 people in five seater car.

Held

That the term “excess load” could mean either “excess passengers” or “excess
weight”. The court interpreted it as meaning “load” of goods and not passengers.

However, there cannot be exclusion of liability for death or physical injury of a

party.

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UNIT 13 VITIATING FACTORS

ELEMENT 13.0

Vitiating factors are those factors which invalidate an otherwise valid contract.

1. Mistake
2. Misrepresentation
3. Illegality

ELEMENT 13.1 MISTAKE

The general rule of common law is that a mistake will not discharge or terminate a
contract. This is where the parties have actually reached agreement and a valid
contract is concluded after which an unforeseen event occurs destroying the basis
on which the contract was reached.

The courts will intervene in such situations and grant relief if it is no longer fair or just
to hold the parties to their agreement in such changed and unforeseen
circumstances.

Let us note that mistake relates to the formation of a contract. It is directly linked to
the events which exist “at the time of entry” or occur prior to the making of the
contract.

There are three categories of mistake:

1. Common mistake
2. Mutual mistake
3. Unilateral mistake

The Guiding principle is “caveat emptor” which means ‘let the buyer beware’. E.g. if
a person agrees to pay K20m for a Pajero when in reality is only worth K15m, the

76
contract is valid and he must stand the loss. Similarly, a mistake of law will not
invalidate a contract since everyone is presumed to know the law.

ELEMENT 13.1.1 COMMON MISTAKE

Res extincta: mistake as to existence
of the subject-matter of the contract

COMMON MISTAKE Res sua:- Mistake as to ownership of

subject matter of the contract
Mistake as to quality

A common mistake occurs were both parties have reached agreement, “meeting of
the minds”, but are mistaken as to the same thing.

RES EXTINCTA
Mistake as to the Existence of the subject-matter of the Contract.

Countourier V Hastie (1856) 5 HLC 673

The contract was for the sale of a cargo of Indian corn in transit. Both parties to the
contract believed the corn was on board a ship that was on high seas. During the
voyage, the corn had overheated and began to ferment but realizing this, the capital
of the ship sold the corn at the nearest port whilst it was still saleable. This was
customary practice of the time. The parties were unaware of this development. The
claimant claimed that the defendant accepted the risk and should pay for the corn.

Held

That, whilst the contract was there, the parties were mistaken into believing that the
corn was there. Hence the contract was void.

This is also reflected in the sale of Goods Act 56 which provides that:-

“Where there is a contract for the sale of specific goods and the goods without the
knowledge of the seller have perished at the time when the contract is made, the
contract is void”.

Scott v Coulson (1903)

77
The parties contracted on the basis of a mistaken assumption.
The claimant contracted to sell to the defendant a life insurance policy on the life of a
third party. However, at the time of the contract, the third part was already dead.

Held

The contract was void.

Where a party ‘warrants’ the existence of the subject matter, then the contract is
valid as the seller carriers the risk of its non-existence.

McRae v Commonwealth Disposals Commission (1951)

The Commission contracted to sell to McRae the wreck of an oil tanker which was
described as lying on Jourmand Reff off Papua. McRae incurred costs for the
preparation of the expedition of salvage operation. In fact, there was no tanker near
the location specified and the Reef did not exist.

Held

The contract contained an implied promise by the Commission that there was a
tanker at the stated location. McRae was awarded damages for breach of contract.

MISTAKE AS TO IDENTITY OF THE SUBJECT MATTER

A mistake as to the identity of the subject matter of the contract may be sufficiently
fundamental to avoid a contract if both parties thought that they were dealing with
one thing when in fact they were dealing with another.

MISTAKE AS TO THE POSSIBILITY OF PERFORMING THE CONTRACT

A contract is void were both parties believe that the contract is capable of being
performed when, in fact, it is not.

PHYSICAL IMPOSSIBILITY

Sheikh Brothers ltd v Ochsner (1957)

The Appellants granted to the respondents a license to cut sisal growing on their
land. The respondents agreed to deliver 50 tons of cut sisal to the Appellants.
Unknown to both parties, the land was incapable of producing that much per month
throughout the term of the license.

Held
The contract was void because the mistake of the parties related to a matter which
was essential to the agreement.

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LEGAL IMPOSSIBILITY (AGAINST THE LAW)

Where the contract provides for something to be done which cannot, as a matter of
law, be done.

COMMERCIAL IMPOSSIBILITY

Griffith v Brymer (1903)

The parties entered into a contract at 11.00 hours for hire of a room for the purpose
of viewing the coronation procession of Edward VII. The procession was cancelled
at 10.00 hrs unknown to both parties.

Held
The contract was void because the mistake of the parties went to the root or heart of
their agreement. The cancellation had undermined the commercial object of the
contract.

MISTAKE AS TO QUALITY

Will not avoid a contract but may be sufficiently fundamental to avoid a contract
although the courts are reluctant.

Leaf v Internal Galleries (1950) CA

Mr Leaf bought a painting of “Salisbury Cathedral” from International Galleries for

£85. The Gallery attributed the painting to a famous painter. Mr Leaf tried to sell the
painting 5 years later only to be told it was a fake.

Held

Both the buyer and seller had made a mistake about the quality and value of the
painting. This, however, did not invalidate the contract.

Bell v Lever Brothers (1932) AC

Lever brothers entered into an agreement with Bell (an employee) to leave the
company in exchange for £30000 compensation during the company reorganization.
He agreed and they paid. They later discovered that Bell had previously breached
his contract of employment which was ground for termination without compensation.

They took legal action to recover the £30000 from Bell due to poor quality work.

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Held

The contract was valid as the mistake was not fundamental to avoid a contract. The
company would not recover the money.

ELEMENT 13.1.2 MUTUAL MISTAKE

Where both contracting parties are mistaken but not to the same thing and both
parties do not realize that there is a misunderstanding as to:

 The terms of the contract or

 The subject matter of the contract

MUTUAL MISUNDERSTANDING AS TO THE TERMS OF CONTRACT

The courts will always try to make objective sense out of all contracts.

Raffles v Wichelhaus (1864)

The claimant entered into a contract to sell bales of cotton to the defendant. The
contract described the cotton as ‘arriving on the Peerless from Bombay”. There
were two ships named “Peerless” sailing from Bombay; one in October and other
departing in December. The defendant thought the contract was for cotton on the
October ship while the claimant thought the contract was the cotton on the
December ship.

When the December Peerless arrived, the claimant tried to deliver the cotton. The
defendant repudiated the contract/agreement saying that their contract was for the
October Peerless.

The claimant sued for breach of contract.

Held

That the mutual mistake was operative, that there was no binding contract between
the parties and the contract was void.

MUTUAL MISUNDERSTANDING AS TO SUBJECT-MATTER OF THE

CONTRACT

Scriven Bros v Hindley (1913)

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The Dependants bid at an auction for two lots believing both to be hemp. In fact Lot
A was hemp but lot B was tow which is of very little commercial value. The auction
catalogue was misleading as it implied the lots were the same and they were both
marked, SL. The purchasers had been shown samples of hemp from the ‘SL goods”.
The auctioneer did not realize that the defendants had misunderstood what was
being auctioned.

The defendant’s declined to pay for lot B and the sellers sued.

Held

That no contract for the sale of the tow had been concluded because the auctioneer
intended to sell tow and the defendants intended to purchase hemp.

ELEMENT 13.1.3 UNILATERAL MISTAKE

Where one party is mistaken as to the contract and the other party is aware of the
mistake. This is normally a result of a mistake as to one of the following:

1. Identity of one of the contracting parties

2. Terms of the contract
3. Nature of a signed document (non est factum)

MISTAKE AS TO THE IDENTITY OF ONE OF THE PARTIES

The contract may be invalidated if one party makes a mistake about the identity of
the person he is contracting with and were such identity is material or fundamental to
the contract.

Cundy v Lindsay (1978)

Lindsay and company, Belfast linen manufacturers, received an order for a large
quantity of handkerchiefs from a rogue called Blenkarn. The rogue had signed his
name to make it look like Blenkiron and Company a respectable business firm and
known by reputation to the claimants. The claimants dispatched the goods on credit
to Blenkarn who resold 250 dozen to Cundy, the defendants. Blenkarn did not pay
and was convicted for obtaining goods by false pretences. Lindsay and Company
sought to recover the goods from the defendants.

Held
That the contract was void for mistake as the claimant did not intend to deal with
Blenkarn but with Blenkiron & Company, a firm which they knew. They had made a
mistake as to identity and Cundy was liable in conversion.

FACE TO FACE CONTRACTS

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Where a contract is made face to face, it is considered to be formed with the actual
person irrespective of the identity assumed by that party.

Lewis v Avery [1972] 1 QB 198

Lewis sold his car to a rogue, calling himself Richard Greene, the star of a popular
television series ‘Robin Hood”. He paid by cheque but the claimant tried to detain
the car until the cheque cleared. The rogue produced a pass to pinewood studies as
proof of his identity. The claimant let the rogue take the car. The cheque was
dishonoured as it had been taken from a stolen cheque book. The rogue sold the
car to the defendant, Avery, from whom the claimant sought recovery after
discovering his mistake.

Held
That Lewis intended to deal with the man actually in front of him, and hence the
contract between him and the rogue was not void for mistake but voidable for a
fraudulent misrepresentation. Lewis had not avoided the contract by the time the
rogue sold the car to Avery, who acquired good rights for ownership.

Avery was not liable in conversion.

MISTAKE AS TO THE TERMS OF THE CONTRACT

Where there is a mistaken statement of intent by one party and the other party
knows of it, then the mistake is operative and the contract is void.

For instance, the offeree knows that the offeror is suffering from a mistake as to the
terms of the offer.

Hartog v Colin & Shields (1939)

The Defendants entered into a contract to sell 3000 Argentinean hare skins to the
claimants. When final offer was put in writing they mistakenly wrote 3000 skins
@10d per pound instead of 10d per piece. This amounted to about one-third of the
price previously discussed.

The defendants discovered their mistake and refused to deliver the skins. The
claimants brought an action to hold the defendants to the written offer.

Held

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That, the claimants were not entitled to succeed as they must have realized the
defendants’ error which differed from the negotiated price. The term was in the
contract and as such the contract was void.

See also

 Sybron Corporation v Rochem (1984)

 Wood v Scarth (1858)
MISTAKEN SIGNING OF A WRITTEN DOCUMENT

The general rule is that a person who signs a document is assumed to have read,
understood and agreed to its contents.

EXCEPTION

A person may plead non est factum which means “It is not my deed”.

Three things must be present if the contract is to be avoided by this plea:

i) The signature must have been induced by fraud

ii) The document signed must have been fundamentally different from
that thought to be signed.
iii) The signer must not have acted negligently.

Saunders v Anglia Building Society (1971) AC

Mrs Gallie, a 78 year old widow, made a will in which she left her house to her
nephew. The nephew wished to raise money immediately on the security of the
home. Mrs Gallie was visited by her nephew, Walter Parkin and a Mr Lee. Lee
asked her to sign a document which she signed without reading as she had broken
her spectacles. This document was actually an assignment of her interest in the
house to Mr Lee.

Lee then used this document to borrow money from Anglian Building Society but did
not make payment to the nephew, the widow or the building society. The building
Society sought to recover possession of the property of the widow, who invoked the
defence of ‘non est factum’.

Held

Although her signature had been induced by fraud, the document she signed was
not fundamentally different from that which she thought she had signed. Moreover,
persons wishing to plead non est factum must show that they exercised reasonable

83
care in signing. Mrs Gallie has not taken the trouble to read the document and
hence her defence must fail.

[N.B. The law almost always tries to protect an innocent third party].

ELEMENT 16.1.4 MISTAKE IN EQUITY

At common law, mistake only rarely invalidates a contract. However, the courts at
times apply the equitable principles to achieve a measure of justice.

Equity may be used by the courts in three possible ways:

 Rescission
 Rectification
 Refusal to make order of specific performance.

RESCISSION

Rescission releases the parties from their obligations to perform in the future even
where the contract is said to be valid. It is available where it is unconscionable to
allow one party to take advantage of the mistake.

Solle v Butcher (1950)

The plaintiff a surveyor, and the defendant were partners as estate agents. In 1931
a dwelling house had been converted into 5 flats. In 1938, flat no 1 was let for 3
years at an annual rent of £140. In 1947 the defendant took a long lease of the
building, intending to repair bomb damage and do substantial alternations. The
plaintiff and defendant discussed the rents to be charged after the work had been
done. The plaintiff told the defendant that he could charge £250 for flat 1. The
plaintiff paid rent at £250 per year for some time and then took legal action for a
declaration that the standard rent was £140 and to recover overpayments.

Held
The repairs had not changed the identity of flat 1 and hence under the rent Act, the
raising of the rent from £140 to £250 was invalid.

The mistake which each had made was that the work done had made such a
substantial alternation to the building as to make it a different flat – (A common
mistake of fact).

RECTIFICATION

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The court may rectify documents to conform to the real agreement between parties if
there is evidence that the contract does not reflect the prior agreement reached by
the parties.

Joscelyne v Nissan (1970)

A father and daughter agreed and intended that the father should live in the ground
floor of the daughter’s house. She was to pay gas, electricity and coal bills and the
cost of a maid to tend to her ailing mother.

The signed agreement between father and daughter provided that the father should
have the ground floor ‘free of all rent and outgoings of every kind in any event’. On
ordinary construction, the daughter would not have been required to pay the gas bills
etc.

Held

That the contract should the rectified to provide expressly that the daughter pay the
gas bills, etc

Russell L J said

“We wish to stress that this is a case of rectification based on antecedent expressed
accord on a point adhered to in intention by the parties to the subsequent written
contract…….”

REFUSAL TO MAKE ORDER OF SPECIFIC PERFORMANCE

Equitable remedies are at the discretion of the court and therefore, specific
performance may be refused in the case of a mistake made by one party if:

 It would the inequitable to compel that party to perform their contractual

obligations.
 The other party knew and took advantage of that mistake.

Webster v Cecil (1861)

The defendant, having refused to sell some property to the plaintiff for £2000, wrote
a letter in which, as a result of mistaken calculation, he offered to sell for £1250. The
plaintiff accepted.

Held

85
That the court could not decree specific performance but ‘might bring such action at
law ….’

See also above: Hartog v Collin & Shields (1939)

ELEMENT 13.2 ILLEGALITY

Illegality is a vitiating factor which concerns itself with the character of the contract.

This could be by way of:

 public policy
 At common law
 By statute

ELEMENT 13.2.1 CONTRACT ILLEGAL AT COMMON LAW

i) CONTRACTS TO COMMIT A CRIME OR CIVIL WRONGS

e.g.: contract to defraud or a contract to assassinate someone

Anthon Greenberg (1981/HK/515)[1982] ZMHC 6; (1982) Z.R. 30(H.C.)(4 June

1982)

The plaintiff had entered into an illegal contract with the defendant for the conversion
of K24,000 into £8,000 sterling in contravention of the Exchange Control Act. The
plaintiff paid the kwacha to the defendant but did not receive the foreign exchange as
agreed. He was investigated by SITET and fined. He then sued the defendant for the
return of the consideration and despite the illegality of the transaction he was
granted judgment by default of appearance. And his application to the District
Registrar for a Garnishee Order Nisi was unsuccessful.

Held:
That an agreement to commit a crime or perpetrate a tort is illegal and will not be
enforced by the courts.

ii) CONTRACT INVOLVING SEXUAL IMMORALITY

Pearse v Brooks (1866)

iii) Contract tending to promote corruption in public life

iv) Contracts of trading with an enemy in wartime

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CONTRACTS VOID AT COMMON LAW

 Contracts to oust the jurisdiction of the courts

 Contracts prejudicial to the status of marriage

 Contracts in restraint of trade

ELEMENT 14.0 MISREPRESENTATION

ELEMENT 14.1 INTRODUCTION

A duty is imposed on the parties not to make false statement of fat to the other party
and thereby induce him to enter into the contract.

A misrepresentation may be defined as an unambiguous false statement of fact

made prior to the contract which is addressed by one part to another, so as to
mislead that party and be induced to enter into a contract.

It can be broken down as:

 False statement of fact (or law)

 Addressed to mislead a party
 Induce a contract

Misrepresentations are normally

 Gestures
 Smiles and Nods
 Conduct

[NB: Keeping quiet about something does not normally amount to a

misrepresentation.]

However, certain statements might not be treated as being statement of material fact.

 Statements of opinion or belief

 Mere sales talk (mere puffs)

87
  Statements of future intention or conduct
 Statements of law.

Spice Girls Ltd v Aprilia World Service Bv (2000) - case on silence

Spice Girls Ltd was a company formed to promote the spice Girls pop group. In May
1988, SGL entered into a contract with AWS, an Italian company which
manufactures motorcycles and scooters to film a TV commercial to be shown until
March 1999.
When the contract was signed, the spice Girls consisted of five members. However,
a month earlier, Geri Halliwell had announced to other group members that she
intended to leave the group at the end of September 1988. They decided to keep
this information secret and AWS was not informed when the contracted was signed.
AWS refused to pay and SGL sued.
Held
That by participating in the ‘shoot’ of the TV commercial SGL represented by
conduct that it did not know or had no reasonable grounds to believe that any
members of the group intended to leave. This amounted to a misrepresentation.

ELEMENT 14.2 UNAMBIGUOUS FALSE STATEMENT OF FACT

A failure to disclose information will not generally constitute a representation

although the courts have been flexible to identify a ‘statement’ from conduct.

See Spice Girls Ltd v Aprilia World Services Bv (2000). Where silence was taken
to amount to a misrepresentation.

Statements which might not be taken as statements of material fact.

 Mere Sales talk (Mere puffs)

A commendory statement that is so vague as to be neither a promise which is

incorporated in a contract nor a statement of fact.
Courts treat such utterances as idle boasts of no contractual significance.

Dimmock v Hallett (1866)

During negotiations for the sale of land, the land was described as ‘fertile and
improvable’.

Held
A representation that the land was “fertile and improvable” would not be considered
as a misrepresentation to entitle a party to rescind the contract. The statement has
insufficient substance to be classed a representation.

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NB: There are no limits to this principle in extreme cases. See Carlille v Carbolic
Smoke Ball Co Ltd.

ELEMENT 14.3 STATEMENT OF OPINION OR BELIEF

A statement of opinion or belief but which proves to be unfounded is not a false

statement of fact and hence not a misrepresentation.

Bisset v Wilkinson (1927)

The claimant purchased two pieces of land from the defendant for purpose of sheep
farming. The land had not been used for sheep farming before. During negotiations,
the defendant represented to the claimant that, in his judgment, the land could carry
or would be suitable for 2000 sheep. The claimant bought the land on this belief. In
fact, the land could not hold 2000 sheep.

Held
The vendor’s statement was not a false statement of the fact but a statement of
opinion which he honestly held. In the absence of fraud, the claimant had no basis
on which to rescind the contract.
However, where a party making the statement has some special knowledge or skill
which gives weight to their opinion, then their opinion may be treated as being an
implied representation of fact and therefore a misrepresentation.

This is also true where the person making the statement of opinion does not hold
that opinion or that he was in a position to know the facts on which his opinion was
based.

Esso Petroleum Ltd v Mardon (1976)

Esso represented to the defendant, a prospective tenant of a petrol filling station
which was in the process of construction, that the sales of petrol at the station were
likely to reach 200,000 gallons per year. However, the local authority refused
planning permission for the petrol pumps to form on to the main street. Instead, the
station had to be built back to front and the only access to the petrol pumps was from
a side street. Esso assured the defendant that this change would not affect the
projected figure.
In fact, the change resulted in only reaching 78,000 gallons per year and the
defendant incurred considerable losses and reached a point where he could no
longer pay Esso. Esso sought to repossess the filling station and recover money
owed. The defendant counterclaimed for damages for breach of contract and for
negligent misrepresentation. Esso argued the statement was just an opinion.

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Held
Esso had special knowledge and skill in forecasting of sales turnover and were held
to have made the forecast with “reasonable care and skill”. Hence they had not
exercised reasonable care and skill and were therefore liable.

Smith v Land & House Property Corporation (1884)

During negotiations for the sale of a hotel the vendors stated that it was “let to a Mr
Frederick Fleck (a most desirable tenant)”. In fact, Mr Fleck was in rental arrears.
The defendants agreed to buy the hotel. Fleck went into bankruptcy and the
defendants refused to complete the transaction.
Held
That the description of Mr Fleck was not a mere expression of opinion as the
vendors were in a position to know the facts about the tenant

Simon Brown LJ said “if the fact are not equally known to both sides, then a
statement of opinion by one who knows the facts best involves very often a
statement of a material fact for the impliedly states that he knows facts which justify
his opinion”.

ELEMENT 14.3.1 STATEMENT OF FUTURE INTENT (ADDRESSED TO

MISLEAD A PARTY)

A statement which expresses a future intention is speculation rather than fact and
hence cannot be misrepresentation. However, a person misrepresenting what he
intends to do in the future may be liable for misrepresentation.

Edgington v Fitzmaurice (1885)

The company directors invited members of the public to lend money to the company.
The directors stated that the money would be used to improve the company’s
building and to grow the business. The directors’ real intention was to pay off the
company’s debt.
The claimant was a shareholder who had taken dentures. He claimed his money
back on the ground that it had been obtained from him by misrepresentation.

Held
That, the untrue statement as to future intention was a misrepresentation of fact.

ELEMENT 14.4 NON-DISCLOSURE OF INFORMATION AND SILENCE

The general rule is that silence cannot amount to a misrepresentation as there is no

duty for a party who is about to enter into a contract to disclose material facts known
to that party and not to the other.

90
Keates v Cadogan (1851)
A landlord who was letting his house did not tell the tenant that it was in a ruinous
condition

Held
The failure to disclose material information was held not to be a misrepresentation.
However, the courts may decide that particular circumstances warrant that there is a
positive duty to disclose.

Ref: Spice Gils ltd

EXCEPTIONS

 Contract of utmost good faith (uberrimae fidei)

 Where there has been a change in circumstances
 Half-truths
 Where there is a fiduciary relationship

CONTRACTS OF UTMOST GOOD FAITH (UBERRIMAE FIDEI)

There is a duty to disclose all material facts were normally one party is in a dominant
position to know the truth.

 Contract of insurance – voidable of non-disclosure of material facts.

 Contracts involving family arrangement – between partners, property sharing
on divorce or death.
 Contracts for the sale of land
 Contract for the sale of shares.

WHERE THERE IS A CHANGE IN CIRCUMSTANCES

This is to do with change in circumstance between the time of negotiations and the
conclusion of the contract.

With v O’Flanagan (1936) CU 575

The Defendant was a doctor who wished to sell his medical practice. During the
course of negotiations, the vendor made representations to the purchaser and stated
correctly that the practice was worth £2000. The defendant fell ill and the practice
was run by other doctors and the value of the practice plummeted to only £250 by
the time the contract was signed.
Held
The defendant’s failure to disclose to the claimant the change of circumstances was
a misrepresentation.

91
WHERE THERE IS A FIDUCIARY RELATIONSHIP

 Agent – Principal
 Solicitors – Client
 Partners in a partnership
 Doctor – patient

ELEMENT 14.5 INDUCE A CONTRACT

A false statement of fact must have induced a party to enter into a contract. This
means that the claimant or one party, must have relied on or been induced to enter
into the contract, by false statement of fact.

Attwood v Small (1838)

The seller of a mine made exaggerated claims about its earning potential. The buyer
appointed experts to investigate the mine. The agent reported back that the seller’s
claim where true and the sale went ahead.

Held
That the action taken by the buyer to rescind the contract failed as he had not relied
on the statement by the seller but rather on his expert agents hence there was no
misrepresentation.

Horsefall v Thomas (1862)

The buyer of a gun did not examine it prior to purchase. It was later found to have a
concealed defect. The Buyer wanted the contract rescinded.

Held
The concealment of a defect was not a misrepresentation as it did not affect the
claimant’s discussion to buy the gun hence was not induced into the contract. His
claim failed.

ELEMENT 14.6 KINDS OF MISREPRESENTATION

Less serious more serious

SLIDING SCALE OF MISREPRESENTATION

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 Innocent Negligent Fraudulent
Misrepresentation Misrepresentation Misrepresentation

In each case, the contract is voidable.

i) FRAUDULENT MISREPRESENTATION

A fraudulent misrepresentation constitutes a tort of deceit.

This is where a person makes a statement which he knows to be false or has no
belief in its truth, or he is reckless or careless as to whether it is true or false. The
injured party may rescind the contract and also claim for damages for the tort of
deceit.

Derry v Peek (1889)

The defendants were directors of a company which ran tramways by animal power
or steam power. The Company issued a prospectus that steam power would be
used and the claimant obtained shares in the company. The Board of Trade refused
to grant permission. The claimant sued for the tort of deceit.

Held
That, there was no evidence that the defendants believed the statement in the
prospectus to be untrue and hence had not committed the tort of deceit.

There are however, very few cases of fraudulent misrepresentation due to the
difficult of proving fraud.

ii) NEGLIGENT MISRESPRESENTATION

Is only actionable where there is a pre-existing contractual relationship between the

parties or where the parties were in a “fiduciary relationship”. Negligent
misrepresentation is where the person making the false statement has no
reasonable grounds for believing the statement to be true.

Hedley Byrne v Heller (1964)

The claimants were an advertising agency who booked substantial advertising space
on behalf of their clients, Easipower Ltd, on terms that they were personally liable if
Easipower defaulted. The claimants, through their bank, sought from the defendants,
Easipower ltd bankers a reference on the financial soundness of Easipower.

93
The defendant bankers wrote that Easipower were ‘considered good for its ordinary
business transactions’. On this reliance, the claimant placed advertising orders
which resulted in a loss of £17 000 due to Easipower defaulting on its obligations.
The claimants claimed that the defendants were liable for being negligent in the
preparation of the reference and hence should pay damages.

Held
The House of Lords held that negligent statements could attract liability and this
liability would extend to pure economic (financial) loss. This liability arises if:

1. The defendant carelessly makes a false statement.

2. The circumstances are such that it is reasonable to assume that the
statement will be relied upon.
3. There is a special relationship between parties

This is what has been termed as the “Hedley Byrne Principle”.

PROFESSIONAL ADVICE

The special relationship between the parties gives rise to a duty of care were:

 The party making the statement has special knowledge or skill in relation to
the subject matter of the contract.

Harris v Wyre Forest District Council (1989)

Mr and Mrs Harris applied to the local authority for a mortgage. The council
instructed its surveyor to value the house and offered to advance 90% of the house
price. Harris relied on the valuation report and bought the house. The valuation
report was negligently written. The local authority contended that they were not
liable as the contract contained an exclusion clause.

Held
That, the exclusion clause was unreasonable and thus invalid. That the local
authority knew that the survey was carried out for the purpose of Mr & Mrs Harris
buying the house on the reliance of the valuation report. As a result, the surveyor
owed to the purchaser a duty of care in tort.

Smith v Eric S Bush (1990)

Mrs Smith received a copy of the survey report prepared by Mr Bush’s firm of
surveyors for her building society prior to obtaining a mortgage. She relied on the
survey and had no other survey done. The chimney was in a dangerous state and
collapsed causing significant financial loss to Mrs Smith. The contract between the
building society and the surveyors contained an exclusion clause limiting the
surveyors’ liability.

94
Held
Factors to be taken into account

1. The bargaining power of the parties

2. The practicality of consulting other surveyors for advice
3. The practical consequences of the decisions on the questions of
reasonableness (i.e. the amount of loss and availability of insurance).

The House of Lords held that the loss ought to be borne by the surveyors as they
were likely to insured.

Also refer to:

 Esso Petroleum and Co ltd v Marden (1976) QB 801 (discussed above)

 Industrial Finance Co ltd v Jacques and partners (1977/HP/752)
(1980)ZMHC7, (1981) ZK 75 (HC) (28 Feb 1980).

STATUTE

Misrepresentation Act 1968 of the Law of Zambia

Provides a statutory basis for a claim in respect of non-fraudulent misrepresentation.
Misrepresentation Act 1968 section (2) provides that:-
“where a person has entered into a contract after a misrepresentation has been
made to him, and
(a) the misrepresentation has become a term of the contract or
(b) the contract has been performed; or both

Then, if otherwise he would be entitled to rescind the contract without alleging fraud
he shall be so entitled subject to the provisions of this Act, notwithstanding the
matters mentioned in paragraphs (a) and (b).

iii) INNOCENT MISFREPRESENTATION

An innocent misrepresentation is a false statement which is neither fraudulent nor

negligent but made in the belief that it is true.
The basic remedy is rescission of the contract and sometimes the courts may award
damages.

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UNIT 15 DISCHARGE OF CONTRACTUAL
OBLIGATIONS

ELEMENT 15.1 FRUSTRATION

“A contract may be discharged if after its formation, events occur making its
performance impossible or illegal………..” Treitel, G.H. (2003) The Law of Contract,
London, Sweet & Maxwell, p866

A contract may be frustrated in the following circumstances:

1. If it becomes illegal to perform.

2. If it becomes impossible to perform.

3. If it becomes radically different from what the parties contemplated.

The doctrine of frustration was developed by the courts so as to be fairer to parties

whose failure to perform was beyond their control. Once an intervening event occurs
and frustrates a contract, it is at that moment that the contract ends.

The doctrine of frustration has two main theories:

1. That there is a new term implied in the contract.

2. That the obligation under the contract has changed.

The contract will be terminated and the parties discharged of their contractual
obligations where events occur beyond their control.

Davis Contractors Ltd v Fareham UDC (1958)

Lord Radcliffe said,

“…..there must be a change in the significance of the obligation that the thing
undertaken would, if performed, be a different thing than that contracted for.”

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ELEMENT 15.1.1 IMPOSSIBILITY OF PERFORMANCE

This is where something or someone necessary to perform the contract ceases to be

available.

Taylor v Caldwell (1863)

The claimant hired a musical hall for a series of performances. After making the
agreement and before the first concert, the hall was destroyed by a fire.

Held

That the contract was discharged by this intervening event (fire) and hence the
parties were released from their obligations.

Frustration can also be pleaded in the event of:

i) Incarceration or illness of a party

Robinson v Davidson (1871)

a contract by a pianist to perform on a specific day was held to be frustrated

when the pianist became too ill to perform

ii) The non-availability of the subject matter

Jackson v Union Marine Insurance Co. Ltd (1874)

ELEMENT 15.1.2 ILLEGALITY OF CONTRACT

A contract will be frustrated if a change in the law makes it illegal to perform.

Denny, Mott & Dickson Ltd v James B. Fraser & Co Ltd (1944)

Concerned the commercial sale of timber which was needed for the war effort.

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32

A contract to supply goods to Poland became illegal when Germany occupied it as

they were at war with the United Kingdom.

ELEMENT 15.1.3 CHANGE IN CIRCUMSTANCES

Contracts may be frustrated if there is an event which radically destroys the

commercial purpose of the contract.

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Krell v. Henry [1903] 2 KB 340 (CA)

Henry hired a room overlooking the route of the coronation of Edward VII, which was
the sole purpose of the hire but the contract made no mention of this.

The king fell ill and the procession was cancelled, and the defendant refused to pay.

Held

That the contract had become frustrated as the holding of the procession was the
foundation of the contract.

However, the fact that the contract has become more difficult and expensinve to
carry out will not excuse a party.

It should be noted that the doctrine of frustration is one of last resort and will not
apply in the following circumstances:

i. Where the parties have foreseen the likelihood of a frustrating event occurring
and have made express provision for it in the contract.

ii. Self-induced frustration: Where one of the parties is responsible for the
frustrating event.

ELEMENT 15.1.4 LIMITS OF FRUSTRATION

A contract will not be frustrated in the following situations:

i. It merely becomes more difficult to perform.

ii. A force majeure clause is effective.

iii. The frustrating event was foreseen.

iv. The frustrating event was self-induced.

However, parties to a contract are still bound by their obligations that arose before
the frustrating event even though this at times could lead to unfairness.

The Fibrosa Case (1943) HL

A contract for the manufacture and delivery of machinery to a Polish company was
frustrated by the Germany invasion of Poland during the second world war. The
Polish company had made an advance payment of £1000.

Held (HL)

That a party could recover payments made before the frustrating event.

Lord Macmillan said,

98
“Owing to circumstances arising out of present hostilities the contract has become
impossible of fulfilment according to its terms. Neither party is to blame…….. The
money paid must be paid back.”

There was further law reform to mitigate the harshness of the common law by way of
the Law Reform (Frustrated Contracts) Act 1943 which made two major changes:

1. Money payable before the occurance of a frustrating event ceases to be

payable whilst money paid before frustration is recoverable.

2. A party who has carried out part-performance can recover compensation for
any benefit conferred on the other party.

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UNIT 16 RESTRAINT OF TRADE
ELEMENT 16.0 INTRODUCTION

Contracts in restraint of trade whilst not illegal, are void at common law on grounds
of public policy, if it operates unfairly by restricting the freedom to contract. It
attempts to prevent a person from working or from carrying on a business within a
particular period of time and place.

A Contract in restraint of trade may be defined as that which has a restrictive

covenant in which one party restricts his future freedom to carry on his trade,
profession or similar business in a manner and with such persons as he chooses.

Restraint of trade clauses restrict a party’s freedom to trade on engage in a specific

business by preventing them from engaging in contracts in their trade or profession
within a particular period of time or place.

A contract in restraint of trade was defined by Lord Denning in the case of Esso
Petroleum v Harpers Garage (Stourport) Ltd (1968) as;

“one which a party (the covenantor) agrees with any other party (the covenantee) to
restrict his liberty in the future to carry on trade with other persons not parties to the
contract in such manner as he chooses.”

There are two types of contracts in restraint of trade:

1 Sale of A Business

This is where the vendor and the purchaser include a restraint of trade clause
in the agreement that the vendor of the good will of a business will not
immediately carry on a similar business in competition with the purchaser next
door or entice back the old customers.

2 Contracts of Employment

This is where an employee agrees that on terminating his employment with

the employer, he will not set up his own competing business or join a rival
100
 company. For instance, it would be unfair if a former employee exploited the
knowledge and skill they had acquired in a company of customer information
and trade secrets to his own benefit.

The courts will consider whether or not the restrictive covenant is reasonably
necessary to protect the legitimate interests of the employer in preserving goodwill
and confidential information such as the protection of trade secrets, trade
connections or confidential information.

Clark v Newland (1991)

Contracts in restraint of trade are construed with reference to object or intention of

the parties and the factual context of the contract. This may allow restraint of trade
clauses turning on the facts leading up to the contract.

There are two types of contracts in restraint of trade:

1. Where an employee agrees that he will not compete against the employer
once he leaves employment, either in his own right or by joining a rival
company.

2. Where a vendor of the goodwill of a business agrees not to carry on a similar

business in competition with the purchaser.

ELEMENT 16.1 RESTRAINT IN TRADE – CONTRACT OF EMPLOYMENT

The courts will deem an unreasonable clause as being against public policy when it
tends to operate unfairly by restricting freedom to contract and the public not getting
the benefit of a person’s skill.

Contracts in restraint of trade “are the restrictions which the covenant imposes upon
the servant after he has left the service of the master greater than are reasonably
necessary for the protection of the business?” Mason v Provident Clothing and
Supply Co (1913).

A restraint of trade clause in a contract of employment is only reasonable if it

protects the employer’s interest and is not excessive, such as:

- Protection of Trade Secrets

- Protection of Customer Connections

However, the prevention of an employee from making use of knowledge and skills
acquired in the course of employment is not protectable as it would be against the
interests of the Public who will not benefit from such knowledge and skill.

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Herberb Morris Ltd v Saxel (1916)

An engineer was employed by a lending UK manufacturer of hoisting machinery. In

his contract of employment was a restraint of trade clause agreed by both parties.
The engineer had access to confidential information, such as drawings, charts and
company systems. The restraint of trade clause was of 7 years.

Held: The seven year restraint was void as all the engineer could take away with him
was a very general knowledge of the company’s methods and systems which were
not trade secrets.

Fitch v Dewes (1921)

A firm of solicitors was in a small town of Tamworth. The employee was a managing
clerk in the firm and his contract of employment provided for a Restraint of Trade
clause that he could not practice within 7 mile radius for life. The clause was to
guard against the invasion of trade connections or customers from being enticed
away.

Held

The clause was valid.

However, it would be unfair for instance for a former employee to exploit the
knowledge they have acquired in a company of customer information and trade
secrets to his own benefit.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894)

Nordenfelt was a manufacturer of quick-firing guns and other war implements. He

sold his business to a company for £287500 and entered into a contract restraining
his future activities for 25 years. Two years later, the company merged with another
and then employed Nordenfelt as Managing Director at a £2000 salary per annum.
The business of the company extended to all parts of the world. The deed of
employment continued with the term regarding the contract in restraint of trade made
two years earlier which read:

“…not during the term of 25 years………if the company so long continued to carry on
business, engage except on behalf of the company either directly or indirectly…….”

Held:

The restraint was valid as it was reasonable in the interest of the parties and the
public. Nordenfelt had sold the business for a large sum of money and hence it was
reasonable to restrain him from engaging in the same trade.

TEST FOR REASONABLENESS:

102
1. LEGITIMATE INTEREST OR GOODWILL
2. HOW LONG?
3. HOW FAR?

The initial presumption is that contracts in restraint of trade are void and this
presumption may only be rebutted by showing special justifying circumstances.
However, the restraint will only be justified if it can be said to be reasonable both in
the interests of the parties and the public interest.

It should also be noted that only the area necessary to protect the legitimate interest
will be deemed reasonable.

Herbert Morris Ltd. v Saxenby (1916)

The defendant had an employment contract stipulating that he “would not during a
seven year period from ceasing to be employed either in the UK or Ireland or Great
Britain carry on as either principal, agent, servant or otherwise, alone, jointly or in
connection with any other person directly or indirectly for reward or not sell or
manufacture pulley blocks, hand overhead runways, electric overhead runways or
hand overhead travelling cranes.”

Held

The restraint of trade clause must protect a legitimate interest of the party relying on
it.

However, trade secrets and confidential information constitutes a propriety interest

creating a legitimate protectable interest.

Forster and Sons v Sugget (1918)

The works manager of the plaintiffs, who were mainly engaged in making glass and
glass bottles, was instructed in certain confidential methods concerning the correct
mixture of gas and air in the furnaces.

He agreed that during 5 years after leaving employment he would not carry on in the
UK, or be interested in glass bottle manufacture or any other business connected
with glass making as conducted by the plaintiffs.

Held

That the plaintiffs were entitled to protection and that the restraint was reasonable
and enforceable as the secret processes were a legitimate object of protection.

Duarte v Black & Decker Corp (2007)

103
The claimant sought a declaration that restrictive covenants contained in an
agreement with his former employer which restricted him from working for a specified
list of competitors for two years were void and unenforceable. D had been employed
by B at a senior level. D later resigned from his employment with B to take up a
position with B's competitor (R) who where also on a list of specified competitors.

Held

The significant reason for the covenant was the protection of the defendant’s
confidential information which was at risk of ending up in the hands of competitors
with departing employees. However, preventing a former employee from working for
a specified list of competitors for two years was unenforceable as it went further than
was reasonably necessary to protect the former employer. The plaintiff’s claim
succeeded and was entitled to a declaration that the covenants were unenforceable
against him.

ELEMENT 16.2 RESTRAINT OF TRADE- BUSINESS CONTRACTS

Retaining a competitive position in the market or, maintaining retail outlets, or

maintaining dominance in the market may be regarded as the protection of legitimate
propriety interests.

SOLUS AGREEMENTS

Is an agreement where a trader agrees with the supplier that their orders will only be
restricted to that one supplier. Eg: The petrol industry, BP, Total, etc

Esso Petroleum Ltd v Harper’s Garage (Stourport) Ltd (1967)

The case concerned two solus agreements in relation to two garages run by the
defendant. There was an agreement to take all supplies of petrol from ESSO, and to
keep the garage open at all reasonable hours. Garage A’s agreement was for 4
years and 5 months. Garage B’s agreement was for 21 years and was liked to a
mortgage over the premises held by ESSO which was irredeemable for 21 years.
The defendants started to sell at price petrol of other brands. ESSO sought an
injunction to prevent them doing this.

The defence based their argument on “restraint of trade.”

Held

That contracts of this type could be regarded as being in restraint of trade. The
question was whether the restraint was reasonable as between parties and
104
reasonable in the public interest. Five year restraint on Garage ‘A’ was reasonable
but 21 years was unreasonable.

LORD REID said that “it can never be in the interest of the party restrained unless
they acquire a benefit out of the restraint……..despite the benefit, the restraint must
still not go further than affording adequate protection to the legitimate interest of the
parties….”

UNIT 17 PRIVITY OF CONTRACT

ELEMENT 17.1 INTRODUCTION

The legal principal is that only a party to a contract can sue and be sued upon it.
Third parties do not acquire or obligations but acquire such rights in exceptional
situations to mitigate the harsh outcomes of the strict rule.

Tweedle v Atkinson (1861)

Fathers agreed to make payments for the marriage.

Held

The Son could not enforce the contract as a third party. Therefore, if A enters into a
contract with B for the benefit of C, privity prevents C from suing B on the contract.

Dunlop v Selfridge (1915)

Dunlop sold tyres to Dew & Co. who were wholesalers. It was expressly stated in the
contract that the manufacturers could fix the lowest price at which Dew & Co. could
sell the tyres and promised not to sell at below that price. Dew & Co. also agreed to
obtain similar pricing terms from its customers and they sold tyres to Selfridge on
these terms.

Selfridge broke the pricing agreement by selling the tyres at a discounted price in
breach of contract. Dunlop sought an injunction to prevent Selfridge from selling
tyres at their own discounted price.

Held

Although there was a contract between Dunlop and Dew & Co, there was no contract
between Dunlop and Selfridge and therefore could not impose their terms. Dunlop
failed.

105
 Contractual Agreement

DUNLOP Dew & Co

No contractual Agreement
So cannot sue or be sued on Contractual Agreement for Resale
Contract between
Dew & Co and Selfridge

SELFRIDGE

Resale below contract price

CONSUMER

The contract between Dunlop and Dew & Co is what is known as a resale price
maintenance agreement.

ELEMENT 17.1 EXCEPTIONS TO PRIVITY OF CONTRACT

Exceptions where third parties can have rights and obligations to take legal action.

1. Exceptions provided by statute (Contracts (Rights of Third Parties) Act 1999)

2. Collateral contracts
3. Agency
4. Covenants in land law (assignments)
5. Trusts.

106
STATUTORY PROVISIONS

Road Traffic Act.1988 sec 148(7)

Requires a driver to have third party insurance which can be relied upon by third
parties who suffer loss or damage

Bill of Exchange Act 1882, sec 29

A third party may sue on a cheque or bill of exchange

COLLATERAL CONTRACTS

These are Inter-twined contracts with one contract being dependent on the fulfilment
of another contract. They are those contracts between two parties accompanied by a
collateral contract between one of the parties and a third party relating to the same
subject matter.

Shanklin Pier v Detel Products Ltd (1951)

The claimants entered into a contract with painting contractors to paint their pier. A
director of the Defendant company secured a contract with Shanklin to supply the
paint with an assurance that it had a life span of at least seven years without
deterioration. The Defendants then sold paint to the contractors. The Paint was
unsatisfactory and lasted for only 3 months. The claimants could not sue the painters
as they had done a profession job and completed their part of the contract. The
claimants sued the paint manufacturers.

Held

That there was a collateral contract by the promise as to the suitability of the paint.

ELEMENT 17.3 AGENCY

Principle is bound

Principal Third Party

Contractual
Relationship for agent No contractual relationship
To enter into contracts Agent
On behalf of Principal.

107
Whilst the agent enters into a contract with a third party, the rules of agency provide
that there is no contractual relationship with the agent who contracts on behalf of the
principal.

Principal: Is the party on whose behalf the contract is made and who receives the
benefit arising under the contract.

Agent: Is a party to the contract with a third party. The agent has a direct
contractual relationship with the 3rd party but makes the contract on
behalf of the principal.

Third Party: Enters into the contract with the agent but there is no contractual
relationship which binds the principal.

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UNIT 18 DURESS
ELEMENT 18.1 INTRODUCTION

Parties to a contract have to enter into it voluntarily (freedom to contract) rather than
as a result of pressure (duress) or manipulation or persuasion (undue influence).

Duress or undue influence would render an otherwise valid contract voidable on the
action of the wronged party and hence avoid the contract.

Duress or Legal Duress

At common law, duress means actual violence or threats of violence to a person

calculated to induce fear of loss of life or bodily harm.

The rule is that the threat must be to commit a crime or a tort. For the contract to be
avoided, the claimant must prove that they entered into the contract due to unlawful
threats to his body.

Barton v Armstrong (1975)

The claimant was the Managing Director of a company of which the defendant was
the former Chairman. The defendant threatened to kill the claimant if he did not
purchase shares from the defendant. The claimant purchased the shares but sought
a declaration that the transaction was void for duress. Evidence was produced which
suggested that the claimant had partly been influenced by threats and partly
motivated by business consideration as the purchase of the shares was a good
move for him and the company.

Held

That the contract was voidable because the threats of personal violence were a
factor in the claimant’s decision to purchase the shares.

ELEMENT 18.2 THREATS TO PROPERTY

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Threats to damage or remove property may amount to duress.

Occidental Worldwide Investment Corporation v Skibs A/S Avanti (The Siboen

and The Sibotre) (1976)

Held:

That, “if I should be compelled to sign a ………..contract………under an imminent

threat of having my house burnt down or a valuable picture slashed through without
threat of violence to anyone, I do not think that the law should uphold the
agreement…. The true question is ultimately whether or not the agreement in
question is to be regarded as having been concluded voluntarily.” Per Kerr J.

ELEMENT 18.3 ECONOMIC DURESS

The doctrine of economic duress has arisen so as to deal with the general problem
of inequality in bargaining power between parties.

Economic duress refers to the threat towards the financial well-being of a party. The
essence of duress is the threat of “do this or else” pressure.

e.g. “I will not do business with you unless you reduce your prices by half.”

D & C Builders Limited v Rees (1966)

The plaintiffs were a small building firm. They did work for the defendant, for which
the defendant owed them £482. For months, they pressed for payment but did not
get paid. At length, the defendant’s wife, acting foe the husband and knowing that
the plaintiffs were in financial difficulties, offered them £300 in full settlement. If they
refused the offer, she said, they would get nothing. The plaintiffs reluctantly agreed
and then sued for the balance on the original debt.

Held

That the plaintiffs’ consent to accept part-payment in full satisfaction of a debt “was
no true accord. The debtor’s wife held the creditor to ransom. The creditor was in
need of money to meet his own commitments and she knew it.”

North Ocean Shipping v Hyundai Construction Co. (The Atlantic Baron) (1979)

There was a contract for the construction of a boat (The Atlantic Baron) but the ship
builders sought to increase the price after building works had started due to
exchange rate fluctuations.

The purchaser did not want to agree to the variation of terms but feared refusal
would delay the completion of the boat. The purchaser paid the increased price but
eight months after delivery of the boat sought to recover the additional sum claiming
that the agreement had been obtained by duress.

110
Held

That, the pressure of this nature could amount to duress as the essence was that
there had been “compulsion of the will” and this could arise from economic pressure
as it could from threats of violence.

The principle of economic duress has been developed further and now has to satisfy
certain requirements to succeed as held in the following case:

Pao On v Lau Yiu Long (1980)

The claimants threatened not to proceed with the sale of shares unless the
defendants agreed to renegotiation on other peripheral issues. The defendants
wanted to avoid litigation and were anxious to reach agreement for the sale of the
shares and hence agreed. The claimants tried to enforce the agreement but the
defendants resisted on the basis of duress.

Held

That, the claimants threat amounted to ordinary commercial pressure and was not
sufficient to amount to duress. The court ruled in favour of the claimants.

It was identified that the following factors had to be present to find economic duress:

1. Did the person claiming being coerced protest at the time?

2. Did he have an alternative course of action?

3. Did he have access to independent advice?

4. Did he take steps to avoid the contract after it was formed?

The courts have established the sort of threats that can amount to economic duress
as threats of unlawful action and some lawful action where the innocent party has no
reasonable alternative other than agree to the other party’s demands.

ELEMENT 18.4 THREATS OF UNLAWFUL ACTION

Atlas Express Ltd v Kafco [1989] 1 All ER 641

Kafco was a small company that made basket ware and had secured a contract to
supply Woolworths. They engaged the claimant to transport the goods. Due to a
miscalculation of the costs involved, the claimant increased the price of delivery after
the contract had commenced and threatened to cease delivery in breach of contract
if the new piece was not accepted by the defendant.

Failure to supply goods to their major client in the pre-Christmas period would lead to
a loss of a customer, so he defendants felt compelled to accept the higher price but
later refused to pay claiming duress.

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Held

The increased price amounted to economic duress as the threat to breach the
contract was illegitimate pressure and the defendants would have been unable to
find an alternative transporter.

ELEMENT 18.5 THREATS OF LAWFUL ACTION

There are situations where threats of lawful action which leaves an innocent party
with no reasonable alternative but to agree to the dominant party’s demands may
amount to economic duress.

CTN Cash & Carry v Gallagher (1994)

The defendant supplied cigarettes. A consignment of cigarettes went missing and

the defendant agreed to re-deliver. The second consignment of cigarettes was stolen
before delivery. The defendant mistakenly believed that the cigarettes were at the
claimant's risk and sent them an invoice.

The defendant then supplied another consignment but then demanded for payment
of the stolen cigarettes failure to which the claimant’s credit facility would be
withdrawn. The claimant agreed to pay and then took legal action seeking to reclaim
the money on the grounds of economic duress.

Held

The threat to withdraw credit facility was lawful since under the terms of the credit
agreement credit could be withdrawn at anytime. Therefore the threat was legitimate
and consequently, economic duress could not be established.

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UNIT 19 REMEDIES FOR BREACH OF CONTRACT

Breach of contract gives a right to the injured party to recover:

i) Damages (financial compensation).

ii) Specific Performance
iii) Injunction

ELEMENT 19.1 DAMAGES

Nominal damages can be claimed merely because a contract has been breached.
Substantial damages can be claimed only for an identified loss caused by the breach
of contract and which was not too remote.

The general purpose of damages is to put the injured party in a financial position
they would have been in if the contract had not been breached. Damages can also
be claimed for loss of profits.

ELEMENT 19.1.1 LIQUIDATED DAMAGES

Are a ‘genuine pre-estimate of the loss’ which the parties agreed from the outset as
the amount the breach of contract would cause.

Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Co. (1915)

Dunlop Supplied tyres to new garage under an agreement that New Garage would
pay £5 by way of liquidated damages for every tyre sold below price list (trade
discount).

Held

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That the sum was not extravagant and was a genuine attempt by the parties to
estimate the damage which price-cutting would cause Dunlop.

Cellulose Acetate Silk Co. Ltd V Widnes Foundry Ltd (1933)

Widnes Foundry agreed to pay £20 per every week of delay in completing the
construction of a plant for Cellulose Acetate. The work was 30 weeks late.
The Silk Company claimed actual losses of £6000 but Widness refused to pay.

Held
Widnes Foundry was only liable to pay the pre-estimated £20 per week as liquidated
damages as agree, which came to £600.

ELEMENT 19.1.2 UNLIQUIDATED DAMAGES

Unliquidated damages are intended to put the injured party in the position they would
have been into had the contract been property carried out. They are intended to
compensate for financial loss suffered or the courts may award nominal damages if
no loss is incurred.

Damage can include:

- Financial loss
- Damage to property
- Personal injury and distress
- Disappointment and upset caused to the claimant

Varvis v Swans Tours (1973)

Jarvis, a solicitor, paid £63.45 for a two week winter sports holiday in Switzerland.
The Swans Tours, brochure promised a “house party” atmosphere at the hotel, a bar
opening several nights a week and a host who spoke English.

The holiday was a disappointment as by the second week, Jarvis was the only guest
in the hotel and no one spoke English. The skiing was disappointing and the bar
only opened one evening in a week.

Held
Plaintiff awarded £125 to compensate for “the loss of entertainment and enjoyment
which he was promised”.

Victoria Laundry (Windsor) Ltd V Newman Industries Ltd (1949)

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The claimant was a company of launderers and dyers who wished to expand its
business. They ordered a new boiler which got damaged during the course of
removal. There was a five months delay in delivery.

Held
The claimant was entitled to recover for the normal loss of profits on both cleaning
and dying contracts but not for contracts to which the Defendant was ignorant.

Simpson V London & North Western Railway Co. (1876)

Simpson entrusted samples of his products to the Defendant for delivery at an

agricultural show exhibition in New Castle. The goods were marked, “must be at
Newcastle on Monday certain”. The samples did not arrive in time.

Held

That, the claimant was entitled to recovery of prospective loss of profit arising from
his inability to exhibit at New Castle Fair.

Where the claimant has not suffered a loss from the breach of contract, the courts
will only award nominal damages.

ELEMENT 19.2 DEBT RECOVERY

Where one party performs their part of the contract, it is incumbent upon the other
party to fulfil their obligation to avoid an action for debt recovery rather than for
damages.

Late payment of bills is a major source of concern especially for small businesses
that are caused serious cash flow problems. The bargaining power of the big and
powerful companies entails that the small businesses cannot negotiate or include a
late payment clause neither can they include court action for fear of losing he
contracts or being de-registered.

ELEMENT 19.3 SPECIFIC PERFORMANCE

Is the form of equitable remedy were the award of damages at common law will not
be adequate or appropriate. Specific performance is a discretionary court order
whose breach is the contempt of court.

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It is not normally awarded in employment contracts as the mutuality of obligation and
trust and confidence would have been eroded.

ELEMENT 19.4 INJUNCTION

An injunction is a court order requiring a party at fault not to break the contract.

Warner Bros v Nelson (1936)

Bette Davies, a film actress, had agreed with Warner Bros that she would not
contract with anyone else during the period with Warner. She breached the contract
by entering into a contract with a third party.
Held
Warner Bros where entitled to an injunction preventing the actress from working as
an actress to anyone else.

ELEMENT 19.5 RESTITUTION

Restitution provides for the injured party a remedy in situations where a defendant
has obtained an unjust benefit. The requirement to pay money arises due to the fact
that the Defendant has been unjustly enriched. An action for restitution may arise in
the following circumstances;

i) Claims on a quantum merit: That is a claim for work actually done.

Planche v Colburn (1831)

iii) Total failure of consideration: here the claimant has paid money to the
defendant in respect of a valid contract but the defendant fails to perform his
obligations. (Rowland V Divall (1923))

ELEMENT 19.6 PROMISSORY ESTOPPEL

Promissory or equitable estoppel is an equitable remedy that “has stretched out a

merciful hand to help the debtor”. Estoppel is a mechanism for enforcing
inconsistency; when I have said or done something that leads you to believe in a
particular state of affairs, I may be obliged to stand by what I said or did, even
though I am not contractually bound by it. (E. Cooke, The Modern Law of Estoppel)

This equitable doctrine provides a means of making a promise binding even without
consideration. This prevents parties from going back on a promise.

Promissory Estoppel can be broken down into components as follows:

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 There must be a promise or representation as to future conduct which is
intended to affect the legal relations between the parties.

 The promise or misrepresentation must have been relied upon by the

promisee (i.e. the promisee must have acted to his detriment).

 It must be ‘inequitable’ for the promisor to go back upon his promise.

Promissory estoppel cannot act as a cause of action as it is only available as a

defence and hence fulfils the equitable maxim that ‘equity is a shield, not a sword’.

Hughes v Metropolitan Railway Company (1877)

A landlord gave 6 months’ notice to a tenant requiring him to carry out certain repairs
or forfeit the lease. The tenant agreed to do the repairs but also enquire as to
whether the landlord wished to purchase his interest in the premises.

They entered into negotiations for the purchase of the lease but could not reach
agreement for up to 6 months and in that period, no repairs where done by the
tenant. The landlord claimed the lease forfeited.

Held

The tenant was entitled to relief in equity against forfeiture as the opening of
negotiations were the reason for the tenant’s failure to do the repairs.

This principle was further developed by Lord Denning on the case of;

Central London Property Trust v High Trees House Ltd (1947)

In 1937, High Trees Ltd leased a block of flats at the rate of £2500 per year from
Central Property Trust Ltd. This was during the Second World War and as such the
occupancy declined as the tenants had gone away to escape the bombs and left
their homes unoccupied.

In 1940, the parties agreed to lower the rates by half but no period was stipulated or
set for this reduction. At the end of the war about mid 1945, the occupancy had
increased and the rent had gone up but High Trees Ltd continued paying reduced
rates.

Central Property Trust Ltd sued for payment of full rates from July 1945 onwards.

Held

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Lord Denning stated that Central Property Trust Ltd would be estopped if they had
tried to claim full rates from 1940 so as not to renege on the promise upon which
High Trees Ltd had relied. However, that the full rent was payable from the time that
the flats became fully occupied in mid-1945.

It should be noted that this principle may be applied to cases where a creditor agrees
to accept a lesser sum in discharge of a greater sum. Such a creditor will not enforce
payment of the balance when it would be inequitable to do so.

LIMITATION OF ACTIONS

Must be brought within 6 years

UNIT 20 LAW OF TORT

ELEMENT 20.1 INTRODUCTION

“The primary function of the law of tort is to define the circumstances in which a
person whose interests are harmed by another may seek compensation.” (Hepple et
al Tort Cases and Materials, 4th Edition, Butterworths, 1991, p1). Put in another way,
a tort is a civil wrong as the action is between persons whose victim is entitled to
redress or a remedy. (S.C.M.(UK) Ltd v Whittall and Son Ltd (1971).

TYPES OF TORTS

- Wrongful interference with goods ( Trespass to Goods)

- Trespass to land
- Trespass to person
- Conversion
- Negligence
- Negligent misstatement
- Occupiers Liability
- Consumer Protection Act 2010
- Public nuisance
- Private nuisance
- Breach of statutory duty

It should however be noted that, the aim of Tort law is not just compensation
meaning that some injured parties will not be compensation for the harm.

DEFINITION

There is no standard definition of “a tort”’ or “tortious liability” even though Winfield

defines it as follows:

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‘’Tortious liability arises from the breach of a duty primarily fixed by law, this duty is
towards persons generally and its breach is redressible by an action for unliquidated
damages.’’

ELEMENT 20.2 OBJECTIVES OF TORT LAW

The law of tort is primarily concerned with the allocation and prevention of losses,
(providing a remedy), which occur in society due to the wrong of a person or persons
to others.
i) Appeasement : of the injured party.
ii) Justice :The retribution of the wrong-door and the compensation of the Victim
iii) Deterrence : To stop further harm being committed.
iv) Compensation and loss distribution.
The damage of a party to others may be in the form of:

- Injury to person
- Damage to physical property (Car, bicycle,) Goods in transit
- Damage to financial interests (bad investment advice)
- Injury to reputation (Libel and slander).
- Interference to liberty (false imprisonment).

A party so wronged would seek legal redress in the courts by way of damages
(monetary compensation) or an injunction to prevent further harm.

ELEMENT 20.3 TORT AND CRIME

A crime is a wrong the sanction of which involves punishment whilst a tort is a civil
wrong whose remedy is compensation. There are many overlaps in that many
crimes are also torts.

- Theft is also a trespass to goods

- Assault, rape, etc (Offences against a person) are also a trespass to a person
- Fraud is a tort of deceit.

Tort law protects the status quo as the claimant has to be restored to the position he
would have been in had the tort not been committed.

For example, personal injury is a clear example of returning the injured party to the
status quo even though the real loss cannot be removed by payment of money say
in the case of the loss of a leg or arm which cannot be quantified.

Expected losses include:

- Loss of future earnings

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- Medical expenses
- Pain and suffering
- Loss of amenity

ELEMENT 20.4 ELEMENTS TO ESTABLISH TORTIOUS LIABILITY

ELEMENT 20.4.1 PROOF OF DAMAGE

The claimant must prove he has suffered some form of damage in order to establish
liability. Further, the claimant has to prove that such damage infringed on his legal
rights.

ELEMENT 20.4.2 CAUSATION

Tortious liability is dependent on making a connection between the defendant’s
wrongful act and the damage suffered by the claimant (causal link). Normally, the
courts will apply the “but for” Test, that but for the defendant having breached the
duty of care, the claimant would not have suffered the injury.

Barnett v Chelsea & Kensington Hosp. Mgt Committee (1969)

Mr Barnett a night watchman attended the defendant’s hospital in the early hours of
the morning complaining of vomiting. A doctor in the casualty department failed to
examine him but sent him away without treatment, telling him to see his G.P in the
morning if he was still unwell. Mr Barnett died 5 hours later from arsenic poisoning.

Held
That the doctor’s conduct was negligent but expert evidence indicated that the
patient was beyond help and would have died anyway. Therefore, the doctor’s failure
to take reasonable care (negligence) did not cause the death. However, damage
may be too remote if the chain of events is broken by a new unforeseen act of a third
party. This is called a novas actus intervenes (a new act intervening) and its effect is
to relieve the defendant of the liability for the claimant’s loss.

McGhee v National Coal Board (1972)

The claimant was asked by his employers to clean out brick kilns. No washing
facilities were provided although the work was hot and dirty and exposed the
claimant to clouds of brick dust. The claimant developed dermatitis caused by
working in the kiln.

Held
The defendant was liable to the claimant for his breach of duty to provide washing
facilities.

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ELEMENT 20.4.3 THE DAMAGE WAS FORESEEABLE

The claimant must prove that a tort of negligence occurred and caused the loss due
to the defendant’s breach of duty. Loss due to the defendant’s breach of duty will be
claimed if the damage was foreseeable.

Overseas Tank ship v Morts Dock & Engineering (1961) All ER 404 &
The Wagon Mound (1961) AC 388 (PC)

The defendants negligently spilt a large quantity of furnace oil into Sydney harbour.
Normally, this type of oil would not catch fire when lying on sea water. A spark from a
welder’s torch fell on a floating bale of cotton and ignited it and the oil burning down
the claimant’s wharf.
Held
A person who causes loss or injury through negligence will only be liable for loss or
damage which was foreseeable. Hence the defendant’s were not liable for the
damage which the fire caused.

REMOTENESS OF DAMAGE

Cobb v Great Western Railway (1894)

The defendant railway had allowed a railway carriage to become overcrowded. The
claimant was jostled and robbed of £89. The claimant sued to recover his loss.

Held
That the loss was too remote as the actions of the thief were a novas actus
interveniens which broke the chain of causation.

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UNIT 21 NEGLIGENCE
ELEMENT 21.1 INTRODUCTION

In order to establish the tort of negligence, the claimant must prove the following:

(1) That the defendant owed him a duty of care

(2) That the defendant breached that duty
(3) That the damage caused by the breach was foreseeable

ELEMENT 21.2 A DUTY OF CARE WAS OWED

Donoghue v Stevenson (1932) AC 562 (HL)

The claimant’s friend bought the claimant a bottle of ginger beer in a cafe. The
shopkeeper opened the opaque bottle and poured some of its contents into a
tumbler containing ice-cream. The claimant drank some of the contents of the
tumbler. The friend then poured out the rest of the contents only to discover the
remains of a decomposed snail. This caused the claimant to suffer nervous shock
and food poisoning.

The claimant had no contract with the cafe owner as she had not bought the drink
and so she sued the manufacturer of the ginger beer in negligence (‘’Privity of
Contract’’).

Held

That “you must take reasonable care to avoid acts or omission which you can
reasonably foresee would be likely to injure your neighbour, who then, in law is my
neighbour?” (Neighbour Principle)

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“The answer seems to be – Persons who are so closely and directly affected by my
act that I ought to reasonably have them in contemplation as being so affected when
I am directing my mind to the acts or omissions which are called in questions”, per
Lord Atkin.

The significance of this case was that it expanded situations covered by the tort of
negligence.

Examples - Road users owe a duty of car to other road users and pedestrians
- Manufacturers and repairers owe a duty of care to their customers.
- Professional advisers owe a duty of care to their clients.
The case was also important for the development of the tort of negligence and the
liability for products.

Caparo Industries Plc v Dickman (1990) I ALL ER 568 HL

Caparo owned shares in a public Company, F Ltd. In reliance on the audited
accounts prepared by the defendants, Touché Ross & Co. Caparo bought more
shares and later purchased the entire share capital in F Ltd. Audited accounts
showed F Ltd as profitable but in fact was making losses having been defrauded by
its directors. Caparo took legal action claiming the auditors owed them a duty of care
as potential investors.

Held
A duty of care will be owed if three conditions are satisfied:

(i) must be foreseeable that harm would be caused to the claimant

(ii) There must be a “proximity of relationship” between the claimant and the
defendant
(iii) It must be just and reasonable for the court to impose a duty of care

ELEMENT 21.3 THE DUTY OF CARE WAS BREACHED

The duty of care will be breached if the defendant does not take reasonable care in
all circumstances. A higher standard of care is expected from professionals and
people who claim to have some special competence.

McGhee v National Coal Board (1972)

The claimant was asked by his employers to clean out brick kilns. No washing
facilities were provided although the work was hot and dirty and exposed the
claimant to clouds of brick dust. The claimant developed dermatitis caused by
working in the kiln.

Held

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The defendant was liable to the claimant for his breach of duty to provide washing
facilities.

ELEMENT 21.4 RES IPSA LOQUITUR (THE THING SPEAKS FOR ITSELF)

Negligence is a civil wrong and the claimant must prove the case on a balance of
probabilities. However, by claiming that “the thing speaks for itself”, the claimant can
reverse the burden of proof and put the defendant to prove that the damage was not
caused by his failure to take reasonable care.

Cassidy v Ministry of Health (1951)

The Claimant went into Hospital for treatment with two stiff figures. When he left the
hospital, he had four stiff fingers and a useless hand.
Held
That, the defendant hospital was liable for the injuries and Res Ipsa Loquitur could
be applied.

Duly Motors (Z) Ltd v Katongo and Another (S.C.Z. Judgment No. 17 of 1986)
[1986] ZMSC 19; (1986) Z.R. 61 (S.C.) (5 September 1986)

The Plaintiff purchased a motor vehicle from the first defendant which had been
assembled by the second defendant. Ten days after purchase the vehicle developed
a fault and was taken to the first defendant’s garage for repairs which was done and
the vehicle was collect the car by the plaintiff after which he commence a trip to
Ndola on the same day. Along the way, the vehicle caught fire and was damaged
beyond repair. The lower court awarded damages for negligence to the plaintiff
against the first defendant who appealed.

Held
Where there are two defendants who are not responsible for each other's acts the
doctrine of res ipsa loquitur applies and it is not for the plaintiff to call evidence in
order to eliminate all possible causes of the fire. The second defendant was liable to
the plaintiff.

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UNIT 22 DEFENCES IN TORT

ELEMENT 22.1 INTRODUCTION

The various defences to an action in tort are:

- Consent : Volenti non fit injuria

- Contributory negligence
- Statutory or Common Law justification
- Necessity
- Illegality

ELEMENT 22.2.1 VOLANT NON FIT INJURIA

This means that no harm is done to one who is willing or volunteers.

Consent or assumption of risk may arise by either express agreement to run the risk
of injury or may be implied by the claimant’s conduct. It is a complete defence and
negates any liability when shown that the injured person voluntarily assumed the risk
which caused the injury. If often defeats employees who are injured as a result of not
following safety procedures.

Example: A patient signs a consent form before an operation. If this formality is

not done, the surgeon could be sued for trespass to person (battery).

Boxing Match: Participants are deemed to have consented to the intentional

infliction of harm.

To establish the defence of consent, the defendant must prove that the claimant not
only had full knowledge of risk but also freely consented to run the risks.

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Morris v Murray (1990)
The plaintiff and the defendant had engaged in a prolonged drinking session. They
went for a joyride in a light aircraft piloted by the defendant. The plaintiff had the
knowledge that the defendant was extremely drunk. The plane crashed shortly after
take-off killing the defendant and seriously injuring the plaintiff.

Held
That the claimant’s action against the estate of the defendant was barred by volenti
as the plaintiff was volens to the risk. Also his participation in the flight was to
engage in an intrinsically and obviously dangerous occupation.

ELEMENT 22.2.2 CONTRIBUTORY NEGLIGENCE

In modern times, the courts are more likely to apportion fault between parties by
finding contributory negligence than volenti non fit injuria which is a complete
defence.
It is not a complete defence but reduces the damages payable to the claimant. This
defence is available where a person suffers damage due partly of his own fault and
partly by the fault of another person. The recoverable damages will be reduced to
the extent as to what the court thinks is just and equitable. Note that damage
includes personal injury and loss of life whilst fault means negligence.

The effect is that any award of damages may be reduced to the extent that the
claimant was to blame for the injury or lose.

Example:
In case of a car accident, a passenger injured but found not to have been wearing a
seatbelt will be said to have contributed to his injuries.

JONES v LIVOX QUARRIES LTD (1952)

The plaintiff, an employee of the defendants, stood on the back of the traxcavator, a
vehicle which travelled at about two and a half mph. This was contrary to company
instructions. The lunch time whistle had gone and the traxcavator was travelling
along the route to the canteen. The driver was not aware of the plaintiff’s presence
on the vehicle. The driver made a sharp left turn and nearly stopped to change gear
when a dumper truck following behind collided with the traxcavator injuring the
plaintiff.

Held
That, although the dumper driver had been negligent, the plaintiff had been
contributorily negligent. The court awarded reduced damages by one fifth.

ELEMENT 22.2.3 MISTAKE

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Mistake of fact can be a defence if it arises from reasonable suspicions.

Example: Police officer may arrest a personal with reasonable belief that he is
about to commit a crime or that a crime has been committed.

Penal Code Cap 87 Sec 11 provides

“A person who does or omits to do an act under the honest and reasonable but
mistaken belief in the existence of any state of things is not criminally responsible for
the act or omission to any greater extent.”

ELEMENT 22.2.4 STATUTORY OR COMMON LAW DEFENCE

It is a defence to show that a person’s action was covered by statute or common law.

e.g. Self-defence / chastisement of a child by a parent

This is provided that the force used is not unreasonable.

ELEMENT 22.2.5 NECESSITY

A person may raise a defence of necessity if their action was reasonable in order to
prevent a greater harm from occurring. They must show that there was an imminent
threat of danger to person or property.

ESSO Petroleum Co Ltd v Southport Corporation (1955)

The appellant’s oil tanker ran aground in an estuary partly due to weather conditions
and partly due to carrying a heavy load and a fault in the steering. The master
discharged 400 tons of oil in order to free the tanker. The oil drifted onto the
respondent’s land including a marine lake which it had to close until it had been
cleaned at a substantial cost to the respondent. The respondent brought an action in
negligence and nuisance. The appellant relied on the defence of necessity in
discharging the cargo as doing so was reasonably necessary for the safety of the
crew and of the ship and cargo.The court found for the appellant and the respondent.

Held

That the discharge of oil from a ship, carried by the tide onto the plaintiff's foreshore,
was not trespass because the damage was consequential rather than direct.

ELEMENT 22.2.6 ILLEGALITY

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The defence of illegality is based on the maxim of “Ex turpi causa non oritur action’
which means that no action may be founded on a bad cause. This means that no
action can be taken by relying on an illegality or being contrary to public policy.

Thackwell v Barclays Bank (1986)

Thackwell brought an action against the bank for conversion of a cheque to which he
claimed to be entitled. The cheque represented the proceeds of fraud against a
finance company in which Thackwell had been a party.

Held
That, Thackwell’s claimed was barred by illegality as it was contrary to public policy
to allow him to enjoy the proceeds of his fraud.

The thrust of this defence is that the court may deny an action to a claimant who
suffered damage in the course of participating in a criminal activity.

ELEMENT 22.3 REMEDIES

ELEMENT 22.3.1 DAMAGES

Payment of money to the injured party which is compensatory and aims to put that
party in the position he would have been had a wrong not been done against him.

Nominal Damages: Where the claimant cannot show that he has suffered any
loss, e.g. Trespass to Land.

Exemplary Damages: Designed to punish the defendant.

ELEMENT 22.3.2 INJUNCTION

Is a discretionary order of the court requiring the person to cease committing a tort.

Interim Injunction: Temporary order granted pending a full trial of the action.
Quiatimet Injunction:A preventative Injunction granted before any damage is done
Prohibitory Injunction: Stops the defendant from committing a tort
Mandatory Injunction: Requires the defendant to take positive steps to stop a
tort being committed.

Failure to obey an injunction is contempt of court punishable by a fine or

imprisonment.

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UNIT 23 SPECIFIC TORTS RELEVANT
TO BUSINESS

ELEMENT 23.1 NEGLIGENCE

Negligence is the careless conduct which causes damage or loss to others.

Donohue v Stevenson (1932)

Held that to establish negligence, the claimant had to prove that:

(1) The defendant owed him a duty of care

(2) The defendant was in breach of this duty
(3) The claimant suffered loss or injury as a result of the breach.

ELEMENT 23.1.1 DEFECTIVE GOODS

A person responsible for putting defective goods into circulation will incur liability in
tort for his products. The Consumer has to prove that the manufacturer failed to act
reasonably in all the circumstances.

There is no limit to the principal established in the Donoghue case and have ranged
from various goods.

i) CARS

Herschtal v Stewart & Arden Ltd (1939)

The Claimant took the car to the defendants for a service. The following day, at 7 am
whilst being driven by the claimant, the wheel came off the vehicle.

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Held

That the facts spoke for themselves and that there must have been carelessness for
the wheel to come off when it had been checked the evening before.

Walton v British Leyland (UK ) Ltd

The claimant was injured in a collision caused by a wheel coming off the Austin
Allegro car he was travelling in. The manufacturer of the car was aware of this
problem and at one time had considered recalling the cars affected by the fault but
did not do so.

Held

That the failure to recall was a breach of Leyland’s duty of care for the safety of
those put at risk by the fault. The Consumer can also plead res ipsa loquitur, the
facts speak for themselves.

ii) PANTS

Grant v Australian Knitting Mills (1936)

The plaintiff Dr Grant claimed to have contracted dermatitis by reason of the

improper conditions of the underpants bought by him from the defendants, John
Martin & Co.Ltd and manufactured by Australian Knitting Mills.

Dr Grant bought the underwear and put on one in the morning. By evening on the
same day he felt itching and by the next day redness appeared in front of each ankle.
His condition worsened and the rash was acute covering his whole body. He was
confined to bed for 17 weeks. The rash was due to the presence of the cuffs or angle
ends of the underpants and an irritating chemical used due to negligence in
manufacture.

Held

Judgement passed against the retailers on the contract of sale and the
manufacturers in the tort of negligence.

iii) HAIR CREAMS/LOTIONS

Hair Dyes Holmes v Ashford (1950)

The manufacturers of a hair dye had put a warning to test the product before using it
on a customer. The hairdresser disregarded the warning and the customer had a
reaction.

Held

Manufacturer was not liable

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iv) HOT WATER BOTTLE

Steer v Durable Rubber Manufacturing Co.Ltd (1958)

A six year old girl was scalded when her three month old hot water bottle burst, she
could not prove the defect but she established that hot water bottles are expected to
last 3 years.

Held

In the circumstances, it was up to the manufacturer to show that it had not been
negligent. Since they could not do so, then they were liable.

The Consumer should also prove that he suffered damage or loss as a result of the
manufacturers breach, if this cannot be proved then the manufacturer will not be
liable.

Evans v Triplex Safety Glass C. Ltd (1936)

During a Journey, the windscreen disintegrated injuring the occupants. The

occupants sued the manufacturer for injuries and shock. They could not prove the
disintegration was due to the failure to take reasonable care. The car had been
driven for a year.

Held

There were a number of causes rather than a defect in manufacture. The plaintiff’s
failed to prove on the balance of probabilities, that the defect caused injuries. A
manufacture is only liable for loss or damage which is reasonably foreseeable.
Therefore, the consumer could not sue the manufacturer in negligence for the cost of
repair or replacements were a product ceases to work because of a manufacturing
defect.

ELEMENT 23.1.2 DEFECTIVE SERVICES

The principle in Donoghue also applies to repairers who carry out work carelessly.

EXAMPLE: A person who maintains and repairs a lift owes a duty of care to those
using the lift.

This principle also encompasses negligent statements which cause financial loss in
case of:

- Solicitors
- Accountants
- Bankers
- Surveyors

ELEMENT 23.2. PROFESSIONAL NEGLIGENCE

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Professional negligence holds that a duty of care in respect of negligent
misstatements was dependent on a ‘’special relationship’ between the parties.

This is where one party possesses a special skill and undertakes to apply that skill
for the assistance of another person who relies on such skill.

LAWYERS
A barrister owes a duty of care to clients for whom he was acted as advocate.

Industrial Finance Company Limited v Jacques and Partners (1977/HP/752)

[1980] ZMHC 7; (1981) Z.R. 75 (H.C.) (28 February 1980)

The plaintiff and Kentwood Investment Limited had signed a contract for the sale of
assets. A misunderstanding arose and the plaintiff stopped payment of a cheque
payable to Kentwood. Consequently Kentwood wrote to the District Registry at Kitwe,
claiming the amount payable on the cheque. The cheque was dishonoured. An
attempt was made by the parties to settle the dispute out of court. It was agreed that
the misunderstanding leading to the stop payment would be made good and the
plaintiff's lawyers would hold the payment in transit for Kentwood. After the plaintiff
had made one payment, another misunderstanding arose, this time with their
advocates.
Kentwood obtained a summary judgment against the plaintiffs. In the meantime, the
plaintiffs, whose advocates were Jacques and Partners wrote them informing them
that they had changed advocates to Chuula and Company, who had applied to court
to set aside the summary judgment. However, it was Jacques and Partners who
appeared on behalf of the plaintiff and they did not oppose the summary judgment.
The plaintiff therefore brought an action against the defendants - Jacques and
Partners for not complying with their written instructions. The plaintiff brought an
action against the defendants for professional negligence.

Held
Where a lawyer has instructions, he has a professional duty to protect his client so
that where it is shown that the advocate has failed to exercise his duty to the cost of
his client, the lawyer must make good and pay for that damage.

ACCOUNTANTS AND AUDITORS

Accountants and Auditors owe a duty of care to all third parties whether they have
the knowledge of them or have no prior knowledge. However, the courts are of the
view that this might cause the auditors to face almost unlimited liability. Therefore, it
is the court’s opinion that the purpose of preparing audited accounts is to provide
shareholders with certain information so that they can exercise the rights in respect
of the company, i.e voting at company meetings.

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VEB Fasteners Ltd v Marks, Bloom & Co (1983)
The Ds, a firm of accountants, prepared the accounts of a client company VEB
Fasteners. The Audit report inflated the value of the Company’s stock and hence a
misleading position of the Company’s financial status. The accounts were shown to
the claimants who bought the company.
The claimants sued the Ds to recover the money they had spent in keeping the
company afloat.

Held
That an accountant could owe a duty of care to a person of whom he had no
knowledge but where it was reasonably foreseeable that such a person would see
the accounts and rely on them.

However, the courts in recent times are of the view that accountants and auditors
should only be liable to third parties of whom they had knowledge would rely on the
statement and the purpose to which it would be put.

Caparo Industries Plc v Dickman 1990

Caparo owned shares in Fidelity Plc. They made a takeover bid on the strength of
accounts prepared by the defendant auditors.
Caparo alleged that the accounts were inaccurate as they showed a pre-tax profit of
£1.3m instead of a loss of £400,000.00. Caparo claimed they would not have made a
takeover bid if they had known the true position or they would have bid at a reduced
price.
They argued that they were owed a duty of care as shareholders and new investors

Held (HL)
No duty was owed by auditors to members of the public in general who might invest
in a company in reliance on published books.

Yorshire Enterprises Ltd v Robson Rhodes (1998)

The claimants were providers of venture capital and invested £250, 000 in a
shopfitting company. 18 months later, the company went into liquidation. The
claimants brought an action for damages against the shopfitting company auditors
claiming to have relied on negligent misstatements contained in the audited accounts
and in letters sent to the claimants. The accounts did not adequately provide for bad
debts which made the shopfitting company appear profitable when in fact not.

Held
The auditors were aware of the claimants as potential investors and their reliance on
the audited accounts. The claimants had relied on the information contained in the
accounts and subsequent letters at face value. The auditors were liable.

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VALUERS AND SURVEYORS

Yianni v Edwin Evans & Sons (1981)

The claimants agreed to buy a house for £15, 000 with a £12, 000 mortgage from the
Halifax Building Society. The building society instructed the defendants, a firm of
valuers and surveyors, to value the house for them although the claimants had to
pay for the valuation report. The contract, however, was between the building society
and the valuers even though there was an exclusion clause that the building society
did not accept responsibility for the valuer’s report. The valuation report indicated
that the house was satisfactory security for a £12,000 mortgage.

On reliance on the valuation report, the claimants bought the house but later
discovered structural damage of 18,000.The claimants sued the surveyors.

Held
That a vast majority of house purchasers do rely on building society valuation reports,
assuming that if the building society is willing to rely on the surveyor’s report there is
no reason why they should not do as well.

The defendants should have had the claimants in contemplation as persons who
were likely to rely on their valuation.Accordingly, the valuers were liable.

Smith v Eric S Bush (1989) and Harris v Wyre Forest District Council (1989)
The claimants, Mr and Mrs Harris, were a young couple buying their first house.
They applied to the council for a mortgage. They filled in an application form and
paid £22 for a valuation to be carried out. The application contained a disclaimer that
the valuation was confidential and intended solely for the council and no
responsibility was accepted for the value and condition of the house.
The council instructed its in-house surveyor to inspect the property and advised the
applicants to obtain their own survey. The council surveyor valued the house and
recommended a mortgage.
Three years later, the claimants tried to sell the house but discovered it was subject
to settlement and hence unsaleable. They took legal action against the council.

Held

That a valuer owes a duty to purchasers to exercise reasonable care in carrying out
a valuation. That, the purchaser relied, to the surveyor’s knowledge, on the valuation
report in deciding to purchase the property.

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UNIT 24 TRESPASS

Trespass can be in three forms:

(1) Trespass to person

(2) Trespass to Land
(3) Trespass to Goods

ELEMENT 24.1 TRESPASS TO PERSON

Is the unlawful interference with the person.

i) BATTERY: Direct and intentional application of force against a person

without that person’s consent. Even the slightest of touch can amount to a
battery. Hence there can be a battery without assault.

As such, any contact with the claimant, no matter how trivial is sufficient force. What
is required is the defendant’s intention to commit the act even without the intention of
causing injury.

E.g. - An over-friendly slap on the back.

- A prank that gets out of hand
- An unwanted kiss.

However, this has to be weighed against allowing for these contacts that are part of
every day life.

Collins v Wilcock (1984)

Held
“An assault is an act which causes another person to apprehend the affliction of
immediate, unlawful, force on his person whilst a battery is the actual affliction of
unlawful force on another person.’’

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The force applied does not have to be personal contact.

e.g - Throwing water on the plaintiff

- A person pushed into a swimming pool

ii) ASSAULT

“Is an act which causes another person to apprehend the affliction of immediate,
unlawful force on his person” (Collins v Wilcock (1984).)

Note that the defendant must have the means to carry out the threat.

e.g. - Swinging a punch even if it does not connect

- pointing a gun at somebody even if it is unloaded.

Stephens v Myers (1830)

The D threatened the plaintiff and moved towards him with clenched fists, but was
prevented from reaching the plaintiff by someone else.

Held
The Defendant was liable for assault.

FALSE IMPRISONMENT

Is defined by Winfield and Jolowicz as an, “infliction of bodily restraint which is not
expressly or impliedly authorised by the law”.

Note:
That incarceration is not necessary, nor is the use of force.

Collins v Wilcock (1984)

Held
That false imprisonment is “the unlawful imposition of constraint on another’s
freedom of movement from a particular place”.’

E.g A person can be imprisoned in an open field if his movement is restrained by

pointing a gun and saying “don’t move”

- An unlawful arrest
- Preventing a person from leaving

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The restraint must be complete and not where the plaintiff had other means of
leaving or escape.

ELEMENT 24.2 TRESPASS TO LAND

Is the unlawful interference with the possession of someone’s land.

E.g. taking a short -cut

ELEMENT 24.2 TRESPASS TO GOODS

Is the wrongful interference with a person’s possession of goods.

e.g - Destroying another’s goods

- Stealing another person’s property
- Simply moving another’s goods from one place to another

CONVERSION

Is the denial of the claimant’s title to the goods.

e.g - Stealing goods and reselling them

- Wrongfully refusing to return the goods
- Wrongfully destroying another’s goods

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UNIT 25 AGENCY
A Contract of agency is a common law exception to the Doctrine of Privacy of
Contract.

Agency describes the relationship that arises where one person is appointed to act
as a representative to another. In this way the agent is given legal authority by his
principal to establish Privity of Contract with a third party. Hence, a contract made by
the agent with a third party is enforceable against the principal and the agent drops
out.

ELEMENT 25.1 PARTIES IN AN AGENCY ARRANGEMENT

i) PRINCIPAL
The party on whose behalf the contract is made and who receives the benefit
arising from such a contract.

ii) AGENT
Is the appointed representation of the principal with a direct relationship with
the third party.

iii) THIRD PARTY

One who enters into a contract with an agent but there is no contractual
relationship between the two as only the principal can be bound.

EXAMPLES

I. Bank Cashier
II. Shop Assistant
III. Stock Broker
IV. Travel Agents
V. Estate Agents
VI. Auctioneers
VII. Insurance Brokers

ELEMENT 25.2 TYPES OF AGENTS

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An Agent may be in one of the following categories:

A GENERAL AGENT

Has the power to act in relation to particular kinds of transactions, e.g An Estate
Agent.

A SPECIAL AGENT

Is one who is limited to acting in respect of one specific transaction.

A MERCANTILE AGENT OR FACTOR

Is an agent having authority to sell goods or to consign goods for the purpose of sale
or to buy goods or to raise money on the security of goods.

A DEL CREDERE AGENT

Is an agent who in return for extra commission, guarantees that if the third party he
has introduced fails to pay for the goods received, the agent indemnifies the principal.

Contracts of agency
Binds the Principal
PRINCIPAL THIRD PARTY

Agency
Contractual No Contractual Relationship
Relationship

AGENT

ELEMENT 25.3 FORMATION OF AGENCY

The formation of a principal / agent relationship could be in the following ways:

1. By express appointment
2. By Estoppel (i.e. Implication or conduct )
3. By Ratification
4. By Necessity

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 5. Presumed agency in the case of Cohabitation.

ELEMENT 25.3.1 EXPRESS APPOINTMENT

No formality for the appointment of an agent is required and can be in either in

writing or oral, unless it is a requirement under the law that such an appointment be
made in writing.

Pole v Leak (1862)

Held
“No one can become the agent of another except by the will of that person. His will
may be manifested in writing, or orally or simply by placing another in a situation in
which according to the ordinary rules of Law..... that other is understood to represent
and to act for the person who has so placed him...” per Lord Cranworth.

ELEMENT 25.3.2 AGENCY BY ESTOPPLE

Whilst a person cannot be bound by a contract as a principal to a contract made

without his consent, proof that his conduct appeared that he had appointed an agent
would entail that he will be estopped from denying the existence of the authority. A
person who represents another person without authority will be regarded as an
apparent agent, and is as effective as one expressly appointed by the Principal.
For instance a partner in a partnership who retires without informing the public will be
bound by the contracts entered into by the remaining partners with persons who had
previous dealings with the firm as long as they are not aware of his retirement.
Quoting from Lord Cranworth in the case of Pole v Leak (1862) he said that,

“No one can become the agent of another except by the will of that person. His will
may be manifested ...........simply by placing another in a situation ......that other is
understood to represent and to act for the person who has so placed him...”

Summers v Solomon (1857)

Scarf v Jardine (1882)

ELEMENT 25.3.3 AGENCY BY RATIFICATION

If an agent, without any authority what so ever or exceeds such authority, but
purports to contract on behalf of principal, then the contract is not binding on the
principal. However, the principal could later ratify and adopt the contract creating an
agency relationship and the contract is then binding on the principal.
The principal cannot ratify a contract in part but must ratify it in Toto.

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The following conditions must be fulfilled for ratification to be effective:

(i) PRINCIPAL MUST BE IDENTIFIED

The Agent must have contracted as such on behalf of the principal who has
been identified and who will subsequently ratify the contract.

Watson v Davies (1931)

A third party offered to sell property to an agent of a Charity, the principle. The agent
accepted the offer subject to the approval by the full board of the Charity. Sometime
later, and before board approval, the third party revoked the offer. Thereafter, the
board approved (ratified) the acceptance and sued for specific performance.

Held
That an acceptance by an agent made expressly subject to ratification was a nullity
until ratified. There was no binding contract.

ii) PRINCIPAL MUST BE COMPETENT AT TIME OF CONTRACT

This condition is important in the case of contracts entered into on behalf of a

company before its incorporation for rights and obligations cannot attach to a non-
existent person. In this condition, the principal must have had the capacity to enter
into the contract at the time of contracting and at its ratification.

Kelner v Baxter (1866) (in relation to a Land Transaction.)

Erle CJ said,

“When a Company came afterwards into existence, it was a totally new creature,
having rights and obligations from that time, but no rights or obligations by reason of
anything which might have been done before.”

iii) RATIFICATION MUST BE OF THE WHOLE CONTRACT

Re Mawcon (1969)

A Liquidator, the principal, was appointed by Mawcon Ltd. However, a court order
allowed the directors. The agents of Mawcon to continue doing business as long as
they did not incur any debts.

In breach of this authority, the Directors hired Lorries from Vallance Ltd (Third Party)
and incurred a debt of £512. The Lorries had been used in the business of Mawcon

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Ltd and the Liquidator collected the proceeds. Vallance Ltd sued for payment of the
debt.

Held
That the collecting of revenue, generated by use of hired Lorries ratified the acts of
the Directors. The adoption of part of the transaction operated as a ratification of the
whole transaction.
A Principal could not pick out of a transaction those acts which were to his
advantage.

(iv) Ratification must be within a reasonable time

(v) The contract must be capable of ratification.

A Contract void from inception cannot be ratified. e.g A forgery.

Brook v Hook (1871) (a case of a forgery)

Held
That a forged signature cannot be ratified.

ELEMENT 25.3.4 AGENCY OF NECESSITY

There must be a genuine necessity and the agent must act bona fide. This type of
agency may arise were a person takes urgent action on behalf of another in an
emergency. Such a person must show that he acted in the best interest of the
principal, the action was reasonable and there was no way of contacting the principal.

Springer v GWR (1919) CA

The Defendant railway company was contracted by the plaintiffs to transport

tomatoes from the Channel Islands to London, by ship to Weymouth and by train to
London. The ship was detained at the Channel Islands for three days due to bad
weather. When the ship eventually arrived at Weymouth, there was a railway
workers’ strike and unloading was delayed by two days.
For fear of the tomatoes going bad, the railway company sold them without
communicating with the plaintiffs.
The plaintiffs sued for breach of contract of carriage. The defendants justified their
action under an agency of necessity.

Held
For an agency of necessity to exist, it must be practically impossible to communicate
and get further instructions from the principal. In the circumstances, the railway
company should have communicated when the ship docked at Weymouth. There
was no agency of necessity and the railway Company was liable.

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ELEMENT 25.3.5 PRESUMED AGENCY IN THE CASE OF COHABITATION

At common law, when a couple are cohabiting, the wife is presumed to have the
husband’s authority to pledge his credit for necessaries judged by the style and
standard of living. This presumption applies equally where a man cohabits with a
mistress. Therefore, if the husband chooses to live beyond his means then his
liability may increase correspondingly.

Phillipson v Hayter (1870)

A wife purchased a gold pen and pencil case, a seal skin cigar case, a seal skin
tobcco pouch, a guitar and a Russian purse.

Held
That the presumption of authority was confined to necessaries suitable for the style
in which the husband chooses to live. This was not the case and hence there was no
presumed authority

Debenham v Mellon (1880)

A wife and her husband were, respectively, manageress and manager of a hotel
where they also cohabited. The husband expressly forbade his wife from purchasing
goods as agent on his behalf as he gave her an allowance for clothes. She normally
purchased clothes from the plaintiff in her own name, on one occasion, she bought
clothes and pledged her husband’s credit.

Held
The husband had forbidden her and hence there was no express agency or even
implied from cohabitation as they did not live in a matrimonial home. The husband
was not liable for the debt.

ELEMENT 25.4 NECESSARIES

Necessaries are defined for this purpose as “things that are really necessary and
suitable to the style in which the husband chooses to live, in so far as the articles fall
fairly within the domestic department which is ordinarily confided to the management
of the wife”. (Phillipson v Hayter (1870))

NECESSARIES INCLUDE:

- Clothing for the wife and children

- Household equipment
- Food

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- Medicines and medical attendance
- Hiring of servants

However, an action cannot be maintained against the husband for any extravagant
orders but against the wife.

The husband can rebut this presumption by proving that.

i) He expressly for bade his wife

ii) His wife already had sufficient supplies of goods in question
iii) He expressly warned the supplier
iv) He supplied his wife with a sufficient allowance
v) The order was excessive in regard to the husband’s income

ELEMENT 25.5 AUTHORITY OF THE AGENT

(i) Actual Authority: Express authority given by the principal, or by implication or

conduct or by law as in the case of agency of necessity.

(ii) Ostensible: Apparent or implied which is authority as the agent portrays to

others.

ELEMENT 25.6 RIGHTS OF AN AGENT

(i) To be paid the agreed amount or reasonable fee.

(ii) To be indemnified against all expenses incurred in the course of agency work.
(iii) To exercise a lien over the principal’s goods and to stop them in transit where
there is outstanding payments.

ELEMENT 25.7 DUTIES OF AN AGENT

(i) Obedience: Not to exceed his instructions even if he believes his acts are in
the best interest of the Principal.

(ii) Duty of Care and skill: To exercise reasonable care and skill.
(Chandhary v Pribhakar)
(iii) To carry out his duties personally unless there is express or implied
authority by the principal to delegate. De Bussche v Alt (1878)
(iv) Duty to account: To account for all money and property received on behalf of
the principal and to keep proper accounts.
(v) Duty of good faith: Not to take bribes or make a secret profit.
Boston Deep Sea Fishing and Ice Co v Ansell (1888)
(vi) Duty of disclosure: Full and frank disclosure of information relating to the
agency.

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(vii) To avoid a conflict of interest.

ELEMENT 25.8 RIGHTS OF THE PRINCIPAL

Where an agent is paid a bribe or makes a secret profit:

(i) Recover the amount of the secret profit.

(ii) Refuse to pay the agent his remuneration or commission.
(iii) Dismiss the agent without notice.
(iv) Repudiate the contract.
(v) Sue the agent and the third party in the tort of deceit.

ELEMENT 25.9 UNAUTHORISED ACTS OF THE AGENT

i) Where the agent acts without authority, the Principal will not be liable at all,
unless he ratifies the contract.

e.g where a club committee has no authority to buy goods on credit, an

order made by one of the members does not bind his colleagues.

ii) Where the agent exceeds his authority the principal will not be liable for the
excess unless he ratifies the contract.

ELEMENT 25.10 LIABILITY OF PRINCIPAL AND AGENT TO THIRD PARTIES

The general rule is that an agent possesses neither rights nor liabilities with regards
to a third party as long as he is known to be an agent of a named principal.

This general rule however, may be excluded by the express intention of the parties.

Mortgomerie v United Kingdom Steamship Association ( 1891)

The prima facie rule is that if the contract is made for a named principal, then he
alone can sue or be sued on it.

Zambia Bata Shoe Company Limited v Vin-Mas Limited (S.C.Z. Judgment No. 4
of 1994) [1994] ZMSC 8; (1994) S.J. 35 (S.C.) (8 June 1994)

The managing director of the appellant company instructed one of his subordinates,
Mr. Mbewe, to advertise for sale some of the company's houses. The managing
director then left the country but while he was away Mr. Mbewe went ahead and sold
one of the company houses to a prospective buyer. Upon his return, the managing
director was surprised to find that the house had been sold and told Mr. Mbewe that
he was not authorised to sell the house as that power rested in the Board of

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Directors. Mr. Mbewe consequently resigned. The appellant company attempted to
overturn the contract of sale but the trial court dismissed the action and on appeal it
was

Held

That the company’s authorised agents bound the company to comply with the
contract and such liability cannot be avoided.

ELEMENT 25.11 TERMINATION OF AGENCY

The agency agreement may be terminated by the actions of the parties or by

operation of the law.

ELEMENT 25.11.1 TERMINATION BY THE PARTIES

An agent who renounces his authority or a principal who revokes the authority may
be liable for breach of contract.

- Agent can renounce the authority by giving notice.

- Principal can revoke the authority by giving notice.
- Mutual Consent of the parties.

ELEMENT 25.11.2 TERMINATION BY OPERATION OF THE LAW

- Death or Insanity of either party

- Bankruptcy of the principal
- Frustration
- Illegality.

DEATH OR INSANITY OF THE PRINCIPAL

Yonge v Toynbee (1910)

The principal, instructed an agent, a solicitor, to defend an action on his behalf. The
principal became insane before the action was begun. In ignorance of the principal’s
insanity, the agent entered an appearance, delivered a defence and took other steps
in connection with the litigation.
The plaintiff learned of the principal’s condition and got the proceedings struck out.
He then sued the Agent to recover his costs contending that the solicitor had
defended an action without authority.

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Held
The solicitor’s authority had automatically terminated with the insanity of the principal.
The solicitor was liable.

The death of the principal terminates the agency and relieves his estate from liability
upon contracts made by an agent after his death, even though made in the honest
belief that he was still alive.

Similarly, the death of the agent terminates the agency agreement.

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UNIT 26 BANKING
The first bank of importance in modern times was the Bank of Sweden (1656)
followed by the Bank of England (1694).

ELEMENT 26.1 DEFINITION OF A BANK

A Bank is defined as a financial institution which receives deposits from the savers
and provides advances or lends money to its customers. Banks in Zambia are
licensed and regulated under the Banking and Financial services ACT 1994, Cap
387.

CHARACTERISTICS OF A BANK

 Deals with money and other financial related services.

 Accepts deposits
 Lends money
 Operates mostly with cash, cheques, etc.
 Provides services to customers such as, standing orders, direct debits, foreign
transactions (Letters of credit) etc.
 Acts as a financial intermediary.

BANK OF ZAMBIA

The BOZ is the central bank in Zambia and was established under the Bank of
Zambia ACT 1985 with the following functions:

1 - To formulate and implement momentary and Supervisory policies

2 - To licence, supervise and regulate banks and financial institutions

3 - To promote efficient payment mechanisms

4 - To Issue currency notes and coins

5 - To act as banker and fiscal agent to the Government

6 - To support the efficient operation of the exchange system

7 - To act as economic cd monetary management adviser to the Government

8 – As Lender of last Resort.

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Sec ion 6 provides that the Bank’s authorised Capital shall be K10 billion with the
government being the sole subscriber.

ELEMENT 26.2 FINANCIAL INTERMEDIATION

Is the provision of a mechanism by which funds are transferred from surplus units
and allocated to their most productive opportunities or deficit units.

Therefore, a bank plays the role of a financial intermediary whose core activity is to
collect deposits from surplus units (savers) and provides loans to borrowers (People
and Companies). This increases economic efficiency as it promotes a better
allocation of resources.

Depositors or Savers Financial Intermediary Borrowers

ELEMENT 26.3 BANKING SERVICES

Banks offer a wide range of services such as:

- Payment services

- Deposit taking and lending services

- Investment, Pension and insurance services

- E-banking

PAYMENT SERVICES

Banks play a major role in the payment system by offering facilities that enables
customers to make payments between individuals and / or Companies.

PERSONAL CUSTOMERS’ PAYMENTS METHODS

- Cheques
- Debit Card
- Credit Card
- Standing Orders
- Direct Debits

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- Giro ( Credit transfer)
- Cheque guarantee Cards
- Travel and Entertainment Cards
- Shop Cards
- Smart or Clip Cards

CHEQUES

Are normally drawn on a current account and are known as debit transfers because
they are written requests to debit the drawers account.

CREDIT TRANSFERS OR BANK GIRO CREDITS

Are payment methods where a customer requests his bank to transfer funds directly
to the beneficiary’s bank account.

STANDING ORDERS

A Standing Order is a customer’s instruction to the bank to pay a fixed sum of money
at regular intervals to another individual or company. Only the account holder can
change such an instruction.

DIRECT DEBITS

Direct debits are originated by the suppliers of goods and services with the authority
of the account holder who signs the mandate form. They are usually of variable
amounts depending on the goods and services supplied in that particular period and
are usually on a fixed date. However, where a payment fails to go through, the
suppliers are able to re-present the direct debit on one or two further dates before
demanding for payment from their Customer. Direct debits are particularly useful for
the payment of variable recurring bills such as electricity, water, telephone, loan
repayments, TV monthly subscriptions, etc.

ELEMENT 26.4 PLASTIC CARDS

ELEMENT 26.4.1 CREDIT CARDS

Credit cards provide credit card holders with a pre-arranged credit limit to use for
purchases at retail stores and other outlets. The retailer will then pay a commission
to the credit card issuer company for every sale made whilst the customer obtains or
uses free credit as long as the account is settled in full every month end. The two
most important bank-owned credit card organisations are:

- Visa

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- Master Card

Eg. Barclaycard

ELEMENT 26.4.2 DEBIT CARDS

Are issued directly by the banks and allow customers to withdraw money from their
accounts to make payments and purchases from retail shops. When used through
the Automated Teller Machine (ATM) a customer is able to check the bank balance,
change the pin and even request for a mini-statement.

ELEMENT 26.4.3 CHEQUE GUARANTEE CARDS

Where introduced as a guarantee to a cheque payment. The cheque guarantee card

acts as further identification and details of the card will be noted on the cheque in
order to guarantee payments. Nowadays these cards also act as debit cards.

ELEMENT 26.4.4 TRAVEL AND ENTERTAINMENT CARDS

These cards are also called charge cards which provide payment facilities and allow
repayment to be deferred to the end of the month. However, they do not provide
interest fee credit like the case of a credit card. All bills have to be settled at the end
of each month and no rollover is allowed.
e.g. - American Express
- Diner Club.

ELEMENT 26.4.5 SMART, MEMORY OR CHIP CARDS

Are cards that incorporate a memory chip which provides extra security features for
card payments.
eg. Store-cards

ELEMENT 26.4.6 BASIC FEATURES OF A PLASTIC CARD

 Name of Bank
 Name of Card holder
 Account Number
 Card Number
 Code Number
 Sort Code
 Card start date
 Card expiry date

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  Indication whether Visa or MasterCard

REVERSE OF CARD

 Black Magnetic Strip

 Signature Strip
 Statement that the card is the property of the bank
 In case of lost cards – where to send them once found.
 Security Code.

ELEMENT 26.4.7 CONTRACTS RELATING TO USE OF PLASTIC CARDS

1. A contract between the Cardholder and the Supplier (Payee)

e.g. - Contract of sales of goods
-Contract for services

2. A contract between the bank and the customer

- Customer agrees to use the card in accordance with the terms and conditions of
issue and use.

3. A contract between the bank and the payee

Is a bank undertaking to the payee that the payment will be honoured.

ELEMENT 26.4.8 TERMS AND CONDITIONS OF USE

 The Card must not be out of date

 The Card remains the property of the bank
 The Card does not entitle the cardholder to overdraw the account
 The Card should only be used by the card holder and no one else
 The Cardholder should not disclose the pin to a third party.
 Rules of repayment
 Calculation of interest
 Charges Levied.

ELEMENT 26.4.9 CARD HOLDER’S OBLIGATION

 To report loss of the card to the card issuer immediately upon notice of loss or
theft.
 Ensure the card is kept secure at all times.
 To immediately report any suspicion of fraud on the account.

PERSONAL ACCOUNTS

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These are the commonest types of accounts as any person can open a personal
bank account as long as they can legally enter into a valid contract. The major
considerations taken into account before a personal account is opened are provide
for by the Bank of Zambia Anti-money Laundering Directives, 2004 as:

 Formal application letter.

 NRC or Passport, Drivers Licence (Certified Copy). Original to be sighted.
 Employer’s name if employed.
 Nature of employment
 Three recent passport size photographs (some banks take photos on site).
 Residence permit for non-Zambians
 Address confirmation, Tenancy agreement, Utility Bill

Banks should also ascertain the following:

 Mental condition of applicant

ELEMENT 26.5 TYPES OF ACCOUNTS

CURRENT ACCOUNTS

A current account entitles the account holder to a cheque book, a debit card and
usually but not always, an overdraft facility which is at the bank’s discretion.

SAVINGS ACCOUNTS

Normally for individuals in surplus units who would like to save money for the future.

TIME DEPOSITS

These are accounts where funds are deposited for a set period of time for a pre-
determined or variable rate of interest.

E.g Fixed Deposit Account

CONSUMER LOANS

Consumer loans can be secured or unsecured loans.

Unsecured loans are those were no collateral is requested whilst secured loans are
those were collateral is requested for and are usually of high value borrowing.

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MORTGAGES

These are loans typically for the purchase of property.

JOINT ACCOUNTS

Joint Accounts are any bank accounts opened in the joint names of two or more
people and include joint loan accounts. eg Husband / Wife or Parent / Child.
However, in such accounts, the banker’s interest is to get the mandate as to
withdraw of funds from the account and the liability of each of the parties to the
account.

JOINT ACCOUNT MANDATE

The banker has to obtain a joint account mandate at the opening of the account. The
mandate has to be signed by all parties to a joint account covering all possible
banking operations on the account. It has to indicate who or how many parties would
have the authority to sign cheques or carry out any other transaction on the joint
account.

JOINT AND SEVERAL LIABILITY CLAUSE

Joint Liability means that parties to a joint account are jointly liable for any debts with
the bank and gives the bank a right of action against all parties as a group.
Several liability means that the parties to a joint account are individually liable for any
debts on the account and the bank has a right of action against all the parties as
individuals.
Hence the Joint and Several Liability Clause gives the bank the right of action
against the parties together (Jointly) and / or individually (severally) and each joint
account holder is liable for the whole debt.

MINOR’S ACCOUNT

As Minors have no contractual capacity, minor’s accounts are normally opened as

trust accounts were a parent or guardian is the trustee.

TRUST ACCOUNT

These are accounts which are operated by a trustee on behalf of the beneficiaries.

ADVOCATES ACCOUNTS

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A lawyer has an obligation not to mix his personal or firms money with that of the
clients. He has to maintain separate books and accounts for clients and a separate
“Clients” bank account.

BUSINESS ACCOUNTS

Before opening a company bank account, the bankers should ensure compliance
with the following:
(i) The Company is properly incorporated under the Companies Act by way of
a Certificate of Incorporation.
(ii) Obtains a copy of the Memorandum and Articles of Association.
(iii) Obtains a certified copy of the minutes of a board resolution appointing the
first Directors.
(iv) The mandate forms are signed by the Chairman and Secretary of the
company confirming resolutions passed by the Board of Directors.

ELEMENT 26.6 DUTIES AND OBLIGATIONS OF THE BANKER

Where first identified in the case of Joachimson v Swiss Bank Corporation (1921)
per Lord Atkin LT,

‘’The Bank undertakes to receive money and to collect bills for its customer’s
account ............ the bank borrows the proceeds and undertakes to repay
them ..................The Customer on his part undertakes to exercise reasonable care
in executing his written orders so as not to mislead the bank or facilitate
forgery.....................”

The Banker’s duties include:

(1) The duty to pay on demand money owed to the customer.

(2) The duty to obey its customer’s instructions or orders.
(3) The duty to receive and collect bills/cheques on the customer’s account.
(4) The duty to exercise proper skill and care as to (remember professional
negligence):
 Advice
 Opinion
 Collecting and paying cheques
 Many Transfers.
(5) The duty of secrecy not to disclose confidential information to a third party
unless compelled to do so under a public duty.
(6) The duty to give notice before closing a credit account.

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 Prosperity Ltd v Lloyd’s Bank Ltd (1923)
(7) Duty to provide accurate statements.

ELEMENT 26.6.1 DUTIES OF THE CUSTOMER

i) The duty to draw cheques carefully (not to mislead the bank and facilitate a
forgery)

ii) The duty to disclose or report forgeries

Greenwood v Martins Bank Ltd (1932)

iii) The duty not to issue cheques on an insufficiently funded account which is a
criminal offence under the Bank of Zambia Act Cap 387.

The People v George Wello Mpombo (2010)

The defendant issued a cheque for K10million to Katonde Farm on an
insufficiently funded account with Standard Chartered Bank (Z) Ltd.

Held:
Defendant guilty and sentenced to 60 days imprisonment plus K4million fine

ELEMENT 26.7 TERMINATION OF A BANK ACCOUNT

 Death or Mental illness

 On the customer’s Bankruptcy
 On liquidation in case of a corporate (company) account.
 By the Customer
 By The Bank

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UNIT 27 BANK SECURITY
ELEMENT 27.1 TYPES OF BORROWERS

i) COMPANIES

The powers of a company to borrow is normally provided for in the Memorandum

and Articles of Association and must be in pursuit of the ‘’ Objects Clause’’. Any
borrowing by the company outside the scope of the ‘’Objects Clause’’ is ultra-vires
and void and hence cannot be recovered through legal action. However, the
borrowing can be recovered voluntarily by way of agreement between the bank and
the company. It is important for the bank to scrutinise the company’s Memorandum
and Articles of Association to establish the powers of the company and that of its
directors.

ii) UNINCORPORATED ASSOCIATIONS

Includes, social clubs sports clubs, religious societies, NGOs, Political parties and all
other bodies set-up for non-profit making purposes. These bodies have no separate
legal identity and hence cannot sue or be sued in their own names for debts incurred
by its officials.

Members of the association are not liable for its borrowings by the committee
members. Hence, the bank has to ask one member of the association to guarantee
the borrowing and take personal responsibility in case of default.

iii) Personal customers.

LENDERS’ REQUIREMENTS

i) The Minimisation of risk: Repayment risk and risk of assets dropping in value.

ii) The Minimisation of cost

iii) Liquidity: Ease of converting a financial claim into cash.

BORROWERS’ REQUIRMENTS

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i) Funds at a particular specified date

ii) Funds for a specific period of time (Short term or long term)

iii) Funds at the lowest possible cost.

Whenever one has to borrow a large sum of money from a financial institution, there
will usually be a requirement to provide security in case of default. This is similar for
both personal and corporate borrowing.

ELEMENT 27.2 TYPES OF SECURITY

ELEMENT 27.2.1 PLEDGE

A Pledge gives the lender the right to exclusive possession of the pledged property
until the debt is discharged even though ownership remains with the pledge. A
pledge is evidenced in writing by way of a memorandum along with the delivery of
goods to the lender giving the banker extra protection as the borrower would not be
able to dispose of the goods in breach of contract.

The lender has no right to dispose of pledged property in case of default, unless with
a court order.

Goods may include:

- Household goods, eg furniture, electronic or electrical goods,

- Merchandise
- Crops

Goods can become security for a loan by way of

1. Taking physical possession of goods

2. Deposit of documents of title to goods.

However, there is no actual delivery of goods necessary but the lender will take
possession of the goods through constructive delivery.

ELEMENT 27.2.2 LIFE POLICIES

A life assurance policy is a contract whereby the insurer undertakes to pay a policy
holder or his estate, a specified sum of money on the death of the life assured or on
the expiry of a certain period, whichever is earlier. A life insurance policy is a
document of title to money and hence can be used as security to a borrowing.
The bank will request the policyholder to assign his interest in the policy to it to
secure a borrowing were assignment means the transfer of the rights of the policy
holder to the bank.

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ELEMENT 27.2.3 GUARANTEE

A guarantee is a written undertaking by one person (guarantor) to be responsible for

the debt of another. There are three parties to a guarantee:

 The Lender
 The Borrower
 The Guarantor (or Surety)
The contract between the lender and the guarantor is called the guarantee. The
borrower or principle debtor is responsible to repay the debt and in default, the
guarantor undertakes to repay on the borrower’s behalf.

A guarantee has to be in writing and should incorporate words such as:

I AGREE............... or I HEREBY UNDERTAKE.........or I HEREBY GUARANTEE

TYPES OF GUARANTEES

i) SOLE PARTY GUARANTEE

This is where the guarantee is given by one person by executing a deed and
providing security over his property.

II) JOINT GUARANTEE

The guarantors are known as co-guarantors of two or more people and each is liable
for the full amount guaranteed.

ELEMENT 27.2.4 LIEN

A Lien is the creditor’s right to retain the debtor’s property, which is held by him, until
the debt is repaid.
e.g A garage owner can refuse to release the car until the bill is settled.

A carrier of goods can retain possession of the goods until freight has been paid.
A lien gives the lien-holder the right to retain possession of the debtor’s property with
no power to sale as title to the property is still retained by the owner.

BANKERS LIEN

Can only be exercise by the bank where property comes into its hands in the normal
course of business and includes the power to sale.
Property subject to a banker’s lien includes:

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  Promissory notes
 Bills of Exchange
 Cheques paid for collection
 Insurance policies
 Share certificates

EXCLUDES

 Items in safe custody

 Items subject to a trust

ELEMENT 27.2.5 MORTGAGES

A Mortgage is the creation of an interest in land in favour of the lender with the
understanding that it shall end once the loan is repaid. This can also be explained as
a pledge of land as security for the payment of a debt.

ELEMENT 27.3 DISCHARGE OF THE SECURITY

The security is discharged when the debt is fully paid off or the debt has been written
off.

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UNIT 28 SALE OF GOODS
ELEMENT 28.1 INTRODUCTION

Generally, there are no requirements or formalities to create a contract of sale of

goods hence is based on the freedom to contract and can be oral, written or even
inferred from the conduct of the parties. The law of the sale of goods is concerned
with the buying and selling hence plays the central role in commercial law. It is not
only important to the consumer but to the national economy as a whole.

All transactions of the buying and selling of goods is governed by the Sale of Goods
Act, 1979. The Act provides for the protection of both the buyers and sellers but the
most significant protection is that of the consumers.

The Sale of Goods Act 1979 was a consolidating Act based on the \sale of Goods
Act 1893.

ELEMENT 28.2 CONTRACT OF SALE

Section 2(1) defines a contract of sale of goods as: “…..a contract by which the seller
transfers or agrees to transfer the property in goods to the buyer for a money
consideration called the price.”

Therefore, the Act only applies to goods pursuant to a valid contract which should
fulfil all requirements of its formation, i.e.

- Offer
- Acceptance
- Consideration
- Intention to create legal relations

Section 2(1) provides for the requirements as:

- There has to be a buyer and seller with full capacity to contract.

- There has to be a transfer or agreement to transfer property (i.e. there has to
be a declaration of intent by the partners).
- Intention signifies an agreement ab initio even though this is hard to prove in
oral agreements
- There has to be a money consideration which is money or money’s worth as
long as the goods can be valued.

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 - The price has to be established even though this is not present in every
contract of safe.
- There has to be goods.

Therefore, this Act does not regulate gifts as there is no contract between the donor
and the done even where “free gifts” are given by retailers or manufacturers as part
of a sales promotion.

Esso Petroleum Ltd v Customs and Exercise Commissioners (1976)

Essco offered free coins to motorists who bought four gallons of their petrol as a
sales promotion. The coins bore the picture of a member of the 1970 England World
Cup football team and motorists were encouraged to collect the full set of the squad.

If coins were part of the sale, then Esso was liable for purchase tax on their value.

Held

That there was no contract at all as there was no intention to create legal restrictions.
The garages had a powerful incentive to supply coins in order to maintain goodwill
but there was no legal obligation to do so.

ELEMENT 28.2.1 SELLER AND BUYER

Both the seller and buyer must have the capacity to contract and be committed to
selling and buying. Minors and persons of diminished responsibility have no
contractual capacity and hence the contracts they enter into are void ad initio and
cannot be enforced.

Weiner v Harns (1910)

A manufacturer of jewellery delivered some jewellery to a dealer “on sale for cash
only or return” so that it remained the property of the manufacturers until sold or paid
or paid for.

Held

There was to be payment for there to be a legally commercial transaction.

ELEMENT 28.2.2 TRANSFER OR AGREEMENT TO TRANSFER PROPERTY

The seller must transfer or agree to transfer the property in the goods for its contract
of sale of goods. Section 61(1) of the Act provides that “property means the general
property in the goods, not merely a special property”.

This means that the goods have to be whole on transfer as to the “absolute legal
right or ownership”. Therefore, the essence of the contract of sale of goods is the
transfer of ownership of property from the seller to the buyer.

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Section 12 provides that the seller can only transfer such title to the goods as he
himself has as there is an implied condition of the contact that he ((seller) has the
“right to sell” the goods.

There are two different types of contracts of sale recognised by the Act:

i) “A sale” under s2 (4) is where property passes at the time of the contract, i.e. the
contract and the conveyance are simultaneous.

ii) “Agreement to sale” under s2 (5)-(6) is where property has to pass at a future
date after the contract is made or when a condition is fulfilled.

The most common condition imposed in a contract of sale is that property in the
goods will only pass from the seller to the buyer once the buyer has paid the price.
Weiner v Harris (1910)

ELEMENT 28.2.3 MONEY CONSIDERATION

The contract will only be one of sale of goods once the property in the goods is
transferred to the buyer in exchange for a money consideration. Section 61(1)
defines goods as excluding money although it can be goods in circumstances where
it is kept as curious or artefacts.

This means that a contract for the sale of money is not a sale of goods but a contract
to sell a coin or a note as a curios is one of sale of goods as held in Moss v Hancock
(1899). However, it is unclear as to the status of the transaction in the foreign
exchange market where money is sold as a commodity.

Therefore, the money consideration has to be any recognised legal tender within a
legal jurisdiction which should be expressly provided for in the contract of sale.

However, problems arise where goods are sold for other than money, e.g. vouchers,
car part-exchange.

Esso Petroleum Ltd v Customs and Exercise Comm (1976)

Where special coins where issued on purchase of four gallons of Esso petrol.

Held

That the consideration provided by the motorist was entering into the main contract
of buying 4 gallons of petrol which entitled him to a coin. Therefore, there was no
contract of sale regarding the free token.

However, whilst the Act requires money consideration, it can also be money’s worth
as long as the goods can be valued in money terms.

Aldridge v Johnson (1857)

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The defendant agreed to transfer 100 quarters of barley to the plaintiff at £1 per
quarter in exchange for the plaintiff’s transfer of 32 bullocks valued at £6 each plus
£23 in cash.

Held

That the transaction was one of sale as both the barley and the bullocks had been
valued in money terms.

What is important is the intention of the parties as to what should be the money
consideration for the transfer of the property in the goods.

Flynn v Mackin and Mahon (1974) – ( Car part-exchange case)

A Car dealer agreed to supply a motorist with a new car in exchange for a motorist’s
old plus £ 250 in cash. Neither car was given a cash value.

Held

That the contract was not one of sale but one of barter. However, it would have been
one of sale if the new car had been priced but in lieu of that price the vendor would
take the old car plus cash for the balance.

ELEMENT 28.2.4 PRICE

Section 58 of the SoGA 1979 provides that where the parties fail to expressly agree
a price to be paid by the buyer, then the buyer must pay a reasonable price (s 58(2))
using the reasonable man test. It should be noted that a failure to expressly agree a
price is evidence that a contract had not been concluded.

Section 58(1) provides for the contract to fix the price or leave it open to negotiation
or to be determined by a course of dealings between the parties.

May and Butcher Ltd v R (1934)

The parties agreed that the supplier should supply goods to the buyer at “prices to
be agreed upon from time to time”.

Held

That the parties had not yet reached a concluded contract and that the price was to
be agreed by the parties.

Foley v Classique Coaches Ltd (1934)

The supplier was to supply petrol to the buyer at “prices to be agreed”.

Held

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Contract was valid as it formed part of a larger contract. The court will normally find
an implied promise to pay a reasonable price or pay a quantum meruit where goods
have been delivered at the buyer’s request.

However, the courts will normally find an implied promise to pay where the goods are
delivered at the buyer’s request.

UNIT 29 GOODS
ELEMENT 1 INTRODUCTION

Section 61 (1) Provides that “goods include all personal chattels other than things in
action and money........ and in particular “includes emblements, industrial growing
crops and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale”.

Therefore, a contract to sell freehold or leasehold land is not a contract for the sale
of goods.

(i) EMBLEMENTS

These are annual crops grown by agriculture labour and not naturally
occurring crops or plants. eg “pick your own” fruits.

(ii) INDUSTRIAL GROWING CROPS

These are cultivated crops which do not mature in one year. Eg Christmas
trees cut by the buyer or seller.

(iii) EXISTING GOODS

These are goods that are in possession of the seller at the time of the contract
(section 5).

(iv) FUTURE GOODS

Goods to be manufactured or acquired by the seller pursuant to the contract

(section 5). E.g. A manufacturer agrees to build and supply a piece of
machinery to a customer.

A sale of future goods is one of agreement to sell under s5 (3).

(v) SPECIFIC GOODS

These are identified goods at the time of the contract and can be either
existing or future goods (section 61 (1). e.g. A contract to sell a particular
second hand car.

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(vi) UNASCERTAINED GOODS

These are goods which are not specific and are sold by a general description.

E.g. A contract to sell 1000 litres of oil or an antique dealer mentions to a

customer that he intends to acquire a particular master piece and the
customer agrees to buy it.

ELEMENT 29.2 CONDITION OF THE GOODS

The standard of goods must be explicitly agreed between the parties. This means
that the seller must not only deliver the goods but the goods delivered must conform
to the terms of the contract. The requirements of the standard of goods are found in
the implied terms in sections 13 – 15 of the Act and the buyer is entitled to reject the
goods and terminate the contract if the goods do not conform to the standard.

ELEMENT 29.3 DESCRIPTION OF THE GOODS

Section 13 implies a condition that where goods are sold by description, then the
goods received must correspond to that description.

REQUIREMENTS

(a) Was the sale by description?

(b) What was the description by which the goods were sold?

(c) Did the description influence the buyer?

(d) Did the description identify the commercial characteristics of the goods sold.

ELEMENT 29.3.1 WAS THE SALE BY DESCRIPTION?

Varley v Whipp (1900)

Held

That where the seller sold specific goods which the Buyer had not seen, the sale
was one by description.

Grant v Australian Knitting Mills Ltd (1936)

The itchy underwear case

Held

That a sale could be by description even though the buyer had seen the goods. This
is because the items described themselves as perfectly safe to wear.

ELEMENT 29.3.2 WHAT WAS THE DESCRIPTION BY WHICH THE GOODS

WERE SOLD?

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The description can be anything such as quantity, colour, quality, weight, etc

Beale v Taylor (1967)

A “1200” badge on a secondhand car was held to be part of the description of the car.

ELEMENT 29.3.3 DID THE DESCRIPTION INFLUENCE THE BUYER?

If it did, then it affected the entire transaction.

E.g. Following the ‘objective test’ a bottle of Coca Cola is sold as fit for consumption.

ELEMENT 29.3.4 DID THE DESCRIPTION IDENTIFY THE COMMERCIAL

CHARACTERISTICS OF THE GOODS SOLD?

Goods are sold by description where the description in question identifies the
commercial characteristics of the goods to be sold.

Ashington Piggeries Ltd V Christopher Hill Ltd (1972)

A manufacturer of herring meal used to manufacture food for minks. It turned out
that there was a toxin in this food which poisoned and killed the minks. He same
food had been sold elsewhere and feel to cattle which did not die.

Held

The feed was fit for consumption and had commercial characteristics.

ELEMENT 29.3.5 DID THE GOODS CORRESPOND TO ALL ASPECTS OF THE

DETAIL BY WHICH THEY WERE DESCRIBED?

If goods are given a specific description, then they must comply with the description.

Arcos V Ronaasen (1933)

The buyer ordered ½ inch thick timber staves for making barrels. Most of the staves
delivered varied in thickness from ½ to 9/16 of an inch but where perfectly fit for the
buyer’s purpose.

Held

The buyer was entitled to reject.

SECTION 14 - GOODS MUST BE OF SATISFACTORY QUALITY

i) Fit for purpose – s14

ii) Free from minor defects, appearance and finish

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iii) Durable and safe

However, the condition is that the goods must be sold during the course of business.

Section 14(1) - Provides that there is an implied condition that goods will be of
satisfactory quality and fit for any particular purpose.

Section 14 (2) - provides that, “where the seller sells goods in the course of
business, there is an implied term that the goods supplied under
the contract are of satisfactory quality”.

Section 14 (3) - Provides that the goods sold must be reasonably fit for the
buyer’s purpose.

Gardener V Gray (1815)

Concerned a contract for sale of 12 bags of “waste silk”. The buyer expected the
goods to meet at least a minimum standard of quality and the seller knew that.

Held

“That the purchaser cannot be supposed to buy goods to lay them on a dunghill”.

Section 14 (2A) provides that the test is that goods should meet the standard which
a reasonable buyer would regard as satisfactory.

e.g – A washing machine is for washing

- Fruits are for eating

This takes into account the description price and all other relevant circumstances.

Section 14 (2B) provides that the goods sold must have the following qualities:

i. Fitness for all purposes for which goods of that kind are commonly supplied.
ii. Appearance and finish
iii. Freedom from minor defects
iv. Safety
v. Durability

There has to be a balance between defects that render the goods usable and
defects that are only minor and do not affect the usability of the goods.

S14 (2) SATISFACTORY QUALITY

Rogers V Parish (Scarborough) Ltd (1987)

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The buyer bought a new Range Rover for ₤16.000. It had a number of minor defects,
including misfiring, engine noise, leaking oil seals and scratches to the point work.

Held

The car was not of satisfactory quality.

That the purpose for which cars are bought would include “not merely the driver’s
purpose of driving the car from one place to another but of doing so with the
appropriate degree of comfort, ease of handling and reliability and, one may add,
pride in the vehicles outward and interior appearance”. Per Mustill LJ

Shine v General Guarantee Corporation (1988)

The buyer had bought a second hand Fiat X-19. It had at some time been totally
submerged in water so that the manufacturer’s anti corrosion warranty was avoided.

Held

That goods could be unsatisfactory despite being “usable”. Therefore, the car was
unsatisfactory as it was “not just a means of transport: it is a form of investment and
every purchaser of a car must have in mind the eventual saleability of the car as
well as his pride in it as a specialist car for the enthusiast”. Per Bush J.

Millars of Falkirk Ltd V Turpie (1976)

A new car was delivered with a leak in the power steering system. The seller offered
to repair the leak at a cost of ₤25.The buyer (a solicitor) declined the offer and
wanted to reject the car.

Held

The car was of satisfactory quality despite the leak.

In commercial cases, the courts are more unwilling to hold minor defects to make
goods unmerchantable especially in the sale of commodities or raw materials, which
may have a commercial resale value. This is to prevent the buyer from rejecting the
goods where to do so would be unreasonable.

S14 (3) FITNESS FOR PURPOSE

Grant v Australian Knitting Mills (1936)

The plaintiff Dr Grant claimed to have contracted dermatitis by reason of the

improper conditions of the underpants bought by him from the defendants, John
Martin & Co.Ltd and manufactured by Australian Knitting Mills.

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Dr Grant bought the underwear and put on one in the morning. By evening on the
same day he felt itching and by the next day redness appeared in front of each ankle.
His condition worsened and the rash was acute covering his whole body. He was
confined to bed for 17 weeks. The rash was due to the presence of the cuffs or angle
ends of the underpants and an irritating chemical used due to negligence in
manufacture.

Held

That the underpants were not of merchandable quality or reasonably fit for purpose.

DURABILITY AND SAFETY

Goods should not deteriorate more rapidly than can reasonably be expected.

Safety requires goods of satisfactory quality to be safe for use. However, defects
present in goods at the time of supply might not manifest themselves until sometime
later. Customers expect that goods will not only be reasonably usable at the
moment of supply but, in the absence of accidental damage or other special
circumstances will continue in that state for a reasonable period thereafter.

However, the life expectancy of goods will vary from case to case and account must
be taken of natural deterioration due to wear and tear as different types of goods
have different life expectancies.

1) The buyer has to prove that the goods broke down earlier than might
reasonably be expected. Life expectancy or durability can also be assessed
from the labels of “use by” and “best before” dates.
2) The buyer has to prove that the goods broke down as a result of a defect
present at the time of the transfer of risk.

Thain v Anniesland Trade Centre (1997)

The buyer purchased a second-hand Renault which was some five years old and
had done some 80,000 miles. She paid ₤2995 which was a reasonable amount.

After two weeks she noticed a noise from the gearbox. She claimed the car was
unsatisfactory as it was not reasonably fit for purpose and not sufficiently durable.

Held

The buyer of a second-hand car knows and accepts the risk that the car may have
some hidden defects appropriate to its age which may require repair sooner or later.

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The claim failed as there was no evidence that the gearbox begun to fail at the time
of supply.

PRICE AND DESCRIPTION

Price and description will be taken into consideration when assessing whether goods
are of satisfactory quality. These may raise or lower the quality standard to be
expected of the goods e.g. description such as Luxury, or Deluxe will raise standards
whilst goods description as “good” second-hand, ex-display may be expected to be
of a lower standard.

Goods must be fit for purpose s14 (3)

Only operates in instances where the buyer has made known to the seller a
particular purpose to which the goods are to be used. The goods then must be
reasonably fit for that particular purpose or common purpose.

Requirements

(a) The buyer must make known to the seller the particular purpose for which the
goods are bought.
(b) The buyer must rely on the seller’s expertise or knowledge

Griffiths V Peter Conway Ltd (1939)

Mrs Griffiths bought a Harris Tweed coat. She had hyper-sensitive skin and
suffered an allergic reaction which an ordinary sensitive person would not have
suffered. She had not made her special condition known to the seller.

Held

That the coat was reasonably fit for the purpose indicated

EXCEPTIONS

There are two situations in which liability of an implied term can be excluded as
provide under s14 (2c). This section provides that the implied term “does not extend
to any matter making the quality of goods unsatisfactory:

(a) That which is specifically brought to the buyer’s attention before the contract
is made.
(b) Where the buyer – examines the goods before the contract is made which
that examination ought to reveal.

ELEMENT 29.4 THE PASSING OF PROPERTY

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ELEMENT 29.4.1 ACCEPTANCE

Section 35 (1) provides that the buyer is deemed to have accepted the goods when:

(a) He intimates to the seller that he has accepted them

(b) The goods have been delivered to him and he does any act in relation to them
which is inconsistent with the ownership of the seller.

ELEMENT 29.4.2 THE NEMO DAT RULE

The Nemo dat Rule (Nemo dat quod non habet) means that “you can only transfer
property if you have the right”.

This is also called the passing of ownership from seller to buyer. It is independent of
possession or delivery, meaning that the buyer can become an owner of the goods
before they are actually delivered. Section 17 provides that property passes when
the parties interned it to pass which could be expressed, implied or presumed.
However, the most common condition imposed is that property in goods will not pass
until the buyer has paid for the goods.

Section 18 provides that where the parties do not express their intentions in the
contract as to the passing of property, then five rules will ascertain the intention of
the parties.

Rule 1 - Where there is an unconditional contract for the sale of specific goods in a
deliverable state the property in the goods passes to the buyer when the contract is
made, and it is immaterial whether the time of payment or the time of delivery, or
both, be postponed.

Rule 2. - Where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods for the purpose of putting them into a
deliverable state, the property does not pass until the thing is done and the buyer
has notice that it has been done.

Rule 3. - Where there is a contract for the sale of specific goods in a deliverable
state but the seller is bound to weigh, measure, test, or do some other act or thing
with reference to the goods for the purpose of ascertaining the price, the property
does not pass until the act or thing is done and the buyer has notice that it has been
done.

Rule 4. - When goods are delivered to the buyer on approval or on sale or return or
other similar terms the property in the goods passes to the buyer:-

(a) when he signifies his approval or acceptance to the seller or does any other
act adopting the transaction;

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(b) if he does not signify his approval or acceptance to the seller but retains the
goods without giving notice of rejection, then, if a time has been fixed for the
return of the goods, on the expiration of that time, and, if no time has been
fixed, on the expiration of a reasonable time.

Rule 5.—(1) Where there is a contract for the sale of unascertained or future goods
by description, and goods of that description and in a deliverable state are
unconditionally appropriated to the contract, either by the seller with the assent of the
buyer or by the buyer with the assent of the seller, the property in the goods then
passes to the buyer; and the assent may be express or implied, and may be given
either before or after the appropriation is made.

The general rule is that a seller can transfer to his buyer no better titled than be
himself has. Section 12(1) implies into a contract of sale that “the seller has a right
to sale the goods...........”

Niblett V Confectioners Materials Co. Ltd (1923)

The supplier, contracted to supply the Buyer (B) with cars of condensed milk. The
cars supplied had a brand name label “Nissly”. The label had the ability to mislead
consumers as “Nestle” in breach of trademark. The Nestle Company obtained an
injunction to prevent B from selling the cars under that label. B had to remove the
labels and sell the goods a considerably low price.

Held

That there was a breach of s12(1) at the time of the passing of property as the
supplier had no right to sell the goods.

However, there is no breach of s12(1) where the seller contracts to sell goods he
does not own as long as he has a right to sell at the time that property in the goes
has to pass.

Section 12(2) provides for two implied warranties whose breach gives rise to a claim
for damages.

i) s12(2) (a) – Goods sold must be free from any charge or encumbrances.

ii) s12(2) (b) – the buyer has to enjoy quiet possession of the goods.

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UNIT 30 REMEDIES AND OBLIGATIONS
OF BUYERS AND SELLERS
ELEMENT 30.1 DUTIES OF THE PARTIES

Section 27 provides that “it is the duty of the seller to deliver the goods and of the
buyer to accept and pay for them, in accordance with the terms of the contract”.

ELEMENT 30.1.1 DUTIES OF THE BUYER

i) Accept the goods.

ii) Pay for the goods.

DUTY TO ACCEPT THE GOODS

Section 27 provides that “It is ...........the duty of the buyer to accept and pay for the
goods in accordance with the terms of the contract”. There is liability on the buyer
under s37 for refusing or neglecting to take delivery of goods after the seller has
requested him to do so.

DUTY TO PAY FOR THE GOODS

The buyer has a duty to pay the price as defined in the contract. This is provided for
under s8 (2). Where the contract is silent as to the price, then the general rule is that
it is “cash on delivery”

S28 provides that the buyer must be ready and willing to pay when the seller is ready
and willing to deliver.

ELEMENT 30.1.2 DUTIES OF THE SELLER

To deliver the goods to the buyer and to transfer to the buyer the property in the
goods. Section 27 provides that, “it is the duty of the seller to deliver the
goods .........in accordance with the terms of the contract’’.
Normally, in commercial transactions, the seller makes delivery of the goods by
symbolic or constructive delivery through the delivery of documents of title covering
the goods.

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E.g. Bill of Lading.

Four Point Garage v Carter (1985)

The seller agreed to sell a car to the Buyer, At the B’s request, the car was to be
delivered directly to X to whom B had sold the Car.

Held

That in making delivery to X, the seller was acting as B’s agent and that B was
therefore in constructive possession of the car even though he never had physical
possession.

VALID TRANSFER OF PROPERTY BY OWNER AND NON-OWNER

The seller must transfer or agree to transfer the property in the goods for it to be a
contract of sale of goods. This means that the goods have to be whole on transfer as
to the absolute legal right or ownership. Section 12 provides that the seller can only
transfer such title to the goods as he himself has as there is an implied condition of
the contact that he has the “right to sell” the goods.

There are two different types of contracts of sale recognised by the Act:

i) “A sale” under s2 (4) is where property passes at the time of the contract

ii) “Agreement to sale” under s2 (5)-(6) is where property has to pass at a future
date after the contract is made or when a condition is fulfilled.

The most common condition imposed in a contract of sale is that property in the
goods will only pass from the seller to the buyer once the buyer has paid the price
(Weiner v Harris (1910)).

ELEMENT 30.2 REMEDIES

ELEMENT 30.2.1 BUYER’S REMEDIES

1. Reject the goods

2. Rescission for innocent misrepresentation

3. Damages – s51 & s53

4. Specific Performance.

5. Recovery of price – s54

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The buyer is entitled to damages for any losses incurred due to the seller’s breach of
contract.
The buyer can reject the goods if:

(i) The contract gives an express right to reject, e.g. some stores allow
consumers to return goods if they are dissatisfied with them.

(ii) Under s30 if the seller delivers the wrong quantity of goods.

(iii) There is a breach of condition, i.e. breach of implied terms under s13 – s15

However, the intention to reject must be clear and unambiguous and the seller must
be made aware of the rejection.
Also, s35 (A) and s31 (2) provides that where goods are delivered, the buyer has a
right to reject the defective goods which are part of one consignment.

LOSS OF THE RIGHT TO REJECT

(i) Acceptance
(ii) Lapse of time, i.e keeping the goods for a reasonably lengthy time would
intimate acceptance

Peak man v Express Circuits Ltd (1998)

A Machine was delivered on 20 November and rejected on 18 December
1995.Defects in the machine were apparent immediately on delivery and the supplier
attempted to fix them.

Held
The buyer had not accepted the goods after attempting to use them for 4 weeks. The
court emphasised that there must be a reasonable time for the buyer to try out the
goods and decide whether to keep them or not.

ELEMENT 30.2.2 SELLER’S REMEDIES

i) PERSONAL REMEDIES

(i) Claim for the price under s49.

(ii) Claim for damages under s50.

ii) REAL REMEDIES - ARE AGAINST GOODS.

The Sale of Goods Act section 39 provides that, “…the unpaid seller of goods
has………

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(a) A lien on the goods or right to retain them for the price while he is in
possession of them
(b) In case of the insolvency of the buyer, a right of stopping the goods in transit
after he has parted with the possession of them: s44 – s45.
This right is only lost once the transit ends and the goods are delivered to the
buyer or his agent.
(c) A right of resale as limited by this Act.
Where the buyer fails to pay, the seller may recoup some of his losses by
reselling the goods for his own benefit and is entitled to any profits he makes.
- s47- s48

(d) Where the property in the goods has not passed to the buyer, the unpaid
seller has a right of withholding delivery.

(e) Damages – s37 & s50

(f) Retention of Title clauses:

The supplier of goods on credit has the protection by retaining the property in
the goods until they have been paid for. This gives the seller the right to be
able to recover the goods as his property. These conditional sales are
assumed that the debtor retains the goods. Eg.Hire purchase.

Aluminium Industrie Vaasen Bv v Romalpa Aluminium Ltd (1976)

TERMINATION OF THE SELLER’S RIGHT OF STOPPAGE

(i) Sub-dealings with the goods by the buyer whilst still in transit.

(ii) Sub-sale by the buyer whilst goods are in transit.

Expert Golding Davies & Co. Ltd (1880)

The seller A sold goods to the buyer B who in turn sold to a third party C before they
were even dispatched by the seller. The bill of lading was taken in C’s name. The
buyer B became insolvent before paying for the goods. The third party buyer C had
equally not paid B the price.

The seller claimed he was entitled to the money from C before it reached B which is
the right of stoppage over the money.

Held

That the seller was entitled to intercept the money before it reached B.

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