CASE LIST

Hillas v Arcos [1932]

Facts
Hillas & Company were merchants purchasing timber from Arcos. They reached an
agreement to purchase 22,000 standards of timber, under the specific condition that they
should also have the option of entering into a contract with Arcos to purchase 100,000
standards the following year with a 5% reduction on price. Arcos refused to sell them
the 100,000 standards the following year. Hillas brought action against Arcos for breach
of contract. Hillas was successful at trial, which Arcos appealed successfully to the Court
of Appeal but the decision was overturned by the House of Lords in favour of Hillas.

Issue
Was the term negotiating the future sale a condition of the contract?
Can you make a contract to enter into another contract? Decision

Appeal allowed; a binding contract existed to sell the 100,000 standards.

Reasons
The court finds that there was a binding contract for the subsequent sale of 100,000
standards. They say that this term indicated more than an agreement to make an
agreement, and was an offer that merely had to be accepted by Hillas & Co. The only
thing that had to be negotiated was the price, but this was because prices change
yearly. In his judgment, Wright says that "words are to be interpreted so that subject
matter is preserved not destroyed".

The House of Lords found that there was a binding contract for the subsequent sale of
100,000 standards. The Court relied on the legal maxim verba ita sunt intelligenda which
means “words are to be so understood that the subject matter may be preserved rather
than

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destroyed.” The Court found that cl. 9 was a valid condition of the contract and not
merely a contract to contract. “In law, there cannot be a contract to enter into a contract.”

Foley v Classique Coaches[1934]

An arbitration clause in a long-term contract stated that Foley would supply petrol to the
coach company “at a price to be agreed in writing and from time to time’.
Held. The contract was binding as the arbitration clause would enable any lack of clarity
about the price to be resolved when and if necessary.

Partridge v Crittenden [1968] 2 All ER 421

Facts
The defendant advertised for sale a number of Bramblefinch cocks and hens, stating
that the price was to be 25 shillings for each. Under the Protection of Birds Act 1954, it
was unlawful to offer for sale any wild live bird. The Royal Society for the Prevention of
Cruelty to Animals (RSPCA) brought a prosecution against the defendant under the Act.
At his trial, the defendant was found guilty of the offence by the magistrates; he
appealed this conviction.
Issue

The issue on appeal was whether the advertisement was properly construed as an offer
of sale (in which case the defendant was guilty) or an invitation to treat (in which case he
had committed no offence). A further issue was whether it was appropriate to adopt a
different interpretation of the phrase ‘offer for sale’ in the context of criminal law than was
accepted in the context of contract law.
Held
The court held that the advertisement was not an offer but an invitation to treat, and as
such the defendant was not guilty. The court also rejected the suggestion that the court
should adopt a stricter interpretation of the phrase ‘offer for sale’ in the criminal context

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compared to the contractual context, reasoning that to do so would usurp the legislative
function. The legislature had chosen the phrase ‘offer for sale’ based on its existing
understanding, and to alter this understanding under the pretext of ‘interpretation’ was
not the proper role of the court.

Grainger & Son v. Gough

In Grainger & Son v. Gough Lord Herschell said dealing with a price-list:

“The transmission of such a price-list does not amount to an offer to supply an unlimited
quantity of the wine described at the price named, so that as soon as an order is given
there is a binding contract to supply that quantity. If it were so, the merchant might find
himself involved in any number of contractual obligations to supply wine of a particular
description which he would be quite unable to carry out, his stock of wine of that
description being necessarily limited.”

Gibson v Manchester City Council (1979)

In Gibson v Manchester City Council (1979), a council tenant was interested in buying
his house. He completed an application form and received a letter from the Council
stating that it 'may be prepared to sell the house to you for £2,180. Mr. Gibson initially,
inquired the purchase price, pointing out that the path to the house was in a bad
condition. The Council refused to change the
price, saying that the price had been fixed taking into account the condition of the
property. Mr. Gibson then wrote on March 1971 asking the Council to 'carry on with the
purchase’. Following a change in political control of the Council in May 1971, it decided
to stop selling Council houses to tenants. Mr. Gibson was informed that the Council
would not proceed with the sale of the house. Mr. Gibson brought legal proceedings

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claiming that the letter he had received stating the purchase price was an offer which he
had accepted on 18 March 1971. The House of Lords. However, ruled that the Council
had not made an offer; the letter giving the purchase price was merely one step in the
negotiations for a contract and amounted only to an invitation to treat.
Its purpose was simply to invite the making of a 'formal application amounting to an offer,
from the tenant.

A statement of the minimum price at which a party may be willing to sell will not amount
to an offer (it will be an invitation to treat).
Negotiations to enter into a contract can amount to an invitation to treat but not an offer.

Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953]

Facts

The defendant ran a self-service shop in which non-prescription drugs and medicines,
many of which were listed in the Poisons List provided in the Pharmacy and Poisons
Act 1933, were sold. These items were displayed in open shelves from which they could
be selected by the customer, placed in a shopping basket, and taken to the till where
they would be paid for. The till was operated by a registered pharmacist. However, the
claimant brought proceedings against the defendant for breach of section 18(1) of the
Pharmacy
and Poisons Act 1933, which requires the supervision of a registered pharmacist for
the sale of any item in the Poisons List.

Issue

The question was whether the contract of sale was concluded when the customer
selected the product from the shelves (in which case the defendant was in breach of the
Act due to the lack of supervision at this point) or when the items were paid for (in which

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case there was no breach due to the presence of the pharmacist at the till).

Held

The Court of Appeal held that the defendant was not in breach of the Act, as the contract
was completed on payment under the supervision of the pharmacist. The display of the
goods on the shelves were not an offer which was accepted when the customer
selected the item; rather, the proper construction was that the customer made an offer to
the cashier upon arriving at the till, which was accepted when payment was taken. This
analysis was supported by the fact that the customer would have been free to return
any of the items to the shelves before a payment had been made.

Ramsgate Victoria Hotel Ltd v Montefiore (1866)

In Ramsgate Victoria Hotel Ltd v Montefiore (1866), the defendant, Montefiore, applied
for shares in the company, paying a deposit into their bank. After hearing nothing from
them for five months, he was then informed that the shares had been allotted to him, and
asked to pay the balance due on them. He refused to do so, and the court upheld his
argument that five months was not a reasonable length of time for acceptance of an offer
to buy shares, which are a commodity with a rapidly fluctuating price. Therefore the offer
had lapsed before the company tried to accept it. And there was no contract between
them.

Hyde v Wrench (1840)

In Hyde v Wrench (1840), the defendant offered to sell his farm for £1,000, and the
claimant responded by offering to buy it at £950 - this is called making a counter-offer.
The farm owner refused to sell at that price, and when the claimant later tried to accept
the offer to buy at £1,000. It was held that this offer was no longer available; it had been

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terminated by the counter
offer. In this situation the offeror can make a new offer on exactly the same terms, but is
not obliged to do so.

Stevenson Jaques & Co. v McLean (1880)

Stevenson Jaques & Co. v McLean (1880) 5 QBD 346 - Mclean (M) offered to sell
Stevenson (S) iron. S asked whether he would accept delivery over 2 months, and if not,
what his longest time limit for delivery would be. M did not respond and later claimed that
the original offer had not been accepted because S’s telegram was a counter offer. It
was held that the telegram was a mere request for information, not a counter offer, or a
rejection of the original offer.
A request for information is not a counter-offer. If you ask the offeror for information or
clarification about the offer, that doesn’t extinguish the offer.

Carlill v. Carbolic Smoke Ball Co

Brief Fact Summary. The Plaintiff, believing Defendant’s advertisement that its product
would prevent influenza, bought a Carbolic Smoke Ball and used it as directed from
November 20, 1891 until January 17, 1892, when she caught the flu. Plaintiff brought
suit to recover the 100£, which the Court found her entitled to recover. Defendant
appealed.
Synopsis of Rule of Law. This case considers whether an advertising gimmick (i.e. the
promise to pay 100£ to anyone contracting influenza while using the Carbolic Smoke
Ball) can be considered an express contractual promise to pay.

Facts. The Defendant, the Carbolic Smoke Ball Company of London (Defendant), placed
an advertisement in several newspapers on November 13, 1891, stating that its product,
“The Carbolic Smoke Ball”, when used three times daily, for two weeks, would prevent
colds and influenza. The makers of the smoke ball additionally offered a 100£ reward to

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anyone who caught influenza using their product, guaranteeing this reward by stating in
their advertisement that they had deposited 1000£ in the bank as a show of their
sincerity. The Plaintiff, Lilli Carlill (Plaintiff), bought a smoke ball and used it as directed.
Several weeks after she began using the smoke ball, Plaintiff caught the flu.

Issue. Lindley, L.J., on behalf of the Court of Appeals, notes that the main issue at hand
is whether the language in Defendant’s advertisement, regarding the 100£ reward was
meant to be an express promise or, rather, a sales puff(ITT), which had no meaning
whatsoever.

Held. Defendant’s Appeal was dismissed, Plaintiff was entitled to recover 100£.

The Court acknowledges that in the case of vague advertisements, language regarding
payment of a reward is generally a puff, which carries no enforceability. In this case,
however, Defendant noted the deposit of £1000 in their advertisement, as a show of
their sincerity. Because Defendant did this, the Court found their offer to reward to be a
promise, backed by their own sincerity.

Discussion. This case stands for the proposition that while sales puffery in
advertisements is generally not intended to create a contract with potential product
buyers, in this case it did because the Defendant elevated their language to the level of
a promise, by relying on their own sincerity.
Therefore, offers can be addressed to the general public and are accepted when the
offer is acted upon by a member of the general public. Advertisements for unilateral
contracts are generally treated as offers.

Harris v Nickerson

The Defendant held an auction. He advertised his auction in London papers in which he
stated that Plants, machinery and furniture would be sold. This auction would happen
over a course of three days.

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The claimant came on the third day in which it was advertised that all the furniture would
be sold today. However at the last moment the Defendant took out all the furniture from
the auction.
The claimant sued the Defendant for the breach of contract, As he said that the
advertisement he placed on the London papers was an offer and he made the
acceptance by attending the auction

Issue:
Whether the Advertisement was an offer or Invitation to treat (ITT)?

Decision:
The courts held that the advertisement placed on the London paper was just to inform
the purchasers that an auction is taking place. And the products listed were not a
guarantee that these products will be advertised. As there was no offer and no
acceptance take place. So there was no legal binding contract.

Payne v Cave (1789)

The defendant made the highest bid for the plaintiff’s goods at an auction sale, but he
withdrew his bid before the fall of the auctioneer’s hammer. It was held that the
defendant was not bound to purchase the goods. His bid amounted to an offer which he
was entitled to withdraw at any time before the auctioneer signified acceptance by
knocking down the hammer.

Routledge v Grant (1828)

The defendant made a provisional offer to buy the claimant's house at a specified price,
'a definite answer (acceptance) to be given within six weeks from date. It was held that,
regardless of this provision, the defendant still had the right to withdraw the offer at any

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moment before acceptance, even though the time limit had not expired.

Tinn v Hoffman (1873)

The defendant, Mr Hoffman wrote to the complainant, Mr Tinn with an offer to sell him n

Felthouse v Bindley (1862)

The plaintiff discussed buying a horse from his nephew and wrote to him “If I hear no
more about him, I consider the horse mine… ” The nephew did not reply but wanted to
sell the horse to the plaintiff, and when he was having a sale told the defendant
auctioneer not to sell the horse. By mistake the defendant sold the horse. The plaintiff
sued the defendant in the tort of conversion but could only succeed if he could show that
the horse was his.

It was held that the uncle had no right to impose upon the nephew a sale of his horse
unless he chose to comply with the condition of writing to repudiate the offer. It was clear
that the nephew intended his uncle to have the horse but he had not communicated his
intention to his uncle, or done anything to bind himself. Nothing, therefore, had been
done to vest the property in the horse in the plaintiff. There had been no bargain to pass
the property in the horse to the plaintiff, and therefore he had no right to complain of the
sale.

Entores Ltd v Miles Far East Corporation (1955)

As Lord Denning explained in Entores Ltd v Miles Far East Corporation (1955), if A

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shouts an offer to B across a river but, just as B yells back an acceptable, a noisy aircraft
flies over, preventing A from hearing B's reply, no contract has been made. A must be
able to hear B's acceptance before it can take effect. The same would apply if the
contract was made by telephone, and A failed to catch what B said because of
interference on the line; there is no contract until A knows that B is accepting the offer.
The principal reason for this rule is that, without it, people
might be bound by a contract without knowing that their offer had been accepted, which
could obviously create difficulties in all kinds of situations.

Dickinson v Dodds (1875) 2 Ch D 463

Facts

The defendant, Mr Dodds, wrote to the complainant, Mr Dickinson, with an offer to sell
his house to him for £800. He promised that he would keep this offer open to him until
Friday. However, on Thursday Mr Dodds accepted an offer from a third party and sold
his house to them. It was claimed that Mr Dickinson was going to accept this offer, but
had not said anything to Mr Dodds because he understood that he had until Friday. Mr
Dodds communicated that the offer had been withdrawn through a friend to the
complainant. After hearing this, Mr Dickinson went to find the defendant, explaining his
acceptance of the offer. The complainant brought an action for specific performance and
breach of contract against the defendant.

Issues

The issue in this case was whether the defendant’s promise to keep the offer open until
Friday morning was a binding contract between the parties and if he was allowed to
revoke this offer and sell to a third party.

Held

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The court held that the statement made by Mr Dodds was nothing more than a promise;
there was no binding contract formed. He had communicated an offer for buying his
house to the complainant and this offer can be revoked any time before there is
acceptance. There was no deposit to change this situation. Thus, as there was no
obligation to keep the offer open, there could be no ‘meeting of the minds’ between the
parties. In addition, the court stated that a communication by a friend or other party that
an offer had been withdrawn was valid and would be treated as if it came from the
person themselves.

CONSIDERATION

Thomas v. Thomas (1842)

Facts:
Before he died, Mr Thomas said he wished for his wife to have the house they lived in
for the rest of her life. However, this was not written into his will. After he died, his
executors, ‘in consideration of such a promise’, agreed with Mrs Thomas that she would
pay a rent of £1 per year and keep the house in good repair, in return for being allowed
to live in the house. However, later they tried to dispossess her from the house.

Issues:
A valid contract must be supported by consideration. That is, the promisee must promise
to do something in return for the promise of the other party. It was argued that there was
no contract because Mrs Thomas, the promise to pay £1, provided inadequate
consideration as the rent was nothing like a commercial rent for the property. Mrs
Thomas argued that her promise to pay rent and keep the house in repair was good
consideration.

Held:
The executors’ statement did not create a contract as it only expressed their motive for

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entering into the agreement. However, the £1 rent was recognized as good
consideration. The court stated that consideration means something which is of some
value in the eye of the law, moving from the plaintiff, without consideration the
transaction was merely a voluntary gift. However, by agreeing to pay rent in return for
being allowed to stay in the property, Mrs Thomas had provided consideration, even
though it was not economically adequate or anything like a commercial rent for the
building. Therefore, the contract was enforceable.
The reason behind this rule is that it is impossible for the court to decide what is
adequate consideration. The parties to the
contract must decide the quantum of consideration and if consent was freely given, the
court will enforce the agreement.

Chappell v Nestlé & Co. Ltd (1960, HL)

In this case, three chocolate wrappers were held to constitute valid consideration
entitling the sender to pop music recordings. Nestlé derived a clear economic benefit
from an increase in sales. It was irrelevant that the wrappers would be thrown away on
arrival. Sufficiency usually involves taking on some new obligation in return for the other
party’s promise of payment. Performing an existing legal duty does not generally amount
to sufficient consideration.

Stilk v Myrick (1809)

Two sailors deserted from a ship in the course of a voyage. The captain promised the
remainder of the crew that he would pay a bonus to each man if they got the ship home
to England from Scandinavia. Held: this promise was not binding. Crew members were
required by their contracts to cope with the normal difficulties of a voyage, which in those
days included crew shortages of this kind. Therefore, there was insufficient consideration

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to make the captain’s promise enforceable.

The court’s unwillingness to enforce promises of this kind generally results from a
concern that the promisee has exerted economic duress – blackmailed the promisor into
offering extra payment.

The court may take a more generous attitude if satisfied that the public interest is not
adversely affected and that enforcing the promise would produce the fairest outcome.

Hartley v Ponsonby (1857)

The facts of this case are similar to those in Stilk v Myrick, but here the depletion of the
crew and the length of the journey were so great that the crew’s existing contract of
employment was discharged. Held: by getting the ship home, the crew effectively were
taking on a new set of duties and thus providing sufficient consideration for the captain’s
promise of more pay. And by finding that the promisee, in carrying out the legal duty, has
actually conferred a new benefit on the promisor

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 CAPACITY

Gore v Gibson (1845)

In Gore v Gibson (1845) it was held that a contract made by a person so intoxicated as
not to know the consequences of his act is not binding on him if his condition is known to
the other party.
Where one party is incapable, through drunkenness or mental disability, of
understanding the nature of the transaction, but the other party does not realise this, the
courts will ignore the incapacity.

Hart v O'Connor (1985)

In Hart v O'Connor (1985), the Court held that a person of unsound (unstable) mind was
bound by his agreement to sell some land because, when the contract was made, the
buyer did not realise that the seller had any mental incapacity.

Barclays Bank Schwartz (1995)

The defendant in Barclays Bank Schwartz (1995) was a Romanian and had signed
contracts rendering him liable for his company's debts of over £500,000. In an attempt to
resist paying the money he argued that his poor English and illiteracy meant he lacked
the capacity to make the contracts. This argument was rejected by the Court, being
described by the court as 'straight from the book of feeble excuses'. A person who was
illiterate, or did not understand
the language of a contract, was aware of this, and the obligation was on them to make

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sure that the contract was explained.

INTENTION TO CREATE LEGAL RELATION

Edwards v Skyways [1964] 1 WLR 349

The claimant was an airline pilot working for the defendant. He was to be made
redundant. The defendants said that if he withdrew his contributions to the company
pension fund, they would pay him the equivalent of company contributions in an ex
gratia payment. The claimant agreed to this and withdrew his contributions. The
company then ran into further financial difficulty and went back on their promise relating
to the ex gratia payment. Held: The agreement had been made in a business context
which raised a strong presumption that the agreement is legally binding. The claimant
could therefore enforce the agreement and was entitled to the money.

Jones v Daniel (1894)

Facts

The defendant made a verbal offer to purchase the claimant’s land to the claimant’s
solicitors. After some correspondence, the defendant repeated his offer in writing. The
solicitor wrote back, stating that the claimant accepted the offer and enclosing a copy of
the contract for the defendant to sign. This contract contained several terms which the
defendant had not mentioned in his offer. The letter stated that once the solicitors had
received the signed contract they would send the defendant the version which the
claimant had signed.
The defendant initially did not respond to this letter, despite the solicitors sending several
follow-up letters. Eventually, he wrote to the solicitors declining to purchase the land. The

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claimant sought specific performance of sale, arguing that the letters between the
solicitors and the defendant constituted a completed contract.
Issue(s)

1. Were the letters a completed contract?

Decision

The court held in favour of the defendant. The letter purporting to accept the defendant’s
offer did not mirror the terms of that offer – it had several new terms. This meant that it
was not an acceptance – it was a counter-offer. Since the defendant had not accepted
this counter-offer, there was no completed contract.
This Case is Authority For…

An acceptance must mirror the terms contained in the offer. If it does not, then it is a
counter-offer.

Jones v Padavatton [1969] 1 WLR 328 Court of Appeal

A mother promised to pay her daughter $200 per month if she gave up her job in the US
and went to London to study for the bar. The daughter was reluctant to do so at first as
she had a well-paid job with the Indian embassy in Washington and was quite happy and
settled, however, the mother persuaded her that it would be in her interest to do so. The
mother's idea was that the daughter could then join her in Trinidad as a lawyer. This
initial agreement wasn't working out as the daughter believed the $200 was US dollars
whereas the mother meant Trinidad dollars which was about less than half what she was
expecting. This meant the daughter could only afford to rent one room for her and her
son to live in. The Mother then agreed to purchase a house for the daughter to live
in. She purchased a large house so that the daughter could rent out other rooms and
use the income as her maintenance. The daughter then married and did not complete
her studies. The mother sought possession of the house. The question for the court was
whether there existed a legally binding agreement between the mother and daughter or

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whether the agreement was merely a family agreement not intended to be binding.
Held: The agreement was purely a domestic agreement which raises a presumption that
the parties do not intend to be legally bound by the agreement. There was no evidence
to rebut this presumption.

Balfour v Balfour [1919] 2 KB 571

A husband worked overseas and agreed to send maintenance payments to his wife. At
the time of the agreement the couple were happily married. The relationship later soured
and the husband stopped making the payments. The wife sought to enforce the
agreement.
Held: The agreement was a purely social and domestic agreement and therefore it was
presumed that the parties did not intend to be legally bound.

Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal

A husband left his wife and went to live with another woman. There was £180 left owing
on the house which was jointly owned by the couple. The husband signed an agreement
whereby he would pay the wife £40 per month to enable her to meet the mortgage
payments and if she paid all the charges in connection with the mortgage until it was
paid off he would transfer his share of the house to her. When the mortgage was fully
paid she brought an action for a declaration that the house belonged to her.
Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour
v Balfour on the grounds that the parties were
separated. Where spouses are separated it is generally considered that they do intend
to be bound by their agreements. The written agreement signed was further evidence of
an intention to be bound.

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 Simpkins v Pays [1955]

A Grandmother, granddaughter and a lodger entered into a weekly competition run by

the Sunday Empire News. The coupon was sent in the Grandmother's name each week
and all three made forecasts and they took it in turns to pay. They had agreed that if any
of them won they would share the winnings between them. The grandmother received
£250 in prize money and refused to share it with the other two. The lodger brought the
action to claim one third of the prize money.

Held: There was a binding contract despite the family connection as the 1. lodger was
also party to the contract and 2. also the fact that they contributed equally to the
competition with the expectation that any price would be shared. This rebutted the
presumption of no intention to create legal relations.

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 Frustration of Contract

Maritime National Fish Ltd v Ocean Trawlers Ltd (1935)

A ship, the St Cuthbert, was chartered for a year from the owners (Claimants). Both
parties were aware that the St Cuthbert was a type of ship that required a license from
the Canadian Government before it could be legally operated. The charterers were
operating five ships, but were only granted three licenses, which they used for three ships
that they owned. They then claimed that the charter was frustrated by the Government’s
refusal to grant more licenses. The Privy Council rejected this view, on the grounds that
the charterers themselves had a choice, and decided not to use one of the available
licenses for the St Cuthbert.

Taylor v. Caldwell (1863)

Facts. Plaintiff and Defendant entered into a contract, in which Defendant agreed to let
the Plaintiff use The Surrey Gardens and Music Hall on four certain days. After the
signing of the contract, but before the first concert, the concert hall was destroyed by fire.
The destruction was without fault of either party and was so extensive that the concerts
could not be performed.

Issue. Whether the loss suffered by Plaintiffs, is recoverable from the Defendant?

Held. No Contract
The Defendant was discharged from performing, and his failure to perform was not a
breach of the contract. When the contract is absolute, the contractor must perform it or
pay damages for nonperformance although in consequence of unforeseen events the
performance of the contract has become impossible. However, that occurs only where the
contract is absolute. The contract here is subject to an implied condition that the parties
shall be excused if performance becomes impossible from the perishing of the thing

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without fault of the contractor. The parties regarded the continuing existence of the hall as
the foundation of the contract, and the contract contained an implied condition that both
parties would be excused if the hall did not exist. Therefore, the destruction of the hall
without fault of either party excuses both parties, the Plaintiff from taking the gardens and
paying the money and the Defendant from performing their promise to give the use of the
hall.

Robinson v Davison (1871)

There was a contract between the plaintiff and the defendant’s wife, who was a pianist, a
contract was entered for him to play the piano at a concert on a particular date and
specified place. On the morning of the day she informed the plaintiff that she was ill and
not able to perform. The concert had to be postponed and the plaintiff would suffer loss.
The plaintiff’s action for breach of contract failed.

The Court said that under the circumstances, she was not aware that she would become
ill and was excused to perform. The whole contract was based on the assumption of the
defendant's continuance of being healthy. This assumption is made by both parties, this
was the foundation of the contract, but if the foundation has failed, then the entire
contract has failed and in this situation, Mrs Davidson's falling ill made her incapable to
do the thing she was contracted for.

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 Davis Contractors Ltd v Fareham Urban District Council: HL 19 Apr 1956

Davis Contractors agreed with Fareham UDC to build 78 houses over (8) eight months
for £98,425. It ended up taking 22 months because Davis was short of labour and
materials and cost £115,223. Davis submitted that the contract was frustrated and void
and therefore they were entitled to quantum meruit for the value of work done.

The Claimant contended that their construction contract was frustrated because
adequate supplies of labour were not available to it because of the war. As part of the
claim Davis Contractors cited the extra amount of 17,000 costs they had incurred, which
then resulted in them losing money on the contract. The court's justification for not
allowing an increased expense to frustrate a contract is that where one party enters a
contract under the assumption they can make a profit, just because the assumption is
incorrect does not mean the contract can be frustrated. The other party to the contract
has made no such assumption while entering the contract. Furthermore, the courts are
unwilling to protect an individual from a bad bargain.

Held: The contract was not frustrated. The fact that a contract becomes more difficult to
perform or not so profitable is not sufficient to amount to frustration. It was still possible to
perform the contract.

More details:

The court considered how the frustration of the performance of a contract affected the
obligations under it.

Lord Ratcliffe said: ‘frustration occurs whenever the law recognises that without default
of either party a contractual obligation has become incapable of being performed
because the circumstances in which performance is called for would render it a thing
radically different from that which was undertaken by the contract. It was not this that I
promised to do.’ and ‘it might seem that the parties (to the contract) themselves have
become so far disembodied spirits that their actual persons should be allowed to rest in
peace. In their place there rises the figure of the fair and reasonable man. And the
spokesman of the fair and reasonable man, who represents after all no more than the
anthropomorphic conception of justice, is and must be the court itself.’

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Lord Reid said: ‘It appears to me that frustration depends, at least in most cases, not on
adding any implied term, but on the true construction of the terms which are in the
contract, read in light of the nature of the contract and of the relevant surrounding
circumstances when the contract was made.’ and ” there is no need to consider what the
parties thought or how they or reasonable men in their shoes would have dealt with the
new situation if they had foreseen it. The question is whether the contract which they did
make is, on its true construction, wide enough to apply to the new situation: if it is not,
then it is at an end’.

Lord Somervell concluded that: ‘A party contracting in the light of expectations based on
data of that or any other kind must make up his mind whether he is prepared to take the
risk of those expectations being disappointed. If not, then he will refuse to contract unless
protected by some specific provision. There is no such provision here. The appellants
took the risk under the contract, and it seems to me impossible to maintain that the
contract did not apply in this situation as it remained, the expectations on which the
estimate was based not having been realized.’

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 Tsakiroglou and Co Ltd v Noblee Thorl GmbH: HL 1961

The defendant agreed to ship some Sudanese peanuts during November or December
1956 to Hamburg for a certain price. From November 2 1956 until April 1957 the Suez
canal was closed to shipping. The defendant could still have transported the peanuts
within the contractually agreed time but this would mean going via the Cape of Good
Hope which would have taken four times as long and increased the cost of transport
considerably. The defendant did not carry the goods and argued that the contract had
been frustrated.

The issue before the court was whether by reason of the blockade the contract became
impossible to perform and could therefore be discharged as frustrated. The defendants
argued that the use of an alternative route via the Cape of Good Hope to deliver the
goods meant that the contract was frustrated. The arbitrator had determined a mixed
question as to whether a cif contract had been frustrated.

Held: A contract for goods to be shipped between two locations was silent as to the
method of delivery. It was held that the closing of the most direct route (the Suez Canal at
a time of war) did not frustrate the contract where there was an alternative, albeit longer
route available.

More Details:

Lord Reid commented that the appellants had simply to find another ship and that the
altered nature of the voyage did not mean that the contract was frustrated. His Lordship
stated that it was a question of law in light of commercial considerations whether a
contract was fundamentally different and was frustrated. Shipping the goods by a
different route was not commercially or fundamentally different so as to frustrate the
contract.
Lord Reid pointed out that it was not a case where a longer voyage would have damaged
the goods or one where the buyers would suffer extraordinary losses as a result of the
goods arriving later than anticipated.

Viscount Simmonds held that use of the route via the Cape did not frustrate the
contract, he pointed out that it may well have meant greater expense and reduced or
eliminated the defendant’s profits but that was not a ground for frustration and the
contract was not ‘fundamentally’ altered.

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 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd: HL 15 Jun 1942

An English company which manufactured textile machinery agreed by contract dated

12th July 1939 to supply some machines to a Polish company. The machines were to be
delivered in 3-4 months. £1,600 was payable up front and the balance of £3,200 payable
on delivery. The Polish company paid £1000 on 18th of July on account of the initial
payment due. On 1st Sept Germany invaded Poland and on 3rd Sept Great Britain
declared war on Germany. On 23rd of September Orders in Council made Poland an
enemy territory making it illegal for British companies to trade with Poland.

Held: the contract was frustrated as it was no longer possible to perform the contract
because of the supervening illegality.

More Details:

By an agreement in writing dated July 12, 1939, the defendant, a manufacturer of textile
machinery at Leeds, agreed to manufacture for, and supply to, the plaintiff, a Polish
company, two sets of flax hackling machines for the price of £4,800, of which one third
was to be paid with the order. The delivery was to be made three to four months from the
settlement of final details, and the machinery was to be shipped c.i.f. Gdynia, Poland.
Plaintiff made a down payment of £1,000 but never paid the remaining £600. At the end
of August, 1939, Germany invaded Poland. In September, plaintiff asked for the return of
the down payment, since, as a result of the outbreak of hostilities and the consequent
operation of legal prohibitions against trading with the enemy, delivery of the hackling
machines could not take place in Poland. The defendant refused to agree because
considerable work had been done on the machines. Plaintiff brought suit, among other
things, for return of the down payment. The substantial defense of the defendant was that
the contract had been frustrated by the German occupation of Gdynia and plaintiff had no
right to the return of the down payment under Chandler v. Webster. The lower courts held
for the defendant on the basis of that case.

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Agency Law

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