Introduction and general principles

Some issues in the law of contract

Statutes
• Cases and statutes come into existence in different ways and so must be treated differently.
• Judgments in cases consist of the reported speech of judges and can be very lengthy.
European Union law
• At present, the most significant part of the general law of contract which is directly affected by European law is that dealing
with consumer rights and unfair terms.
A law of contract or a law of contracts?
• consists of many principles of general application
• it is not possible to say whether we have a law of contract or a law of contracts.
• might be safer to say simply that the general principles of contract remain important both as a part of more specific contract
regimes and also as the ‘default’ law applicable to contracts which are not regulated in a special way.
The real world
• The small number of empirical studies that have been undertaken to investigate the actual behaviour of contractors reveal
that they are frequently more cooperative and flexible than the formal legal rules would seem to anticipate.
• In general, contractors are more flexible and accommodating to changing circumstances and preferences than might be
expected.
The ‘consensus’ theory of contract and objective interpretation
• In the past, many writers and courts placed much emphasis on the need for a ‘meeting of minds’ or ‘consensus ad idem’ for
the making of contracts.
• This reliance on actual intention was an expression of laissez-faire philosophies and a belief in unfettered freedom of
contract.
• This subjective approach to the making of contracts has now largely been abandoned, though its influence can still be
detected in certain rules.
• In general, what matters today is not what meaning a party actually intended to convey by his words or conduct, but what
meaning a reasonable person in the other party’s position would have understood him to be conveying. This is known as
the process of ‘objective interpretation’.
• it is crucial to understand that this intention is ascertained objectively.
Law and equity
• At one time in England and Wales, there were two separate court systems which dealt with contract cases: courts of equity
and courts of common law.
• In the latter part of the 19th century, these two courts were amalgamated and one court dealt with both law and equity.
• Equity had developed its own principles, considerations and remedies to contractual problems. Equity is said to supplement
the common law where it is deficient.
• Equitable intervention in a contractual problem is based on the conscience of the parties; accordingly, equitable relief is
discretionary and may be more flexible.
• Some legacies of this old distinction remain (e.g. with respect to the remedies available for breach of contract).
• The primary remedy, an award of damages, which originated in the common law courts, is said to be available as of right
• In contrast, specific performance, which originated in the courts of equity, is said to be available at the court’s discretion.
• The availability of equitable relief is bound by a distinct series of considerations sometimes referred to as maxims. One such
maxim is that ‘he who comes to equity must come with clean hands’; that is to say, he who seeks equitable relief must
himself not be guilty of some form of misconduct or sharp practice.
Human rights and contract law
• The HRA creates Convention Rights (CRs) which are enforceable under An example of how the HRA’s protection of
domestic law. CRs has affected contracting activity is
• The wide ranging freedoms which are guaranteed by the HRA might have provided by the Court of Appeal’s decision in
a considerable impact upon the law of contract depending on their so Dept of Energy and Climate Change (DECC) v
called ‘horizontal’ effect. Breyer Group plc [2015] EWCA Civ 408.
• HRA s.6(1) provides that it is ‘unlawful for a public authority to act in a • The Court of Appeal held, based upon
way that is incompatible with a Convention Right’ and so clearly applies assumed facts, that the implementation of
to the relationship, including a contractual one, between a public body the changes had unjustifiably interfered with
and an individual. the companies’ right to the protection of
• The extent to which the HRA will have impacted upon the law of contract property guaranteed by Article 1 of the First
is related to the extent that the HRA has a horizontal effect (i.e. to the Protocol of the European Convention on
extent that it affects relationships, including contractual ones between Human Rights (known as an A1P1 right) and
individuals, including companies). so, in principle, those companies affected
• It has so far been recognised that CRs have some horizontal effect (e.g. were entitled to damages.
the House of Lords has recognised that the Article 3 right to respect for
private and family life required that legislation regarding the succession to rented property must be applied in the same way
to same sex relationships as it is to heterosexual relationships).
• The precise extent of the horizontal effect of the HRA is a contentious issue.
• Further development of the extent of horizontal effect will, if it occurs, increase the importance of human rights protection
upon the law of contract.
Introduction and general principles
Some issues in the law of contract
Statutes
• Cases and statutes come into existence in different ways and so must be treated differently.
• Judgments in cases consist of the reported speech of judges and can be very lengthy.
European Union law
• At present, the most significant part of the general law of contract which is directly affected by European law is that dealing
with consumer rights and unfair terms.
A law of contract or a law of contracts?
• consists of many principles of general application
• it is not possible to say whether we have a law of contract or a law of contracts.
• might be safer to say simply that the general principles of contract remain important both as a part of more specific contract
regimes and also as the ‘default’ law applicable to contracts which are not regulated in a special way.
The real world
• The small number of empirical studies that have been undertaken to investigate the actual behaviour of contractors reveal
that they are frequently more cooperative and flexible than the formal legal rules would seem to anticipate.
• In general, contractors are more flexible and accommodating to changing circumstances and preferences than might be
expected.
The ‘consensus’ theory of contract and objective interpretation
• In the past, many writers and courts placed much emphasis on the need for a ‘meeting of minds’ or ‘consensus ad idem’ for
the making of contracts.
• This reliance on actual intention was an expression of laissez-faire philosophies and a belief in unfettered freedom of
contract.
• This subjective approach to the making of contracts has now largely been abandoned, though its influence can still be
detected in certain rules.
• In general, what matters today is not what meaning a party actually intended to convey by his words or conduct, but what
meaning a reasonable person in the other party’s position would have understood him to be conveying. This is known as
the process of ‘objective interpretation’.
• it is crucial to understand that this intention is ascertained objectively.
Law and equity
• At one time in England and Wales, there were two separate court systems which dealt with contract cases: courts of equity
and courts of common law.
• In the latter part of the 19th century, these two courts were amalgamated and one court dealt with both law and equity.
• Equity had developed its own principles, considerations and remedies to contractual problems. Equity is said to supplement
the common law where it is deficient.
• Equitable intervention in a contractual problem is based on the conscience of the parties; accordingly, equitable relief is
discretionary and may be more flexible.
• Some legacies of this old distinction remain (e.g. with respect to the remedies available for breach of contract).
• The primary remedy, an award of damages, which originated in the common law courts, is said to be available as of right
• In contrast, specific performance, which originated in the courts of equity, is said to be available at the court’s discretion.
• The availability of equitable relief is bound by a distinct series of considerations sometimes referred to as maxims. One such
maxim is that ‘he who comes to equity must come with clean hands’; that is to say, he who seeks equitable relief must
himself not be guilty of some form of misconduct or sharp practice.
Human rights and contract law
• The HRA creates Convention Rights (CRs) which are enforceable under An example of how the HRA’s protection of
domestic law. CRs has affected contracting activity is
• The wide ranging freedoms which are guaranteed by the HRA might have provided by the Court of Appeal’s decision in
a considerable impact upon the law of contract depending on their so Dept of Energy and Climate Change (DECC) v
called ‘horizontal’ effect. Breyer Group plc [2015] EWCA Civ 408.
• HRA s.6(1) provides that it is ‘unlawful for a public authority to act in a • The Court of Appeal held, based upon
way that is incompatible with a Convention Right’ and so clearly applies assumed facts, that the implementation of
to the relationship, including a contractual one, between a public body the changes had unjustifiably interfered with
and an individual. the companies’ right to the protection of
• The extent to which the HRA will have impacted upon the law of contract property guaranteed by Article 1 of the First
is related to the extent that the HRA has a horizontal effect (i.e. to the Protocol of the European Convention on
extent that it affects relationships, including contractual ones between Human Rights (known as an A1P1 right) and
individuals, including companies). so, in principle, those companies affected
• It has so far been recognised that CRs have some horizontal effect (e.g. were entitled to damages.
the House of Lords has recognised that the Article 3 right to respect for
private and family life required that legislation regarding the succession to rented property must be applied in the same way
to same sex relationships as it is to heterosexual relationships).
• The precise extent of the horizontal effect of the HRA is a contentious issue.
• Further development of the extent of horizontal effect will, if it occurs, increase the importance of human rights protection
upon the law of contract.
The codification of contract
• The English law of contract is found in the decisions of the courts supplemented by a small number of statutory measures,
some of the latter having their origins in European Directives.
• The domestic law applicable in many European countries is so called ‘civil’ law derived from Roman law.
• A distinctive feature of these systems is the place of ‘codes’ which in an authoritative way state the law on a particular topic
• The idea of a single source for all the legal principles on a topic has an instant, but misleading, appeal
• A code is not able to provide for all possible cases and circumstances.
• Rather its necessarily general principles must subsequently be interpreted by courts before they are applied in concrete
cases. The need to refer to such interpretations and the different stances that may be taken complicate the original code.
• With civil law jurisdictions in the majority it was perhaps inevitable that there would be pressure to enact a single contract
code for all of Europe
• To this end the private work of collections of lawyers aimed at producing such a code, the best known being Lando’s
Principles of European Contract Law (the ‘PECL’).
• The imposition of a single contract law in Europe was never, even before ‘Brexit’, politically possible.
• The most successful general contract code is probably the United Nations Convention on Contracts for the International
Sale of Goods (known as either the Vienna Convention or CISG).
The origins of the law of contract
• The origins of the law of contract are often associated with the nineteenth-century period of laissez faire economics.
• Modern contract law really begins with the need to differentiate between formal and informal arrangements between parties.
• Traditionally, all formal agreements (e.g. transfers of land) were under seal; proof of the agreement was the deed itself.
• Informal agreements might be written but were more commonly oral, with the consequent difficulty of proof.
What is a contract?
• A contract is an agreement between two parties by which both are bound in law and which can therefore be enforced in a
court or other equivalent forum.
• Contracts are distinguished from agreements, which are not binding, and from promises, which are enforceable but
unilateral.
• To be enforceable, a contractual agreement must be based on mutuality of intent – no mutuality, no contract.
• Proof of the existence of the agreement is usually needed, based on the idea that a person will not give up goods or
services without a payment in return.
• Some agreements give rise to legal relations, some do not.
• A contract is an agreement based on the promises of two parties; a will is a binding promise but is one-sided.
Why contracts are enforced
• Contract law is important as it is a way of regulating relationships – we can safely make arrangements with other people if
we know those agreements have the force of law.
• contractual arrangements are enforced for three specific reasons:
1. because they create legitimate expectations in both parties that their undertakings will be carried out;
2. because it is quite common for a party to a contract to incur further expenditure on reliance on the promise made; and
3. because if one party actually does carry out his/her side of the bargain, it would be unconscionable to allow the other party
to avoid paying the price.
Freedom of contract
• Many rules of contract law developed in the nineteenth century under
the doctrine of laissez faire economics, when the idea also developed However, there are many problems with
that parties to a contract should be free to negotiate any terms they freedom of contract:
wished to be in the contract. • inequality of bargaining strength of the two
• Common law has generally tried to follow this principle and to give parties;
effect to the wishes of the parties. • the acceptance of implied terms;
• Freedom of contract is not straightforward and parties may need to be • the use of standard form contracts;
aware of contractual obligations that they must comply with, but which • statutory intervention to protect consumers;
they have not chosen themselves. • the obligation to implement EU law.
Agreement: offer and acceptance
• The law of contract defines the circumstances when a promise or promises are enforceable. However, not all promises are
enforced by courts.
• For a promise or promises to be initially enforceable as a contract certain elements must be present. There must be:
1. agreement – based on mutuality over the terms
- The process of agreement begins with an offer.
- An offer may be addressed to a single person or to many people.
- For a contract to be formed, this offer must be unconditionally accepted
2. consideration – given by both sides, the quid pro quo, and the proof that the bargain exists; and
3. intention to create legal relations – since a contract is legally enforceable, unlike mere gratuitous promises
• If these elements are not present, a court will not find that a contract exists between the parties.
• In the absence of a contract, neither party will be bound to the tentative promises or agreements they have made.
• unilateral contract - exchange of a promise for an act.
• A typical unilateral contract would be the offer of a reward for the return of lost property.
• It is a frequent, but not a necessary, feature of a unilateral contract that the offer, such as that of a reward, is made to a large
group of people.
• As a unilateral contract involves a promise by one party only it follows that it generates an obligation for one party only.
• The only obligation it creates is a contingent one upon the offeror to pay the stipulated reward to any person who chooses
to perform the stipulated act (i.e. return the lost property).
The offer Centrovincial Estates v Merchant Investors
• not the subjective intentions of the parties that determine the legal Assurance Co [1983]
effect but the reasonable inference that they would support • claimants had bought commercial premises let to
(‘objective’ theory of agreement Smith v Hughes (1871)) the defendants for rent of £68k subject to review
• A contract usually begins with acceptance of an offer. An offer is a • claimants mistakenly proposed a new rent of £65k
statement by one party, the offeror (the person making the offer), • defendants predictably ‘accepted’ mistaken offer.
identifying terms of an agreement by which (s)he is prepared to be • claimants argued that no reasonable tenant would
bound if they are accepted by the offeree (the person to whom the have expected the rent to be reduced
offer is made). • D responded that this was a reasonable
• Offer is straightforward if made in the form of a question: ‘Will you expectation in light of their communicated
buy my law book for the price stated?’ – offeree responds positively dissatisfaction with the previous letting.
and accepts or rejects the offer. • Court of Appeal accepted the defendants’
• There is one circumstance when the courts will depart from the arguments that it was at least arguable that an
usual objective approach and take account of the actual subjective offer to let premises for £65k pa meant exactly
knowledge of the offeree: ‘snapping up’ doctrine, an offeree is not that.
allowed to accept an offer which he knows is mistaken as to its
terms (Hartog v Collins and Shields [1939]
• important and is what limits the scope of this disapplication of the usual objective approach.
• the exception will only apply where the offeree is aware that the offeror is mistaken as to the terms he intended to offer
(Statoil ASA v Louis Dreyfus Energy Services LP (The ‘Harriette N’) [2008]
• doctrine will apply both where, as in Hartog, the offeree is aware of the offeror’s mistake as to the terms he is offering but
also where, as in Scriven Bros v Hindley [1913] 3 KB 564, the offeree should know that the offeror is mistaken as to the
terms he has offered perhaps because, as in Scriven, the offeree induced that mistake by his own carelessness
Offers and invitations to treat
• An offer is an expression of willingness to contract on certain terms.
• It must be made with the intention that it will become binding upon acceptance
• There must be no further negotiations or discussions required
• Storer v Manchester City Council [1974] - binding contract- Council had sent Storer a communication that they intended
would be binding upon his acceptance. All Storer had to do to bind himself to the later sale was to sign the document and
return it.
• Gibson v Manchester City Council [1979] - Council sent Gibson a document which asked him to make a formal invitation
to buy and stated that the Council ‘may be prepared to sell’ the house to him. Gibson signed the document and returned it.
The House of Lords held that a contract had not been concluded because the Council had not made an offer capable of
being accepted.
• Key distinction between the two cases is that in Storer’s case there was an agreement as to price, but in Gibson’s case
there was not. In Gibson’s case, important terms still needed to be determined.
Invitation to treat
• passive conduct inviting the other party to make an offer
• In all cases the significance of the invitation to treat is that the person responding to it has not accepted an offer, so their
action does not at that point create a binding contract.
• Auctions – the lot displayed is the invitation to treat, the individual bids are offers, the fall of the auctioneer’s hammer is
acceptance (British Car Auctions v Wright (1972)). In the case of auctions without a reserve price, the auctioneer enters into
a collateral (or separate) contract. The nature of the collateral contract is that the auctioneer will accept the highest bid. See
Warlow v Harrison [1859]
• Self-service shopping – display of goods is the invitation to treat, a customer then selects goods and makes an offer to buy
at the checkout, which is then accepted or not by the shopkeeper (Pharmaceutical Society of Great Britain v Boots Cash
Chemists Ltd (1953)).
• Goods displayed in shop windows (Fisher v Bell (1961)) on whether display of a flick knife was unlawful under the
Offensive Weapons Act.
• Advertisements – the advertisement is the invitation to which a An advertisement is an invitation to treat where a
person responds by making an offer to buy (Partridge v Crittenden bilateral contract is anticipated:
(1968)). The reason that they have only made an invitation to treat • Partridge v Crittenden [1968] 2 All ER 421 – the
and not an offer is because if the statement in the leaflet is advertisement of a bilateral contract
construed as an offer, then the shop would be bound to sell to • Carlill v Carbolic Smoke Ball Company [1893] 1
everyone who presented themselves at the shop. Consequently, if QB 256, a unilateral contract is contemplated the
you visit the shop, they do not need to sell you oranges at this price. advertisement may be an offer.
The offer can be made by action or by statement. See Trentham Unilateral offers (i.e. contained in advertisements,
Ltd v Archital Luxfer (1993). and otherwise seen as invitations to treat (e.g.
• Catalogues, as for auctions, so a lot can be withdrawn without any rewards). An offeree is already defined in the reward
consequences (Harris v Nickerson (1873)). (the person who complies with its terms) so that the
• Invitations to council tenants to buy their council houses and flats person need not make any offer to comply; they
(Gibson v Manchester City Council (1979)). merely carry out the stated task
• Tenders to provide goods or services – invitations to suppliers to Only one party would be bound from the outset.
offer a particular price for which they will provide the goods or A store mistakenly advertised Sony televisions
services; the party inviting bids then selects a bid (Spencer v
for sale on its website for £2.99 each rather than
Harding (1870)).
the £299 they intended. Has the store entered a
• Request for tenders - an invitation to treat and the tender is the
contract to supply the televisions at the mistaken
offer (Harvela Investments Ltd v Royal Trust Co of Canada Ltd
price with customers who purported to ‘buy’ the
[1985]). Invitation to treat may contain an implied undertaking to
TVs online?
consider all conforming tenders, as in Blackpool and Fylde Aero
Advertisement is the invitation to treat.
Club Ltd v Blackpool Borough Council [1990]
Store would have entered a contract to supply
• Mere statement of price – merely stating an acceptable price does
goods at the mistaken price if the website
not make it an offer to sell; the other party must still offer to buy at
constituted a contractual offer which was ‘accepted’
the price (Harvey v Facey (1893)).
when the order was placed online.
A statement of intention
Under the so called doctrine of ‘snapping
• one party states that he intends to do something
up’ (Hartog v Collins and Shields (1939)) the
• differs from an offer in that he is not stating that he will do
customers will not be able to accept an offer which
something
they know (or should know: Scriven Bros v Hindley
• Harris v Nickerson [1873] - auctioneer’s advertisement was a
(1913)) is mistaken as to its terms.
statement that he intended to sell certain items; it was not an offer
that he would sell the items.
Do courts treat the display of goods in a shop
A supply of information
window differently from a display in an
• one party provides information to enlighten the other party
automated machine and if so, how?
• statement is not intended to be acted upon
• Goods displayed in shop windows - invitation
• Harvey v Facey (1893) where one party telegraphed, in response to
to treat by seller, customer offers when they
the query of the other, what the lowest price was that he would
present the item to cashier with payment (Fisher v
accept for his property, if he were to sell it. This alone did not imply
Bell (1961))
an assurance that he would sell at this price.
• Vending machine - offer - by making selection,
Communication of the offer
customer is accepting offer and has entered
• To be effective an offer must be communicated: there can be no
contract (Thornton v Shoe Lane Parking)
acceptance of the offer without knowledge of the offer (Taylor v
Laird (1856)).
• There can be no agreement without knowledge. Offeree must have clear knowledge of the existence of an offer for it to be
enforceable (Inland Revenue Commissioners v Fry (2001)).
• Gibbons v Proctor (1891) - if a policeman was allowed to recover a reward when he sent information in ignorance of the offer
of reward.
• R v Clarke [1927] - there cannot be assent without knowledge of the offer; and ignorance of the offer is the same thing
whether it is due to never hearing of it or forgetting it after hearing.
• An offer can be made to one individual, but also to the whole world, when the offer can be accepted by any party who had
genuine notice of it (Carlill v Carbolic Smoke Ball Co (1893)).
• The terms of the offer must be certain. The parties must know in advance what they are contracting over, so any vague
words may invalidate the agreement (Guthing v Lynn (1831)).
Acceptance of the offer
• For a contract to be formed, there must be an acceptance of the offer.
• A valid acceptance is an intention to be bound by the terms of the offer, so it must:
1. be unequivocal and unconditional; and
2. correspond exactly with the terms of the offer – the ‘mirror image’ rule.
• A communication which falls short an agreement to each of the terms of the offer (e.g. by merely expressing gratitude for
‘instructions’) will not constitute acceptance (Arcadis Consulting v AMEC (BSC) [2016] EWHC 2509 (TCC)).
• It is said that the acceptance must be a ‘mirror image’ of the offer.
• Reveille Independent LLC v Anotech International (UK) Ltd [2016] - If the offeree attempts to add new terms when
draft agreement was accepted by subsequent conduct that accepting, this is a counter-offer and not an
sufficiently indicated assent to its terms even though the draft acceptance Hyde v Wrench (1840)).
expressly stated that it was only binding when signed A counter-offer implies a rejection of the original
• Contractual acceptance, like a contractual offer, is established offer, which is thereby destroyed and cannot
objectively. subsequently be accepted. Hyde v Wrench (1840)
• So acceptance occurs when the offeree’s words or conduct give
rise to the objective inference that the offeree assents to the Butler Machine Tool v Ex-Cell-o [1979] 1 All ER
offeror’s terms. 965 held that the ‘last shot’ wins this ‘battle of the
• Acceptance can be by words or by conduct. See Brogden v forms’. Last set of terms sent before a contract is
Metropolitan Railway Company (1877) performed is governing agreement.
• Where the offeree queries the offer and seeks more information, A party implicitly agrees to the counter offer by
this is neither an acceptance nor a rejection. It is merely an enquiry indicating lack of objection.
as to whether the offeror would be prepared to vary the offer and What is the position under the ‘last shot rule’ if,
the original offer stands. See Stevenson, Jacques & Co v McLean after the exchange of forms, the seller fails to
[1880] 5 QBD 346. deliver the goods?
• Tekdata Interconnections Ltd v Amphenol Ltd [2009] EWCA Civ A contract has been formed. See, for example,
1209 the Court of Appeal reasserted the traditional approach Butler & Tekdata. If the seller fails to deliver the
emphasising the importance of certainty in commercial goods, they are in breach of the contract.
transactions.
• On rare occasions the traditional analysis is abandoned altogether.
In President of the Methodist Conference v Preston [2013] the Supreme Court held that the manner in which a Methodist
minister was engaged was incapable of being analysed in terms of contractual formation.

A wrote to B offering 300 bags of cement at £10 per bag. B wrote in reply that she was very interested but needed to
know whether it was Premium Quality cement. The following morning, soon after A read B’s letter, B heard a rumour that
the price of cement was about to rise. She immediately sent a fax to A stating, ‘Accept your price of £10 for Premium
Quality’. Assuming that the cement actually is Premium Quality, is there a contract? If so, does the price include
delivery? Explain your reasoning.
A has offered the goods for sale – the requisite intention to be bound is present. B’s initial correspondence could be taken as a
rejection – but it is more likely to be a request for information and the offer survives (Stevenson, Jacques & Co v McLean [1880])
B’s fax is good when it is communicated – probably instantly. The fax, however, adds a condition and the communication is
therefore not an unqualified consent to A’s offer. On balance, this probably operates as a conditional offer – which has the effect
of destroying the original offer. There is, thus, no contract. Even if there is a contract, the contract will not include the delivery
price (unless such a term can be implied by reason of the course of dealing between these parties or by reason of the custom of
this industry).
Communication of the acceptance
• It follows that silence cannot amount to an acceptance (Felthouse v Bindley (1863))
1. Acceptance can be construed from the conduct of the parties (Brogden v Metropolitan Railway Co (1877))
2. But only if it can be objectively demonstrated to have been the intention of the offeree (Day Morris Associates v Voyce
(2003)).
• It then follows that silence can constitute acceptance when this does not involve forcing a contract upon an unwilling party
Rust v Abbey Life [1979]
• A question can arise as to the timing of communication when it is received by a machine (e.g. a fax or email), maybe outside
of usual office hours.
• Tenax Steamship Co v Owners of the Motor Vessel Brimnes (The Brimnes) [1975] QB 929, concerning the notice of the
withdrawal of a ship under a ship charter, it is suggested that communication to any ‘unmanned receptor’ is effective from
the time at which it is reasonable to expect that machine to be checked.
• Therefore, if it is not reasonable to expect a computer to be checked out of usual business hours a communication sent at
this time may only be regarded as communicated after the next opening of the office concerned.
• Acceptance of a unilateral offer need not be communicated, because performance is the same as acceptance (Carlill v
Carbolic Smoke Ball Co (1893)).

You offer to buy a kilo of oranges from your local shop for 9p. Nothing further is said, nor do you receive any written
correspondence. The next day, however, a kilo of oranges arrives at your house from the local shop. Is there a valid
acceptance of the contract? Has there been a communication of the acceptance?
(Brogden v Metropolitan Railway Company [1877] 2 App Cas 666)
If your ‘offer’ amounts to an offer in law, there has been an acceptance of your offer. The acceptance has been by act, rather
than by writing or by discussion. Your offer has been accepted by conduct. The oranges have been despatched in response to
your request for them.
Although there had been no communication of acceptance, performing the contract without any objection is enough.

Exceptions to the need for communication of the acceptance

• General rule: for an acceptance to be valid it must be communicated to offeror. It must be brought to the offeror’s attention.
 • there are certain exceptions – situations where the law does not require communication of the acceptance.
Where the offeror has waived the requirement of communication
• in certain circumstances the offeror may waive the necessity for communication. This is what occurred in Carlill v Carbolic
Smoke Ball Co which was a case involving a unilateral offer.
Unilateral offers
• The other party need make no promise to do the act or refrain from the act.
• Acceptance of the offer occurs through performance and there is no need to communicate acceptance in advance of
performance
• Carlill v Carbolic Smoke Ball Company (1893) it was established that full performance is the acceptance of the offer and
there is no need to communicate the attempt to perform. Communication of the acceptance is waived because it would be
unreasonable of the offeror to rely on the absence of a communication which would have been superfluous or which no
reasonable person would expect to be made.
The postal acceptance rule
• An offer is posted. The offeree receives the offer and posts her acceptance. The letter of acceptance will take
several days to arrive. At what point is the acceptance good?
• In one situation the acceptance takes place before the offeror receives notification of it – this is the ‘postal rule’:
1. Where use of the post is the normal, anticipated method of acceptance, the acceptance is valid and the contract formed
when the letter is posted, not when it is received by the offeror (Adams v Lindsell (1818)).
2. It may be that the post is the only reasonable form of communication available (Henthorn v Fraser (1892))
3. It can also apply even though the letter of acceptance is never received. It will prevail where use of the post was
reasonably contemplated by the parties or stipulated by the offeror (Household Fire Insurance Co v Grant (1879))
4. The postal acceptance rule will not allow a contract to be concluded by posting the acceptance where the letter is
incorrectly addressed by the offeree. The offeror may accept the risk of delay occasioned by the post but not the
carelessness of the offeree: LJ Korbetis v Transgrain Shipping BV [2005]
• The greatest problem is that contracts can be formed without the offeror being aware of the contract. For example, an
offeror makes an offer. Unbeknown to him, the offeree accepts. The offeror then revokes the offer before receiving the
postal acceptance.
• Holwell Securities v Hughes [1974] - postal acceptance rule did not apply because the offeror did not intend that it would
apply. Terms of an offer must be met for acceptance to be valid
A posts a letter offering to clean B’s house. B posts a letter accepting A’s offer. Later in the day, B’s house burns down
and B now no longer needs a house cleaner. B immediately posts a letter to A rejecting A’s offer. Both of B’s letters arrive
at the same time. Is there a contract or not?
See Countess of Dunmore v Alexander (1830).
Revocation is allowed when receiving two simultaneous letters. Acceptance may nevertheless be revoked by a letter reaching
the offeror before letter of acceptance.
• The postal rule has limited application to modern communications technology:
1. In Entores Ltd v Miles Far East Corp. (1955), offer and acceptance communicated by telex were valid because the method
was so instantaneous that the parties were deemed to be dealing as if face-to-face, even though they were in different
countries.
2. The reason is that such forms of communication are usually instantaneous (Brinkibon v Stahag Stahl (1983)
3. The time when these forms of communication are used may cause problems in determining if a contract is made, as when
a fax is sent out of office hours.
4. JSC Zestafoni Nikoladze Ferroalloy Plant v Romly Holdings [2004] EWHC 245 (Comm) an acceptance by fax was held to
be an instantaneous communication.
Receipt rule
• Regulations governing internet trading (i.e. the purchase of goods or services from websites), principally the Electronic
Commerce (EC Directive) Regulations (2002) do not identify at what stage acceptance is effected.
• Regulation 11(2) provides that in contracts with a consumer the order and acknowledgment of the order are deemed to be
received when the addressee is able to access them.
• Regulations would appear to indicate that the default rule that acceptance is effective upon receipt
Email
• may take some time to arrive at its destination, depending upon the route it takes to its recipient.
• There are two possible approaches to the email communication of the acceptance: postal analogy or receipt rule but, from
Athena Brands Ltd v Superdrug Stores plc [2019], it seems that the receipt rule will be preferred.
Method of acceptance
• Sometimes an offeror may stipulate that acceptance is to be made using a specific method. Manchester Diocesan Council
for Education v Commercial and General Investments [1970]
• Required method for communicating acceptance may also be inferred from the making of offer. Quenerduaine v Cole [1883]
• The problem that arises: if the offeree uses another method of acceptance, does this acceptance create a contract?
• If the other method used is no less advantageous to the offeror, the acceptance is good and a contract is formed.
• This is the result unless the offeror stipulates a certain method of acceptance and further stipulates that only this method of
acceptance is good (Manchester Diocesan Council for Education v Commercial and General Investments (1970)
The end of an unaccepted offer
Change of mind
• Payne v Cave [1789] - either party may change their mind and
withdraw from negotiations before there is acceptance
• Offeror has stipulated that the offer will be open for a certain time
period, he can withdraw the offer within this time period.
• Routledge v Grant [1828] - If a time has been set by which to
accept, then the offer will automatically lapse at the end.
Revocation of an offer:
• Byrne v van Tienhoven [1880] - there must be
actual communication of revocation
• Dickinson v Dodds [1876] - The revocation need
not be made personally. Communication to the
offeree through a reliable source is sufficient.

Your neighbour offers to sell you her car for £10,000. She tells you to ‘think about it and let me know by Monday’. On
Saturday, she puts a note under your door to say ‘forget it – I want to keep my car’. Can she do this? Explain.
By what process must the offeror of a unilateral contract revoke his offer? What must the offeror do to alert ‘the world’?
Shuey v USA [1875] - revocation may be effected by giving the same prominence to the revocation as was given to original offer
Errington v Errington and Woods (1952) - A unilateral offer cannot be withdrawn if the offeree is in the act of performing, since
acceptance and performance are one and the same thing

Termination of offers
• An offer may come to an end because it has been accepted, in which case a contract is formed.
1. By passage of time - time set for acceptance has passed
Why can the offeror break his or her promise to keep the offer open for a stated time?
• Offord v Davies (1862) - offeror can revoke the offer before the
time period lapses provided that the offer has not been accepted. Death of either party:
Cases in which no time period is stipulated for the offer: - If the offeror dies and the offeree knows of this, it is
• Ramsgate Victoria Hotel v Montefiore [1866] - offeror is entitled unlikely that (s)he would be able to accept and bind
to assume that acceptance will be made within a reasonable time the estate of the offeror to a contract.
period or not at all. It would be unfair to expect an offeror to - If the offeree, however, accepts an offer in
indefinitely keep open an offer for sale of perishable goods. ignorance of the death of the offeror then a contract
• What is a ‘reasonable time’ is thus a question of fact in each case may be formed (Bradbury v Morgan (1862)).
2. By failing to comply with a condition precedent (Financings v - If the offeree dies then it is unlikely that the
Stimson (1962)) - e.g. an offer of employment made subject to executors or administrators of the estate can accept
production of a satisfactory reference or medical report on his/her behalf (Reynolds v Atherton (1921)).
3. Because of the death of either party
Can a letter of acceptance be cancelled by actual communication before the letter is delivered?
No direct English authority on this point.
Arguments against
Logic—once a letter is posted, the offer is accepted; there is no provision in law for revoking an acceptance. The ‘logical’ view
is supported by the New Zealand case of Wenckheim v Arndt (1878) and the South African case of A to Z Bazaars (Pty) Ltd v
Minister of Agriculture (1974).
Fairness— Cheshire argues that it would be unfair to the offerer, who would be bound as soon as the letter was posted,
whereas the offeree could keep his options open.
Arguments for
There is some support for allowing recall in the Scottish case of Countess of Dunmore v Alexander (1830).
• It is argued that actual prior communication of rejection would not necessarily prejudice the offeror, who, by definition, will be
unaware of the ‘acceptance’.
• It is also argued that it would be absurd to insist on enforcing a contract when both parties have acted on the recall. This,
however, could be interpreted as an agreement to discharge.
Alice wrote to Bill offering to sell him a block of shares in Utopia Ltd. In her letter, which arrived on Tuesday, Alice
asked Bill to ‘let me know by next Saturday’. On Thursday Bill posted a reply accepting the offer. At 6pm on Friday he
changed his mind and telephoned Alice. Alice was not there but her telephone answering machine recorded Bill’s
message stating that he wished to withdraw his acceptance.
On Monday Alice opened Bill’s letter, which arrived that morning, and then played back the message on the machine.
Advise Alice.
It is important to break the question down into its constituent issues. You are considering each of these issues with a view to
determining whether or not a contract has been formed. Bill will argue that he is not obliged to purchase the shares because
no contract has been formed.
Communications must be considered chronologically because the proper legal analysis of a later communication will often
depend upon that of a prior one. A communication from A to B cannot be an acceptance unless there has been a prior
communication from B to A that constitutes an offer; a communication from A to B cannot be a counter offer unless B has
previously made an offer to A. Sometimes it may not be possible to come to a firm conclusion as to the proper analysis of a
communication, in which case two alternatives may need to be considered, of the type:
1. If A’s letter to B is an offer then B’s reply may be an acceptance,
2. but if A’s letter to B is only an invitation to treat (negotiate) then B’s reply may be a contractual offer, etc.
The issues in this problem are:
a. What is the effect of Alice writing to Bill to offer to sell him shares?
Invitations to treat - indication that the invitor is willing to enter into negotiations but is not prepared to be bound immediately
Alice’s letter appears to be an offer within the criteria of Gibson v Manchester City Council - the council’s letter stated ‘we may
be prepared to sell you ...’. The House of Lords did not regard this as an ‘offer’. A response to an invitation to treat does not
lead to an agreement. The response may, however, be an offer.
b. What is the effect of Alice’s stipulation as to the time the offer is open?
Offord v Davies - Alice’s stipulation that the offer is open for one week is not binding unless there is a separate binding
contract to hold the offer open. There does not appear to be such a separate binding agreement.
c. What is the effect of Bill’s posting a reply?
Because Bill posts his letter of acceptance, we need to consider whether or not the postal acceptance rules apply.
The postal rule - Acceptance takes place when a letter is posted, not
when it is received Difference between acceptance and revocation
Household Fire Insurance v Grant - D offered to buy shares in the of an offer by post:
plaintiff’s company. A letter of allotment was posted to the D, but it • Acceptance of an offer takes place when a
never reached him. Held—the contract was completed when the letter letter is posted
was posted. • Revocation of an offer takes place when the
Does the case apply here? In the circumstances, it probably does. letter is received
Alice has initiated communications by post and thus probably
contemplates that Bill will respond by post.
In these circumstances, the acceptance is good when Bill posts the letter – it is at this point that a contract is formed. It does
not matter that the letter does not arrive until Monday (at which point the offer will have expired, given Alice’s stipulation as to
the time period).
Limitations to the postal rule
A possible counter argument to this is that Alice asked Bill to let her
• Holwell Securities Ltd v Hughes (1974)
know by Saturday – and this ‘let me know’ means that there must be • The rule is easily displaced, for example, it may
actual knowledge of his acceptance – that it must really be be excluded by the offerer either expressly or
communicated. This necessity for actual communication means that impliedly.
Bill’s acceptance is not good until Monday when Alice actually opens • it was excluded by the offerer requiring ‘notice in
the letter. To apply this counter argument, one needs to consider the writing’.
criteria set out in Holwell Securities v Hughes. • It was also suggested by the court that the
One might also note that since that decision, courts are reluctant to postal rule would not be used where it would
extend the ambit of the postal acceptance rule. lead to manifest inconvenience.
d. What is the effect of Bill’s change of mind? Is there effective
communication when a message is left on an answering machine?
Bill changes his mind. Here there is no authority as to the effect of his change of mind. In addition, given the two possible
positions in point (c) above, two possible outcomes exist.
1. If the postal acceptance rules apply, then a contract has been formed and Bill’s later change of mind cannot upset this
arrangement. However, this seems a somewhat absurd result since Alice learns almost simultaneously of the acceptance
and the rejection. Bill has attempted to reject the offer by a quicker form of communication than the post. In these
circumstances, you could apply the reasoning of Dunmore v Alexander and state that no contract has been formed
between the parties. In addition, given the reservations of the court in Holwell Securities v Hughes, it seems improbable
that a court would rely upon the postal acceptance rule, an unpopular exception to the necessity for communication, to
produce an absurd result.
2. The postal acceptance rules never applied and no contract could be formed until Alice opened the letter. Since she
received the rejection at almost the same time, she is no worse off (see reasoning above) by not having a contract. You
might also wish to consider the application of the rules for instantaneous communications in Entores v Miles Far East Corp
and Brinkibon v Stahag Stahl [1983]
Should the communication made by telephone be deemed to have been the first received? If so, there is no contract.
e. Which of Bill’s two communications is determinative?
This is really the answer to the question. For the reasons stated above, the rejection should be determinative. Accordingly, no
contract arises in this situation and Bill is not obliged to buy the shares in Utopia Ltd.

CONSIDERATION
• badge of enforceability
• legal systems will only enforce promises where there is something to Sir Frederick Pollock’s definition in Principles
indicate that the promisor intended to be bound of Contract:
• Currie v Misa (1875) - A valuable consideration in the eyes of the law An act or forbearance of one party, or the promise
may consist of: thereof, is the price for which the promise of the
1. either some right, Interest, profit or benefit to one party; or other is bought, and the promise thus given for
2. some forbearance, detriment, loss or responsibility given, suffered value is enforceable.
or undertaken by the other
• Dunlop v Selfridge & Co Ltd (1915) -The promise of the one is the price for which the promise of the other is bought
• In a wholly executory (i.e. unperformed) contract, the making of the promise by each side is consideration for the promise
made by the other side (so rendering both promises enforceable)
Executory and executed consideration
• both promises and acts are enforceable
• Executory consideration is where a promise to perform under the contract is given in return for a similar promise by the
other party (e.g. goods ordered in return for a promise to pay the set price).
• Executed consideration is consideration that is already given (e.g. money claimed under a reward).
The rules of consideration
1. Consideration need not be adequate
• Thomas v Thomas (1842) - contract is enforceable even if the price
does not match the value of what is being gained White v Bluett (1853) - There is no consideration,
• Chappell v Nestlé (1960) - freedom of contract: the law is not however, where the promises are vague, for
concerned with wh a party made a good bargain or a bad one example, ‘to stop being a nuisance to his father’
2. Consideration must be sufficient
• The consideration must have some value in the eyes of the law Consideration, therefore, is found when a person
Consideration offered is therefore ‘sufficient’ provided that: receives whatever he requests in return for a
• it is real (White v Bluett (1853)); promise whether or not it has an economic value,
• it is tangible (Ward v Byham (1956)); provided it is not too vague.
• it has some discernible value (Chappel v Nestlé (1960)); and
• economic value is measured against benefit gained (Edmonds v • Collins v Godefroy (1831) - Performing a duty
Lawson (2000) imposed by law is not consideration
3. Consideration must not be past • Glasbrook Bros v Glamorgan CC (1925) - But, if
• Consideration must follow rather than precede a person does, or promises to do, more than he
• Re McArdle (1951) - party carries out a voluntary act with no is required to do by law, then he is providing
mention of payment at the time (act is gratuitous), any later promise consideration
to pay for the service by the other party, therefore, is unenforceable
• Roscorla v Thomas (1842) - An agreement reached after consideration has passed is not an agreement, since it could not
have been based on a mutual position
4. Consideration must move from the promissee
• hand-in-hand with the doctrine of privity
• only a person who has provided consideration under a contract can sue or be sued under the contract
• Tweddle v Atkinson - consideration must move from the promisee but not necessarily to the promisor and that only those
party to the contract can enforce the obligations of the contract
Existing obligations as good consideration
• Stilk v Myrick (1809) - A person can never use performing something Exceptions to the rule in Stilk v Myrick
(s)he is already bound to do under an existing contract as
• Williams v Roffey Bros (1991) - where a party to
consideration for a new agreement
an existing contract later agrees to pay an ‘extra
• Collins v Godefroy (1831) - applies for public duties which, if carried
bonus’ in order that the other party performs his
out, cannot be consideration for a new arrangement
obligations under the original contract, then the
1. Obligations which arise under the law new agreement is binding if the party agreeing
• where a public official (such as a firefighter or a police officer) agrees to pay the bonus has thereby obtained some
to carry out one or more of their duties in return for a promise of new practical advantage or avoided a
payment from a member of the public
disadvantage.
• Glasbrook Bros Ltd v Glamorgan CC (1925) - If something more than
• the advantage was the avoidance of a penalty
the basic public or legal duty is added, that is also consideration for
clause and the expense of finding new
the new agreement
carpenters.
2. Obligations which are owed under a contract with a third party
• factual advantages obtained by the promisor
• The courts have consistently taken the view that this can provide
good consideration for fresh promise.
• The Eurymedon (1975) - fulfilling of a promise of unloading of goods by a firm of stevedores is consideration despite the fact
that the firm was already obliged to carry out this work under a contract with a third party (different party).
• Pao On v Lao Yiu Long (1980) - If third parties’ rights are affected by the performance of the existing contract this is
consideration.
3. Obligations to perform an existing obligation under a contract to the same contracting party
• Stilk v Myrick (1809) - Only if * had done something over and beyond their existing obligation could the variation (the
promise of extra payment) become enforceable, their extra work constituting fresh consideration for the promise to pay
extra (Hartley v Ponsonby)
• Hartley v Ponsonby (1857) - If something extra is given above that required under the original contract then there is
consideration for a new agreement
Part-payment of debts
• Pinnel’s case (1602) - Basic rule: payment of a smaller sum will not discharge the duty to pay a higher sum
• If a creditor is owed £100 and agrees to accept £90 in full settlement, he can later insist on the remaining £10 being paid as
there is no consideration for his promise to waive the £10
• Foakes v Beer (1884) - Any agreement to accept part-payment in full satisfaction of the debt is unenforceable, as it lacks
consideration.
Past consideration
• Re McArdle (1951) - “Past Consideration” is when a party carries out a voluntary act with no mention of payment at the time
(act is gratuitous), therefore any later promise to pay for the service by the other party is unenforceable
Exceptions (Pao On v Lau Yiu Long (1979)):
1. The act constituting the consideration must have been done at the promisor’s request. (See, for example, Lampleigh v
Braithwaite (1615).)
2. The parties must have understood that the work was to be paid for in some way, either by money or some other benefit.
(See, for example, Re Casey’s Patents (1892).)
3. The promise would be legally enforceable had it been made prior to the acts constituting the consideration.
Promissory estoppel
• If a promise, intended to be binding, and intended to be acted upon,
is acted upon, then the court will not allow the promisor to go back Coombe v Coombe (1951)
on his promise Four key ingredients of Promissory estoppel
• Hughes v Metropolitan Railway Co (1877) - a party should be - there must be a pre-existing contractual
prevented from going back on a promise to waive rights relationship;
• Central London Property Trust Co Ltd v High Trees House Ltd (1947) - one party within that contractual relationship
- if one party promises to forego or not to rely upon his strict legal agrees to waive rights (s)he is entitled to under that
rights and the other party, in reliance on that promise, acts upon it, agreement
then the promisor is estopped from asserting his full legal rights’. - and does so knowing that the other party relies
The requirements of and limitations on promissory estoppel on the waiver in determining their future course of
• Jorden v Money (1854) - ‘estoppel by representation’ estoppel conduct; and
applied only to statements of fact and not to promises - the other party does actually rely on the waiver.
• The Scaptrade (1983) - The promise not to enforce rights must be
clear and unequivocal. The mere fact of not having enforced one’s full rights in the past was not sufficient.
• MWB Business Exchange Ltd v Rock Advertising Ltd (2016) - broad principle that if one party to a contract makes a
promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in
some way relies upon that promise, whether by altering his position or in any other way, then the party who might otherwise
have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the
circumstances.
1. Need for a clear and unequivocal promise
• The promise by one party to a contract that he will not insist on his strict legal rights under a contract must be clear and
unequivocal
• Be express (as in the landlord’s promise in High Trees to accept half rent)
• Or may arise from conduct as occurred in Hughes v Metropolitan Railway (1877)
• Kim v Chasewood Park Residents [2013] - Where the words used to make the statement claimed as the basis for a
promissory estoppel were ambiguous and capable of being interpreted in several ways then the words could not be said to
found an estoppel unless the representee sought and obtained clarification of the statement.
2. Need for reliance
• High Trees House - the promisee has relied on the promise that provides the principal justification for enforcing the promise
3. A ‘shield not a sword’
• Coombe v Coombe - estoppel is ‘a shield and not a sword’, so it is a defence against a person who is going back on a
promise to waive rights under the contract, but not a means of bringing an action.
4. Must be inequitable for the promisor to go back on the promise
• The doctrine of promissory estoppel has its origins in equitable ‘waiver’. It is thus regarded as an equitable doctrine.
• D & C Builders v Rees (1966) - It must be inequitable for the promisor to go back on his promise. Mrs Rees had forced the
builders to accept her cheque by inequitable means and so could not rely on promissory estoppel.
5. Doctrine is generally suspensory
• Consideration - permanent effect, lasting for the duration of the contract. Not true of promissory estoppel. Sometimes the
promise itself will be time limited (High Trees House)
• Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1955) - promisor may be able to withdraw the promise by
giving reasonable notice
Other formative requirements: intention, certainty and completeness
Basic requirements necessary for the formation of an enforceable contract:
1. offer and acceptance
2. consideration
3. That the parties intend to create legal relations
4. That the terms of their agreement are certain and not vague and
5. That their agreement is a complete agreement that does not need further development or clarification.
Intention to be legally bound
• parties intend that legal consequences attach to their agreement
• most evident in domestic and social agreements
• parties do not intend a breach of the agreement to result in legal action
• The determination of whether or not the parties intended to enter into legally binding relations is an objective one and
context is all-important.
• Edmonds v Lawson [2000] - the courts will ask whether or not reasonable parties to such an agreement would possess an
intention to create legal relations
Based on two rebuttable presumptions
1. Commercial and business agreements
• There is presumed to be an intention to create legal relations unless the ‘subject to contract’ - Expressly displaces
contrary is shown. any presumption of contractual intention.
• Agreements usually enforceable:
- informal arrangements linked to a legal requirement (Edwards v Skyways)
- free gifts made to increase business (Esso Petroleum v Commissioners o f Customs & Excise)
- ongoing employment relationship (Athena Brands v Superdrug Stores [2019])
• Agreements not usually enforceable:
- Agreement to be binding ‘in honour only’ (Jones v Vernon Pools (1939)
- Honour pledge clauses (This arrangement is not entered into ... as a formal or legal agreement, and shall not be subject
to legal jurisdiction in the law courts’) (Rose and Frank v Crompton Bros.)
- Letters of comfort, for example, statements to encourage lending to an associated company (Kleinwort
Benson Ltd V Malaysia Mining Corporation)
- discussion took place over dinner in an expensive Mayfair restaurant (unusual location and general atmosphere of the
meeting place) MacInnes v Gross (2017)
2. Social and domestic agreements
• There is presumed to be NO intention to create legal relations unless the contrary is shown.
• Agreements usually enforceable:
- estranged or separated couples (Merritt v Merritt)
- (non-family members) domestic agreements where money has changed hands / there is mutuality (Simpkins V Pays)
- a business arrangement is involved (Snelling v Snelling (1973)
- domestic arrangements where one party has suffered a detriment to comply with the agreement (Parker v Clark)
- Albert v MIB - similar to Coward v MIB but actions of driver went beyond mere social kindness and amounted to
business activity (note: period of agreement 8 YEARS), passengers aware of expectation of pay for service
• Agreements not usually enforceable:
- husband and wife (Balfour v Balfour)
- parents and children / Agreements between members of a family (Jones v Padavatton)
- to share bingo winnings (Wilson v Burnett (2007)
- Coward v MIB [1963] an agreement to take a friend to work in exchange for petrol money lacked contractual intention.
Certainty of terms and vagueness
• Scammell v Ouston [1941] - agreement was not enforceable because the terms were uncertain and required further
agreement between the parties
• It is not the role of the court to create the terms of the contract
• Durham Tees Valley Airport v bmibaby (2010) - agreement to operate UNCERTAIN / VAGUE:
two aircraft from an airport for 10 years was not void for uncertainty • Parties agree that one of the parties resolve
because it did not specify a minimum number of passengers or flights. the issue - Paragon Finance plc v Nash
The distinction between terms and mere representations (2001)
• Terms - statements which form the express terms of the contract. As • Matter is resolved by legislative provision -
such they constitute promises as to the present truth of the statement, provisions such as s.8 of the Sale of Goods
or as to future action. If such a promise is broken (for example, because Act 1979
the statement is untrue) this will involve a breach of contract • Agreement provides that the resolution of a
• Mere representations - statements that do not form part of the particular matter is determined by a third
contract, but which helped to induce the contract. If these are untrue, party to the contract - Queensland
they are ‘misrepresentations’ Electricity Generating Board v New Hope
Uncertainty may be cured by: Collieries Pty Ltd (1989)
• a trade custom, where a word has a specific meaning
• Hillas v Arcos (1932) previous dealings between the parties whereby a word or phrase has acquired a specific meaning, for
example, timber of ‘fair specification’
• Foley v Classique Coaches (1934) the contract itself, which provides a method for resolving an uncertainty. An executed
contract where the vagueness of ‘at a price to be agreed’ was cured by a provision in the contract.
The courts will strive to find a contract valid where it has been executed
• The Sale of Goods Act 1979 provides that if no price or mechanism for fixing the price is provided, then the buyer must pay
a ‘reasonable price’, but this provision will not apply where the contract states the price is ‘to be agreed between the
parties’
• Note, a ‘lock-out agreement’, for example, an agreement not to negotiate with anyone else, is valid provided it is clearly
stated and for a specific length of time (Pitt v PHH Asset Management (1993))
A complete agreement
• agreement on all the major elements of their contract • Courts will enforce an agreement which
• It is not possible to turn an incomplete bargain into a legally binding omits certain express terms - Hillas v Arcos
contract by merely adding together terms (1932)
• Wells v Devani [2016] - complete bargain must exist which may be • Courts will enforce an agreement which
supplemented by further implied terms omits an essential term - Fletcher Challenge
• Courtney & Fairbairn Ltd v Tolani Brothers (Hotels) Ltd (1975) - there Energy Ltd v Electricity Corporation of New
was no contract where the parties had simply agreed to negotiate. Zealand (2002)
There is no such thing as an agreement to agree. • English law does not require, as a general
• Barbudev v European Cable Management Bulgaria EOOD [2012] - requirement, that agreements be written to
‘terms to be agreed’ is no more than an unenforceable ‘agreement to be enforceable as contracts
agree’.
THE TERMS OF THE CONTRACT
• Whether a statement has become a term of the contract depends on the The relative significance of terms
intention of the parties (objectively ascertained) • Terms can be of two types:
• Do their words and conduct indicate to a reasonable person that the a) Conditions - ‘go to the root of the
statement was intended to be mere representation or, alternatively, that contract’, so on breach have remedies
it was intended to be a contractual term? available of repudiation and/or suing for
Respective knowledge of the parties: damages (Poussard v Spiers and Pond).
• Oscar Chess Ltd v Williams (1957) - a statement by a member of the b) Warranties - generally descriptive terms,
public (a non-expert) to a garage (an expert) with regard to the age of a so only remedy on breach is to sue for
car was a mere representation not a term damages (Bettini v Gye).
• Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965) -
statement made by a garage (an expert) to a member of the public (a Heilbut, Symons & Co v Buckleton [1913]
non-expert) concerning the mileage of a car was held to be a term None of these factors are decisive tests. The
Responsibility / The manner of the statement presence or absence of these factors is not
• Whether the maker of the statement accepted responsibility for the conclusive of the intention of the parties: the
soundness of the statement – where such responsibility is assumed, this intention of the parties is deduced from the
indicates that the statement was intended to be a term totality of the evidence.
• Schawel v Reade (1913) - If it discourages verification, ‘If there was
anything wrong with the horse, I would tell you’ (TERM)
• Ecay v Godfrey (1947) - if it suggests verification , unlikely to be a term.
- Where the statement is accompanied by a recommendation that its truth be verified – the statement is more likely to
be a mere representation
Time span between the representation and formation of the contract
• Routledge v McKay (1954) - longer gap and the representation is unlikely to be seen as a term
The importance of the statement to the parties
• Bannerman v White (1861) -TERM- buyer stated ‘if sulphur has been used, I do not want to know the price’
- the more important the matter, the greater the likelihood that the parties intended the statement to be a term
• Couchman v Hill (1947) - TERM- buyer asked if the cow was in calf, stating that if she was, he would not bid.
- The auctioneer’s reply that she was not in calf was held to be a term overriding the printed conditions which stated
that no warranty was given
• Esso Petroleum Co Ltd v Mardon [1976] - Where one party clearly relied up on the other, this is indicative that the statement
was intended to be a term
Where a contract has been reduced to writing
• Couchman v Hill (1947) - a contract may be partly oral and partly written
• L’Estrange v Graucob (1934) - parties are taken to agree to every document they sign even if they do not read it
• Evans & Son Ltd v Andrea Merzario Ltd (1976) - oral assurance that machinery would be stowed under, not on the deck was
held to be a term of a contract, although it was not incorporated into the written terms. - collateral contract
Oral contracts
• Thake v Maurice (1986) - The contents is a matter of evidence for the judge. The interpretation will be undertaken by
applying an objective test: what would a reasonable person have understood the words to mean?
• Lidl UK GmbH v Hertford Foods Ltd (2001) - in oral contract, terms from standard form contracts cannot be binding unless
the buyer is made aware of them
The parol evidence rule
• This rule developed out of the recognition of the difficulties of supplying accurate proof of the terms of simple agreements.
• Jacobs v Batavia and General Plantations Trust (1924) - If a contract is reduced to writing, then, under the ‘parol evidence’
 rule, oral or other evidence extrinsic to the document is not normally
admissible to ‘add to, vary, or contradict’ Parol Evidence Rule - promote certainty AIB
Exceptions to the parol evidence rule Group plc v Martin [2001]
• To show that the contract is void by reason of a misrepresentation, To protect from express clause; ‘an entire
mistake, fraud, or non est factum obligation clause’ where the written contract
• Allen v Pink [1838] - the written document was not intended to cover the records the totality of their legally enforceable
whole of the agreement so the rule does not apply agreement.
• Parol evidence is admissible to prove terms or a custom which must be implied into the agreement
• To show that a contract has not yet come into operation or has ceased to operate.
• Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976) - evidence that the written agreement was not a full and final
reflection of the agreement
• Pym v Campbell (1856) - evidence that shows that a contract will not operate until a specified event occurs; to show that the
contract is subject to a ‘condition precedent’
• Webster v Cecil (1861) - evidence that the written agreement is in error and that rectification should apply
Terms of collateral contracts
• The statement is a term of a separate contract – a contract collateral to (i.e.
Implied terms
running beside) the main contract.
Terms can be implied by fact, e.g.:
• This statement is not included in the contract of sale; however, it was
• by custom (Hutton v Warren)
made with contractual intent; it forms the basis of a collateral contract.
• trade practice or professional custom
• If the statement is incorrect, if I have improperly warranted the statement, • by past dealings (Hillas v Arcos)·,
this is a breach of the collateral contract. • to make sense of the agreement (Schawel
• Heilbut, Symons & Co v Buckleton [1913] and Esso Petroleum Co Ltd v v Reade)·,
Mardon [1976]
• for business efficacy (The Moorcock).
Implied terms in common law This is based on the presumed intention of
1. Trade Usage - where an established trade usage can be demonstrated the parties - measured by the ‘officious
- standardised implied term functions as a kind of default rule bystander’ test in Shirlaw v Southern
- vendors of a certain type of good always paid the broker’s Foundries.
commission with regard to the sale Terms can also be implied by statute, e.g.:
2. The nature of the relationship - landlord - tenant / employer - employee • Sale of Goods Act 1979;
- Liverpool City Council v Irwin [1976] - duty to take reasonable care of • Equal Pay Act 1970.
common parts (stairs, hallway, etc.) on landlord
- Johnstone v Bloomsbury Health Auth [1992] - employer should not overwork its staff in a way that damages their health
- Malik v Bank of Credit and Commerce International SA [1997] - employer should not conduct business fraudulently
- Attrill v Dresdner Kleinwort Ltd [2012] - employer should not go back on an earlier promise to provide large ‘bonus pool’
- Scally v Southern Health Board [1992] - employer was obliged to alert employees to a particular ‘trap’ in their pension
scheme whereby, if they did not act promptly, they would fail to secure a large benefit.
3. The unexpressed intention of the parties and the ‘officious bystander’
- In some circumstances, the contract will not function unless the term is implied; the term is necessarily implied to give
‘business efficacy’
- The Moorcock [1889] - a term was implied into a contract for the use of a tidal dock that the owner of the facility had
taken reasonable steps to check that the river bottom was safe for a ship to settle on after the tide had gone out.
- Shirlaw v Southern Foundries (1926) - if, while the parties were making their bargain, an officious bystander were to
suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course’.
- Attorney General of Belize v Belize Telecom Ltd [2009] - implication of a term is an exercise in the construction of the
contract as a whole.
- A term may be implied to give effect to the overall purpose of the document as understood by a reasonable person.
- Marks and Spencer plc v BNP Paribas Securities Services Trust Company [2015]- reasonableness alone is not a
sufficient basis for implication
- Bou-Simon v BGC Brokers [2018] - correct test for implying a term into a contract is to look for the obvious intentions of
the parties at the time of contracting and not to give effect to the merits of the situation as they appear to the judge.
There are two situations where officious bystander test cannot apply:
• Spring v National Amalgamated Stevedores and Dockers Society (1956) - if one party is unaware of the term
• Shell (UK) Ltd v Lostock Garages Ltd (1977) - if it is uncertain that both parties would have agreed to the term
Implied term of good faith
• Bates v Post Office (No 3) [2019] - Relational Contracts Characteristics
1. There must be consistency between the express terms of the contract and any implied duties (SDI Retail Services v
Rangers FC [2019])
2. No express term excluding a duty of good faith
3. A long-term contract
4. Intention for the faithful performance of duties with integrity
5. Commitment to collaboration between the parties
6. The spirit of the agreement was incapable of full written expression
7. Parties had mutual trust and confidence
8. Contract required high degree of communication and collaboration with expectations of loyalty
9. Significant investment by both parties
10. Exclusivity of the relationship
Terms implied by operation of statute
• Standardisation of terms in certain kinds of contracts.
• It also provides a measure of protection for certain categories of parties, such as consumers.
• Since the Consumer Rights Act 2015 came into force in October 2015 B2B and B2C contracts will be subject to separate
statutory regimes.
The classification of terms into minor undertakings and major undertakings
• Bowes v Shand [1877] / Re Moore and Landauer [1921] - a party rescinding for breach need not show that the breach of
condition has actually caused any loss.
• A contractual term is a ‘primary’ obligation.
• Every breach of a ‘primary’ obligation gives rise to a ‘secondary’ obligation to pay damages for the loss caused.
• In others there is the further remedy of ‘terminating’ (ending or rescinding) the contract.
• Some breaches of contract provide the injured party with an option. (a) terminate the contract and claim damages or (b)
affirm the contract (accept the breach and insist on continued performance of the contract) and claim damages.
Conditions
• Statements of fact or promises which form the essential terms of the contract.
• If the statement is not true, or the promise is not fulfilled, the injured party may terminate (or treat as discharged) the
contract and claim damages
• Sale of Goods Act 1979 - designates certain implied terms, for example, re satisfactory quality, as conditions
• Poussard v Spiers and Pond (1876) - A singer failed to take up a role in an opera until a week after the season had started.
Held—her promise to perform as from the first performance was a condition—and its breach entitled the management to
treat the contract as discharged.
Warranties
• Contractual terms concerning the less important or subsidiary statements of facts or promises.
• If a warranty is broken, this does not entitle the other party to terminate (or treat as discharged) the contract, it merely
entitles him to sue for damages
• Sale of Goods Act 1979 - the right to quiet enjoyment is not a condition but a warranty
• Bettini v Gye (1876) - a singer was engaged to sing for a whole season and to arrive six days in advance to take part in
rehearsals. He arrived only three days in advance. Held—the rehearsal clause was subsidiary to the main clause. It was only
a warranty.
Innominate terms
• Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha (1962)
• For breach of such terms the court will decide whether the injured party has the right to rescind in the light of the
seriousness of the consequences of the breach, to see if it deprived the innocent party of substantially the whole benefit he
should have received under the contract
• Cehave v Bremer Handelsgesellschaft MBH, The Hansa Nord (1976) - the seller had sold a cargo of citrus pellets with a term
in the contract that the shipment be made in good condition. The buyer rejected the cargo on the basis that this term had
been broken. The defect, however, was not serious, and the court held that although the Sale of Goods Act had classified
some terms as conditions and warranties, it did not follow that all the terms had to be so classified. Accordingly, the court
could consider the effect of the breach; since this was not serious, the buyer had not been entitled to reject.
THE REGULATION OF THE TERMS OF THE CONTRACT
INCORPORATION - has it been incorporated via signature, notice, dealings?
• Exemption clause must be “part of the contract” and incorporation must be Common Law Control
“at or before” time of contracting • By signature - L’Estrange
Contained in a signed document / Nature of the document • By notice - Parker; Olley; Chapelton
• L’Estrange v Graucob (1934) - Parties are generally bound by the terms of any • Previous dealings - Spurling
agreement they have signed without reading Statutory Control
• Curtis v Chemical Cleaning & Dyeing Co [1951] - Even if it has not been read • UCTA 1977 (B2B)
or understood, so long as the party seeking to rely upon the clause has not • CRA 2015 (B2C)
made any misrepresentation as to its effect
• Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] - inexperienced purchaser of an investment
product was held bound by the contract he signed despite his reliance upon an earlier different description of the product
• Chapelton v Barry UDC (1940) - This must be seen to be a contractual document; D could not rely on the exclusion clauses
as it was not apparent on the face of it that the ticket was a contractual document, rather than just a receipt.
Reasonable notice of the term must be given
• Parker v South Eastern Railway Co (1877) - the plaintiff received a ticket which stated on the face ‘see back’. Held—as long
as the railway company had given reasonable notice of the exemption clause’s existence, it did not matter that the plaintiff
had not read the clause.
• Thompson v London Midland and Scottish Railway (1930) - the ticket indicated that the conditions of the contract could be
seen at the station master’s office, or on the timetable; it is sufficient that the document indicates the existence of the
clause and where it can be consulted.
• Thompson v LMS - The test is objective, and it is irrelevant that the party affected by the exemption clause is blind or
illiterate, or otherwise unable to understand it
• Geir v Kujawa (1970) - A notice in English was stuck on the windscreen of a car stating that passengers travelled at their
own risk; A German passenger who was known to speak no English was held not to be bound by the clause as reasonable
 care had not been taken to bring it to his attention.
Attention must be drawn to any unusual clause
• Thornton v Shoe Lane Parking [1971] - Special notice should have been given of a clause purporting to exclude liability for
personal injury (damage to car exclusion clause is expected)
• Interfoto Picture Library v Stiletto Visual Programmes (1988) - onerous conditions required special measures to bring them
to the attention of the defendant. The clause in that case was not an exemption clause, but a clause imposing charges 10
times higher than normal.
Notice of the term must be communicated to the other party before, or at the time that, the contract is entered into
• Thornton v Shoe Lane Parking [1971] - Conditions printed on the back of the ticket came too late to constitute effective
notice for the purposes of future reliance on any exclusion clause; Ticket obtained AFTER entry and conditions displayed
inside the car park which he could see only after entry
• Olley v Marlborough Court Hotel (1949) - Notice on the hotel bedroom wall. The contract had been entered into on
registration, and the clause was therefore not incorporated into the contract and could not protect the proprietors.
‘Course of dealing’
• Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969] - If the parties have dealt with each other in the past, and an
exclusion clause has been used, this may in itself lead to a presumption that the clause will be incorporated in any new
contract, even if on this occasion reasonable notice of it has not been given. The course of dealing in the past must however
be both regular and consistent (100 dealings over three years)
• McCutcheon v MacBrayne [1964] - there were regular dealings, but the document containing the exclusion clause was not
always used: it was held that the clause had not been incorporated.
• Hollier v Rambler Motors (AMC) Ltd [1972] - three or four dealings over five years were not sufficient
• British Crane Hire v Ipswich Plant Hire Ltd (1975) - lesser frequency of dealing is sufficient in so called B2B contracts
CONSTRUCTION - does it cover the loss which has occured?
• An exclusion clause is interpreted contra proferentem, that is, any ambiguity in the clause will be interpreted against the
party seeking to rely on it (Hollier v Rambler Motors (1972)
• Houghton v Trafalgar Insurance Co Ltd (1954) - word ‘load’ could not refer to people
• Andrews Bros v Singer & Co Ltd (1934) - a clause excluding liability in relation to implied terms was ruled ineffective to
exclude liability for breach of an express term
• Persimmon Homes v Ove Arup Partners [2017] - There is a tendency not to interfere too readily in commercial contracts
Interpretation of contra proferentem:
• Smith v South Wales Switchgear Ltd (1978) - Especially clear words must be used in order to exclude liability for
negligence, for example, the use of the word ‘negligence’, or the phrase ‘howsoever caused’
• Canada Steamship Lines Ltd v The King [1952] - provided the wording is wide enough to cover negligence, and there is no
other liability to which they can apply, then it is assumed that they must have been intended to cover negligence
• HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] - where there is a conflict between that intention
and the result indicated by Lord Morton’s approach (Canada Steamship) the former should prevail.
Fundamental breach
• Karsales (Harrow) Ltd v Wallis [1956] - breach relates to a particular obligation which is central to the contract
• Harbutt Plasticine Ltd v Wayne Tank and Pump Co Ltd [1970] - the consequences of the breach are exceptionally serious
• Sze Hai Tong Bank Ltd v Rambler Cycle Co Ltd [1959] - deliberate refusal to perform obligations under the contract
• Photo Production Ltd v Securicor Ltd (1980) - liability for a fundamental breach could be excluded, if the words were
sufficiently clear and precise.
• Consumer Rights Act 2015 - in all consumer contracts an exclusion clause which attempts to exclude liability for a
fundamental breach will either be automatically void or subject to a test of ‘fairness’
• Where there is a fundamental breach, an exclusion clause does not automatically cease to apply but if the parties use very
clear language to express their intention that the protection of an exclusion clause should extend to such a breach that
intention will now be respected
STATUTORY CONTROLS
The Consumer Rights Act 2015
• Part 1 Goods, Services and Digital Content
• Part 2 Unfair Protection
• Part 3 Enforcement / New Civil Remedies
What is a consumer contract?
• Between a ‘trader’ and a ‘consumer’ (CRA 2015, s.61(1))
• Trader - a ‘person acting for purposes relating to that person’s trade, business, craft or profession...’ (s.2(1)
• ‘Business’ - expressly includes any government department, local or public authority (s.2(7))
• ‘Consumer’ - defined as the converse of a trader (i.e. ‘an individual acting for purposes that are wholly or mainly outside the
individual’s trade, business, craft or profession’ (s.2(3), made applicable by s.76(2))
• ‘Individual’ - a company cannot now be considered a consumer
• For example, if a car is purchased primarily for private use but is nonetheless sometimes used for business purposes, the
contract will still be subject to Part 2 of the CRA 2015.
• The European Directive (93/13 EEC) and the now repealed UTCCR- a term could only be set aside as unfair where that term
was not ‘individually negotiated’
• A term drafted in advance in circumstances where the consumer was unable to influence its substance was not regarded
 as individually negotiated
• Following the CRA 2015 a consumer may challenge a clause as unfair even though it was individually negotiated
CRA 2015 imposes duties upon traders contracting with consumers:
1. CRAs.11(1) - a duty on the trader to supply goods that conform to any description given
2. CRAs.9(1) - a duty on the trader to supply goods of satisfactory quality.Satisfactory quality is to be assessed by reference
to a non-exhaustive list of factors set out in s.9(2)–(7).
3. CRAs.10(1) - a duty to supply goods that are reasonably fit for any purpose made known to the trader by the consumer.
4. CRAs.49(1) - a duty on the trader to perform any service with reasonable care and skill
What makes a contract term ‘unfair’?
• CRA s.62(4) - contrary to the requirement of good faith...causes a significant imbalance in the parties’ rights and
obligations under the contract, to the detriment of the consumer.
Good Faith
1. A procedural aspect is in issue when a term’s existence came as an unfair surprise to the party subject to it
- Director General of Fair Trading v First National Bank plc (2000) - emphasised the need for openness and
information, which will enable the consumer to make a properly informed choice about entering into the contract.
- Aziz (2013) - assess whether the seller or supplier, dealing fairly and equitably with the consumer, could reasonably
assume that the consumer would have agreed to such a term in individual contract negotiations
2. A substantive aspect - there are terms that will always be regarded as unfair whatever steps are taken to publicise them
• s.62(5) - court to take ‘into account the nature of the subject matter of the contract’ and ‘all the circumstances existing
when the term was agreed and...all of the other terms of the contract’.
• Assessment of fairness is made when the contract is concluded; it is not a retrospective!
The ‘grey list’
• Presumptively unfair terms
• Provision does not affect a trader’s attempt to exclude liability for death and personal injury arising from negligence which is
rendered unenforceable by s.65(1)
1. Permits the trader to retain, without compensation, sums paid by the consumer if the consumer decides not to continue
with the contract (para.4)
2. Requires a consumer who does not fulfil his obligations to pay a disproportionately high sum in compensation (para.6)
3. Term which has the effect of binding the consumer to terms which the consumer, before contracting, had no real
opportunity of becoming aware of (para.10)
4. Allows the trader without a valid reason specified in the contract unilaterally to alter the contract terms (para.11)
5. Permits the trader to increase the price of goods or services without the consumer having a corresponding right to cancel
if the price demanded is too high compared to that first agreed (para.15)
Terms added by the CRA 2015 to the ‘grey list’ are:
1. Requires a consumer who does not fulfil his obligations to pay a disproportionately high sum in compensation for services
that have not been supplied (para.5)
2. Permits the trader to determine the characteristics of the contractual subject matter after the consumer has become
bound by the contract (para.12)
3. Giving the trader a discretion to determine after the consumer has entered the contract the price payable where no
method of price determination was made known before contracting (para.14)
The consequence of unfairness
• Where a term is found to be unfair the rest of the contract ‘...continues, so far as practicable, to have effect in every other
respect’ but the unfair term is ‘...not binding on the consumer’ (s.67)
• Unicaja Banco SA v Hidalgo Rueda (2015) - national court must ‘exclud[e] the application of that clause in its entirety with
regard to that consumer’.
• Kasler v OTP Jelzalogbank (2014) - national court may, having ‘deleted’ an unfair term, substitute for it a supplementary
provision of national law according to the same court’s decision
Exclusion from the assessment of fairness under the CRA 2015
• S.64(1) - A contract may not be assessed for fairness...to the extent that: it specifies the main subject matter of the
contract, or the assessment is of the price payable under the contract by comparison with the goods, digital content or
services supplied under it.
• S.64(2) - this exclusion will only apply to terms that are ‘transparent and prominent’
• Kasler v OTP Jelezalogbank Zrt (2013) - relevant term should be ‘grammatically intelligible’ to the consumer but further
that it ‘should set out transparently the specific functioning [of the term] so that that consumer was in a position to
evaluate, on the basis of clear, intelligible, criteria, the economic consequences’
Limits of the scope (black list’)
1. The purpose of CRA 2015 s.64 is to avoid putting in jeopardy of review all contractual provisions by providing that certain
central or core matters are excluded from assessment as unfair.
2. S65 provides that a trader cannot by a term in a consumer contract exclude liability for death or personal injury caused
by negligence (reflecting the parallel provision in the UCTA 1977 s.2 now applicable only to businesses)
3. Terms in contracts for the supply of goods to a consumer by a trader which exclude or limit the liability of the trader
in respect of the goods’ unsatisfactory quality (s.9)
4. Fitness for a particular purpose (s.10)
5. Conformity to description (s.11) or sample (s.13) may NOT, according to s.31, be excluded.
Enforcement
• CRA 2015, like the Regulations it supersedes, both makes an ‘unfair’ term unenforceable in individual cases but also permits
certain ‘regulators’ to take action against the use of such terms.
• Office of Fair Trading (OFT) - closed - succeeded by Competition and Markets Authority
Sale of Goods Act 1979 (SGA)
• B2B Contracts - the earlier legislation of Sale of Goods Act 1979 (SGA) and Supply of Goods and Services Act 1982
(SGSA) will apply:
Terms implied into all sales:
• SGAs.12 - that the seller has the right to sell the goods;
• SGAs.13 - that goods sold by description correspond with the description.
Terms implied only into sales by way of business:
• SGAs.14(2) - that the goods are of satisfactory quality
• S.14(2A) and 14(2B) - Goods are of a satisfactory quality if they meet the standard that a reasonable person would regard as
satisfactory, taking account of any description of the goods, the price (if relevant), and all other relevant circumstances.
• The word ‘if’ was possibly used to prevent a seller arguing that sale goods could be of a lower quality than non-sale goods.
• SGAs.14(3) - an implied term that the goods are reasonably fit for any particular purpose which the buyer made known to
the seller. If clothing was bought and the buyer asked and was assured that it could be washed in a washing machine then a
term to that effect will be implied.
• The terms implied by s.14(2) and 14(3) (and also that implied by the Sale of Goods and Services Act 1982 s.13 below) only
arise where the sale is in the course of a business.
• Bramhill v Edwards [2004] - does not extend to defects brought to the buyer’s attention, or more importantly, defects which
a pre-purchase inspection that was undertaken should have revealed
• SGSAs.13 - In contracts of service, there is an implied term that the service will be carried out with reasonable care and skill,
within a reasonable time and for a reasonable price.
• Wilson v Best (1993) - duty of a travel agent under this provision extended to checking that the local safety regulations had
been complied with. It did not require them to ensure that they complied with UK regulations.
The Unfair Contract Terms Act 1977
• Concerned with only one type of ‘unfair’ term, namely, exclusion and limitation clauses, rather than ‘unfair terms’ in general
• The scope of the UCTA 1977 has been further reduced by the CRA 2015 so it applies only to B2B contracts
• Certain contracts are not covered by the provisions of the Act:
1. contracts of insurance (which in any case are based on risk);
2. contracts to create, transfer or terminate interests in land;
3. contracts for patents, copyrights or other intellectual property;
4. contracts for the creation or dissolution of companies;
5. contracts of marine salvage, charter-parties and carriage of goods.
Exclusions rendered void by the Act
• By s 2(1) there can be no valid exclusion for death or injury caused by the negligence of the party inserting the clause.
• By s 5(1), in any consumer contract a clause excluding liability by reference to the terms of a guarantee fails in respect of
defects caused by negligence in manufacture or distribution.
• By s 6(1) exclusion for breach of s 12 Sale of Goods Act 1979 (the implied condition as to title) is invalid.
• By s 6(2), in any consumer contract any exclusion for breach of any of the implied conditions in the Sale of Goods Act s 13
(description), s 14(2) (satisfactory quality), s 14(3) (fitness for the purpose) and s 15 (sale by sample) is invalid.
• Breaches of conditions in Schedule 4 Consumer Credit Act 1974 and 2006 (similar to Sale of Goods Act) are also invalid.
• By s 7(1) the same applies in respect of goods supplied under the Supply of Goods and Services Act 1982
• Also under the Consumer Protection Act 1987 there can be no valid exclusion for breaches of the general safety standards.
Exclusions only valid if reasonable
• By s 2(2) there is an exclusion for loss other than death or injury caused by the negligence of the party inserting the clause.
• By s 3, when one party deals as a consumer on the other party’s standard forms exclusion for breach, a substantially
different performance, or for no performance at all.
• By s 6(3) there are exclusions for breaches of the implied conditions in ss 13, 14(2), s4(3) and 15 Sale of Goods Act 1979 in
inter-business contracts.
• By s 7(3) there are exclusions for breaches of implied conditions in the Supply of Goods and Services Act in ss 3, 4, and 5.
• By s 8 there are exclusions for misrepresentations.
• By s 4 there are indemnity clauses – compare Thompson (1987) with Philips Products Ltd v Hyland (1987).
Negligence liability
• s.2. ‘Negligence’ is defined as covering: an obligation to take reasonable care in the performance of a contract; the tort of
negligence; and liability under the Occupier’s Liability Act 1957
• s.2(1) any term or notice which seeks to exclude or restrict liability for negligence causing death or personal injury is void.
• s.2(2) any term or notice which aims to exclude or restrict liability for negligently inflicted damage to property is not
automatically rendered void. Instead it is subject to the reasonableness test.
The ‘reasonableness’ test
• The Act does not define what is reasonable, but guidelines are set out in both s 11 and in Schedule 2.
• S.11 - a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to
have been known to...the parties when the contract was made
• s 11(5) the burden of proving that the clause is reasonable is on the party wishing to rely on it (Warren v Trueprint (1986)
There are in fact three tests:
1. by s 11(1) one test is ‘was including the clause reasonable in the Schedule 2 Reasonable Test
light of the knowledge of the parties on contracting?’; • exclude liability for death or personal injury;
2. by s 11(2) for exclusions falling under either s 6(3) or s 7(3) • inappropriately limit liability for inadequate
criteria in Schedule 2 should be considered: performance or non performance, or which exclude
- Was there comparable bargaining strength (Watford Elec 2001) a right of set-off;
- Did the buyer receive any inducement or advantage? • binding on the consumer, optional to seller;
- Were the goods manufactured or processed or adapted to meet • allow seller to keep deposit in the event of the
the buyer’s own specifications? consumer’s cancellation, but not the other way
- Should the buyer have expected an exclusion clause based on • make a consumer in breach pay excessive
trade custom (Thompson (1987) / Overland Shoes (1998)? compensation;
c) by s 11(4), in the case of limitation clauses the ability of the party • allow seller to terminate the contract but not buyer;
relying on the clause to meet liability if necessary or to insure against • allow seller to end the contract without reasonable
it should also be considered. notice;
• Judges are willing to apply the criteria in Schedule 2 to exclusions • except where there are serious grounds for doing
and limitations generally (George Mitchell (1983) • automatically extend a fixed-term contract when
Four matters which should always be considered (Smith v Bush the deadline for the consumer to object is
(1990) and Harris v Wyre Forest DC (1989)) unreasonably early;
1. were the parties of equal bargaining power?; • irrevocably bind the consumer to terms he had no
2. in the case of advice, would it have been reasonable to obtain means to discover before the contract was made;
advice from another source?; • allow the seller to unilaterally vary terms without a
3. was the task being undertaken a difficult one, for which the valid reason specified in the contract;
protection of an exclusion clause was necessary?; • allow the seller to unilaterally vary the character of
4. what would be the practical consequences for the parties of the the product or service supplied w/o valid reason;
decision on reasonableness? For example, would the defendant • allow for price to be determined on delivery or for
normally be insured? Would the plaintiff have to bear the cost the seller to alter the price without letting the
himself? consumer cancel;
When considering a limitation, as opposed to an exclusion • give the seller the sole right to interpret the
• s.11(4) provides that the court should take account of the contract or to determine whether goods conform to
resources of the person who may be subject to liability as well as the contract;
the extent to which that liability might have been covered by • limit seller’s obligations for his agents’ promises;
insurance • oblige consumer to fulfil all obligations but not
• S.11(2) - number of guidelines contained in Schedule 2 which seller;
should be taken into account in assessing reasonableness • give sellers the right, without agreement of the
• Overseas Medical Supplies Ltd v Orient Transport Services Ltd consumer, to transfer obligations which might then
[1999] - checklist is considered to be relevant to any section of reduce the rights of the consumer under
UCTA that seeks to apply the standard of reasonableness guarantees;
• Watford Electronics v Sanderson [2001] - respecting, and so • exclude consumers’ rights to take legal action, or
enforcing, the terms negotiated by commercial contractors of restrict evidence available to consumers, or alter
roughly equal bargaining power the burden of proof.
• Court should only interfere when satisfied that ‘one party has, in
effect, taken advantage of the other’ or where ‘the term is so unreasonable that it cannot properly have been understood or
considered’
Contractual liability
• S.3 - The exclusion of contractual liability other than through negligence
• Business context where one of the parties deals on the other’s ‘written standard terms of business’.
Two pre-conditions:
1. that the relevant party has written standard terms of business
2. on this occasion, he contracted on the basis of them
• St Albans City and District Council v International Computers Ltd [1996] - Where the contract is preceded by negotiations
that leave the ‘general conditions...substantially untouched’ the parties will still be held to be contracting on written standard
terms of business
• African Export-Import Bank v Shebah Exploration & Production Co Ltd [2017] - ‘any more than insubstantial’ difference
between the terms proposed and agreed will indicate that the contract was not on the other’s written standard terms
• s.3(2)(a) - makes any attempt to exclude or limit liability subject to the requirement of reasonableness
- aimed at the ‘classic type’ of exclusion clause ‘exonerating a contractual party in default from the ordinary
consequences of that default’ (Timeload Ltd v British Telecommunications plc [1995])
• s.3(2)(b) - subjects to the same test clauses which purport to allow a party ‘to render a contractual performance
substantially different from that which was reasonably expected’, or ‘to render no performance at all’
- must be intended to apply to situations where the party seeking to rely on the clause is not himself in breach of
contract, otherwise it would add nothing to s.3(2)(a)
• AXA Sun Life Services plc v Campbell Martin Ltd (2011) - Court of Appeal began its consideration of reasonableness with
the recognition that the agreements were made between commercial organisations in a commercial context, although the
claimant was a larger entity than the defendants.
Clauses which are valid only if reasonable
Clauses excluding liability:
• for loss or damage to property caused by negligence (s 2);
• for breach of contract in a consumer or standard form contract (s 3). This includes clauses in such contracts claiming to
render a substantially different performance from that reasonably expected, or to render no performance at all (s 3);
• for statutory guarantees (other than those concerning title) in inter-business contracts for the sale of goods and hire
purchase (description, satisfactory quality and fitness for purpose) (s 6);
• for statutory guarantees concerning title or possession in other contracts for the supply of goods (for example, hire) (s 7);
• for other statutory guarantees (description, satisfactory quality, fitness for purpose) in other inter-business contracts for the
supply of goods (s 7);
• for misrepresentation in all contracts.
The supply of goods
• ss.6 and 7 dealing with contracts for the sale or supply of goods
• This includes hire purchase, hire transactions and contracts for the supply of work and materials.
• UCTA prohibits any exclusion of liability.
• In relation to the implied terms as to description or quality (for example, under ss.13 and 14 of the Sale of Goods Act 1979),
then liability under these terms can only be excluded or limited in so far as the clause satisfies the requirement of
reasonableness.
• since the CRA 2015 came into force both the underlying obligations (as to title, description, quality, etc.) and the control
of their exclusion is found in the 2015 Act
CAPACITY - CONTRACTS MADE BY MINORS
• The general rule is that a minor is not bound by a contract he enters into during his minority.
• On the one hand it tries to protect minors from their own inexperience;
• on the other, it tries to ensure that persons dealing with minors are not dealt with in a harsh manner.
Contracts for necessaries
• s.3(3) of the Sale of Goods Act 1979 - necessaries are ‘goods suitable to the condition in life of the minor...and to his actual
requirements at the time of the sale and delivery’ It is important to distinguish between
• Peters v Fleming [1840] - Note that ‘necessaries’ do not mean ‘necessities’ but
1. luxurious goods of utility - status of
goods suitable to the minor’s ‘condition in life’ and his actual requirements
the minor can make this into
• Roberts v Gray [1913] - Necessaries may include services. Both executed and necessaries
unexecuted contracts for necessaries can be enforced. 2. goods of pure luxury - can never be
• Nash v Inman (1908) - “Is it a present need?” a student purchased 11 silk classified as necessaries
waistcoats while still a minor. The court held that silk waistcoats were suitable
to the conditions of life of a Cambridge undergraduate at that time, but they
were not suitable to his actual needs as he already had a sufficient supply of waistcoats.
• The burden of proving that the goods are necessaries is on the seller
Beneficial contracts of service
• A minor is generally bound by a contract of employment where that contract is beneficial to them.
• Includes contracts of apprenticeship, training or employment and professional engagements
• De Francesco v Barn num (1890) - a contract whose terms were burdensome and harsh on the minor was held void
• Doyle v White City Stadium [1935] - Where a contract is on the whole for the benefit of a minor, it will not be invalidated
because one term has operated in a way which is not to his advantage.
• They must be contracts of service or similiar to a contract of service
• Chaplin v Leslie Frewin (Publishers) Ltd (1966) - court enforced a contract by a minor to publish his memoirs as this would
train him in becoming an author, and enable him to earn a living
• Mercantile Union Guarantee Co Ltd v Ball (1937) - Trading contracts (involving the minor’s capital) will not be enforced even
if it does help the minor earn a living
Voidable contracts
• Known as contracts of ‘continuous or recurrent obligation’ whereas a void contract is an entity which was never a contract
• Those the minor may enter and possibly continue with, but also avoid or set aside
• This right to void can be lost in certain circumstances: most common of these circumstances is the intervention of a third
party who has acquired rights following from the voidable contract.
• Edwards v Carter (1893) - Whether a minor has repudiated in time to avoid the contract is a question of fact in each case
• If the minor repudiates before any obligations arise, then the contract simply ceases at that point and the minor cannot be
sued on any obligations arising at a later stage.
• Steinberg v Scala (Leeds) Ltd (1923) - If the minor has transferred money under the agreement, this is not recoverable unless
there is a failure of consideration
• Corpe v Overton (1833) - money paid over by the minor may be recoverable if (s)he has not received what was promised
under the agreement
Recovery of property
• Minors’ Contracts Act 1987 restores the possibility of ratification
• Equity has been replaced by s 3 Minors’ Contract Act 1987 - it is no longer vital to prove fraud against a minor to recover
property from him provided the court can identify an unjust enrichment and it is equitable to do so.
• Stocks v Wilson [1913] - This remedy is discretionary and factors will be taken into account.
VITIATING ELEMENTS - MISTAKE
• Unilateral – only one party is mistaken and the other party knows of the mistake and takes advantage of it
• Bilateral - mistake of both parties (common or mutual)
- Common mistake – both parties make the same mistake - may make performance impossible
- Mutual mistake – the parties are at cross purposes - may have no consensus ad idem
• The main question is the effect on the contract, and whether common law or equity applies
• Only if the mistake is not operative may equity provide a remedy for the victim, and that party can avoid the contract.
Mistake at common law and in equity
• If the mistake is an operative one, the contract is void – and so there is no need to consider mistake in equity
• Courts are reluctant to find an operative mistake. A possible reason for this is that to do so does, to a certain extent, rewrite
the contract between the parties.
• The reluctance of the courts to develop the common law doctrine of mistake is probably due to the unfortunate
consequences for third parties that can result from holding a contract void.
Mistakes of law and mistakes of fact
• Cooper v Phibbs [1867] - mistake as to private rights was not a mistake of fact
• Brennan v Bolt Burdon [2004] - held that the contractual compromise of a legal claim could be void as a result of a common
mistake of law.
Bilateral mistakes
Absence of genuine agreement
• The parties are each mistaken, but they do not share a mistake
• Their separate mistakes are sufficiently fundamental, however, that no contract can be created.
• No contract can arise because there is an absence of agreement.
• Raffles v Wichelhaus [1864] - Here, one party bought, and the other party sold, cotton to be shipped on the vessel Peerless
from Bombay. Unknown to either party, there were two ships Peerless, and each intended a different ship. The court found
that there was no contract.
• The parties are said to be at ‘cross purposes’ when the offer and acceptance do not correspond. No contract can arise.
Common mistake
• Where both parties to a contract make the same mistake about a critical element of their agreement.
• Situations where an apparent contract lacks consent and consequently the contract is void ab initio
• Bell v Lever Bros (1932) - When mistake operates upon a contract, it does so to negative or nullify the consent of the
parties. Common mistake was not ‘sufficiently fundamental’ to render the contract void.
Common mistakes ‘sufficiently fundamental’ to render a contract void
1. A common mistake as to the existence of the subject matter (res extincta)
• contract suffers from an initial impossibility; from the outset it cannot be performed
• example of such a situation is where A, the seller, contracts to sell his horse to B, the buyer. Without A or B’s knowledge, at
the time the contract is entered into the horse is dead.
• Galloway v Galloway (1914) - the parties, believing they were married, entered into a separation agreement. Later, they
discovered that they were not validly married. Held— the separation agreement was void for a common mistake.
• Strickland v Turner (1852) - the court declared void on the grounds of a common mistake a contract to purchase an annuity
on the life of a person who had already died.
• Couturier v Hastie [1856] - the seller ‘sold’ a cargo of corn to the buyer. Neither party was aware of the fact that, at the time
of the ‘sale’ the captain of the ship carrying the corn had sold the corn.
• Sale of Goods Act s.6 in a contract for the sale of goods, where the goods have perished without the seller’s knowledge, the
contract is void.
• ‘perished’ (i.e. to goods that once existed and subsequently ceased to exist). It will not apply to goods which the parties
mistakenly thought existed but which, in fact, never existed.
• McRae v Commonwealth Disposals Commission (1951) - cases falling outside s.6 Whether a contract is void or valid
depends on the construction of the contract; that is, even if the subject matter does not exist, the contract will be valid: if
performance was guaranteed; or if it was the purchase of a ‘chance’. Otherwise, the contract would be void.
2. Mistake as to ownership or title—res sua—that is, the thing sold already belongs to the buyer
• The agreement cant be performed bec it is impossible to transfer the ownership since the ‘buyer’ already owns the thing.
• Cooper v Phibbs (1867), Cooper, not realising that a fishery already belonged to him, agreed to lease it from Phibbs. Held—
the contract was void.
3. Mistake as to the possibility of performing the contract
• The parties have a shared misapprehension that performance of their agreement is possible
• It is important to note, however, that the apparent contract is only void where the mistake is of both parties.
• Cases of physical impossibility: Sheik Bros Ltd v Ochsner (1957), a contract was held void as the land was not capable of
growing the crop contracted for
• Cases of commercial impossibility: Griffith v Brymer (1903), a contract to hire a room to view the coronation of Edward VII,
which was made after the procession had been cancelled, was held void.
• Cases of legal impossibility: see Cooper v Phibbs(1867)
4. Mistake as to the quality of the subject matter
• Bell v Lever Bros - to render a contract void, the mistake must go to the ‘root of the contract’ or sufficiently relevant
• Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) - court should not declare a contract void unless the
common mistake makes the contract impossible to perform.
Unilateral mistakes
• These mistakes negate consent; that is, they prevent the formation of an agreement
• The courts adopt an objective test in deciding whether agreement has been reached.
• It is not enough for one of the parties to allege that he was mistaken.
Accordingly, courts will generally only find the contract void in one of two situations:
1. The non-mistaken party is aware of the other party’s mistake and proceeds to contract anyway. He is aware of the
mistaken assumption or promise and acts to take advantage of it.
2. The non-mistaken party has created the mistake to induce the (now) mistaken party to contract. The largest group of these
cases are those of ‘mistaken identity’. He has deliberately caused the mistake as to identity to form a ‘contract’ between
himself and the mistaken party.
Mistaken assumptions or promises
• Smith v Hughes [1871] - the contract was for the sale of ‘oats’ not ‘old oats’; it would only have been void if ‘old oats’ had
been a term of the contract
• Where the mistake is as to an assumption or as to a promise, courts rarely find that the mistake is operative
• Principle of caveat emptor (let the buyer beware) - As long as one party does not misrepresent a state of affairs or defraud
the other party, courts will generally find the consensus, the agreement, between the parties which is necessary to form a
contract.
• Hartog v Colin and Shields (1939) - where one party ‘snaps’ at the obviously mistaken offer of another.
- One day, A offers to sell B grain at x per ton. B, realising that A has made a mistake, snaps at A’s offer and ‘accepts’.
- Mistake is operative – the mistake negatives A’s consent in such a way that there is no contract. Note that: (i) B is
aware of A’s mistake and (ii) B’s conduct is such that it is unconscionable or inequitable for him to hold A to a contract.
- the sellers mistakenly offered to sell goods at a given price per pound when they intended to offer them per piece. All
the preliminary negotiations had been on a per piece basis. The buyers must have realised that the sellers had made a
mistake. The contract was declared void.
Mistakes as to identity
1. Where the contract is formed at a distance
• Where the apparent contract is formed at a distance, and probably in some form of writing, it is likely that the apparent
contract is void for mistake.
• For this to occur, however, the identity of the party must be critical in the formation of the contract: Dennant v Skinner [1948]
• Shogun Finance v Hudson [2003] - a rogue entered into a written contract of hire purchase with Shogun Finance to
purchase a vehicle on credit. The apparent contract was a nullity due to the mistake of identity and an absence of
consensus. This was not a case of a face-to-face transaction and the presumption did not arise.
2. Where the contract is formed between parties who appear before each other
• Phillips v Brooks [1919] - Where the parties are face to face, a presumption arises that the mistaken/deceived party
intended to contract with the person before him and a contract has arisen
• The result is a contract which is voidable at the option of the mistaken party.
• If the contract between the rogue and the vendor is good, the cost will be borne by the vendor because by this contract,
the rogue acquired good title to the goods and could sell them on to the third party.
• If the contract between the rogue and the vendor is void, the cost will be borne by the third party because the rogue never
acquired title to the goods. The vendor thus recovers his goods from the third party.
• In the above circumstances, the rogue induced the contract by a misrepresentation. If the contract is not void for mistake,
it is voidable for misrepresentation.
• If the third party contracts with the rogue before the contract between the rogue and the vendor is rescinded, then the
vendor loses the right to rescind the first contract.
• The vendor assumed a normal commercial risk in selling on credit, or accepting a payment by cheque. Bec it was the
vendor’s choice to assume risk, there is no valid reason why he should be able to pass the resulting loss on to 3rd party.
• Lewis v Averay [1973] - A party negotiating a contract in person is deemed to be contracting with the actual person in front
of him/her, whatever the identity assumed by the other party (so that person’s creditworthiness is not material and cannot
be the basis of an operative mistake)
• King’s Norton Metal Co v Edridge [1897] - a mistake as to the attributes of identity (such as creditworthiness) will generally
be insufficient to render the contract void
• Shogun Finance Ltd v Hudson (2003) - Even if the contract is only made through an intermediary without the authority of an
agent to bind the party, the rules on face- to-face dealing can still apply
Documents signed under a misapprehension as to their contents
• Defence of non est factum
• Gallie v Lee [1971] - The defence is available to a person who signed the documents with a fundamental misapprehension
as to the substance of the document – provided that the person who signed the documents took all due care.
• The signed document must be fundamentally different in effect from what It was thought to be
• The signatory must prove that he had not been negligent in signing the document
Mistake in equity
• Equitable doctrine was the exercise by the courts of a power to set aside a contract the court could do substantial justice
between the parties by imposing conditions when exercising the power.
1. Rectification
• Correcting a mistake which occurs not in the making of the agreement, but in the recording of the agreement.
• The possibility of rectification exists where a written contract or deed fails to express the common intention of the parties.
Necessary conditions
• The document does not represent the intention of both parties
• Roberts & Co Ltd v Leicestershire CC (1961) - one party mistakenly believed that a term was included in the document, and
the other party knew of this error
• Joscelyne v Nissen (1970) - There must have been a concluded agreement, but not necessarily a legally enforceable.
• Rose v Pym - a document which accurately records a prior agreement cannot be rectified because the agreement was
made under some mistake. Equity rectifies documents not agreements.
• Chartbrook v Persimmon Homes Ltd [2009] - It had to be shown, to receive rectification, that the parties were in complete
agreement as to the terms of their contract but that, by an error, incorrectly recorded them.
• FSHC Group Holdings Ltd v GLAS Trust Corp Ltd [2019] - the correct test to be applied when considering rectification must
take account of the subjective intention of the parties. Where the evidence suggests that the parties did agree upon the
terms in the contract it is not relevant to a plea for rectification that the claimant misunderstood the meaning of those
words.
• Lapse of time (a claim for rectification will be barred when a period of time has elapsed) or conflict with third party rights ( a
claim for rectification cannot be made against a bona fide purchaser for value without notice of the mistake) or conduct of
the party who seeks rectification (it is an equitable maxim that he who comes to equity must come with clean hands) may
prevent rectification.
2. Specific performance
• Specific performance will be refused when the contract is void at common law.
• Equity may also refuse specific performance where a contract is valid at law, but only ‘where a hardship amounting to
injustice would have keen inflicted upon him by holding him to his bargain’ (Tamplin v James (1879))

MISREPRESENTATION
• The ‘representations’ made prior to formation can become terms if A misrepresentation:
incorporated, or will remain outside of the contract. a) is a statement of material fact, not opinion
• ‘Mere representations’ on their own have no contractual significance. (Bisset V Wilkinson), nor future intention
They are used to induce the other party to enter the contract but, if (Edgington v Fitzmaurice), nor trade puffs
accurately stated, create no liability. (Carlill V Carbolic Smoke Ball Co)
• Misrepresentation Act 1967 - more extensive remedies in damages b) made by one party to a contract to the
available for misrepresentation (under s.2 of the Act) and s.1(a) provides other party, not by a third party (Peyman v
that a contract may be rescinded for misrepresentation, even if the Lanjam) ;
misrepresentation is also a term. c) before or at the time of formation of the
Unambiguous false statement of existing fact or law that induces a contract, not after (Roseola V Thomas)·;
contract d) intended to act as an inducement to the
• For a misrepresentation to be actionable it must be an unambiguous other party to enter the contract, and was
false statement of existing fact or law. such an inducement;
Unambiguous e) but not intended as a binding obligation of
• Dimmock v Hallett [1886] - If a party is to prove they have an actionable the contract;
claim it must be that the term is sufficiently clear f) and was falsely or incorrectly stated.
False
1. Dimmock v Hallett (1866) - when the statement is, on a strict and literal interpretation of the words, true, but misleading
2. With v O’Flanagan [1936] - where a statement, which was true when made, becomes false as a result of a change of
circumstances, keeping silent may be treated as a misrepresentation
Statement
• Kleinwort Benson Ltd v Malaysian Mining Corpn Bhd (1989) - Not a promise. A promise to do something in the future is
only actionable if the promise amounts to a binding contract
• Keates v Earl of Cadogan [1851] - there is no general duty to disclose facts based on the principle of caveat emptor (let
the buyer beware)
• However, in certain circumstances silence has been found to amount to a ‘statement’.
That induces the contract
• In order for a misrepresentation to be actionable, it must induce the person to whom it is addressed to make a contract.
• The statement must be one of the factors which led the person to enter into the contract – it does not have to be the sole
or main reason Edgington v Fitzmaurice (1885)
• The representation must play a real and substantial part of the claimant’s decision to enter into the contract.
• Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] - It is not sufficient, however, for the claimant to
demonstrate that ‘he was supported or encouraged in reaching his decision by the representation in question’
• Hayward v Zurich Insurance Co plc [2016] - when it is presumed that A’s misrepresentation induced B to enter the contract,
The Supreme Court has recently emphasised that it was ‘very difficult to rebut this presumption’
A presumption of inducement will arise unless the representor proves that:
1. The representee was aware of the falsity of the statement. It does not matter that the claimant had the opportunity to
discover the untruth of the statement but did not take the opportunity Redgrave v Hurd [1881]
2. The ‘representee’ was not aware of the misrepresentation Horsfall v Thomas (1862)
3. The representee relied upon a different inducement Attwood v Small (1838). Where the representee who was not aware
of the untruth of the statement relies completely upon some other inducement for which the representor is not legally
responsible, there is no causal link between the misrepresentation and the representee’s loss.
4. The representee would have entered the contract even if aware of the untruth. To come within this category the
representor must prove, not merely assert, that the representee would have entered the contract even if he had been in
possession of the full facts (Atlantic Lines & Navigation Co Inc v Hallam Ltd (The Lucy) [1983])
5. Museprime v Adhill [1990] - The requirement of materiality (one upon which a reasonable person might have relied) is now
best thought of as relevant only to the burden of proof in relation to inducement
• Dadourian Group International Inc v Simms [2009] - where the misrepresentation is not a material one, the burden of
proving inducement will shift to the representee who must positively prove that it was reliance upon the representation that
caused him to enter a subsequent contract
Of Utmost Good Faith
• Some contracts which are treated as being ‘of the utmost good faith’ (or uberrimae fidei). This means that parties are
obliged to disclose relevant information, even if it is not asked for
• Contracts of insurance. Material facts must be disclosed, that is, facts which would influence an insurer in deciding
whether to accept the proposal, or to fix the amount of the premium; for example, a policy of life insurance has been
avoided because it was not disclosed that the proposer had already been turned down by other insurers
• Lambert v Co-operative Insurance Society Ltd [1975] - The insurer will normally be entitled to rescind the contract if any
information relevant to the risk insured is not disclosed, whether or not this has been asked for
• Family arrangements. In Gordon v Gordon (1816– 19), a division of property based on the proposition that the elder son
was illegitimate was set aside upon proof that the younger son had concealed his knowledge of a private marriage
ceremony solemnised before the birth of this brother
• Analogous contracts. Where there is a duty to disclose not material but unusual facts, for example, contracts of suretyship
Conduct
• Horsfall v Thomas (1862) , Spice Girls Ltd v Aprilia World Services BV (2000) - but other forms of communication which
misrepresent the facts will suffice; misrepresentation may be by conduct.
A Statement of Opinion
• Bisset v Wilkinson [1927] - A statement of opinion is not generally a misrepresentation
Exceptions
1. Smith v Land House Corporation [1884] - The first is where the person expressing the opinion is aware of facts which
indicate that the opinion cannot be sustained. A statement expressed as an opinion may be treated as a statement of fact
if the person making the statement was in a position to know the true facts
2. Edgington v Fitzmaurice [1885] - where there is evidence that the person making the statement does not believe it at the
time that it is made. Proof that the maker of the statement was aware of contradictory facts may prove that they did not
believe the statement was true.
• As the representors, at the very moment they proclaimed their intention, did not in fact have this intention, they were taken
to have misrepresented a present existing fact, the state of their mind.
Statements of Law
• Traditionally, statements of law have not been actionable.
• Kleinwort Benson v Lincoln City Council (1998) - it may be that statements of law are now actionable; possibility of
restitutionary remedies for mistake of law
• If the statement of law is not believed by the person making it, then the principle in Edgington v Fitzmaurice will apply, so
that the statement will be treated as a misrepresentation of the person’s state of mind.
Categories of misrepresentation
Fraudulent
• This is the tort of deceit
• Derry v Peek [1889] - The maker of the statement knows or believes that the statement is untrue, or makes it not caring
whether it is true or false.
• The burden of proof remains with the claimant to prove fraud and the burden is a heavy one
• Best defence is to show an honest belief, wc need not be reasonable, merely honestly held, so fraud is very hard to prove.
• The motive for fraud is irrelevant (Akerhielm v De Mare (1959)
Statutory misrepresentation
• Misrepresentation Act 1967. Act has created the ‘fiction of fraud’
• s 2(1) – if, as a result of a misrepresentation, a person has suffered loss then the person making it is liable for damages even
though it was not made fraudulently, unless (s)he can show (s)he had reasonable grounds to believe in the statement.
• Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavating) Ltd (1978) - there is no need to show a special
relationship under the Act
Negligent at common law
• The maker of the statement and the person relying on it are in a ‘special relationship’ giving rise to a duty of care under the
principles of Hedley Byrne v Heller [1964]
• The maker of the statement acts in breach of this duty
• The burden of proof here is on the claimant to prove these elements
Innocent
• If the elements of a misrepresentation can be proved but the maker of the statement genuinely believes it is true, and does
not act negligently (at common law or under statute) in making it then the action only lies for innocent misrepresentation.
• Liability for negligent misrepresentation now exists at common law under Hedley and under the Misrepresentation Act s.2(1).
• Consequently the phrase ‘wholly innocent’ misrepresentation is now often used to describe a non-fraudulent and non-
negligent misrepresentation.
Remedies for misrepresentation
• will depend on whether it was made innocently, negligently or fraudulently
Rescission
• Misrepresentation renders a contract ‘voidable’ rather than ‘void’.
• The principal common law remedy
• Available whether the representation was innocent, negligent or fraudulent
• The contract is set aside, and the parties put into the position they would have been in had the contract never been made
• Any goods or money which have been exchanged must be returned
• Must be sought by the claimant: it does not occur automatically
• In Car & Universal Finance Co v Caldwell [1965] - rescission can be effected by giving notice to relevant third parties
Limitations on rescission
1. Long v Lloyd [1958] - Where a party to the contract, aware of the other party’s misrepresentation, continues with the
contract, and thus ‘affirms’ it
- Peyman v Lanjani [1985] - Affirmation occurs when the ‘dual knowledge’ test is satisfied.
- the representee must be aware of both the circumstance that gives rise to the right to rescind
- and also to the fact that that right has arisen
2. Leaf v International Galleries [1950] - Where there is a significant lapse of time between the making of the contract and the
discovery of the misrepresentation
3. Clarke v Dickson [1858] - Where restitution is impossible. If property which has been transferred has been consumed or
inextricably mixed with other property, rescission will not be permitted.
- Salt v Stratstone Specialist Ltd [2015] - it is sufficient if substantial restitution may be effected combined with a
payment to the representor to cover any diminution in value caused by the representee
4. Where rescission would affect the rights of a third party. Where goods have been sold to the ‘misrepresentor’, who has
then sold them on to an innocent third party before the contract has been avoided. The courts will not require the third party to
return the goods to the original owner.
Damages
• Whittington v Seale-Hayne [1900] - an innocent misrepresentation provided only an indemnity for necessary expenditures
incurred as a part of the contract rescinded by way of monetary compensation
Damages in the tort of deceit for fraudulent misrepresentation
• It is up to the misled party to prove that the misrepresentation was made fraudulently, that is, knowingly, without belief in its
truth, or recklessly as to whether it be true or false (Derry v Peek (1889)
• The burden of proof on the misled party is a heavy one.
Damages in the tort of negligence
• Victims of negligent misrepresentation may be able to sue under Medley Byrne v Heller & Partners (1963).
• The misrepresentee must prove:
(1) that the misrepresentor owed him a duty to take reasonable care in making the representation, that is, there must be a
‘special relationship’;
(2) that the statement had been made negligently
Damages for wholly innocent misrepresentation
• Damages cannot be claimed for a misrepresentation which is not fraudulent or negligent, but:
1. an indemnity may be awarded
2. damages in lieu of rescission may be awarded under s2(2) of the Misrepresentation Act 1967
- William Sindall v Cambridgeshire CC (1994) - three matters should be taken into consideration:
1. the nature of the misrepresentation
2. the loss which would be caused to the representee if the contract were upheld
3. the hardship caused to the misrepresentor if the contract were rescinded
3. there is disagreement as to whether damages can be awarded in lieu even if one of the bars to rescission applies
4. where the misrepresentation has become a term of the contract, the misrepresentee can sue for damages for breach of
contract, as an alternative to damages for misrepresentation.
Damages under s 2(1) of the Misrepresentation Act 1967
• s 2(1) – if, as a result of a misrepresentation, a person has suffered loss then the person making it is liable for damages even
though it was not made fraudulently, unless (s)he can show (s)he had reasonable grounds to believe in the statement.
The burden of proof
• All that the claimant has to do is to prove that a misrepresentation was made and that it induced the contract
• The defendant will then be liable for damages under s.2(1) unless he or she can prove that there were reasonable grounds
for his or her belief that the statement was true
• Howard Marine and Dredging Co Ltd v Ogden (1 978) - It is for the misrepresentor to prove that he had good grounds for
making the statement, and the burden of proof is a heavy one
The measure of damages
• Royscot Trust Ltd v Rogerson [1991] - all losses are recoverable, not simply those that were reasonably foreseeable (as
would be the case with an action for negligent misstatement under the Hedley Byrne principle)
• s 2(1) - That is, damages would be awarded to cover all losses which flow directly from the untrue statement, whether or not
those losses were foreseeable
• In contract and in all torts other than deceit, the losses must be ‘reasonably foreseeable’.
• Section 2(2) of the Misrepresentation Act provides a discretion for a court to award damages in lieu of rescission, where it is
 adjudged equitable to do so, taking account of the effect of rescission on both parties.
• Such damages are unavailable where there was once a past right to rescind but which right had subsequently been lost
because one of the so called ‘bars’ to rescission i.e. affirmation, lapse of time, the impossibility of restitution or the
intervention of third- party rights
• Section 2(3) states that if damages are awarded under s.2(1) and s.2(2), the latter must be taken into account in assessing
the former. This implies that s.2(2) damages will be less than those under s.2(1)
• William Sindall plc v Cambridgeshire County Council [1994] - basic measure under s.2(2) should be the difference in value
between what the claimant was misled into believing he or she was receiving under the contract and the value of what was
in fact received.
Exclusion of liability
• B2C contracts will be subject to a test of fairness under the CRA 2015 (s.62 and Schedule 4)
• By virtue of s.3 of the Misrepresentation Act 1967, the exclusion or limitation of liability for misrepresentation is subject to
the requirement of reasonableness set out in s.11 of the UCTA.
• This requires that any clause which attempts to limit liability for misrepresentation must satisfy the requirement of
reasonableness set out in s.11 of the UCTA
• Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] - court considered the criteria set out in Schedule 2
of the UCTA to determine that the clause was reasonable under s.3 of the Misrepresentation Act 1967
• Walker v Boyle [1982] - Broad attempts to exclude liability have been found to be unreasonable, even if the clauses are
drawn from widely used standard conditions
• HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] - Where there was a fraudulent misrepresentation
the party deceived retained the right to rescind the contract and sue for damages.
• Cremdean Properties v Nash [1977] - assertion or ‘entire agreement’ clauses “no statements are made other than those
contained in the contract itself” fall within the scope of s.3 as far as liability for misrepresentation is concerned
• Watford Electronics Ltd v Sanderson CFL Ltd [2001] - clauses which seek to define the applicable duty are outside s.3

DURESS
• Pao On v Lau Yiu Long [1980] - Duress renders the contract voidable, rather than void.
• Apparent consent of the victimised party is treated as revocable; They have the ability to affirm or not to affirm the contract.
• The effect of finding that duress renders a contract voidable creates several important consequences:
1. Party subject to duress must act promptly to set aside the contract–North Ocean Shipping v Hyundai Construction [1979]
2. A third party can acquire good title to goods even though his vendor has acquired those goods pursuant to a contract
which was brought about by duress
Forms of duress
Duress to the person
• first form of duress recognised by the common law
• Consent must be vitiated
• The law will find an apparent contract voidable where duress is a reason for the contract. The duress does not have to be
the reason for the contract.
• Barton v Armstrong [1976] - Where a party enters into a contract for several reasons, of which the duress is only one reason,
the contract is still voidable
Duress to goods
• Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and The Sibotre) [1976] - where one person takes or
destroys, or threatens to destroy or take the goods of another unless a contract is entered into
Economic duress
• When one party uses its superior economic power to force the weaker party into an agreement
• The main difficulty in this area is to draw a line between unacceptable commercial pressures (which amount to economic
duress) and acceptable commercial pressures (which do not amount to economic duress)
• ‘illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial
bargaining’ (Dyson J in DSDN Subsea Ltd v Petroleum Geo-Services ASA [2000]
• R v Attorney General for England and Wales (2003) - It has been stated that economic duress requires:
Compulsion or coercion of the will
• Pau On v Lau Yiu Long (1980), Lord Scarman listed the following indications of compulsion or coercion of the will:
1. did the party coerced have an alternative course open to him such as an adequate legal remedy?;
2. did the party coerced protest at the time?;
3. did the party coerced have independent advice?;
4. did the party coerced take steps to avoid the contract once they had entered it?
Illegitimate pressure
• There must be some element of illegitimacy in the pressure exerted, for example, a threatened breach of contract.
• The illegitimacy will normally arise from the fact that what is threatened is unlawful.
• Economic duress is often pleaded together with lack of consideration in cases where a breach of contract is threatened by
the promisor, unless he receives additional payment.
• The following threats are probably not illegitimate:
1. a threat not to enter into a contract;
2. a threat to institute civil proceedings;
3. a threat to call the police.
Undue influence
• An equitable doctrine
• Pressure not amounting to duress at common law, where a party is excluded from the exercise free, independent judgment
• Based on the misuse of a relationship of trust or confidence between the parties. Where found, it renders a contract
voidable.The innocent party will need to apply to the court for rescission of the contract
Contracts where actual undue influence is proved
• Claimant must prove that the wrongdoer actually exerted an undue influence:
1. that the party to transaction (or person who induced a transaction for his benefit) had the capacity to influence other party
2. that he did influence the other party
3. that the exercise of this influence was undue
4. that it was because of this influence that the transaction was brought about.
• It is not necessary to show that the transaction was manifestly disadvantageous to the party subject to the undue influence.
• Third party could discharge his duty by making clear to the party concerned the full nature of the risk he or she is taking on:
- by conducting a personal interview; or
- urging independent advice.
• Damages are not available as a remedy for duress or undue influence: the whole contract is avoided
Contracts where undue influence is presumed
• Royal Bank of Scotland v Etridge (No 2) (2001): undue influence may arise in one of two ways:
1. the law makes a genuine presumption in relation to certain, defined types of relationships
2. there is a shift in the evidential burden of proof from the complainant to the other party, to show that the transaction
was made without improper influence
- the complainant reposed trust and confidence in the other party
- transaction is not readily explicable other than as resulting from undue influence
• CIBC Mortgages v Pitt (1993): husband and wife. (Lloyds Bank v Bundy (1975) bank and elderly customer
Genuine presumptions
• where the law automatically considers the parties to be in a relationship of trust and confidence:
- parent and child;
- trustee and beneficiary;
- solicitor and client;
- doctor and patient;
- religious adviser and disciple
• The complainant need not prove he actually reposed trust and pconfidence in the other party.
• All the complainant needs to do is to establish the existence of the relationship.
• In cases where the gift is a small one (such as a birthday or Christmas gift), the presumption will not apply.
Evidential presumptions
• The relationship may not fall within those where undue influence is presumed by law. The complainant may prove the de
facto existence of:
• a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such
relationship raises the presumption of undue influence (per Lord Browne-Wilkinson, Barclays Bank v O’Brien [1994]
• The complainant establishes the relationship and an inexplicable transaction and the burden of proof then shifts to the
other party to disprove the presumption.
• That the transaction is inexplicable goes to another element which is necessary in cases of presumed undue influence –
that the transaction is disadvantageous to the ‘weaker’ party.
• The burden of proof then shifts to the putative wrongdoer to disprove that they did not exercise undue influence by:
- full disclosure, of all material facts was made;
- the consideration was adequate;
- the weaker party was in receipt of independent legal advice Royal Bank of Scotland v Etridge (No 2) (2001)
Undue influence and third parties
• The most common instance of this scenario is when the relationship of undue influence exists between spouses and one
spouse induces the other to enter into a transaction with a bank.
• This often involves the use of the matrimonial home as security for business debts
• The issue here is whether or not the transaction with the bank will be set aside because of the relationship with another
party.
• The transaction will be set aside if the bank has actual or constructive notice of the possibility of undue influence.
• Barclays Bank v O’Brien (1993) - bank can rebut the possibility of notice: inform the spouse as to the nature of the
transaction and advise them to seek legal advice
• Royal Bank of Scotland v Etridge (No 2) (2001) - it is not required to have a personal meeting with the guarantor/surety,
provided that a suitable alternative (usually a solicitor) is available. Bank can rely upon the solicitor’s confirmation that
appropriate advice has been given
THIRD PARTIES
• Two aspects to the doctrine of privity of contract:
1. Parties cannot by their contract impose liabilities or burdens upon a third party - unobjectionable
2. Only the parties to a contract can derive rights and benefits from their contract - objectionable
• Tweddle v Atkinson (1861) - only a party to a contract can sue on a contract
• Dunlop Pneumatic Tyre v Selfridge & Co (1915) - only a person who is a party to a contract can be sued on it
• Scruttons Ltd v Midland Silicones Ltd (1962) - a stranger to a contract cannot take advantage of its provisions even where
the provisions were intended to benefit him
The Contracts (Rights of Third Parties) Act 1999
• Allows contracting parties to provide an enforceable benefit to a third party
• Contracting parties cannot impose a burden upon a third party
• Third party to a contract can enforce a term of the contract in his own right:
1. Where the contract expressly provides that he may (s.1(1)(a))
2. Where the terms of the contract purport to confer a benefit upon him and nothing else in the contract denies the
purported benefit (s.1(1)(b), s.1(2))
• The right of the third party to enforce a term of the contract is subject to the terms of the contract (s.1(4))
• The Act does not require that the sole purpose of the term be to confer a benefit upon the third party
• It is possible for a term to confer an enforceable benefit upon a third party and some other party
• Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening (2009) - For s.1(1)(b) of the Act to apply,
it must be one of the purposes of the bargain between the parties to benefit a third party, rather than an incidental effect
of contractual performance
• (s.1(5)) The rules relating to that remedy apply accordingly, be it damages, injunctions, specific performance or other relief
• S. 2 Right to vary - Unless they have provided otherwise, the contracting parties will lose the right to vary or cancel the
provision benefiting the third party if:
1. the third party has communicated his assent
2. the third party has relied on the term, and the promisor is aware of this
3. the third party has relied on the term and the promisor could be reasonably expected to have foreseen this.
• s.2(3) - contracting parties can allow a rescission or variation of the contract without the third party’s consent or they can
obtain the consent in a different manner than that set out in the Act
• s 3 Defences - s.3(2) - Where a third party seeks to enforce his right and brings a claim against the promisor, the promisor
can rely on any defence or set-off in the contract and relevant to the term being enforced as if the claim had been brought
by the promisee
• s.3(3) - the contract could provide that the promisor could avail himself of any and all defences and set-offs available in any
action brought by the third party
• s.4 - The right of the third party is additional to any right that the promisee might have to enforce any term of the contract
• s 5 - Exceptions - There cannot be double liability, that is, as against the promisee and the third party
• However, where the promisee has recovered money from the promisor in respect of the third party’s loss or the promisee’s
expense making good that loss, the court shall reduce any award to the third party to the extent appropriate
• Generally, the parties to a contract cannot rescind the contract or vary it in such a way as to either:
1. deny the right of the third party, or
2. alter the entitlement of the third party once the third party has acquired a right to enforce a term of the contract
• s 6 - Exclusions of the Act:
1. contracts on a bill of exchange or promissory note
2. terms of a contract of employment, as against an employee;
3. contracts for the carriage of goods by sea or, if subject to an international transport convention, by road, rail or air
• s.7(1) - an enforceable right to third parties that is given in addition to any right or remedy available at common law
• s.7(2) - promisor can limit or exclude any liability for negligence (other than death or personal injury) in the performance of
his obligation to the third party
• The application of s.8(1) was such that the parties to the contract positively intended that third parties would be bound to
the result of arbitration proceedings even if they had not initiated the proceedings in order to secure a benefit apparently
conferred upon the third party by the contract
• The third party receives protection from such later changes to the contract:
1. where the third party has communicated his assent to the term to the promisor
2. where the promisor is either aware that the third party has relied upon the term or the promisor can reasonably be
expected to have foreseen that the third party would rely upon the term and the third party has relied upon the term (s.2(1))
Rights conferred on third parties at common law
• the Act preserved any rights the third party would have at common law (s.7(1)
Enforcement by the promisee
• Beswick v Beswick - The estate of the promisee was able to enforce the promise
• Thus, if A (the promisor) promises B (the promisee) to pay C (the third party) £100, B can sue to enforce this promise
• s.4 - retains the promisee’s right to enforce the contract
• Two difficulties can arise:
1. The promisee B may be unwilling, or unable, to enforce the contract (there is little C can do to compel B to enforce)
2. To find an appropriate remedy for B
Number of circumstances in which the promisee B has been able to receive an award of damages:
1. Multiple bookings - Jackson v Horizon Holidays (1975) - Person who booked a holiday on behalf of himself and family
members was able to recover damages on behalf of the family members where the contract was breached.
2. Sellers’ contracts with carriers to take buyers’ goods for delivery - The Albazero (1977) - The buyer has no contract with
the carrier. When the seller and carrier contract in contemplation of a second contract with the buyer, the seller can
recover substantial damages on behalf of the buyer where the goods are lost or damaged.
3. Contracts where the subject matter will be acquired by a third party - Darlington BC v Wilshier Northern (1995) - third party
 was the owner of the property. B should be able to enforce the contract to its full extent for the benefit of C (third party)
4. An order for the promisor to perform / Injunction - Snelling v John G Snelling (1973) - if the promisor A contracts with
promisee B not to sue third party C, B can ask the court to stay the proceedings against C
Agency
• Allow a third party to take advantage of an exclusion clause in a contract to which he was not a party.
• Shanklin Pier Ltd v Detel Products Ltd (1951) - A principal can sue and be sued on contracts made by an agent on his behalf
• Southern Water Authority v Carey (1985) - they must have specific authority to negotiate on behalf of a third party, before
this device could work
Exemptions and limitations of liability
• Where A and B contract for B to perform a service, it may be intended that B will render part of his performance through C,
a third party to the contract.
• if A (the owner of goods) contracts with B (the carrier) to deliver goods from Port 1 to Port 2, B may subcontract the
unloading of the goods at Port 2 to a third party C (the stevedores).
• B has two contracts in this example: the first is with A for the carriage of goods and the second is with C for the unloading
• B to seek to limit or exclude his liability for damage of goods during unloading.
• The lack of a contract between A and C is no bar to A suing C in tort should C damage A’s goods
• Should C damage the goods, A may bring an action in tort against C. C is unable to protect himself using the exemption
clause in contract 1 since he is not a party to that contract
• The Eurymedon (1975) - it may be possible for B to contract with A as C’s agent. Through B, A offered an exemption of
liability to C. C, in performing their contract with B and unloading the vessel, accepted this offer and a contract between C
and A was formed such that C could rely on the exemption clause.
1. A offers immunity to C (acting as B’s agent)
2. C performs contract 2 (unloading)
3. Contract between A and C; C given some form of immunity from action by A
4. Final result: Should A sue C in tort for damage, C can use exemption clause in the contract as a defence
• s.6(5) - the third party can still take advantage of an exception clause in a contract for the carriage of goods by sea
Collateral contracts
• Andrews v Hopkinson (1957) - Occasionally a third party may be made liable on the basis that he has made some promise
in consideration of the promisee’s entry into the ‘main contract’
Trusts
• Lloyd’s v Harper (1880) - B holds A’s promise on trust for C (beneficiary); B may recover from A whole loss suffered by C
bec of A’s non performance
• A trust of a promise negates privity altogether, for the third party must simply assert that B is the trustee of the promise and
that the benefit of the promise is the third party’s.
Other legislation
• in some specific instances, a statute may overcome the problems that would otherwise be posed by privity
• Third Parties (Rights Against Insurers) Act 1930 s.56, s.75 Consumer Credit Act 1974 and s.56 Law of Property Act 1925
Liability imposed upon third parties
• Usually dependent upon the knowledge or implied consent of the third party
• The Pioneer Container (KH Enterprise v Pioneer Container) (1994) - principles of bailment to hold that the owner of the cargo
was bound by the agreement between the bailee and the sub-bailee, although the owner was not a party to the agreement
• The liability upon the owner is imposed as a result of the sub-bailment on terms rather than by contract
PERFORMANCE AND BREACH
• A contract is ‘discharged’ when there are no obligations outstanding under it
• A contract may be discharged by: Performance, Agreement, Breach, Frustration
Performance
Precision of Performance
• To discharge his obligations under a contract, a party must perform exactly what he promised
• One issue is if the performance of the promised obligation is sufficient to satisfy the promise
• ‘Entire Obligation’ contracts require 100 per cent performance to satisfy the obligation
• Cutter v Powell (1795) - There is no partial payment for partial performance
• Bolton v Mahadeva (1972) - although the boiler and pipes had been installed, they did not fulfil the primary purpose of
heating the house; the contractor could not claim payment
• Most high value commercial contracts will typically involve payment in instalments Smales v Lea [2011]
The law will allow payment to be made, on a quantum meruit basis, for incomplete performance in the following:
1. A court may interpret the contract not as being an entire contract, but as a contract which is made up of a series of ‘entire
obligations’. Where the contract is divisible, payment can be recovered for the completed part, for example, goods delivered
by instalments.
2. Courts will allow recovery where a party in breach has substantially performed his obligations. Hoenig v Isaacs [1952]
3. Where the promisee accepts partial performance Sumpter v Hedges (1898)
4. Where the promisee prevents complete performance Planché v Colburn (1831)
When a breach of contract occurs (‘actual breach’)
• A repudiatory breach is a breach of condition or the serious breach of an innominate term. A party who alleges that a
repudiatory breach has occurred must prove that it has occurred.
1. is the standard of performance to be met in the contract
 a.) strict liability- either performance measures up to what is demanded by the contract or it does not
- supply of goods - strict standard of quality and quantity of the goods
- may be imposed by legislation: imposed upon a seller of goods under the ss.13–15 Sale of Goods Act 1979
- Arcos v Ronaasen (1933)
b.) reasonable care - imposes a duty to use reasonable care and skill in the performance of obligations
- s.13 Supply of Goods and Services Act 1982 requires a party to exercise reasonable care and skill in the
supply of a service
2. type of term breached
What occurs upon breach
• Consequences of a breach of contract are determined by the severity of the breach and the decision of the innocent party
• Decro-Wall SA v International Practitioners in Marketing (1971) - A breach of contract does not automatically end a contract
– no matter how severe the breach
• Breach of a condition or a sufficient serious innominate term gives the innocent party the option to terminate the contract
• Rescission for breach ends only future obligations, leaving past ones remaining
• Rescission for misrepresentation ends all obligations
• The innocent party will have the right to sue for damages
• Obligations are dependent when one party must be willing and able to perform his obligation in order to maintain a suit
against the other party for his breach ex: the contract could provide that the employee is paid weekly. In the event that the
employee does not work that week, he or she will be unable to recover their wages.
• Vitol SA v Norelf Ltd (1996) - innocent party must communicate to party in breach that he elected to terminate the contract
• Ampurius Nu Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2013] - If a breach of contract is remedied before the
injured party purports to exercise the right to termination, then the fact that the breach had been remedied was an important
factor for the court to consider
• Heyman v Darwins Ltd (1942) - The nature of a breach of contract is prospective - If the innocent party elects to terminate
the contract, future obligations are no longer binding and are discharged. Past obligations, however, remain
What happens if innocent party does not elect to terminate the contract?
• In this case, she remains bound to her obligations.
• Stocznia Gdanska SA v Latvian Shipping Co (1997) - she cannot subsequently decide to ‘return’ to the earlier breach and
then purport to accept it while the breach remains anticipatory
Anticipatory breach
• An anticipatory breach is a breach which occurs in time before performance is due
• Spar Shipping AS v Grand China Logistics (Group) Co Ltd [2016] - before a performance is due, a party either renounces the
contract or disables himself from performing it
• A renunciation must amount to a clear and absolute refusal to perform. This can be either express or indicated by the
conduct of the party involved.
• Universal Cargo Carriers Corp v Citati (1957) - a charterer was held to be in anticipatory breach of his obligation to provide a
cargo at the time specified. The breach occurred because of the failure of a third party to provide him with the cargo.
• Hochster v De la Tour (1853)- Other party may sue for damages immediately. He does not have to await date of
performance
• White and Carter Ltd v McGregor (1962) - The innocent party may refuse to accept the repudiation. He may affirm the
contract and continue to perform his obligations under the contract.
Termination
• When will injured party know when he or she has the right to terminate for an anticipatory breach
• Depend upon the form of the anticipatory breach
• Renunciation must be such as to prove that the party in breach has ‘acted in such a way as to lead a reasonable man to
conclude that he did not intend to fulfill his part of the contract’.
• Prospective inability (where the party is alleged to have committed a breach by disabling themselves from performance)
the question of whether or not the injured party can rescind/terminate the contract will depend upon the seriousness of the
consequences of the breach.
Affirmation
• White and Carter (Councils) Ltd v McGregor (1962) - The innocent party’s ability to affirm the contract and continue with
performance is qualified in two ways:
1. Innocent party cannot carry on with performance where he needs the cooperation of the party in breach (Hounslow
LBC 1971)
2. Where the innocent party had no legitimate interest in performing the contract other than claiming damages, he ought
not to saddle the other party with an additional burden.
• The innocent party will be found to have an insufficient legitimate interest in performing the contract when such
performance would be ‘wholly unreasonable’ (The Odenfield (1978) or ‘perverse’ (The Aquafaith (2012)
• If the innocent party elects to affirm the contract, he runs the risk that the contract may later be discharged by frustration
• If the innocent party affirms the contract and subsequently breaches it himself, again, he will not be able to rely upon the
other party’s earlier breach of contract.
FRUSTRATION
• National Carriers v Panalpina (1981) - there supervenes an event which so significantly changes the nature (not merely the
expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably
have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in
 the new circumstances
• Davis Contractors v Fareham UDC (1956) - frustration occurs where to require performance would be to render the
obligation something ‘radically different’ from what was undertaken by the contract.
• It is not the circumstances, but the nature of the obligation, which must have changed
• Important that the courts determine exactly what obligations were originally undertaken in order to decide whether the
change in circumstances has made any of them radically different.
• Force majeure clauses - parties make provision in the contract for what is to happen should the performance of the
agreement become impossible, or radically different, as a result of some subsequent event for which neither is to blame.
The nature of a ‘frustrating event’
• In deciding whether or not a contract has been frustrated, courts apply a ‘multi- factorial approach’ (see Edwinton v
Tsavliris (The Sea Angel) (2007)
• There must be a break in identity between what was contemplated and the new performance
Destruction of subject matter
• Taylor v Caldwell (1863) - a contract to hire a music hall was held to be frustrated by the destruction of the music hall by fire
• Asfar v Blundell (1896) - the contamination of perishable goods, which rendered them unusable, was held to be equivalent to
destruction
• Blackburn Bobbin Co v Alien (1918)- destroyed object must have been intended by both parties to be subject of the contract
• see also s.7 Sale of Goods Act 1979
Personal incapacity
• Death or incapacity of a party to a contract of personal service, or a contract where the personality of one party is important
• Condor v The Baron Knights (1966) - contract between a pop group and its drummer was held frustrated when the drummer
became ill and was unable to fulfil the terms of the contract
The commercial purpose of the contract has failed
Non-occurrence of an event
• Krell v Henry (1903) - a room overlooking the route of the coronation procession had been hired for the purpose of watching
it. When the procession was cancelled, the contract for the hire of the room was held to be frustrated
• Herne Bay Steamboat Co v Mutton (1903), the court refused to hold that a contract to hire a boat to see the king review the
fleet was frustrated when the review was cancelled; the fleet was still there and could be viewed— there was therefore no
overall failure of the purpose of the contract.
Government interference or delay
• Metropolitan Water Board v Dick Kerr (1918) - a contract had been formed in 1913 to build a reservoir within six years. In
1915, the government ordered the work to be stopped and the plant sold. Held—the contract was frustrated.
• Gamerco SA v ICM/ Fair Warning Agency (1995) a stadium which had been booked for a pop concert was closed for
reasons of health and safety. It was held that the contract for the hire of the stadium was frustrated.
Effects of war
• The contract has become illegal to perform, either because of a change in the law, or the outbreak of war.
• Avery v Bowden (1855), a contract to supply goods to Russia was frustrated when the Crimean War broke out. It had
become an illegal contract—trading with the enemy.
• Finelvet AG v Vinava Shipping Co Ltd (1983) - The frustration need not result from direct government action. The continuing
war between Iran and Iraq trapped certain ships in the Gulf for a lengthy period. Contracts relating to the charter of these
ships were held to be frustrated.
Other frustrating events
• The Nema (1981) - industrial action
• Jackson v Union Marine Insurance Co Ltd (1874). - accidental running aground of a ship
Limitations on the doctrine
1. Where the frustrating event has been foreseen and provided for in the contract
• Part of the essence of the doctrine of frustration is the fact that the event which has occurred is a surprise
• Gold Corp Properties v BDW Trading Ltd (2010) - contract for the development of property was frustrated when there was a
‘crash’ in property values was unsuccessful as the risk was both foreseen and provided for by a clause that permitted the
renegotiation of minimum prices in such circumstances
2. Where the alleged frustrating event has been ‘self-induced’ by one of the parties
• Maritime National Fish v Ocean Trawlers (1935) the defendants chartered a boat from the plaintiffs, but were then unable to
use it as planned because they were not granted sufficient fishing licences to cover all the boats they wished to operate. It
was held that their contract with the plaintiffs was not frustrated
The effect of frustration
• There are two sets of rules relating to the effects of frustration: one under the common law and the other under the Law
Reform (Frustrated Contracts) Act 1943
Common Law Effect
• Chandler v Webster (1904) - the loss lay where it fell, that is, the date of the frustrating event was all important. Anything
paid or payable before that date would have to be paid. Anything payable after that date need not be paid
• Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd (1943) - where there was a total failure of consideration,
then any money paid or payable in advance would have to be returned
• Hirji Mulji v Cheong Yeong Steamship Co Ltd (1926) - A frustrating event terminates the contract automatically, any attempt
to affirm the contract following frustration will be ineffective
The Law Reform (Frustrated Contracts) Act 1943
• There are some contracts to which the 1943 Act does not apply: contracts of insurance, some charters of ships (principally
charters for a particular voyage) and contracts for the carriage of goods by sea
• The most important exclusion from the effects of the Act is in relation to contracts for the sale of specific goods. In relation
to these contracts the common law rules as to the effects of frustration will apply.
Section 1(2): money paid or payable prior to frustration
• Where money was paid or payable prior to the frustrating event, it should be returned (if paid), or should cease to be payable
(if not paid but owing).
• Gamerco SA v ICM/Fair Warning (Agency) Ltd (1995) - Set-off will be granted only where it is just and equitable having
regard to all the circumstances of the case
Section 1(3): compensation for a ‘valuable benefit’
• Where a party has received a benefit other than money prior to the point at which the contract was frustrated
• Allows the party to recover from the other party ‘such sum...as the court considers just, having regard to all the
circumstances of the case.’
• BP Exploration v Hunt (1982) - Section 1(3) was applied; held that the court must:
1. identify and value the ‘benefit obtained’;
2. assess the ‘just sum’ which it is proper to award
Section 2
• All sums paid or payable before the frustrating event shall be recoverable or cease to be payable, but the court has a
discretionary power to allow the payee to set off against the sum so paid expenses he has incurred before frustrating event
REMEDIES
DAMAGES
• Every breach of contract entitles the injured party to claim damages
• Not all losses will be recoverable
1. Remoteness: There can be no recovery of losses which are too remote: that is to say, losses which are not foreseeable
2. Mitigation: Cannot recover damages for a loss that he could have reasonably avoided
3. Cannot recover damages for non-financial loss (injured feelings or distress arising as a result of the breach of contract)
The purpose of an award of damages
• Robinson v Harman (1848)- purpose of award of damages is to compensate injured party and not to punish party in breach
• NOT TO PUNISH : Punitive damages are not available
• AG v Blake (2000) - Generally to recoup a gain made by defendant
• Johnson v Agnew (1980) - Damages are normally assessed at the time of breach
• Golden Strait Corporation v Nippon Ysen Kubishika Kaisha, The Golden Victory (2007) - in exceptional cases damages
would be reduced where it was proven that, between the date of breach and the time of trial, certain events occurred which
would have inevitably reduced the damages the claimant could have recovered in respect of its loss
• Hooper v Oates [2013] - date of breach is the right date to assess damages where there is an immediately available market
for the sale of the relevant asset or for the purchase of an equivalent asset
Two measures of damages
• How is the claimant’s loss to be measured?
Expectation loss
• Nykredit plc v Edward Erdman (1997) - ‘the contractual measure of damages’
• Robinson v Harman (1848) - where a party sustains loss by reason of a breach of contract, he is, so far as money can do it,
to be placed in the same situation, with respect to damages, as if the contract had been performed
• Compensation for the loss of a bargain
• The law compensates A for the benefit he would have obtained by reason of his contract with B
• Watts v Morrow (1991) - “cost of cure” Amount required to pay a third party to perform what was stipulated in the contract
• Ruxley Electronics v Forsyth (1995) - Cost of cure far exceeded the original contract price. Difference in value, the court
decided, was nil. The outcome may have been different if for reasons other than merely recreational use
• 125 OBS (Nominees 1) v Lend Lease Construction (Europe) Ltd (2017) - On basis of cost of cure the court will ensure that
damages are calculated by reference to appropriate cure and reject any unwarranted cost saving suggested by D
• Chaplin v Hicks (1911) - plaintiff received damages for the “loss of a chance” to compete in a competition
• Giedo van der Garde Bv v Force India Formula One Team (2010) -Calculation of loss of chance damages will be speculative
Reliance loss
• Anglia Television v Reed (1972) - claimant is unable to prove the value of his expectations
• Claimant is unable to prove that a financial benefit would accrue to it had the contract been performed
• Bridge UK.com Ltd v Abbey Pynford plc (2007) - when a contract to install new machinery was breached, the cost of
outsourcing work
• Yam Seng Pte Ltd v International Trade Corp Ltd (2013) - breach of a franchise contract to sell branded goods, wasted
marketing and promotional costs
• CCC Films v Impact Films (1984) - claimant decides whether to seek his reliance losses or his expectation losses
• C & P Haulage Co Ltd v Middleton (1983) - Claimant cannot, however, seek to recover his reliance losses where this would
have the effect of allowing him to escape the consequences of a bad bargain
When is restitution available?
• Will only occur when the claimant can establish that the defendant was enriched at the claimant’s expense and that it is
 unjust to allow the defendant to retain his profit without compensating the claimant
• Requires the defendant to disgorge the profit obtained as a result of his wrongdoing
• Planche v Coburn (1831) - When a contract is terminated because of the defendant’s breach, the claimant may elect to
proceed in contract or restitution
Total failure of consideration
• Whincup v Hughes (1871) - If any part of the contract is performed, or if the claimant has received any part of the
consideration, the restitutionary claim is barred
• Bowmakers v Barnet Instruments (1945) - Into this set of circumstances fall many of the illegality cases
Unjust benefit
• On the ground that the defendant has obtained an unjust benefit, or profit, because of his breach of contract
• Surrey County Council v Bredero Homes Ltd (1993) - Gains-based damages are not generally available for a breach
• Attorney-General v Blake (2000) - the court would order an account of profits where neither equitable remedies nor an
award of damages based upon a financially assessed measure of damages would not provide a sufficient remedy
- an account of profits would be awarded only in exceptional circumstances
• Wrotham Park (Experience Hendrix LLC v PPX Enterprises Inc (2003) - Courts prefer to award compensatory damages for
loss of a bargaining position. “Negotiating damages” - where the defendant has deprived the claimant of a valuable asset
Non-pecuniary loss
1. Pain and suffering consequent on physical injury
2. Physical inconvenience
- Watts v Morrow (1991), damages were awarded to cover inconvenience of living in a house whilst it was being repaired
3. Damage to commercial reputation.
- Gibbons v Westminster Bank (1939), damages were awarded to cover losses caused by wrongful referring of a cheque
- Cf Malik v BCCI (1997) compensation for stigma of having worked for an organisation which had been run corruptly.
4. Distress to claimant
- Traditionally, damages for injured feelings were not awarded for breach of contract: Addis v Gramophone Co (1909).
- This general principle has recently been confirmed by the House of Lords in Johnson v Unisys Ltd (2001)
5. Damages for disappointment against holiday company in Jarvis v Swan Tours (1973) where holiday was not as described
6. Hayes v Dodd (1990), damages for distress are not recoverable in commercial contracts, but could be recovered:
a. To provide pleasure (Jarvis v Swan Tours Ltd 1973)
b. To prevent distress (Heywood v Wellers 1976 - solicitor’s failure to obtain injunction)
7. Farley v Skinner (2001). It is sufficient if one of the major objects of contract is to provide pleasure or to relieve anxiety.
The whole contract need not be for that purpose. Claimant recovered damages from a surveyor for failure to provide peace
of mind when surveyor failed to advise him that house which he purchased was on flight path from Gatwick Airport
• For loss of ‘amenity’ (e.g. Ruxley Electronics v Forsyth (1995) judge’s award of £2,500 for ‘loss of amenity’ was not
challenged and Moorjani v Durban Estates (2015) where damages for loss of amenity were awarded at the rate of £500 pa
for a landlord’s breach of a covenant to repair premises described as ‘dilapidated, shabby and dingy’)
Tests of causation and remoteness of damage
• Is there a causal link between the defendant’s breach and the actual damage or loss suffered by the claimant?
• Is the damage of a type that is not too remote a consequence of the defendant’s breach?
Causation
• The breach must have caused the loss as will as having preceded the loss
• Lambert v Lewis (1981) - The action of a third party may break the chain of causation if it is not foreseeable
• Stansbie v Troman (1948) - However, where the action is foreseeable, the chain of causation will not be broken.
• London Joint Stock Bank v MacMillan (1918) - Causation is a question of fact in each case – the court decides if the breach
is the main reason for the claimant’s loss
• Galoo Ltd and others v Bright Grahame Murray (1995) - The test is a common sense one of whether the breach was the
cause or merely the occasion of the loss
• C & P Haulage v Middleton (1983) - The loss may be the result of the character of the contract itself rather than any breach,
in which case the defendant is not liable
• The loss may arise partly from the breach and partly from an intervening event (Stansbie v Troman (1948)).
1. In this case, chain of causation is not broken if it is a reasonably foreseeable event (De La Bere v Pearson (1908))
2. If 2 causal factors incl breach, then loss can still be attributed to breach (Smith, Hogg & Co v Black Sea Insurance (1940)
Remoteness of damage
• Damages cannot be recovered for losses that are too remote. Losses must be ‘within the reasonable contemplation’
• Hadley v Baxendale (1854) - A mill was closed because of the delay of a carrier in returning a mill shaft. The court held that
the carrier was not liable for damages for the closure of the mill as he was not aware that the absence of a mill shaft would
lead to this conclusion.
• The following damages were said to be recoverable:
1. a natural consequence of the breach – measured objectively;
2. a loss which, if not natural consequence, the parties knew was possible when they contracted – measured subjectively
• This has since been modified in Victoria Laundry Ltd v Newman Industries Ltd (1949) to include six vital points:
1. to indemnify any loss is too harsh on the defendant;
2. recoverable loss should be measured against foreseeability;
3. foresight depends on knowledge of parties when contracting;
4. knowledge is of two types: (i) imputed knowledge (i.e. common knowledge); and (ii) actual knowledge (i.e. that actually
 possessed by the parties on formation of the contract (these represent the two types identified in Hadley v Baxendale));
5. but knowledge can also be implied from what a reasonable man might have contemplated;
6. implied knowledge should include what it is possible to have foreseen rather than what must have been foreseen.
• The test can cause confusion. The House of Lords added to the confusion in (The Heron II) (1969), where it held:
1. often the reasonable man ought to contemplate certain loss as a natural consequence of a breach; and
2. foresight is different in contract and tort.
• This was rejected by the Court of Appeal in H Parsons (Livestock) Ltd v Uttley Ingham (1978), holding that remoteness is not
dependent on contemplation of possible level of injury, but merely proof loss could be contemplated.
• In determining remoteness it is what was in the contemplation of the parties at the time that the contract was made which
determines the outcome (Jackson v Royal Bank of Scotland plc (2005))
Mitigation of damage
• British Westinghouse Electric Co Ltd v Underground Electric Railways Company of London Ltd (1912) - The claimant has a
duty to take reasonable steps to mitigate His loss
• There are two elements to this duty:
1. first, to avoid increasing loss; and,
2. secondly, to act reasonably to reduce it.
Liquidated damages
• Because the claimant has the burden of proving the amount of his loss, it is a great convenience to him if the contract can
simply state a sum which will be payable by the defendant in the event of breach and the claimant can then sue for the
stated sum.
• In Dunlop Pneumatic Tyre Co v New Garage & Motor Co (1914), Lord Dunedin established a test for differentiating between
genuine liquidated damages and penalties:
- an extravagant sum is generally a penalty;
- payment of a large sum for default on a small debt is most likely a penalty;
- one sum operating for a variety of breaches is likely to be a penalty, whereas a sum that relates to a single breach is not;
- the wording used by the parties is not conclusive, it is the construction by the court that counts;
- a claim for liquidated damages will not fail because potential loss was impossible to calculate at the time of formation.
• Penalty clauses will not be enforced by the court. Instead, the court will award unliquidated damages
• Cavendish Square Holdings BV v Makdessi and Parking Eye Ltd v Beavis [2015] - The test for a penalty is now:
‘whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all
proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation’.
The rule against penalties does not apply to (McKendrick (Section 22.6 ‘Evading the penalty clause rule’):
• Acceleration clauses. Here, the whole of a debt becomes payable immediately if certain conditions are not observed.
• Deposits. Money paid otherwise than on a breach of contract. A deposit is paid by way of security and is generally
irrecoverable as long as the sum paid by way of deposit is reasonable. Alder v Moore (1961) Bridge v Campbell (1962)
• Clauses declaring a term to be a condition, it’s breach allows the injured party to terminate the contract and claim damages
Lombard North Central v Butterworth (1987)
EQUITABLE REMEDIES
• Further remedies in addition to an award of damages at common law.
Specific performance
• An order for the specific performance of a contract is an exceptional remedy.
• Remedy only granted if:
1. When there is no alternative available (Beswick v Beswick 1968)
2. Damages would be inadequate:
a. A ship was sold which was ‘of peculiar and practically unique value [to the claimant] Behnke v Bede (1927)
- land (Adderly v Dixon (1824)), art objects (Falcke v Gray (1859)) ships (Behnke v Bede)
b. Damages for a breach of a contract to sell land are viewed as inadequate Johnson v Agnew (1979)
c. Subject matter is unique Adderly v Dixon
d. No realistic prospect of getting a substitute supply Sky Petroleum v VIP Petroleum [1974]
e. Damages would result in the insolvency of the business Thames Valley Power Ltd v Total Gas and Power Ltd (2005)
3. Impossible to quantify the claimant’s loss: Decro-Wall International SA v Practitioners in Marketing Ltd (1971)
4. Defendants unlikely or not able to pay an award of damages Evans Marshall & Co Ltd v Bertola SA (1973)
Limitations
• If the claimant has acted unconscionably (induced, unfair) (Webster v Cecil (1861)
• Where to do so causes undue hardship to the defendant (Hope v Walter (1900)
• Where the cost to the defendant would substantially outweigh any benefit to the claimant Tito v Waddell (No 2) (1977)
• Where it is impossible for D to comply with the order. Ex: D has contracted to sell land which he does not own
• There must be mutuality of remedy Page One Records v Britton (1968)
• It is not usually granted in a contract of employment or for personal services (Giles v Morris (1972))
Damages in lieu of specific performance
• The court has the power to award damages in addition or substitution for specific performance S.50 Senior Courts Act 1981
• Specific Performance is never granted if damages is an adequate remedy for the breach (Fothergill v Rowland (1873)
• It cannot make such an award where the ability to seek the specific relief has been lost (e.g. through lapse of time).
• Wroth v Tyler (1974) damages must ‘constitute a true substitute for specific performance’
Injunctions
• Party promises not to do something or to refrain from doing something
• Insurance Co v Lloyd’s Syndicate [1995] - They will not order it where it would cause particular hardship or oppressive to D
• Page One Records v Britton (1968) - Not grant it where to do so would be to indirectly order specific performance