lOMoARcPSD|2978205

Full contract law notes

Contract Law [FT Law plus]? (Northumbria University)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Precious Sona (sabashahwani83@gmail.com)
 lOMoARcPSD|2978205

Contract Law Revision Book

WHAT IS A CONTRACT?
“A contract is an agreement giving rise to obligations which are enforced or recognised by law” (TREITEL)

FORMATION OF A CONTRACT: How to create rights and obligations, which will be enforced by law?
 The formation of a contract, comes from the exchange of promises, this exchange alone is enough
to create a contract.
 The breach of a contract comes from the breaking of the promises set out in the “contract”.

3 STAGES OF FORMATION:
 AGREEMENT – the agreement comes from the promise made between 2 parties (eg. Goods such
as a book for money)
 CONSIDERATION – the consideration comes from the talk of a price (this is the consideration)
 INTENTION TO CREATE LEGAL RELATIONS

PRELIMINARY RULES:
Analysis of offer and acceptance – (CASE: Gibson v Manchester City Council) – Lord Denning, attempted
to abandon the offer and acceptance principle and look at cases based on facts of individual cases.
The case involved the sale of council houses in Manchester, the council sent brochures to all council house
tenants telling them that they were thinking of selling homes for a price and to use the forms inside to
enquire further.
Gibson replied to find out about prices, and was told “they may be willing to sell for a price of £2,800” and
told to fill out the form enclosed to proceed, Gibson filled all of the form except the price (as he had a
damaged pathway), it was confirmed that this was taken to consideration with the price given, Gibson
asked to proceed with the deal.
However governments changed due to an election, and the sale of council houses (unless a contract had
been agreed) – the court found that there was no contract - so the sale didn’t go through.
HoL confirmed this and added that Lord Denning was wrong to try to abandon the principle of offer and
acceptance.

PRELIMINARY RULES:
 Objective test – what has been said and done to provide some evidence of a contract
 Forms of obligation:
o Bilateral – exchange of promises
Unilateral – two parties involve but only one party is under obligation to do something (eg. A missing cat
poster)

Offer
DEFINITION: “An offer is an expression of willingness to contract on specified terms, made with the intention
that is to become binding as soon as it is accepted by the person to whom it is addressed” (Treitel – the Law of
Contract).
 Offer has to be capable of being accepted – then this may lead to a contract
 An Invitation to treat is not capable of being accepted and therefore no contract is made.
 An offer can be verbal (oral), in writing (written) or may be made expressly or by conduct (eg. Actions)
An offer may be made to the one person, to a group of individuals or the whole world.

DISTINGUISHING BETWEEN AN OFFER OR AN INVITATION TO TREAT:

 DISPLAY OF GOODS = this is only ever a invitation to treat (CASES: FISHER v BELL,
PHARMACEUTICAL SOC OF GB v BOOTS, LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS
STORES.
o FISHER v BELL – display of a flick knife with a price (4 schillings) – it was an offence under
the Restriction of Offensive Weapons Act 1959, to offer offensive weapons to sell. The cases

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

focused on whether or not this display was an offer to sell… it was decided that it was
merely an invitation to treat.
o LEFKOWITZ v GREAT MINNEAPOLIS SURPLUS STORES: there was an advert saying:
“Saturday 9am, 1 black lapin stole worth $139.50 - $1, first come first serve”
o Mr Lefkowitz was first but was told that it was only intended for woman so Mr Lefkowitz
wasn’t allowed to buy.
o S.C of Minnesota held that this was an offer and that the offer was clear, definite and with
nothing left to negotiate.
 1 person was to accept the offer

 There was a contract

ADVERTISMENT:
the use of the word “offer” is not indicative of an actual offer - always more likely to be an invitation to treat
PATRIDGE v CRITTENDEN:
 Ad saying: “Bramblefinch, cocks and hens, 25 schillings each”- it was an offence at the time to sell
or offer to sell wild birds.
 It was decided that this was merely an invitation to treat.
 Lord Parker said: “I think when one is dealing with adverts and circulars, unless they indeed come
from manufacturers, there is business sense in them being construed as invitations to treat and not
offers to sell”.

CARLILL v CARBOLIC SMOKE BALL CO.:

 Advertised for an £100 reward for taking smoke ball as prescribed, and still contracting influenza,
Mrs Carlill took it correctly (3 times a day for 14 days) and wanted her money.
 She approached the company but they refused to pay for Carlill getting influenza – so she sued
them, they claimed it “wasn’t serious” but the money in the bank demonstrated.

Court of Appeal, said the advert was an offer, to the whole world, the language was very clear (intention to
be bound – unilateral form) (AS THIS IS BASED ON A OBJECTIVE PERSON – REASONABLE PERSON
UNDERSTANDING).
If a lot of people can accept “an offer” then its merely an invitation to treat (otherwise the offerer would
leave themselves wide open to breach of contract).
The wording is key to whether or not something is an offer or just an invitation to treat.
FEATURES OF AN OFFER:
 Intention to be bound – look at words and actions
 If intention unclear – look at surrounding circumstances and consequences of classifying as offer – see
rules of law in stereotypical situations
 Problems of limitation (eg. Supply numbers etc)

Sufficient terms upon which to create contract require precision of language.

Acceptance
DEFINITION: “a final and unequivocal expression of assent to the terms proposed”
There are two essential features of any acceptance, these are:
 Facts of acceptance
 Communication of acceptance

FACTS OF ACCEPTANCE:
 Acceptance may be by words or conduct (for example: the use of the smoke ball in the case of
Carlill v Carbolic Smoke Ball Co., this is acceptance by conduct). This means that the person
accepting doesn’t have to actively communicate with words, their actions are enough (for example,
petrol stations, filling up your tank – no words are needed)

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 Acceptance of conduct or words must be a mirror image of what is agreed – therefore if you change the
conditions/terms of an offer, you are not accepting but you are making a new offer.
 Acceptance must be distinguished from a counter-offer (Hyde v Wrench) – a counter-offer is a rejection of
original offer.
o HYDE v WRENCH – the case involved someone who was offering to sell land to the claimant for
£1,000 – claimant said they will pay £950 for the land – but the offeree rejected this – so the
claimant went back and said he would pay the £1,000 but the landowner refused to sell.
o It was held that the offer of £950 destroyed the original offer and made a new one, so there was no
contract made as there was no acceptance, as the claimant made a counter-offer, which destroyed
the original offer (which was not accepted).
 Also contract counter-offers with a request for more information – STEVENSON v MCLEAN.
o This case involved an offer made for an amount of iron (40 schillings, net cash per tonne) – an
offeree responded: “please wire whether you would accept 40 for delivery over 2 months” – this was
decided to be a request for information and NOT a counter-offer as he is still accepting the original
offer, he was merely asking for more information on the offer.
o
It was held that there was no actual communication of acceptance therefore the horse did not belong to Mr
Felthouse.

COMMUNICATION OF ACCEPTANCE: EXTERNAL MANIFESTATION OF ASSENT BY OFFEREE OR AGENT.

The general rule of the communication of acceptance is that there must be ACTUAL COMMUNICATION –
(ENTORES v MILES FAR EAST CORPORATION)
This means that the offerer cannot impose obligations on the offeree by the use of silence – FELTHOUSE v
BINDLEY)
 The case involved Felthouse offering to buy his nephew’s horse for £30 – he added to the message “if I
hear no more about him, I shall consider the horse mine”
 The nephew did not reply – but the horse was put up for auction.
 Mr Felthouse sued the auctioneer for selling what he believed to be his property.
PRESCRIBE MODE OF ACCEPTANCE:
- method of acceptance may be prescribed: either by mandatory or directory:
- MANDATORY = must follow the exact mode of acceptance stated
- DIRECTORY = If communication of acceptance is done by an equally advantageous method then
the communication of acceptance is valid (As stated in the case of YATES v PULLEYN)

YATES v PULLEYN:
Pulleyn owed building plots, Yates was a builder and bought some plots with the offer of buying more plots
– the offer said “the option shall be exercisable by notice in writing given by Yates to Pulleyn or Pulleyn’s
solicitor at any time between 6th April 1973 and 6th May 1973, such notice to be sent by registered or
recorded delivery to the registered office of Pulleyn or Pulleyn’s solicitor”
- Yates sent this agreement by ordinary post on 30th April 1973 and it got there in time but they said it
was incorrectly exercised.
- The CA had to decide whether it was an acceptance or not.

It was decided that the directions in the offer where only a directory method of acceptance and therefore
there was an acceptance and a contract was therefore made.
INSTANTANEOUS COMMUNICATIONS:
- Face to face, phone calls, fax, telex (type writers), emails.
- The general rule is that there is a need of ACTUAL COMMUNICATION (must been actually heard or
received)

ENTORES v MILES FAR EAST CORP:

Where a contract is made? (UK jurisdiction v DUTCH jurisdiction) – claimants = UK company – defendants
were an US company (with an office in Amsterdam) – each owned a telex – offer was sent from English

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

company saying they would buy 100 of cathodes for £239 per tonne. Offer was accepted by telex from
Amsterdam to London.
- Question was - Where was it formed?
- It was held that acceptance was communicated in London and therefore made in London not
Holland (as the communication of acceptance was received in London)

AN ISSUE?
- What if instantaneous communication is not READ immediately? – IT IS THEREFORE NOT
COMMUNICATED IF NO ONE HAS READ THE ACCEPTANCE
- note obiter dictum of Lord Wilberforce in the Brinkibon case (the case involved a telex being sent and
received like in Yates)
o “No universal rule can cover all such cases (i.e. acceptance by telex), they must be resolved by
reference to the intentions of the parties by sound business practice and in some cases by a
judgement of where risk lays”.
MONDIAL SHIPPING v ASTARTE SHIPPING – telex communication of the withdrawal of a ship (at 23:41,
Friday) – this is not business hours so it was defendant of the business practise – if in office hours then it
should be deemed to have been communicated – but it wasn’t so communication of acceptance was not
given.
EXCEPTIONALLY ACCEPTANCE COMPLETE WITHOUT COMMUNICATION:
- Conduct of the offeror – ENTORES CASE – (e.g. not hearing an acceptance in a phone call– its
your fault not the accepters – as there is an error in receiving an acceptance)
- Unilateral Contracts – CARLILL CASE – communication is not expected (e.g. missing dog poster =
needs no means of communication)
- Non-instantaneous communication – e.g. Letters by post (Adams v Lindsell) – THE POSTAL RULE.

EXCEPTION – ACCEPTANCE BY POST - THE POSTAL RULE:

- The postal rule applies to non-instantaneous means of communication – acceptance complete on putting a
letter in the post box
o ADAMS v LINDSELL - principle = acceptance is complete at posting of letter
o HOUSEHOLD FIRE INSURANCE v GRANT – in that case offered to buy shares at a certain price –
the claimant company sent a letter of acceptance was sent by post, but it never arrived – however it
was held that from the moment it was posted in the letterbox, the offer had been accepted.
o Evidence of post is generally needed.

This is however, subject to a number of qualifications:

- Rule may be excluded by terms of the offer – HOWELL SECURITIES v HUGHES – offer to sell a
house (by the way of an option, exercisable by notice in writing) – a letter of acceptance was sent
by claimant but it never arrived – question was whether there was a contract – the case then went
to the court of appeal. HOWEVER, The words of the offer made it void – as it was exercisable by
notice – to have notice, you must have knowledge and there was no knowledge of acceptance.

- Rules only applies if reasonable (HENTHORN v FRASER) – what is “reasonable” depends on the
circumstances of the situation.
o The case of HENTHORN v FRASER involved the claimant lived in Birkenhead and travelled to
Liverpool and received an offer – he took it away with him and accepted the offer by post – the
courts confirmed that it was a reasonable means of the use of post due to the inconvenience of
travelling back to Liverpool.
- Rules doesn’t apply if it would lead to manifest inconvenient or absurdity (Holwell Securities v Hughes)
o An example of a means of post would be if an acceptance is sent at 5pm on a Monday (knowing for
well there is a postage strike going on) but still thinking the post will get there the next day.
Rules does not apply to communication, and revocation, of offer (Byrne v Van Tienhoven)
UNILATERAL CONTRACTS AND THE PROBLEMS WITH THEM:
 Usually not necessary to communicate acceptance (eg. Carlill – using the smoke ball as stated is
acceptance)
 Offers can be withdrawn BUT this leads to the issue of when is acceptance completed?

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 Can an unilateral contract be revoked once acceptance has commenced? (ERRINGTON v

ERRINGTON)

ERRINGTON v ERRINGTON:
The case involved a father buying a house for his son and daughter in law (subject to conditions). It was
agreed that if the son and daughter in law pay the mortgage instalments, the father will change the name
of the owners to them.
However, before the mortgage is finished being paid by the son and daughter in law, the father dies and his
wife (the widow) tried to claim the house as her own.
It was held that a unilateral contract was made (“the fathers promise was a unilateral contract, the promise
of the house in return for payments of instalments, it could not be revoked by the father, once the couple
had started instalments…”
TERMINATION OF THE OFFER: an offer may terminate in various circumstances.
REVOCATION OF AN OFFER:
 An offer may be revoked at any time before acceptance (Payne and Cave – case of an auction, which is an
invitation to treat – offers come from the floor of auctioneers – acceptance happens when the hammer is
tapped.)
 Offeree must be given notice of revocation – Dickinson and Dodds; The Brimnes, Byrne v Van Tienhoven;
Shuey v US
DICKINSON v DODDS: offeree must have notice (even if from a third party) – 10th June, Dodds made a
written offer to sell premises for £800 to Dickinson (who had until 9 am on 12th June to accept). 11th June,
property sold premises to someone else but Dodds didn’t tell Dickinson. 12th June – Dickinson finds out that
the premises was sold but still tried to accept the offer before 9am that day. It was held that a contract was
made, as he knew the offer was gone (even though he found out from a third party).
THE BRIMNES CASE:
Notice of the withdrawal of a ship – a telex was sent to give this notice – the telex was sent and received in
business hours but was not read until the following day.
 Given the opening hours – the telex ought to have been read at the time of receipt of the telex – its no
good claiming to have “not got” it – because you have received it and if you had done something with it
when it arrived, there would have been no issue.

BYRNE v VAN TIENHOVEN:

This case shows objectivity over subjectivity, it also shows that the postal rule does not apply in these
circumstances (revocation)
1st October – D made an offer by letter to claimants (in NY) – asked for reply by telegraph (non-
instantaneous). 11th October – the offer is received and accepted immediately. However, on 8th October –
another letter was sent (withdrawing the offer) but it was not received until 20th October (subjective
agreement? NO, as claimant wanted to buy – we don’t use this approach – we used the OBJECTIVE
approach – and it was decided that a contract was made on 11th and the offer cannot be revoked after
acceptance.

WHY DOES THIS HAPPEN?

It was held that it a contract was formed on 11th due to the postal rule – revocation would only be complete upon
This case demonstrates the artificial rules of offer and acceptance.
SHUEY v US:
Deals with issues relating to unilateral contracts – it is possible to revoke an offer – make revocation in the
same way as the offer is made (through the same channels they were made) - NO DIRECT AUTHORIES IN
THE UK

OPTIONS – DICKINSON v DODDS:

 Option - an offer expressed to be open for a certain time can may be revoked unless supported by
consideration
 An offer made can be withdrawn - unless in the form of an option – as it is a binding promise to keep the
offer open (cannot revoke because of consideration)
 If there is a consideration, even if it is as small as a £1 – it is enough.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

OTHER FORMS OF TERMINATION:

 LAPSE OF OFFER – time limits (if you fail to meet it the contract is terminated) – if no expressed time limit
– offer will remain open for a “reasonable length of time” (dependent on the circumstances)
o RAMSGATE VICTORIA HOTEL v MONTEFOIRE - Offered to buy shares in a company in June
1864 – company allocated shares to D in November 1864 – defendant said No I don’t want them
now – OFFER HAD LAPSED – as this is not a reasonable length of time.
 REJECTION OF OFFER – saying “no” – this has the same effect as a counter offer – as it rejects the
original offer.
 FAILURE OF CONDITION ON WHICH OFFER IS DEPENDENT – offered health insurance, I go outside to
consider the offer and fall off a cliff – can you accept it? No.
DEATH – if the offeree dies – the offer lapses, no one else can accept on their behalf – if the offeror dies?
Does it automatically terminate? This depends on the knowledge – if the person knows of the death, they
cannot accept. (However, if in ignorance of death, the offer can accepted (if capable of being accepted. )

Consideration
Essential for the creation of a valid and simple contract – in order to make a valid and simple contract, there
needs to be consideration – consideration helps draw a line between promises or deeds and a contract –
consideration is needed for the promise for it to be a contract.
DEFINITION: CURRIE v MISA – lush J said: “A valuable consideration, in the sense of the law, may consist
in some right, interest, profit or benefit accuring to the one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other”
What you have to identify is the promise made, to make a promise binding you need to make a
consideration – Consideration has to come from the other party (NOT THE PARTY MAKING THE OFFER)
Whether it is a benefit or detriment – it doesn’t have to be both, just one will suffice
THIS IS NOT A COMPLETE DEFINITION AND THEREFORE HAS PROBLEMS.

NEED FOR EXCHANGE:

This is the act of giving someone something for goods or services etc (eg. Money)
Price paid for the promise – COMBE v COMBE – a husband and wife were separating, and he promised to
pay her £100 per annum, wife decides to forbear from suing him (because of the promise he had made) – he
never paid her the money as he had promised and so later the wife decides to sue him on the promise he had
made.
– Did the parties have a contract? Had she given consideration?
– It was held that this was not a contract, he had made a promise, and although the forbearance may
amount to consideration, they said that because there was no exchange and therefore there was no
CONSIDERATION IS GOVERNED BY CERTAIN RULES

RULES GOVERNING CONSIDERATION:

– Consideration may be executed (the consideration has already been performed, contracts are made on the
performance of the individual and therefore this performance is both consideration and acceptance) or
executor (form of the exchange for promises – doesn’t necessarily have to have an actual physical
exchange of goods etc – promises themselves give rise to a contract).
– However, past consideration is not valid – if consideration is made, then you make a new promise, then you
can not rely on a previous consideration
This is seen in the case of ROSCORLA v THOMAS – claimant bought a horse for £30 from the defendant
(so they have entered into a contract), later the parties agreed in consideration of this purchase, the
defendant promised that the horse was sound and free from vicious (but the horse was actually very
vicious) – was there a breach of promise? NO, the promise was not supported by consideration as the
consideration they were relying on has passed and past consideration is not sufficient.
- RE CASEY’S PATENTS 1892 – in this case, Casey acted as a manager of patents (developing and
marketing them), subsequently, the owner of the patents (Stewart and Charlton), wrote to Casey “In
consideration of your work, we hereby offer you 1/3 of patents) – Stewart died and the owner
reclaimed the patent saying no consideration was given – it was held that there was a contract –
Stewart and Charlton had asked Casey to perform the services and at the time the services were

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

formed, there was a clear implicit promise to pay for it (all the later promise was making this
apparent).
- CONSIDERATION MUST MOVE FROM THE PROMISEE – note that the rule is saying that it most
move away from the promise – this doesn’t necessarily have to be to the promisor. (TWEDDLE v
ATKINSON)

CONTRACTS (RIGHTS OF THE THIRD PARTIES) ACT 1999:

- SECTION 1: “A person who is not a party to a contract (a third party) may in his own right enforce a
term of a contract if (a) the contract expressly provides he may; or (b) subject to subsection (2), the
term purports to confer a benefit on him.

- This can change the ruling of the previous case – the son today could sue for the situation that
arose – NOTE THAT THIS IS A LIMITED STATUTORY EXCEPTION.

RULES GOVERNING CONSIDERATION:

- CONSIDERATION MUST BE SUFFICIENT BUT DOESN’T NEED TO BE ADEQUATE.
- What is sufficient under the law? - £1 is sufficient

THOMAS V THOMAS – who promised the widow of the deceased that she could occupy the house in
exchange for a promise, that she would keep the house in good repair and pay £1 per annum rent (which
was under value), the executor said “that the agreement was made in consideration of the expressed
desire of the deceased that his wife should live in the house during her lifetime” – this is not consideration
for the agreement (just the motive for the agreement) – however, the wifes’ promise to keep the house in
good repair and pay the rent WAS consideration (it was sufficient consideration – but not adequate)
CONSIDERATION MUST BE SUFFICIENT:
- CHAPPELL & CO v NESTLE – This concerned the offer of records for 1 schilling and a 6pence (8p)
plus three wrappers – nestle on getting the wrappers threw them in the bin – were the wrappers part
of the consideration? IT WAS HELD THAT THEY WERE PART OF THE CONSIDERATION –
- if a party asks for something and you give them what they want then that is consideration – “a
contracting party can stipulate for what consideration he chooses, a peppercorn does not seize to
be good consideration if it is established that the promisee does not like pepper and will throw the
peppercorn away”

WHYTE AND BLUEIT – what is sufficient consideration? – concerned a son who owed his father money –
his father said “I will release you of your debts, if you stop boring me with your complaint” – the executor of
the father sought to claim back the debts from the son (following the fathers death) – was there a contract –
HELD THAT THE SON HAD GIVEN NO CONSIDERATION AND THEREFORE THERE WAS NO
CONTRACT – argued now that this could potentially be consideration (different basis nowadays?) (is this
out of line?)
MORE LIKELY TO POTENTIALLY FOLLOW THE RULE OF…???
HAEMER and SIDWAY – an america case, that isnt binding on our UK courts – an uncle promised his
nephew $5000 in return for the nephew refraining from smoking tobacco, drinking alcohol and playing cards
and billiards from – it was held that this was binding
Consideration has to be real.
FOREBEARANCE TO SUE AND COMPRISE OF A DISPUTE: good consideration for a promise in certain
circumstances.
SUFFICIENCY OF CONSIDERATION – PROBLEMS:
 Performance of Existing Public Duty - if this is given in return for a promise then not sufficient
Police? consideration
Fireman? – No (COLLINS
that is notv sufficient
GODEFROY) consideration (COLLINS v GODEFROY)
 Exceeding existing public duty: may amount to good consideration – WARD v BYHAM – this case
looked at a father of an illegitimate child – he promised the mother £1 per week for the illegitimate
child – if the mother showed that the child was well looked after and happy – Under national
assistance act, the mother had to look after the child – father failed to pay the money – the question
was he contractually bound? – she was already under a public duty to look after the child and

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

therefore could be argued that this isn’t consideration and there is no contract – the CA said that
she had exceeded her public duty to prove the child was happy – “I think performing her duty is
enough” (obiter dicta)
 Performance of an existing contractual duty - is this consideration? Case of STILK v MYRICK – a
crew agreeing to sail to the Baltic and back to England again – stilk was a member of the crew – the
consideration for this journey was £5 a month and there are 11 members and when they got to the
Baltic (2 crew members deserted) – he will divide the 2 deserted members money between the rest
if they sailed the ship back to London – they did and when they got home he said that he wouldn't
pay the money – HOWEVER, they were already under an existing duty to anyway and therefore
there was no consideration for the extra money as they were already bound to do it.
 Exceeding existing contractual duty - good consideration for further promise (HARTLEY v
PONSONBY) - similar situation but to the pacific and back – 36 crew members (17 deserted) –
remaining crew were not able bodied seamen to get them back – promised more money if they
continued with the voyage – captain said he wouldn’t pay the extra money – was there
consideration? YES, They agreed in consideration because of a dangerous low level of seamen
(therefore was outside what they were first contracted to do) due to the circumstances as so many
had left and deserted the voyage (reduced to a dangerous level – contract no longer existed)
 This area has been rendered uncertain by WILLIAMS v ROFFEY BROS – ROFFEY BROS (main
contractor) – Williams (sub-contract) –there is a contract between the R. bros and the housing
association and a contract between R.bros and Williams – the problems involved the later –
Williams would do the woodwork (carpentry) for 27 flats for £20,000 – Williams had undervalued the
work and were inefficient in their planning – ROFFEY bros were becoming aware of the of situation
---- promise of additional money for each flat they did (up to £10k) and at least to some extent
Williams did this – and they didn’t pay the money – had consideration been given for the further
money – he is carrying out the duty he was originally contracted to do (1990) – according to STILK v
MYRICK there would have been no consideration as the promise is not binding – but the CA said
there was consideration made (this is now the leading case) – performing an existing contractual
duty may amount to consideration but under what circumstances?

GLIDEWELL LJ STATED:
“(i) If A has eftered ifto a coftract with B to do work for, or to supply goods or services to, B if returf for
paymeft by B; afd (ii) at some stage before A has completely performed his obligatiofs ufder the coftract
B has reasof to doubt whether A will, or will be able to, complete his side of the bargaif; afd (iii) B
thereupof promises A af additiofal paymeft if returf for A’s promise to perform his coftractual obligatiofs
of time; afd (iv) as a result of givifg his promise, B obtaifs if practice a befefit, or obviates a disbefefit;
afd (v) B’s promise is fot givef as a result of ecofomic duress or fraud of the part of A; thef (vi) the
befefit to B is capable of beifg cofsideratiof for B’s promise, so that the promise is legally bifdifg.”
6 points to this principle –
First point – there is a contract --- second – at some point one party has reasonable doubt to doubt whether
A will finish ---- third – additional payments to perform on time ---- fourth – as a result of giving the promise,
B obtains in practice a benefit ---- fifth – b promise is not a result of economic duress or fraud, sixth – the
benefit to b is capable of being consideration for B’s promise, so the promise IS LEGALLY BINDING
What is the consideration in Williams v roffey –
 Continuation of work
 Avoidance of trouble and expense in finding new sub-contractor
 Avoidance of payment of penalty clause
 Formalisation of payment system - payment per completion of each flat
 Allowing other trades to be directed to do work

Number of issues shown – the work continued, they got what they want as the work was completed – they
avoided the trouble and expense of finding another subcontractor – they avoided potentially having to pay
a penalty clause – reality was that the problem that risen would have stopped them getting these from the
original

The first three were the practical benefits

This case created a lot of problems

PROBLEMS CREATED BY WILLIAMS v ROFFEY:

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

What is a practical benefit – not 100% clear, it is a problem – what is the relationship between stilk v myrick
and this one?
Has it over-ruled stilk v myrick? – it has refined and limited by this case but NOT stilk v myrick – leads to a
potential inconsistency
What is the relationship between consideration and economic duress= you put pressure on a party if they
want something done by saying you want more money – economic duress is a fairly new legal concept –
only since 1975
If the parties genuinely read – law is more sophisticated now, therefore the approaches are more
sophisticated now too.
MWB BUSINESS EXCHANGE CENTRES LTD v ROCK ADVERTISING LTD (2016) EWCA Civ 553:
Raises precedent issues and the issue of practical benefits – read a commentary or case analysis before
you read the main case – the facts are mwb had office space and rock advertising used the office spaces
– they wanted bigger offices and entered in to a written agreement for that – unfortunately they couldn’t
pay fees to MWB (around £12,000) – mwb locked out rock, terminated the agreement and sued them for a
raise – on 27th of feb there was an oral agreement to reschedule the fees – pay more and more each
month to make them able to be paid by rock – mwb said there was no consideration for this agreement –
was there consideration?
KITCHIN LJ – there was a practical benefit for MWB and therefore there is a contract (the practical benefit
is £3.5k and the promise of further.
CA identified: money was recovered immediately (£3.5k), and there was some hope of cover the arises, but
more importantly rock remained a licencee of the premise and thus avoided the premises being left empty
(as this would have led to other problems of it being empty)
STATEMENT SAID:
“MWB derived a practical benefit which went beyond the advantage of receiving a prompt payment of a part
of the arrears and a promise that it would be paid the balance of the arrears and any deferred licence fees
over the course of the forthcoming months. This is therefore a case where, as in Williams v Roffey, Rock's
immediate payment of £3,500 and its agreement to perform its obligations under the revised payment
schedule conferred a practical benefit on MWB which amounted to good consideration, so rendering the
oral variation agreement enforceable.” (Kitchin LJ [48])
PERFORMANCE OF A DUTY TO A THIRD PARTY AS CONSIDERATION:
 Performance or a promise to perform may constitute consideration – SHADWELL v SHADWELL –
SCOTSON v PEGG
Another issue – performance of a duty owed to a third party as consideration – this may constitute
consideration SHADWELL v SHADWELL – YES – if a promise is made to pay money to perform a duty
owed to a third party – then we have consideration – the case involved the claimant was engaged to marry
Eren Nichol, at some point in history and engagement to marry was a contract (until 1970) – no contractual
obligations now days – there was in this case a contract to marry – claimants uncle wrote to him saying “I
am glad to hear of your engagement, and as I promised I will pay to you £150 per annum during my life and
until your income shall amounts to 600 guineas per year”- the uncle didn’t pay the money in his life time,
the claimant sued the uncle’s estate – was there a contract for the payment of £150 per annum? – you
need consideration, was the promise made supported by consideration – HELD THERE WAS A
CONTRACT (NOT UNANIMOUSLY DECIDED), by performing the contract to get married, it was a
detriment, he had changed his material circumstances – it could be a benefit to the uncle as it was a matter
of interest to him.

Discharge of existing obligation

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

DISCHARGE OF EXISTING OBLIGATION – PART PAYMENT OF A DEBT:

The rule from PINNEL’S CASE is: a part payment of debt does not discharge the full debt – it depends on
whether consideration was given –eg. Debt of £100, the person says me £50 and “ill forget the rest” (even
if they do this, they can come back and ask for it all).
FOAKES & BEER – mrs beer recovered a judgment debt against Dr foakes of £2019 – parties entered in to
an agreement – under this terms: in consideration of foakes paying beer the sum of £500 in part
satisfaction of the judgment debt of £2019 on condition pays the remainder by installments – beer hereby
undertakes and agrees that she will take no proceedings whatsoever on the said judgment – debt carries
interest and she tried to claim the interest – he says but you agreed you wouldn’t ake further proceedings –
the q was, is there consideration? The HoL approved the rule in this case, he paid less than he was
supposed to (this was consideration), therefore she could claim the interest
Lord Blackburn: get some of it now, rather than to seek to enforce the whole sum (possibility of practical
benefits on the facts? Years before WILLIAMS V ROFFREY)

THE PINNEL’S CASE RULE IS HIGHLY CRITICISED AS:

 Rule only obiter dictum

 Rule approved by House of Lords eg. in Foakes v Beer – has got a power (only to be overruled
by parliament or supreme court)

 Criticisms of rule –

 The rule does not accord with business/commercial practice

 The rule is absurd when viewed alongside the rule that consideration needs to be
sufficient but not adequate (example of the absurdity - If you owe me £100, I can say “I
will take that cup instead of the money” and that is sufficient but not adequate)

 The rule protects creditors – D.C BUILDERS v REES

 Applies to all types of debts (even if nothing is going badly)

Potential application of Williams v Roffey? – Can we use the practical benefits argument (see re
selectmove ltd (1995)

RE SELECTMOVE LTD 1995:

Rescheduling of tax and national issues insurance payments – CA case – had to consider (looked at
williams v roffey (decided by CA) – a case that had not considered case pinnels or foakes v beer (decided
by HoL)) – what did they decide –CA said we can not take that step, as we are bound by Foakes v Beer as
it is a house of lords case)
Applies as a catch all rule and as a result, they have developed common law acceptations to the rule:
 Dispute claim or over the amount
 Unliquidated claim – no price given – then whatever is agreed is agreed and no changes are
allowed if one turns round and says you owe more

MORE COMMON LAW ACCEPTIONS TO THE RULE:

 Common law variations in debtors performance – you owe $100, and I say given me £25 and ill forget the
rest – no consideration but if I say to you give me £25 plus a CD (as this is consideration - this discharges
the debt) – asking for something else will cancel out the debt (practical benefit to individual) - HAS TO
COME FROM THE PERSON TO WHICH THE DEBT IS OWED – early payments at the creditors request
will amount to consideration (as contract has been varied) – location of payment (for the benefit of the
creditor – new location = new consideration)
Part payment by third party – HIRACHAND PUNAMCHAND v TEMPLE (1911) – a son, owed a bank
money – the father approached the bank and said he would pay part of the debt in return for his son being
discharges of the rest of the debt – they accept – the bank later sued the son for the remaining debt – did
the part payment discharge the full payment? YES IT DID (CA held) – relied on principle that – “if a stranger
pays part of the debt, in discharge of the whole debt, the debt is gone because it would be a fraud on the
stranger to proceed” (based on policy – otherwise it would be a fraud on the individual).

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 APPLICATION OF RE SELECTMOVE LTD TO THE MWB V ROCK CASE (2016): Arden LJ said:
‘Selectmove is distinguishable from the present case and decides only that the benefit which a
creditor obtains from a promise to pay an existing debt by instalments is not good consideration in
law…In accepting that a practical benefit can be good consideration for part payment of a debt, all I
am doing is replacing the words “the gift of a horse, hawk or robe” with a more modern equivalent…’
 It is a further common law except based on practical benefits – she distinigushes reselectmove – “In
accepting that a practical benefit can be good consideration for part payment of a debt, all I am
doing is replacing the words “the gift of a horse, hawk or robe” with a more modern equivalent…’ –
bringing something else in to the bargain (and that is consideration) but now the law accepts
practical benefit (like a horse, hawk or robe) and this is also consideration

Common law and the doctrine of Estoppel

 Equity INTERVENES – DOCTRINE OF ESTOPPEL – mitigates the harshness of foakes v beer

Estoppel:
 How it works – you owe me £100, and I say to you that I will accept £25 – what happens is that, you
then have more money that you think and go out on the town and spend the rest of the money you
owe
 Acting on a promise (eg. Buy spending the money because the promise was not to ask for the rest
of the money)

This is an alternative argument to consideration

PROMISSORY ESTOPPEL:
NO NEED FOR CONSIDERATION FOR ESTOPPEL – looking for something else…
Estoppel based upon a promise or the idea of reliance (can not go back on your promise of the payment
being terminated) – and therefore estoppel is based upon a promise being made not to enforce a
contract and it being inequitable (unfair) for promisor to go back on the promise.
THE LEADING CASES ON THIS AREA = HUGHES v METROPOLITAN RAILWAYS (1877)
CENTRAL LONDON PROPERTY LTD v HIGH TREES HOUSE (1947) – (HIGH TREES CASE)

CENTRAL LONDON PROPERTY LTD v HIGH TREES HOUSE (1947) – (HIGH TREES CASE) - lord
denning = source of the modern expression of estoppel – the case was about a 99 year lease of a block of
flats in London at a price of £2,500 per year – the claimant would sublet the flats and make a profit by doing
that – however, the problem was that in the second world war the company was in trouble as no one
wanted to rent their flats in central london as it was being bombed – the defendant in this case sought to
negotiate the contract to bring down the rent – and a written agreement was reached between both parties
that said that the ground rate would be reduced to £1,250 for the flats per annum (half the price) – reduced
rate was paid for a number of years until 1945 (when all the flats were letted out) – landlord wanted to
revive the original rate of the flats- they asked for the last 2 quarters of 1945 –
HIGH COURT CASE: Denning J said - Yes you can have the full rent for the last 2 quarters and it was
revived – Denning – what if the landlord sought to claim the rent for the reduced price years – HOWEVER,
ESTOPPEL would stop this.
What if – obiter dicta comments (not binding but persuasive)
ESTOPPEL APPLIED: This are like legal requirements for estoppel to work:
 Existing legal relationship - for our purposes contractual (something which is created rights and
obligations (for contract – this relationship is contractual)
 Substance of promise - not to enforce existing rights (eg. Right to money eg. £2.5k – but accepting
£1.25 k)
 Form of Promise - clear and unequivocal - suggested promise must be certain (test is “has to have
the same certainty as the terms in the contract” - without the certainty the contract may not be a
contract or may not be enforceable – has unambiguous) (James v Heim Galleries) 0 dealing with a
lease and the landlord failed to give the correct notice to review the rent – tentant said you didn’t
give the notice and therefore can not review the rent and therefore no increase in payment – saw
each other and where talking and he said “you cannot win them all” – later laws said that you can

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

give late notice and therefore he sought to raise the rent – tentant said that this couldn’t be done by
what he said – it was held that vague words is not sufficient for estoppel and therefore could go
back and change rent prices.

 Reliance - promisee has acted on the promise and now it is unfair to go back on it the person to
whom to promise is made is made to rely on the promise – this seems to mean that the promisee
must act differently or must alter their position on the basis of the promise - it appears that they do
not have to act to their detriment – if you have detriment then its easier to argue that is unfair.
 Promisee must act equitably - otherwise estoppel does not operate D&C Builders v Rees (absence
of in equitability – “he who comes to equity, must come with clear hands)

 D&C BUILDERS v REES – building contract –claimant builders had done work for the defendant
and were owed £482 – the claimants were in financial difficulty and not getting this money would be
detrimental to them – Mrs Rees (on behalf of the husband) , “I WILL GIVE YOU £300 ONLY, I WILL
NOT GIVE YOU THIS IF YOU DON’T EXCEPT IT AS A FULL AND FINAL SETTLEMENT OF THE
DEBT” – the claimants agreed and there was evidence to suggest that Mrs Rees knew the builders
were in financial difficulties - The argument was could estoppel apply – this is an application of
Pinnel’s case – able to recover the money that had not been given to them. Lord denning looked at
estoppel – estoppel doesn’t apply as Mrs Rees did not act equitably as she held them to ransom
(nowadays this would be a form of economic duress)
 Estoppel acts as a shield (defence) and not a sword (not a cause of action) – idea of this is you
have to have an existing legal relationship – you cannot create a contract with estoppel (Koo v Koo
– she put forward a alternative argument and claimed he was estopped from going back from his
promise because of the promise way – denning – you cannot use estoppel in this way – you can
use estoppel to change a contract or end a contract but NOT to create new causes of action were
none existed before) – this is the case in the UK but in other jurisdictions this is different.
 EFFECT of estoppel -does it extinguish or suspend rights? – this isnt clear from case law – it is
better viewed as suspends rights rather than extinguishing rights – However, see Collier v
Wright [2008] – not strong authority – collier and his 2 partners owed £46,000 to wright and by the
contract the partners could be called upon to pay the debt individually (eg. If 2 refused to pay one
could be persued to pay the full debt) – collier alleged that wright had agreed that collier would only
be reliable for 1/3 of the debt if he paid his share – Broadfoot and flute (his partners) – collier paid
his share over 5 years – and wright later perused collier for the remainder as the others were
bankrupt – was there an arguable case? – not looking to see if estoppel applied and therefore this is
a weaker authority – however, it was held that collier could raise estoppel as an arguable case –
Lady justice Arden relying on high trees case said there is a potential estoppel when, there was a
voluntary agreement to accept less, and the debtor pays in full, in accordance with the agreement -
it was inequitable for the creditor to go back on the promise – she also said that the debt is
extinguished. Longmoore LJ was more cautious and he said he would need to see clear evidence
that the creditor was foregoing his rights in this circumstances. NOT A PERFECT AUTHORITY AS
IT WASN’T A DETAILED CASE.

COULD ESTOPPEL APPLY TO THE FACT SEEN IN STILK AND MYRICK?:

 Existing contractual relationship
 Clear and unequivocal promise
 Reliance – the crew continued to work
 No suggested inequity on facts
 BUT the substance of the promise was incorrect - pay extra money - need a promise not to
enforce existing rights – it was an attempt to create new rights and therefore there is no estoppel

Intention to create legal relations

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

Requirement for formation of a contract - seems to be based upon policy reasons- Balfour v Balfour
The problem arises what classes as a legal relations – what is the line between social relations and legal
relations in the world of contract.
BALFOUR V BALFOUR – husband worked abroad and wife had to return to england due to ill health and
the husband said he would pay her £30 a month for her living expenses, promises her this money.
Subsequently their relationship broke down and they agreed to live apart – husband failed to pay the
money as agreed so she sued him for the sum – IT WAS HELD THAT THERE WAS NO CONTRACT AS
THE AGREEMENT WAS A DOMESTIC AGREEMENT THAT NEVER INTENDED TO CAUSE LEGAL
CONSEQUENCES – COURT SSAID THERE THE OWNESS ON THE WIFE TO SHOW THERE WAS A
BINDING CONTRACT AND SHE HAD FAILED TO DO SO.
Why? – because so many domestic agreements would mean multiplying the courts in order to deal with
these agreements – agreements like these are out of realms of contract law
THERE IS A PRESUMPTION OF INTENTION

PRESUMPTIONS OF INTENTION:
 SOCIAL AND DOMESTIC AGREEMENTS – there is a presumption that there is no intention to create legal
relations (as seen in BALFOUR v BALFOUR)
 COMMERICAL AGREEMENTS – there is a presumption that there is intention to create legal intentions
(and it is generally hard to prove otherwise)

THESE ARE JUST PRESUMPTIONS AND THEY ARE BOTH REBUTTABLE (BY EVIDENCE TO CONTRARY -
AND ARE THEREFORE NOT ABSOLUTE.
 Presumptions tell you what the starting point is, eg. No intention or intention – but the other party can argue
there is a contract and they can bring evidence to overturn the presumption – presumptions basically
indicate where the burden of proof falls

Eg. Balfour v Balfour – no intention presumed – it would have been the job of the wife to prove that there was
evidence that a contract (legal relations and consideration) was formed but she didn’t.
Eg. Business setting – presumed to have intention – if you were arguing that there wasn’t intention you
would have to find evidence that there was not a contract.

REBUTTING SOCIAL AND DOMESTIC PRESUMPTION:

 CONTECT OF AN AGREEMENT – MERRITT v MERRITT – Husband and wife jointly owned the
matrimonial house – the husband left the wife – parties met and it was agreed that he would give
her £40 per month – out of which she would pay the mortgage of the house –wife insisted that the
husband signed an agreement which said that “you will be paying the charges for the mortgage and
I agree after you have done that to transfer the house to you” – and he signed it – paid off the
mortgage and then the husband refused to change the house in to her name – was there a contract
between the parties? – they were fully separated and therefore they were acting like two contracting
parties and there was sufficient evidence of an intention to be bound.

IN THIS CASE, THE ORDINARY PRESUMPTION DOESN’T APPLY.

RELIANCE ON AN AGREEMENT –MIGHT BE CONTRACTUAL IN NATURE? – PARKER v CLARKE –
concerned a uncle and nephew – the uncle owned a large house and the Parkers (nephew and his wife)
lived in a much smaller house, the uncle suggested that they live together, and share household costs – the
Parker’s said if they were going to do this, they would have to sell their house – to which the uncle said “
that is no problem, do that, we will leave you in our will a proportion of the house” – making a promise and
also indicated how the household payments were to be spilt between the two couples – so they sold their
house and moved it, they loaned money to their daughter to buy a house too, lived together for a while and
then the relationship broke down and the Parker’s were asked to leave the uncle’s house – had the parties
entered in to a contract – presumption would be that there is no intention – but IT WAS HELD THAT
THERE WAS A CONTRACT because the Parker’s had relied on the agreement and sold their house and
therefore this was meant to be contractual. (Jones v Padavatton – same decision but by a different route –
parent and child case – the child had relied upon the arrangement (early 20’s))

REBUTTING SOCIAL AND DOMESTIC PRESUMPTION:

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

CERTAINTY OF AN AGREEMENT – PARKER v CLARKE – it was clear what the parties intended and
therefore there was an intention to create legal relations.
It is very difficult to rebut – you need very strong evidence that the parties did not intent to create legal
relations – ESSO petroleum v – this concerned a promotion a – ESSO had put in a scheme for every 4
gallons of petrol you filled up in their stations – the customer was entitled to a free coin –”one coin given
free with every 4 gallons of petrol purchased” – the coins had the faces of the England World Cup Squad
of 1970 on – there was 30 coins – every popular for young children – problem was there was a liability to
tax for items sold – was there an intention to create legal relations in relation to the coins – HOL spilt 3 to
2 to say there was intention to be bound – the presumption is that there is an intention to create legal
relations – the evidence does not suggest that the presumption is overturned - MINORITY SAID THAT
THERE WAS NO INTENTION TO CREATE LEGAL RELATIONS – it was about the advert and the use of
the world “give” isnt the same as selling, and the coins were free and of minimal actual value.
 PROVES THAT THIS PROCESS IS ONE OF INTERPRETATION – even judges do not agree.
 Note: the parties may expressly state that there is no intention to create legal relations – if this is
clear then this is likely to be the outcome – SEE ROSE AND ROSE v CROMPTON BROTHERS –
honorable pledge clause and therefore not a contract.

Terms of a contract
CONTENTS OF A CONTRACT –
Has a statement become part of a contract? What are the terms of the contract? When we negotiate
contracts, a lot of things get said – does everything that is said become part of the contract?
or does it stand outside causing a contract to be formed but not actually be a part of the contract?
TERMS AND
REPRESENTATIONS

A statement oral/written may become a term of a contract, or it is merely a representation that never forms
part of a contract. Or it may take the form of mere salesman talk, which has no legal effect (mere puffs).
If were dealing with a term of a contract and its not carried out then its breach of contract.
However a statement could be a representation that stands outside the contract – if this is wrong/untrue
then you could be sued for misrepresentation.
Whether a statement is part of a contract or stands outside the contract is a question of intention – what do
the parties intend?
DISTINGUISHING BETWEEN TERMS AND REPRESENTATIONS:
The test = intention of the parties (aka What did the parties intend?)

How can you tell what they intend? Intention is difficult. You use an objective test. Look at what they have
said/done.
In order to make it easier to establish the courts have developed guidelines for finding intention.
THE GUIDELINES:
Strength – if a statement is really strong that is consistent with it being a term. If its weak that is more likely
to be representation – not likely to be part of a contract.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

Importance to representee – if it’s a strong statement and the representee has made it clear how important
it is to them then it will be more likely to be a term.
Specialist knowledge – more likely to be a term than a statement made by a none specialist.
Timing/reduction – if its made at the time the contract was formed its likely to be a term. If its made
otherwise its more likely to be a representation. If you reduce into writing and that forms the basis of a
contract then it looks like a term. If you do not write it up then its more likely to be a representation.
Sometimes the guidelines can point in different directions. The court would have to decide what is more
likely to be intention. Its not a precise process.
RIGHTS AND OBLIGATIONS:
TERMS OF A CONTRACT CAN EITHER BE; EXPRESS TERMS OR IMPLIED TERMS.
EXPRESS TERMS – INCORPORATION: in order for express terms to become part of a contract they have
to be incorporated by one of 3 methods.
SIGNATURE - If you sign a contractual document – you are bound by it – even if you haven't read them –
the rule is – the terms of a contractual document signed by a person, in the absence of fraud or
misrepresentation, are binding even if unread.
L’ESTRANGE v GRAVCOB – signed a sales agreement for a vending machine, the agreement was printed
on brown paper, used brown ink and was in very small print but nonetheless was readable, the claimant
signed the contract without reading the contract, the machine didn’t work – it was held that the clause was
incorporated - as long as it is legible, if you sign it you are bound by it.
EXPRESS TERMS - SIGNATURE – CURTIS CASE – claimant required cleaning services for a dress and
asked to sign a form, headed receipt - “what am I signing” and was told that they were not liable for beads
and sequins, the company stained the dress – there was an exemption clause stating, “..article accepted on
condition that the company is not liable for any damage howsoever arising.” – HOWEVER, she was told
orally that it only applies to beads and sequins and therefore it was misrepresentation of the clause and
therefore the company could not protect themselves under this exemption clause.
Can challenge documents – dependent on circumstances – you might be able to overcome
EXPRESS TERMS – NOTICE – the first question that needs to be addressed is whether or not the
document is contractual (as seen in the case of CHAPELTON v BARRY UDC.
 Dealing with the hire of 2 deckchairs on the seaside, the claimant was given 2 very small tickets that
indicate that you have hired the chairs, the person – the ticket had an exemption clause on the back
– the question was whether notice had been given? It was held that the ticket was not notice of an
exempting clause due to the nature of the document. The ticket was given as a receipt as you would
not expect an important clause would be given to a customer on a receipt.

 What steps have been taken to give notice of a clause – they don’t have to know/read the clause – but if
you have taken steps to show and demonstrate - THOMPSON v LM&S Rly – illustrates incorporating by
reference – a women bought a rail ticket for 13p, on the front of the ticket it said “see back” – on the back it
said “Issued subject to condition, published in public timetables” – the timetables could be bought for 3p –
on page 552 there was an exemption – she went to get off the train but the guard negligently let the train
go – she was thrown from the train and was very injured – did they take reasonable steps? THE COURT
SAID THAT IT WAS REASONABLE STEPS – a reference to another document. Court took a very strict
view and think it wouldn’t be used in the same way now.
 HENDERSON v STEPHENSON – dealt with lost luggage – ticket for a voyage from Dublin to
Whitehaven (all it said on the face of the ticket) – passenger paid without looking at the ticket – the
company lost the luggage and the claimant sued – the company said on the back of the ticket there
was an exemption clause – it was held that the clause was NOT incorporated because the
agreement was made on the face of the ticket (no indication to reference the back of the ticket)

EXPRESS TERMS - TREATMENT OF ONEROUS OR UNUSUAL TERMS – INTERFOTO v STILETTO –

defendant wanted transparencies of a local area – claimant sent 47 transparencies – along with a delivery
note that outlined what was going to be sent and the terms – condition 2 of these terms said that if the
transparencies were kept for longer than 14 days then the transparencies would be charged at £5 per
transparencies per day plus VAT – bag was opened, delivery notice was not read and he phoned back and

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

said “one or two might be of use” – kept the transparencies for around a month and then received an
invoice for £3783.50 and they refused to pay – was this sum payable and was it part of the contract? IT
WAS HELD THAT THE CLAUSE WAS NOT INCORPORATED – where a clause is unsual or onerous then
extra steps have to be taken to draw it to the other parties attention – argument would be that delivery note
was contractual (therefore reasonable steps were taken), but this kind of term must be supported by more
steps. TELLING THeM WOULD BE AN EASY WAY OF ENSURING THIS.
EXPRESS TERMS –
 WHEN IS THE CONTRACT FORMED – notice needs to be given before or at the time of
agreement – (see chapelton v barry udc) – OLLEY v MARLBOUROUGH COURT HOTEL – a
couple booked in to a hotel, notice on the back of the hotel door saying they do not take responbility
for theft or lost of property – went out and came back and mrs olley’s fur coats were stolen - sued
for breach of contract (failed to take reasonable care) – hotel said that there exemption clause and it
is in plain sight and couldn’t miss it – IT WAS HELD THAT THE NOTICE OF THE EXEMPTION
CLAUSE WAS KNOWN AFTER THE CONTRACT FORMED.

COURSE OF DEALINGS:
 The clause may be incorporated because of a previous course of dealings Spurlifg v Bradshaw -
YES, there caf be ifcorporatiof – but the course of dealifgs has to be cofsisteft afd regular.

 What constitutes a previous course of dealings?

 (a) Has there been a consistent course of dealings? McCutcheof v MacBrayfe -

 Cofsisteft = coftract if the same way every time – efter if to the coftract if the same way – if mc
v mac – dealt with sefdifg of goods by ferry, the persof cofsigfifg the goods had made mafy
coftracts with the carrier but there had fot beef a cofsisteft course of dealifgs (afd hol therefore
said it was fot a cofsisteft course of dealifgs)

(b) How many times have the parties previously contracted and over what period of time? HOLLIER v
RAMBLER MOTORS – dealifg with a coftract to repair a car, betweef af ifdividual afd a garage – car
was damaged if a fire at the garage – had eftered to mafy coftracts with the garage (3/4 coftracts if
5 years) – if the past there was a documeft with af exemptiof clause afd the claimaft had to sigf it –
the garage argued that they had sigfed it before, they have a previous course of dealifgs afd therefore
ought to kfow about these – IT WAS HELD THAT THERE WAS NO INCORPORATION – afd 3 /4 over
5 years is ifsufficieft if regards to regularity of course of dealifgs. and HARDWICK GAME FARM v
SAPPA – ¾ coftracts every mofth – TWO BUSINESSES (MORE LIKELY TO CONTRACT TIME AND
TIME AGAIN) - IT WAS HELD THAT THERE WAS A SUFFICIENT COURSE OF DEALINGS
(REGULARITY).
IMPLIED TERMS:
Covers a variety of types – terms that have not been expressed by the parties but find their way in to the
contract nonetheless
Terms implied In fact – based upon the intention of the parties- need to prove intention of the parties
Terms implied in law – law is saying in a type of contract the law will indicate that there should be terms
implied – statue (eg parliament saying there are terms) and case law (eg judges saying there are terms etc)
- Implication is not based upon intention of the parties (very different process to terms in fact)

Custom - Industries, businesses operating to a particular type of trade practice or custom

TERMS IMPLIED IN FACT:
This is when parties have failed to fully express their argument – they haven't thought it through, or have
made assumptions of what parties are entitled to etc – it is not for the courts to make the contract better,
or rewrite the contract – they have to give expression to the unexpressed intention of the parties on the
particular facts - they are looking for the unexpressed presumed intentions of the parties – they are
looking to see what the parties would have said if they had thought about that particular matter.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

THERE ARE TWO TYPES OF TEST TO PROVE WHETHER OR NOT THERE WAS IMPLIED TERMS:
BUSINESS EFFICACY TEST AND OFFICIOUS BYSTANDER TEST.
TERMS IMPLIED IN FACT - BUSNIESS EFFICACY TEST – term necessary to make contract work as
parties intended - not just reasonable but it has to be necessary – the claimant contracted with the
defendant to use his wharf and jetty to unload and load the ship – both parties knew that the ship would
ground in low tide and unfortunately whne this happened the ship was damaged because river bed was
uneven – so claimants sued for damages to their ship – was their liability? – nothing in the contract referred
to the potential damage of the ship – CA HELD that in the absence of an expressed terms – they presumed
that on the basis to make the contract work as the parties intended, there was an intention to the contract
and therefore this damage. Both parties that the wharf was lent for profit and that the boat would ground,
and the defendants were best suited to inspect the river bed and therefore they were subject to an implied
term that they had taken reasonable care to find out if the jetty was safe – so when the jetty was not safe,
they were in breach of contract. (INTENTION OF THE PARTIES)
TERMS IMPLIED IN FACT – OFFICIOUS BYSTANDER TEST – this still looking for the intention of the
parties – this is a test that looks at the term as being so obvious that it goes without saying – if while the
parties when making a contract and a third party asks if a certain term is needed and both parties reply with
‘’oh of course” - SHIRLAW v SOUTHERN FOUNDARIES.
BOURNEMOUTH FC v MANCHESTER UNITED FC – Bournemouth were 3rd league side and man u were
1st league – Bournemouth had a really good striker - £200,000 and then play a further £25,000 once he had
scored a further 20 goals in the first division – hadn't scored 20 goals and then manager of man u was
sacked and then the new manager later sold the footballer to west ham – assumption = if he scores 20
goals, he needs to be on the pitch and playing for man u and there was an implied term would have been
that the player would have to be given a reasonable – in order to make the contract work in the ways that
the parties implied he would have been given a reasonable opportunity to score goals. CA held it was
implied – Manchester united was in breach of contract.
TERMS IMPLIED IN FACT – OBT - LIVERPOOL CITY COUNCIL V URWIN – block of flats ran by the
council and was occupied mainly by families – there were common areas (lifts, stairs and rubbish shoots)
the lifts were often out of action, the stairs were not lit and the rubbish shoots were blocked – the problem
was because of people breaking in and vandalism –the landlord gave a document of the terms of tenancy
almost like do and don’t list to all tenants when they moved in– nothing was written about the landlord and
what he was supposed to do – they knew that the tenants are likely to blame for the issues being caused in
the common areas – who was responsible for common areas? Case went to court – were there any implied
terms in the circumstances which placed obligations on the landlords. CA HELD that there is no clear
common intention.
NOTE THE TESTS ARE NOT EASY TO APPLY
TERMS IMPLIED IN FACT – AG OF BELIZE v BELIZE TELECOM 2009 - Lord Hoffman sought to state
that the implication of terms in fact was part of the process of interpretation of a contract. His Lordship
said that if ‘some provisiof ought to be implied if af ifstrumeft, the questiof for the court is whether
such a provisiof would spell out if express words what the ifstrumeft, read agaifst the relevaft
backgroufd, would reasofably be ufderstood to meaf.’
How do the tests of business efficacy and the officious bystander fit with this approach?
Lord Hoffman said such tests are ‘best regarded, fot as series of ifdepefdeft tests which must each be
surmoufted, but rather as a collectiof of differeft ways if which judges have tried to express the ceftral
idea that the proposed implied term must spell out what the coftract actually meafs or if which they have
explaifed why they did fot thifk that it did so.’
They are not independent tests but different ways of spelling out what the contract means – this case threw
the area in doubt
MARKS AND SPENCER PLC v BNP PARIBAS SECURITY TRUST CO (JERESEY) LTD AND ANOTHER:
 Lord Neuberger said Belize case has not changed law.

 ‘No dilution of the requirements which have to be satisfied before a term will be implied’ post Belize.

 Traditional tests of necessity and obviousness reaffirmed

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 ‘The express terms of a contract must be interpreted before one can consider any question of
implication.’

TERMS IMPLIED IN LAW (STATUTE) - Parliament can say what is going to feature in a contract – and
they can say that different types of contracts that have varying implied terms – SALES OF GOODS ACT
1979 – SUPPLY OF GOODS AND SERVICES ACT 1982 – these used to apply across the board -
however, the CONSUMER RIGHTS ACT 2015 has changed the original acts and now these acts mainly
applied to businesses whilst consumer rights applies to consumers rather than a catch all process –
terms are: see notes

Contracts can be oral but even though there is no expression by the parties – there is a standard (section
13) s.14 – time of performance s.15 – amount of payment (consideration) – SOGSA 1982
 TERM ARISES IRRESPECTIVE OF INTENTION OF THE PARTIES
 The questions are – does the act apply to the contract in question and what terms are implied(what
are the consequences?)

TERMS IMPLIED IN LAW – CASE LAW: IT IS

CASE LAW – judges become involved – how far can the judges go? What are they allowed to do?
DECIDED BY PRECEDENT.

IMPORTANT TO KNOW THAT THIS IS NOT BASED ON INTENTION OF PARTIES – ALTOHUGHT THE
TERM MAY BE EXCLUDED – LIVERPOOL CC v IRWIN – block of flats owned by cc but let out to multiple
tentants – public areas sometimes out of order etc – who was responsible? There was no intention implied
in fact – when appealed in the house of lords – they said there was an argument in law and the HoL agreed
that these sorts of contracts should have an implied term in law – Wilberforce said it was a matter of
necessity for there to be an implied term – obligation was on the local authority to look after the common
areas by a test of necessity – they implied a term, but what term? What is a necessity for this case? They
have to take reasonable care to maintain the common areas (eg. Fixing the lifts etc) – on the facts, there
was an implied term but the cc hadnt broke this terms (they had take steps to fix problems – even if not
immediately)
TERMS IMPLIED IN LAW – CASE LAW:
 HL has distinguished “between the search for an implied term necessary to give business efficacy to
a particular contract and the search, based on wider considerations, for a term which the law will
imply as a necessary incident of a definable category of contractual relationship” Lord Bridge in
Scally case.

 Implication in law relates to types of contract rather than individual transactions

S.13 of supply of goods and services act – you will do your services with reasonable care and skill.
TERMS IMPLIED IN LAW – CASE LAW:
 Policy considerations play a major role – Crossley v Faithful & Gould - CROSSLEY v FAITHFUL &
GOULD – af employee resigfed afd lost his sickfess befefits – if he coftifued he could have kept
these befefits, whef he discovered this, he argued that his employer was if breach of af implied
terms to take care of his employees ecofomic ifterests – the CA held that there was fo such implied
term if law – for 2 reasofs – it would be coftrary to approach of HoL if Scally’s case – they said it
would be af uffair burdef of employer (Employer afd employees ifterests oftef cofflict) –

LJ DYSON - the word fecessity has a problem, what do we meaf by it? it caf shift form – it is a term that has
fo defifed meafifg afd caf therefore chafge – perhaps the better way forward is is fot to focus of fecessity
if implyifg terms if law, it should be recogfised… reasofablefess, fairfess afd balafce of competifg policy
ifterests.
CA caffot chafge the rule as the liverpool cc v irwif case was decided by the HoL afd is bifdifg of all
other courts – the law is fot clear.
TERMS IMPLIED BY CUSTOM –
Terms implied in to a contract of a type – and the terms to be implied must be certain, notorious and
reasonable, and must not conflict with an expressed term in the contract – the content of the term
must be identifiable and uniform. (by notorious – must be well known and readily ascertainable (they
don’t have to know of the customDownloaded by Precious
but it has Sona known)
to be well (sabashahwani83@gmail.com)
 lOMoARcPSD|2978205

GEORGE v DAVIS – the claimant = domestic servant – who entered serviced on 3rd nov 1910 - monthly
payable wages the contract did not specify notice of how long you have to give notice of leaving and on 17th
November 1910 to leave at the end of the month and the claimant left on 3rd december 1910 – defendant
refused to give claimant their money – alleged that there was a custom that either party was able to give
notice to end employment at the end of the first month at or before the expiration of the first fortnight – IT
WAS HELD THAT THIS WAS A RECOGNISED CUSTOM that was clear and uniform in this type of
employment and applied in this case.

Exemption clauses
In the contract, there maybe reliability that arise and the exemption clause excludes or restricts liability –
they are potentially used in unfair ways – you may enter into a standard form contract by virtue of a
signature – you are bound by it even if you haven't read the terms etc – the law is aware of the problems
with exemption clauses and the law has been developed around protecting consumers – generally more
unfair towards consumers than businesses – legitmate device for relocation of risk and therefore you
have to be aware that exemption clauses are capable of being abused.
Businesses might have a very “take it or leave it” idea and will not change its clauses
Law has sought to control to use and unfairness of exemption clauses.
For exemption clauses the starting point is seeing whether or not there is liability? Is there a clause which
has been breached.
 Defines obligations?

 Acts as a Defence?

 Smith v Eric Bush 1990 - defence

Does the exemption clause act as a defence?

THE CASES AND THE COURTS HAVE POINTED TOWARDS THIS – look at the terms, ignore the
exemption clause, look at the other terms – is there liability?
How do we see if the – 2 common law and one statutory question.
IMPORTANCE OF INCORPORATION – if you want an exemption clause you have to incorporate it (eg.
Signature, notice and course of dealings)
CONSTRUCTION:
THE QUESTION OF CONSTRUCTION – what does the clause cover? What the liability of the original
breach is, and whether the clause covers the breach made by the party?
There are different forms of liability – different ways of expressing obligations – most likely to encounter is
STRICT liability – promise to do something, and therefore have to do it – it doesn’t matter why you do not
do it – you are in breach of contract.
Negligence liability – not to achieve an outcome but to take reasonable care
How have the courts have interpreted the words in exemption clauses – ANDREWS v SINGER – dealing
with a contract for new singer cars – the contract contained an exemption clause which said “all conditions
and warranties implied by a common law or by statute are hereby excluded” – very wide exemption clause
– the problem was that one of the cars delivered had a significant mileage and therefore was not a new car
– argued there was no liability in these circumstances – it was held that there was a clear breach of an
expressed term and clause doesn’t cover this (only covers implied terms).
 Contra Proferentem Rule - Andrews v Singer and Houghton v Trafalgar Insurance

Find ambiguity – CPR – the courts will not help you (least favorable outcome) – HOUGHTON v
TRAFALGAR INSURANCE – concerned an insurance policy of a car – had more passengers in the car
than seats – there was an accident and the insurance company said that the policy said that it does not
cover this as an excess load was carried – was the insurance policy invalided because of the extra
passenger? – NO, the court said the word load was ambiguous – resolves it against the person seeking to
rely on the decision.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 Liability for Negligence – Canada Steamship Line v The King

LFN – failure by someone to take reasonable care and skill (they are at fault) – developed guidelines in
relation to this which have to be satisfied – AS SEEN IN CANADA STEAMSHIP V THE KING
CANADA STEAMSHIP LINES v THE KING -
 Does the clause exempt liability for negligence using that term or synonyms?

 Does the clause use words sufficiently wide to cover negligence? – the use of wide word to
cover negligence – “I will not be liable however that is caused”

 If wide words are used is there any other liability to which they might relate ie does liability arise
irrespective of negligence? – in the case of strict liability – desperately trying to control the law
of exemption clauses

TYPES OF LIABILITY:
STRICT LIABILITY - liability arising without proof of fault - Wide words most likely to refer to this liability
rather than negligence
NEGLIGENCE LIABILITY - liability based upon fault - If no strict liability then wide words may apply to
liability for negligence.
NEGLIGENCE IS GENERALLY MORE PROBLEMATIC - based upon fault
Have to be very clear as to the exemption you wish to cover as the courts will not help you –
WHITE v WARWICK – claimant hired a bike from the defendants – written agreement provided that nothing
in this agreement shall render the owners liable for any personal injury – wide exemption clause – the
claimant gets the bike, but because the seat had not be fixed and checked by the company and tilts and
then he falls off the bike resulting in injury – the bike supplied had to be ‘fit for purpose’ (strict liability) –
another source of liability, is it reasonable to check the bike for any problems – the courts said that in their
failing to do that they were liable for negligence – its not been made clear which type of liability this applies
to – if the parties make it clear they want to avoid strict and negligence liability but it has to be very clear
(Meers Steel v Morris)
When dealing with limitation clauses – the courts do not take such a strict approach
The principles of construction in Cafada Steamship Lifes v The Kifg are to be seen as guidelines and not
rules and should not be applied mechanistically (Mir Steel (UK) v Morris). The courts function is to read
words in context and give effect to the intention of the parties
LEGISLATIVE CONTROL:

Legislative control – Unfair Contract Terms Act (UCTA 1977) – gave the courts another way of controlling
exemption clauses – powerful tool for doing this.
ALSO, the Consumer Rights Act 2015 controls the use of exemption clauses and unfair terms in contracts
between traders and consumers – as it changed the controls over exemption clauses – the UCTA has been
cut down in its application because of the CRA 2015
THE UNFAIR CONTRACT TERMS ACT 1977
Misleading title – it actually applies to exemption clauses specifically, as well as it is not just contracts but
non-contractual notices as well – controls exemption clauses.
The act doesn’t apply to all contracts – some contracts are outside the act (see schedule 1 – i.e. It doesn’t
apply to insurance contracts, contracts that deal with the creation or transfer of an interest in land)
It applies to exemption clauses, section 13 tells us what is included in the definition of exemption clauses.
s.2-7 (minus 6(4)) apply where there is business liability, have to have this business liability (under s.1(3) –
“BUSINESS LIABILITY IS LIABILITY FOR BREACH OF OBLIGATIONS OR DUTY A) ARISING BY
THINGS DONE OR TO BE DONE IN THE COURSE OF THE BUSINESS, B) FROM THE OCCUPATION
OF BUSINESS PREMISES” – there must be a business liability for this to be satisfied and to use the act.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

BUSINESS LIABILITY:
 Act only applies if person incurring liability does so in the course of a business (subject to s6(4))

 Act does not apply to contracts between two consumers (subject to s6(4)) – consumers are
someone who is not in business

 Act may apply where two businesses contract

 Act does not apply as between a trader and a consumer – a consumer contract (now covered by
Consumer Rights Act 2015)

Have to be sure we are dealing with the correct parties – a contract is made in the course of a business if
the contract is integral to the business- the contract forms part of a regular course of dealings of that
business
UNFAIR CONTRACT TERMS ACT 1977 – SCHEME OF THE ACT -
 Section 2 - deals with the control of exclusion clauses of liability for negligence – does not apply to
a consumer contract

 Section 3 - deals with exclusion of liability for breach of contract eg strict liability - does not apply
to a consumer contract

 Sections 6 and 7 deal with exclusion of liability for breach of obligations arising under sale of goods
or supply of goods contracts respectively - does not apply to a consumer contract

 S.2 – exemption of Liability for negligence:

Business liability Business liability

Negligence liability causing other
Negligence liability causing death or
loss or damage eg to
personal injury
property/financial loss

Exemption clause subject to a test

Exemption clause ineffective
of reasonableness

Business liability – negligence that causes death or personal injury – CANNOT DO IT UNDER S.2(1) – will
not work.
S.2 (2) goes on to say that if negligence causes other loss or damage (property or financial), the exemption
clause is subject to a test of reasonableness- will be applied if the exemption clause is reasonable in the
circumstances of the contract.
– exemption of liability for breach of contract:
Business liability - Exemption of liability for breach of contract - Deals on others’ written standard terms of
business - Exemption subject to a test of reasonableness - Exemption subject to a test of reasonableness
Business liability – addition requirement, of deals on others’ written standard terms of business – then the
clause would be subjected to a test of reasonableness – need to look for the meaning and therefore looking
at the statute (if there is nothing there – you will look at the case law) to find out what is meant by this

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

APPLICATION OF SECTION 3 –
The use of the word “Deals” and “standard”
 Chester Grosvenor Hotel Co Ltd v Alfred McAlpine Management Ltd – deals with what is meaft by the
word stafdard – Judge Stafard said “what is stafdard is a matter of fact afd degree, for terms to be
stafdard they should be so regarded by the party with advafces them as its stafdard term afd it should
habitually coftract if those terms”

Terms may be change – have they dealed of stafdard terms if they have chafged? - St Albafs DC v
ICL(ifterfatiofal computers limited) – questiof of fact whether a party deals of stafdard terms – (delivery
dates, subject matter, price etc) - do alteratiofs of this type of terms? – NO this will fot matter, it is about
the stafdard terms set out – if the case, there were fo chafges to the stafdard terms if this case
APPLICATION OF SECTION 3 -
The use of the word “others”
 British Fermentation Products Ltd v Compair Reavell – dealing with the institution of mechanical
engineers model form of general conditions of contract – this is a document created by an
independent body – are these your set of terms? Or are they the others’ set of terms? – what is the
definition of others? Is it the others would is in the contract or the others who produced them? – the
court in this case said S.3 did not apply as the terms were not the others (definition had not been
satisfied) – Judge Bowsher said obiter dictum “a defendant may adopt a model form as his
standard terms by practice or express statement” - contracts made on the basis of a model form are
outside the rules of section 3

TEST FOR REASONABLENESS:

SECTION 3(2)(a) - A party cannot by reference to any contract term - (a) when himself in breach of
contract, exclude or restrict any liability of his in respect of the breach....unless the term satisfies the
reasonableness test
TEST OF REASONABLENESS - It’s a subjective term.
 the law has sought to structure the discretion of the courts on this matter
 Judged at time of formation of contract, given what was known or ought to have been in
contemplation of parties – (at the time of the formation of contract) – S.11(1) – burden on proving
the reasonableness relies upon the person wanting to rely on the clause (aka the one who has the
exemption clause) – argued to be more in favour of the customer (claimant) as the defendant will
have to prove its reasonableness, which is difficult.

TEST OF REASONABLENESS: STATUTORY GUIDELINES –

 S.11(4) - has 2 guidelines of limitation clauses – resources available and availability of insurance –
FACTORS TO BE TAKEN IN THE THE ACCOUNT for small businesses especially

 Limitation clauses - where monetary limit specified, regard to be had to (a) resources available to
meet liability and (b) availability of insurance

SCHEDULE 2: HAS 5 GUIDELINES – THESE ARE UNIVERSAL GUIDELINES AND HAVE BEEN
APPLIED TO S.2/3 BUT MAINLY USED FOR S.
 (a) The strength of the bargaining positions of the parties

 (b) whether the customer received an inducement to agree to the term

 (c) whether the customer knew or ought reasonably to have known of the existence and extent of
the term

 (d) where the term excludes or restricts any relevant liability if some condition is not complied with
-compliance with condition

 (e) whether the goods were manufactured, processed or adapted to the special order of the
customer.

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

STATUTORY GUIDELINES:
SCHEDULE 2 GUIDELINES EXPLAINED -
b) whether the customer received an inducement to agree to the term – if you are offered 2 prices, a higher
price with out the exemption clause or a lower price with the exemption clause, and you choose the lower
price you have been given an indictment for the exemption clause
c) Different to incorporation – you have to go further to ensure that the customer knew or ought reasonably
to know there was this term – Stadline v tyneship repair group – “he was tempting to hold that the
exclusions were unreasonable and unfair because of 2 reasons: 1) they are in such small print that one can
barely read them(attempt to discourage them from reading it), 2) the draftsmanship is so convoluted and
prolix that one almost needs an LLB to understand it (many people would not understand the meaning of
the terms used)”
d) where the term excludes or restricts any relevant liability if some condition is not complied with
-compliance with condition – whether or not it is unreasonable
e) Bespoke – is it reasonable to take a risk?

GEORGE MITCHELL v FINNEY LOCK SEEDS –

Demonstrates how the courts approach it – decided under a different law (before the UTA) and therefore
the test was slightly different but the process was similar – concerned the sale of cabbage seeds – the seed
was delivered along with the invoice, which included exemption clauses – the sellers were only liable to the
point of getting your money back or replacing with a new bag of seed – the seed delivered was of an
inferior quality – farmers crop failed and claimed £61,000 – court said that the term was incorporated and
covered liability – but WAS IT REASONABLE? – the limitation had be used for a number of years and
therefore suggested that it was reasonable – there was no negotiation or argument about this term before
and therefore is reasonable – the clause was easily understood – the loss would be vastly disproportionate
(eg. £200 v £61,000) – HoL said other factors need to be taken in to account, eg. Supply of inferior quality
seed was due to negligence of the company (can you take this in to account?), Previously the seedsmen
had negotiated on claims with other clients – seedman could have insured against this loss with no change
to the price – the HoL had to weigh the factors and see whether it was reasonable or not – the clause was
unreasonable because of the steps that could have been taken.

Consumer Rights act 2015

USED TO AMEND AND CONSOLIDATE THE LAW -
 Amended the original laws in a number of ways – it is a big act and generally covers a wide range of issues
with regards to consumers and contracts in general – however, the consumer rights act played a big role in
the change of stance in the law of contract – from a business focus to one of a more consumer focused.
 Dealt with contracts between two businesses as well as contracts between a business and a consumer –
what does it do?

MAIN POINTS –
 Governs contracts between traders and consumers – section 2

 “Trader” means a person acting for purposes relating to that person's trade, business, craft or profession,
whether acting personally or through another person acting in the trader's name or on the trader's behalf.
“Consumer” means an individual acting for purposes that are wholly or mainly outside that individual's
trade, business, craft or profession.
Explained:
 Has to be between a trader and a consumer
 Both defined in S.2 of the act
 Trader definition is generally a broad term overall –
 Person has a broader definition than individual (as a person means an actual person as well as an
organisation) –

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 In the consumer definition the word individual is used and is therefore much narrower as it means
an actual single person and therefore a company cannot be a consumer as they are not an
individual.

Contracts between traders and consumers for a service include following terms ( sections 49-52):
 Reasonable care and skill
 Information about the trader and service
 Reasonable price
 Reasonable time

Eg. Builder, plumber – these terms are included in the contract – the act is designed to simplify the law for
consumers (in legal terms, the law is actually implying these terms in to any contracts)
By section 57 a trader cannot exclude liability for a failure to take reasonable care and skill or for
information about trader or service
 Cannot limit liability, (i) as to reasonable care and skill or (ii) information about trader or service or
(iii) reasonable time or (iv) price, to a sum less than the contract price

 If a trader limits liability beyond contract price may be subject to Part 2 (control of unfair terms)
Provisions relating to exemption clauses – you cannot exclude liability and you cannot limit liability
MAIN POINTS:
 Part 2 consolidates UCTA 1977 and UTCCR 1999 in so far as the legislation protects
consumers

 Unfair term not binding -a term is unfair if contrary to the requirement of good faith, it
causes a significant imbalance in the rights and obligations of the parties to detriment of
consumer – s.64(2)
Schedule 2 Part 1 contains an indicative but non-exhaustive list of unfair terms – s.63(1)
MAIN POINTS EXPLAINED:
 PART 2 – takes part of the UCTA 1977 and UTCCR 1999 and pulled it together and changed many parts of
it in the process – UCTA deals with exemption clauses whilst UTCCR replaced regulations of the same
name from 1994 and they protected and controlled the consumer against the use of unfair terms (not just
exemption clauses – but all other clauses of the contract [eg. Changing contracts unfairly, disproportionate
sums, discontinuing the contract without notice or alternatives etc] are all included)

SCHEDULE 2- contains an indictative but non-exhaustive list of unfair terms

 The directive goes on the say that the trader has to take in to account the interests of the consumer too –
this is a big change to english law –
 Good faith seekes to promote openness and choice – the courts have said good faith promotes fair and
open dealing, prevents unfair surprise and an absence of real choice.
The idea is that if you hide terms in the small print, then that is not acting in good faith – so if you hide
terms you would be looking at an attempt to try to outwit the consumer
The terms that are challengeable must not be terms on subject matter or price as long as they are
transparent or prominent – terms about these are ones that you expect to see when signing or entering a
contract (they are the essence of the contract) and therefore are not challengeable – S.64 HOLDS
DEFINITIONS OF WHAT IS MEANT BY TRANSPARENT AND PROMINENT
By section 65 a trader cannot by a term of a contract exclude or restrict liability for death or personal injury
resulting from negligence.
S.56 – trader cannot exempt their liability for death or personal injury resulting from negligence
The impact of this act – if the clause is unfair then it does not bind the consumer and therefore protects the
consumer by being conned by companies.

Discharge of contract

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

There are 4 ways in which obligations under a contract may be brought to an end:
 By performance the contract
 By breaching to contract
 By agreement
 External events that prevents the contract being completed – doctrine of frustration

BY PERFORMANCE OF OBLIGATIONS:
Obligation is performed – contract will end – the performance must be precise (or exact) and complete – if
you do not completely performance what you are obligated to perform, then if payment is set to be made
upon completion
Bolton v Mahadvva – contract to install a central heating system, payment of £560 was to be made on
completion of the installment – while the system, pipes and all other parts were there, the heating system
did not work and it would cost £174 to repair it, the installer refused to do this and the question was
whether the money could be recovered – it was held that the money was not recoverable by the heating
engineer (so the home owner did not have to pay the £560 – only had to pay £174 for the repair) – VERY
harsh term
CUTTER v POWELL – sailor who agreed to act as a second mate on a voyage from Jamaica to Liverpool –
he was to be paid upon completion of the voyage – 8 weeks, with 2 weeks left of the voyage, the sailor died
– his widow tried to claim for the work he had done (eg. – he was only entitled to the money on completion
however, because he had died – he failed to complete the contract and therefore his widow was not entitled
to this money.
SO THE GENERAL RULE IS THAT THE OBLIGATIONS MUST BE COMPLETELY PERFORMED –
however, this is subjected to some exceptions:
 Severable Obligations - eg. Building contracts, money is payable at various different stages of
the contract, therefore the payments are separate and go with the performance of an individual
task etc

 Prevention of Performance - one party may prevent the other party from performing

 Acceptance of Partial Performance – free choice to do this

Substantial Performance - HOENIG v ISSACS – claimant agreed to decorate the defendants fact – final
payment of £350 was to be paid upon completion – the work was completed but there was defects in the
performance – defects could be put right for around £50 – defendant claimed that there was not completion
because of these defects – there had been substantial performance and therefore the claimant was entitled
to payment minus the cost of fixing the defects.
DISCHARGE DUE TO BREACH OF CONTRACT - eg. One party fails to do what they were supposed to
do by some means, as agreed in the contract.
IF THE CONTRACT IS BREACHED, THE INNOCENT PARTY MAY END THE OBLIGATIONS, this can be
done by either by:
 Repudiatory Words or Conduct

 Fundamental Breach - breach of a condition of a contract or a serious breach of an innominate term

It may be possible for the innocent party to end their obligations on the contract, any breach of contract, the
innocent party has the right to claim damages and will be available – however there may be an additional
remedy by ending the contract early – may arise by repudiation (words or conduct) – or a fundamental
breach of the contract, this is the breach of a condition or a SERIOUS breach of an innominate term – 2
ways in which an innocent party may have an opportunity to end their obligations – however, this isn’t an
automatic discharge (the contract doesn’t end immediately)

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

WEIGHT OF TERMS:
Classification of terms (in mckendrick) – some terms have more weight than other
 Conditions – right to damages and to end their obligations under the contract
 Warranty – this is a minor term of a contract – does not carry the opportunity to end obligations to the
contract – only able to claim damages
 Intermediate or innominate terms

HOWEVER, this may work on injustices – eg. A very slight breach of a condition might have the right to end
obligation whereas a serious breach of warranty can only claim damages –there is an obvious injudgement and
therefore they created a third form of weighing terms that is based on the seriousness of the breach (this is
intermediate or innominate terms) – where slight breaches get damages and serious breaches carry the
opportunity to end contract – gives the courts flexibility to apply
Ship had to be “sea-worthy” – what makes it sea worthy?
EFFECT OF REPUDIATION OR FUNDAMENTAL BREACH:
 Innocent party may either Affirm the contract or

 Accept breach and end future obligations under the contract

 In any instance of breach of contract damages are recoverable

What is the effect? The innocent party has a choice, and the innocent party can keep the contract going
and able to claim damages – or they can accept the breach and end future obligations – this is not ending
the contract, you are ending future obligations by virtue of the choice of the innocent party – if the
innocent party has suffered loss, then they are entitled to recovery for this
Other terms that effect the remedies that are going to be available and therefore these clauses will live on
in the contract – eg. An exemption clause or a liquidated damage clause (the contract will say what will
happen if this is breached)
AGREEMENT - Just as you can create a contract by agreement, you can end a contract by agreement. To
do it there has to be an accord of offer and acceptance and satisfaction (eg. You need consideration for this
just as you do when making a contract)
THE DOCTRINE OF FRUSTRATION:
If you promise to do something, you have to do it – if you fail to do it, you are in breach of contract – there
may be reasons why you don’t perform the contract – but the law traditionally said no, you promised, you
are bound and if you fail you are in breach of your promise (contract). Could leaf to great injustice – so the
law created a doctrine of lawful excuse – in certain circumstances
Frustration can occur when an event which is not a fault fo the parties and a contractual obligation become
incapable of performance – if it’s a radical difference between what was promised
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 is not this I
promised to do’ - Lord Radcliffe in Davis Coftractors Ltd v Fareham UDC [1956].
‘Frustration of a contract takes place when there supervenes an event (without default of either party and
for which the contract makes no sufficient provision) 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’ – Lord Simon in Natiofal Carriers Ltd v Pafalpifa
(Northerf) Ltd 1981
Rather than talking about radical difference, it is talking about a significant change 0 they include an
example of a limit to it – eg. The contract is still performable (just more expensive and time consuming to
perform)

 Supervening event - between MAKING of Contract and COMPLETE PERFORMANCE of Contract – a

contract has been performed and after this an event occurred which effects he way the contract can
be performed – if it radically changes the nature of the obligation then we have frustration – timing in
important.
 Obligation Radically Different – there has to be this change in the nature.
 Event occurs withoutDownloaded
the Default of either party.
by Precious Sona (sabashahwani83@gmail.com)
 lOMoARcPSD|2978205

EXAMPLES OF FRUSTRATION – IMPOSSIBLITY – if the contract becomes impossible before – TAYLOR

v CALDWALL – agreement to hire the surrey gardens and music hall on 4 specific dates for hosting
concerts – for this they were going to pay £100 a day to hire these grounds – these are future obligations –
however, before the fire specified days, a fire destroyed the buildings – the claimant sought to sue for the
damages to finance and you have not supplied by the halls as agreed – it was held that the contract had
been frustrated and the obligations to hire to hall and to pay the sum for this were discharged as a result.
APPLEBY v MYERS – claimants were to install machinery in a factory and payment was to be made upon
the completion – before the installation was complete, the factory and the machinery were destroyed by fire
– it was held that the contract was frustrated – was the claimant entitled to payment for the work he had
done? He had not completed the work and therefore no payment was recoverable
Have to be careful with destruction – sometimes things that cause frustration in some cases arent always
frustration of contract - there are rules of risk that arent frustration– eg. Builders take the risk of something
happening to it
NON-OCCURRENCE OF EVENT – Which is basis of the contract – KRELL v HERNY – KRELL owned a
flat in pall mall, London – coronation of 26th-27th June 1902 – the flat was advertised as available to view the
procession – the parties agreed that henry would take the flat on those days but the contract that was in
writing made no reference to the coronation processions – he will have the entire use of the room in the day
but not in the night - £25 deposit – Edward the 7th fell ill and the celebrations were cancelled – henry
refused to pay the £50 and therefore KRELL sued him for this money – was this contract frustrated?-
contract for the room? Therefore not frustrated – what was the common object of the parties? This was not
the hire of the room, it was the hire fo the room with a view (eg. To see the coronation)
ILLEGALITY – the FIBROSA case – contract between an English and a polish company – English company
was to manufacture a machine for the polish company in return for £4800, £1000 was paid as the contract
was formed – the problem was that the English company went ahead and manager – before they could
deliver it, Germany invaded Poland and then it was illegal to trade with an enemy country and therefore the
contract was frustrated and future obligations were banished. (Gamerco S.A. v ICM/FAIR WARNING
AGENCY LTD)
IMPOSSIBILITY AND IMPRACTICABILITY – CONTRASTED:
Davis Coftractors Ltd v Fareham UDC [1956] AC 696 - Coftract to build 74 houses for £94,000 – work
was to be dofe over 8 mofths – because of shortages if labour afd materials – the coftract took 22
mofths to complete afd cost £115,000 – the builder said that the coftract was frustrated – however, it was
argued that it was fot impossible to build the houses afd therefore the coftract was fot frustrated – it
would just cost more – his actual opportufity afd ability to carry out the task
LIMITATIONS ON APPLICATION OF THE DOCTRINE OF FRUSTRATION:
 Contracts Expressly provides for frustrating event eg force majeure Expressly indicate where
risk is to rely – force majeure clause (event outside the control of the parties)

 Foreseeability - Waltof Harvey v Walker & Homfrays Ltd; The Eugefia (Foreseeability – if they
foresee it and to a high level then maybe they have implicitly dealt with the risk (by the fact you
have foreseen the risk)

 Self-induced frustration -The Eugefia afd The Super Servaft Two (actions of one or both of the
parties (then there is no frustration)

The common law effect is that the contract automatically Discharged as to the Future (Hirji Mulji v Cheofg
Yue SS Co) - The problem is we know what happen to future obligations but what happens to obligations
that have already been completed or are in the process of being done.
S 1(2) LR(FC) Act 1943 - "All sums paid or payable to afy party if pursuafce of the coftract before the
time whef the parties were so discharged (if this Act referred to as "the time of discharge) shall, if the
case of sums so paid, be recoverable from him as mofey received by him for the use of the party by
whom the sums were paid, afd, if the case of sums so payable, cease to be payable."
Using fibrosa case – S.1(2) – sums paid are recoverable – sums that are to be paid are quashed / written
off
Law Reform (Frustrated Contracts) Act 1943

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

S1(2) concerns sums paid or payable before the time of discharge - Sums paid are recoverable .Sums
payable cease to be payable.
S.1(2) LR(FC) ACT 1943 – PROVISO:
"Provided that, if the party to whom the sums were so paid or so payable incurred expenses before the time
of discharge in or for the purpose of the performance of the contract, the court may, if it considers it just to
do so having regard to all the circumstances of the case, allow him to retain or, as the case may be, to
recover the whole or any part of the sums so paid or payable, not being an amount in excess of the
expenses so incurred."
The use of the word “may” – gives flexibility and therefore it is up to the court to decide whether or not the
money is recoverable etc (only claim up to the cost before the pre-payment etc) (eg. In fibrosa case they
would only be able to claim the £1000) - EG. CUTTER v POWELL – couldn’t get the money because they
died before completing the contract and therefore the money was not recoverable as no pre-payment was
promised etc)
Law Reform (Frustrated Contracts) Act 1943
S1(2) is subject to a proviso concerning expenses - Expenses incurred before time of discharge - Court
has a discretion to allow party to whom sums paid or payable to keep sum in relation to incurred expenses -
Gamerco S.A. v ICM/Fair Warfifg (Agefcy) Ltd.
S 1(3) LR(FC) Act 1943 - "Where afy party to the coftract has, by reasof of afythifg dofe by afy other
party thereto if, or for the purpose of, the performafce of the coftract, obtaifed a valuable befefit (other
thaf the paymeft of mofey...) before the time of discharge, there shall be recoverable from him by the said
other party such sum (if afy), fot exceedifg the value of the said befefit to the party obtaififg it, as the
court cofsiders just, havifg regard to all the circumstafces of the case afd if particular -
(a) the amouft of afy expefses ifcurred before the time of discharge by the befefited party if, or
for the purposes of, the performafce of the coftract... afd
(b) the effect, if relatiof to the said befefit, of the circumstafces givifg rise to the frustratiof of the
coftract”.
Law Reform (Frustrated Contracts) Act 1943
S.1 (3) Part-performance
 Valuable Benefit - identified and valued
 Just sum - cost of performing the work (BP Exploratiof (Libya) v Huft)

Eg. CUTTER v POWELL – valuable benefit? If yes, they value the benefit and the individual would be able
to claim etc (ship owner has a valuable benefit – and then how much did it cost the individual to perform?
Then that makes the just sum)
NOTE: it is possible for the parties to avoid this application by writing in to the contract, what is to happen if
there is frustration

Remedies for Breaches

DAMAGES:
If you break a contract, you have to pay damages – if there is a breach, you are entitled to damages (not
for the courts to decide) – there is an order of specific performance, the courts will not give this out easily
as it is equitable.
BASIC PRINCIPLES:
Damages are awarded to compensate the loss suffered by an innocent party in consequence of a breach
of contract
The purpose is to compensate the innocent party (not to attack the other party) – look at the loss that has
been suffered by the innocent party as the amount of damages payable are dependent on the extent – if

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

you have suffered a great loss, you will more likely get a substantial damage – there is not a punitive
element to damages (they are to compensate not to punish)
DAMAGES – HOW CAN WE DEFINE THE TERMS?
What is loss? What do we mean by loss?

The concept of loss has been expanded – it is possible to claim for: injury to the person, damage to
property, financial loss (loss of profits), loss of opportunity (Chaplin v higgs – in this case the claimant had
entered a competition to secure a part in the play, and was successful in the early stages, she was not
invited along to the final auditions (which was a breach of contract) although she wasn’t guaranteed a place
in the play (12 roles with 48 applicants) however the courts said that she was refused the opportunity and
therefore is entitled to damages.
TYPE OF INTEREST:
Expectation Interest - You expect something from the contract – eg. Buying a car, for £2000 when the car is
actually worth £2500 – you have the expectation that you will be better off as you have a car worth more
than the price paid – expectation loss is payable (difference of £500) (ROBINSON v HARMAN 1848)
Reliance interest – what have you spent in reliance of the contract – if you waste money then the courts will
allow you to claim (OMAK MARITIMES LTD v MAMOLA CHALLENGER SHIPPING CO 2010)
Restitution interest – I have paid for a car, but you have not given the car over – as you have not received
anything for your promise (eg. For the money you gave to them).
MCRAE v COMMONWEALTH DISPOSALS COMMISSION 1951:
Claimant bought a wrecked boiler tanker for £285 (restitution – money would be repayable to the party), the
tank laid on the reef at a particular co-ordinate– mounted a salvage operation at a cost of 3k to recover the
tanker (reliance – money spent in reliance to the contract and therefore is recoverable), when the claimant
got to the co-ordinates nothing was there – they claimed for £300,000 for loss in profits (expectation – if the
contract had been performed, I would have had £300,000 – however the court said that he could not
proved this and therefore couldn’t claim for this)
THERE ARE LIMITATION ON CLAIMS:
 Claimant may choose - In the position to choose how they frame their claim – have to be aware of
the difficulties that my arise for the particular claim

 Expectation loss always claimable if loss can be proved

 Reliance loss may not be used to shift loss flowing from a bad bargain made by Claimant – CCC
Films (Lofdof) v Impact Quadraft Films Ltd 1985. Can I claim reliance? Another way of
explaining loss Reliance loss may not be used to shift loss flowing from a bad bargain made by
Claimant 9for the defendant to prove that it was a bad bargain – this is very difficult to establish)
Restitution loss – money paid may be recovered only if there is a total failure of consideration - McCRAIG
CASE – nothing had been given in exchange (total failure of consideration).
COMBINING CLAIMS –
BASIC PRINCIPLE - You cannot double recover – eg. Claim twice for same loss
McRae v Commofwealth Disposals Commissiof
George Mitchell v Fiffey Lock Seeds 1983 – farmer had to spend £200 on the seeds, and then money to
look after the seeds – he cannot claim for the loss of profit, the cost of seeds and the money for the
cultivation etc – THIS IS TRIPLE RECOVERY AND THEREFORE NOT ALLOWED

MEASURE OF DAMAGES
Assessing expectation loss – how much will you get for loss of expectation?
This is the expectation –
Damages are intended to put the innocent party in the position they would have occupied had the contract
been performed – Robifsof v Harmaf -

HOW DO YOU ASSESS THIS EXPECTATION LOSS?

Two possible measures of expectation loss:

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

(a) Difference in Value – What has actually happening in the contract? What is the performance? What is
the promise? - whatever the difference in value is, is your expectation.
(b) Cost of Cure – curing the defect or the breach – what is the cost of remedying the breach of contract –
this gives you the expectation
Generally, there is normally no difference between the two possible measures – they would lead to the
same amount
BUT sometimes they can lead to different results – JACOB & YOUNG v KENT – this concerned a building
contract for a house, and a specific branded piping was to be used – in breach of contract the wrong brand
of pipes was used – in order to remedy this defect, the house would have to be partly demolished and
rebuild with the correct pipes (cost to cure) – the pipes used in the building were as good as the pipes
specified – no difference in value between the house with the different pipes – difference in value won
HOW DO YOU CHOOSE WHICH ONE TO USE? RUXLEY ELECTORNICS v FORSYTH
Ruxley agreed to install a swimming pool at forsyth’s house – the contract said that the swimming pool was
to be sunk to a maximum depth of 7ft 6 inches but in breach of contract the pool was only sunk to depth of
6ft 9 inches – the question was – the judge of first instance found the pool to be usuable the pool without
the extra depth would have been the same cost as the deeper one (no difference in values) – the only way
to pool could be sunk to the maximum depth, would be to rip out the pool and reinstall, that would have cost
more than the original installation (£21,600) – how much should he get? Difference in value (nominal
damages as no difference) or cost to cure (cost to cure = a lot more) – CA said that they have to have cost
to cure – then sent to the HoL, what is the loss?
What has Mr Forsyth lost? – enjoyment? HOWEVER, it was unreasonable to give cost to cure damages as
he would have £21,600 plus a swimming pool that was usable
£2500 for lost of amenity (at the court of first instance)
Difference in value was too minimal to award
But cost of cure was too unreasonable
Lord Jauncey: “Damages are designed to compensate for an established loss and not to provide a
gratuitous benefit to the aggrieved party, from which it follows that the reasonableness of an award of
damages is to be linked to the loss sustained. If it is unreasonable...to award the cost of reinstatement it
must be because the loss sustained does not extend to the need to reinstate.”
LOSS OF AMENITY DAMAGES:
Lord Lloyd saw loss of amenity as falling within exception to rule in Addis v Gramophofe 1909 - contract
was one for provision of a pleasurable amenity
 saw this as an acceptation to ADDIS case – genuinely cannot claim for disappoint or distress -
£2,500 was probably too much but because it wasn’t argued before the court, it was left for the
original first instance agreement.

Lord Mustill said: “the law must cater for those occasions where the value of the promise to the promisee
exceeds the financial enhancement of his position which full performance will secure” This consumer
surplus is “usually incapable of precise valuation in terms of money exactly because it represents a
personal, subjective, and non-monetary gain”. Law should compensate.
the law should compensate for the consumer service – you enter in to a contract to make a profit, but is
that the only reason people enter contracts?
NON-PECUNIARY LOSS:
Claims for inconvenience, disappointment etc
Whilst there is a general rule in addis v gramophone – generally cannot claim for feelings (or injury to
feelings) – eg. Disappointment / distress
Inconvenience – it is possible to claim damages for inconvenience in certain (Hobbs v L&S Railways) – a
family in breach of contract were dropped at the wrong station, had to walk 5 miles home on a wet and
windy night – they could claim for this physical inconvenience

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

Bailey v bullock – negligence solicitor who failed to get into their house deeds sorted in time for moving in -
had to live with parents and their children for 2 years and the could claim for this
JARVIS v SWANS TOURS - solicitor who wanted to go on a skiing holiday, was promised to be in a chalet
with other skiers, as well as entertainment including cakes, parties and yodelers– when he got there, there
was only half the original party, a lack luster yodeler and inferior standard cakes – the next week he was the
only one in the chalet – he sued on the basis that; he wanted his holiday money back as well as he was
disappointed – the CA said he could claim for disappointment as the holiday (the contract) was not fully
fulfilled.
Rule has changed since this but is similar
Damages are available for disappointment or distress where:
(a) A major or important object of the contract is the provision of pleasure or the avoidance of
distress –

Farley v Skiffer – the case concerned a property buyer – employed a surveyor to check the house – the
surveyor was asked to investigate whether the house would be affected by aircraft noise (near gatwick) –
the surveyor concluded that there was no such aircraft noise – unfortunately the surveyor had not
correctly carried out the investigation and therefore failed to find out that the house was directly under the
mayfield stack (and therefore would be severely affected by aircraft noise) – the contract was not just
about this – however, a major / key term of this contract was breached when he failed to find this out and
the claimant was able to claim £10,000 – HoL said that this £10k was too much for a reward but could
not change / interfere with it.
(b) A breach causes physical inconvenience and mental suffering is directly related to that inconvenience
(eg. Defects etc) - Watts v Morrow
LIMITATIONS TO THE RULE:
The principle does not apply, in cases, where losses arise in a business situation: HAYES AND ANOTHER
V JAMES & CHARLES DODD (A Firm) 1990 – CONCERNED A NEGLIGENCE SOLICITOR – trafsferrifg
busifess premises but failed to get a right of way from the public to the property (so members of the public
could fot gaif access to the buildifg) So if the breach of coftract –they caf still claim but they caffot to
add disappoiftmeft / distress to their claim
LIMITATIONS ON RECOVERY OF DAMAGES:
CAUSATION, REMOTENESS AND MIGITATION – ALL WAYS IN WHICH RECOVERY FOR DAMAGES
CAN BE LIMITED.
A claimant to recover damages must establish a causal link between the breach of contract and the loss
suffered. (Must be a causal link – otherwise you cannot make a claim – breach must cause the loss)
Note problem with contributory negligence.
REMOTENESS:
An innocent party is only entitled to recover loss that was in the contemplation of the parties, at the time the
contract was formed, as liable to result from the breach
What is within the reasonable contemplation of the parties? Its all about knowledge – if you want to
make the other person liable you have to let them know what you want them to do etc, you must promote
the transfer of information
HADLEY v BAXENDALE:
Claimafts owed a mill – they eftered if to the coftract with the defefdafts – to take a brokef mill, to be
used if a pateft to make a few ofe – if breach of coftract the brokef shaft was delivered late – a loss
was occurrifg as the mill was fot beifg used afd was therefore stafdifg idle – sue for breach of
coftract for a loss of profits as their mill stood idle – the claim for the loss of profits failed because the
defefdafts did fot kfow that the mill was stafdifg idle – all they kfew was that they were millers afd
they had a brokef crafk shaft afd therefore they didf’t kfow about the idle mill
Alderson B. said: "Where two parties have made a coftract which ofe of them has brokef, the damages
which the other party ought to receive if respect of such breach of coftract should be such as may fairly
afd reasofably be cofsidered either arisifg faturally, i.e., accordifg to the usual course of thifgs, from

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

such breach of coftract itself, or such as may reasofably be supposed to have beef if the coftemplatiof
of both parties, at the time they made the coftract, as the probable result of the breach of it.
Depends upon Knowledge:
 (a) Imputed Knowledge - loss arising in the ordinary course of things (eg. Failure to deliver a
machine, when you know they are trying to expand their company, you can assume that there would
be a loss of profits)

 (b) Actual Knowledge - knowledge of special circumstances would enable a reasonable person to
contemplate extraordinary loss (eg. Telling the other party of this problems)

Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd 1949 and see Transfield Shipping Inc v
Mercator Shipping Inc 2009 – claimafts were laufders who wafted a large boiler to expafd their
busifess – the defefdafts agreed to sell such a boiler to the claimafts for £2,150 – kfowifg it was wafted
for immediate use – fixed delivery date was set if jufe – if breach of coftract, the boiler was fot delivered
uftil 8th November the same year (5 mofths late) – they seeked to claim for £16 per week for few
customers they would have gaifed (due to the demafd of the party),afd £250+ dyifg coftracts with the
mifistry of supply – what could they gaif for? IT ALL DEPENDS UPON KNOWLEDGE.
The courts said that it was obvious that the courts were – the cost of £16 per week was seen as ordinary
course of things – HOWEVER, when they moved on to the £250+ per week was not in the ordinary course
of things and couldn’t therefore be claimed for.
RICH COLUMBIA SAW MILL v NETTLESHIP – concerned the transportation of boxes – the boxes
contained a sawmill – all but one boxes were delivered, the one that was not delivered contained a vital
piece of equipment needed to make the saw mill work – they seeked to claim for the value of the part
missing and lost profits - could they claim for both losses? The courts said – who is the party in breach?
The couriers, and therefore they could not contemplate what was in the boxes or their importance and
therefore they cannot – the court said that the knowledge was too remote to be contemplated.
TRANSFIELD SHIPPING INC v MERCATOR SHIPPING INC – THE ACHILLEAS:
 Ship to be returned by no later than midnight on 2 May 2004 charterers agreed to date.

 Shipowners contracted to let the ship to new charterers to be ready 8 May 2004 -price of hire was
$39,500 a day over period of 191 days. Day rate high due to volatile market.

 Charterers did not return ship until 11 May 2004.

 New charterers agreed to take the ship, but at a reduced price of $31,500 a day as market had
fallen.

Didn’t bring the ship back until the 11th – 9 days late – and therefore the follow-on contract could not be met
and therefore had to accept a loss for changing this – how much could be claimed?
 Shipowners claim - liable to pay the difference between what the owners would have got from the
new charter had the ship been returned in time and what the owners in fact got - $1,364,584

 First charterers argued only liable to pay for the use of the ship for the number of days that they
were late at the market rate then prevailing – 9 days - $158,301.17.

THE ACHILLEAS IN THE HOUSE OF LORDS:

 Lords Hoffman and Hope – broader approach – based upon an assumption of liability –
understanding in shipping industry only liable for over-run period (claim / loss could be claimed on
assumption of liability)

 Lord Rodger and Baroness Hale used orthodox approach in Hadley v Baxendale (eg. Not
reasonable to say this was too remote to rely on)

 Lord Walker appeared to agree with both approaches

This case created a lot of uncertainty on this topic because of its sit on the fence argument (the case had
two ratios) – later cases seek to make sense of the uncertainty

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

The Achilleas explained – Sylvia Shipping v Progress Bulk Carriers 2010:

Hamblen J: Para 40 …the decisiof if The Achilleas results if af amalgam of the orthodox afd the broader
approach. The orthodox approach remaifs the geferal test of remotefess applicable if the great majority
of cases. However, there may be "ufusual" cases, such as The Achilleas itself, if which the coftext,
surroufdifg circumstafces or geferal ufderstafdifg if the relevaft market make it fecessary specifically
to cofsider whether there has beef af assumptiof of respofsibility.
 Hadley v buxlade will apply as a starting point – there will be some unusual cases where the
anchilleas case will apply – it will be based on the facts and circumstances of a case

What definition of an unusual case?

This is most likely to be in those relatively rare cases where the application of the general test leads or may
lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear
evidence that such a liability would be contrary to market understanding and expectations.
(See also Supershield Ltd v Siemefs Buildifg Techfologies 2010)
MITIGATION: this is to stop the
wasting of
 It is usually referred to as a duty to mitigate resources.
 The claimant must take reasonable steps to minimise their loss
 They must also NOT take unreasonable steps to increase loss LEADING CASE
 Cant sue if they fail to mitigate but they will be unable to claim for this loss ON MITIGATION:
PAYZU v SAUNDERS (1919) – this was an agreement to sell silk – specified number of pieces of silk that
were to be delivered as required – to be paid for on 20th day of the following month (after delivery) – the
seller (after delivering the first installment) refused to deliver further goods (silk) unless the buyer paid cash
in advance – they wanted to change method of payment and therefore it was a breach of contract as they
had already agreed to the original payment method – the buyers rejected the new payment offer, the price
of silk had risen since the formation of the contract – the buyers sued for breach of contract – it was held
they could not claim for the difference in value (between contract price and current market price) because
they should have mitigated their loss by excepting the offer (as if they had accepted they would have been
getting the silk at the original rate but they failed to mitigate).
COURT ALSO SAID – that whether it is reasonable or not is depends on the circumstances and facts in the
case
LIQUIDATED DAMAGES AND PENALTY CLAUSES:
Do it for themselves – open to the parties to assess their losses – a clause in the contract will indicate what
will happen if there is a breach of contract

The impact is:

 You know what will happen if the contract is broken (therefore promotes certainty - parties know where
they stand)
 It removes the need to prove losses
 Post transaction costs of hiring solicitors to deal with the losses faced.
 Avoids possibility of under compensation of loss – eg. If the loss is too remote (suffering a loss but you can
not claim)
 Reassurance for the party
It can not be a penalty clause – it will be unenforceable – how do you tell the difference?
CASE LAW ON LIQUIDATED DAMAGES AND PENALTY CLAUSES:
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd 1915 – was the leading case until recently
– drew the distinction of = inter roarem – it was seeking to punish the individual if they did not perform –
AND - in subsequent case law raised doubts for this (it wasn’t operating in the way of the two extremes that
it was first said to)
Cavendish Square Holding v El Makdessi 2015 – very important supreme court case – it actually dealt with
two cases (parking eye v beavis – 2 hours free parking etc if you go beyond this you get fined etc) – this is

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

now the leading case on penalties – argued that the law has been willing to interfere when it is raised as a
penalty clause.
CAVENDISH SQUARE HOLDING v EL MAKDESSI 2015:
 Restatement of law by the Supreme Court re-interpreting leading case - Duflop Pfeumatic Tyre Co
Ltd v New Garage afd Motor Co Ltd 1915 -

 Penalty rule arises when clause in contract operates upon a breach of contract – e.g. breach of
contract, the clause seeks to remedy that particular breach – this engages the liquidated damages v
penalty clause argument, what one is it?

 ‘The penalty rule regulates only the remedies available for breach of a party’s primary obligations,
not the primary obligations themselves.’

 ‘The real question when a contractual provision is challenged as a penalty is whether it is penal, not
whether it is a pre-estimate of loss. These are not natural opposites or mutually exclusive
categories. A damages clause may be neither or both.’

 ‘The true test is 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. ‘ -- Lord Neuberger

LOOKING TO SEE WHAT IS THE LEGITIMATE INTEREST AND IS THE SECONDARY OBLIGATION
PROPORTIONATE TO THE INTEREST
Dunlop Pnuematic Tyre Co v New Garage and Motor Co 1915:
 Aspects of Lord Dunedin’s opinion still applicable in a case of a straightforward damages clause.

 Use of words “penalty” or “liquidated damages” not conclusive – the language cannot be relied on
and not indicative of the intention of the clause (need to look beyond and behind the clause)

 Question whether a sum stipulated is penalty or liquidated damages is a question of construction to

be decided upon the terms and inherent circumstances of each particular contract, judged of as at
the time of the making of the contract, not as at the time of the breach.

IN OTHER WORDS, THIS APPROACH CAN BE USED BUT HAS TO BE USED WITH CAUTION AS TO
ITS APPLICATION.
Dunlop Pnuematic Tyre Co v New Garage and Motor Co 1915:
Rules of construction: ALL ABOUT THE LINK BETWEEN THE INTEREST AND THE OBLIGATIONS –
then goes on to look at:
(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in
comparison with the greatest loss that could conceivably be proved to have followed from the breach.
 If the interest is compensation – then the sum stipulated must reflect the loss

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum
stipulated is a sum greater than the sum which ought to have been paid.
 No link between the sum suggested to be payable and the original sum

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

Dunlop Pnuematic Tyre Co v New Garage and Motor Co 1915:

Rules of construction:
(c) There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way
of compensation, on the occurrence of one or more or all of several events, some of which may occasion
serious and others but trifling damage”
 On the face of it, it is a penalty clause – no link between the sum and the loss and therefore it is
argued to be a penalty clause because of the absence of a link

 Unless the party can demonstrate that it is linked to the loss suffered

(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences
of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is
just the situation when it is probable that pre-estimated damage was the true bargain between the parties.
Reflects the bargain of the parties.
OTHER COMMENTS:
“The penalty clause jurisdiction is exceptional, the courts should be slow to find a clause penal, particularly
where the parties are commercial parties, and capable of looking after their own interests during the
bargaining process” – Lord Woolfe in the Phillips v AG of Hofg Kofg (1993) case
- BASICALLY SAYING WE SHOULDN’T INTEREFERE WITH PARTIES AGREEMENT (LIKE IN
EXEMPTION CLAUSES), THEY KNOW WHAT THEY ARE DOING (IF THEY ARE WELL
ADVISED) AND HAVE EQUAL BARGAINING POWER.

WHAT ABOUT CONSUMERS?

- If relatiof to pefalty clauses – they caf attack af uffair term as a pefalty ufder the pefalty clause
jurisdictiof – as well as usifg the Cofsumer Rights Act

EQUTABLE REMEDIES:
Specific performance and injunctions (2 types of injunctions = mandatory and
SPECIFIC PERFORMANCE – this is not available as a right – but the court may order that the contract
must be performed – to prevent a party breaking a obligation in the contract – (LUMLEY v WAGER)
promised to sing at the theatre, and was contracted not to perform anywhere else for 3 months.
GENERALLY used a lot more for sales of land (as land is seen as an unique type of contract – as damages
(in terms of money) would not be adequate for such a breach due to the nature of the c)
This is discretionary – court may be willing – discretion depends on a number of factors (the courts make
their decisions based on these factors)
SPECIFIC PERFORMANCE:
 Damages not adequate - an order will do more perfect justice
 Conduct of Claimant – “clean hands” – claimant must have acted correctly
 Hardship to Defendant
 Contracts for Personal Service – courts are not likely to grant for specific performance in this sort of
services (de river fornoli v consetti)
 Certainty
 Contracts requiring constant supervision – will not look to enforce such a contract

CO-OPERATIVE INSURANCE SOCIETY LTD v ARGYLL STORES (HOLDINGS) LTD 1998.

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd 1998 – teftafts of the property for
35 years, 19 years left to ruf of the lease, the property was part of a supermarket if Hillsborough – the
lease required the teftafts to keep the shop opef durifg the ordifary of busifess, however the premises
were makifg a loss so the defefdafts decided to sell this operatiof alofg with 26 other supermarkets – the
defefdafts wrote to the – but the defefdafts stop tradifg, closed the shop afd dismaftled the store, it
would cost £1 milliof to reifstate the store – so the claimaft claimed for specific performafce – the
argumeft was whether or fot specific performafce was givef
– CA grafted specific performafce, the looked at the custom of the ifdividuals (eg. There cofduct)

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

Appeal to HoL refused to graft specific performafce ON THE BASIS THAT YOU CAN NOT FORCE
SOMEONE TO RUN A BUSINESS, WHERE THE DEFENDANTS MIGHT SUFFER MASSIVE LOSSES,
CONSTANT SUPERVISION (MONEY WOULD BE WASTED AS A RESULT OF DOING THIS), IT WOULD
NOT BE EASY TO FRAME AN ORDER OF SPECIFIC PERFORMANCE FOR THIS, IT WOULD BE
OPPRESSIVE TO FORCE THEM TO RUN A BUSINESS UNDER A THREAT OF BEING CONTEMPT OF
COURT
– HoL looked at the defefdaft’s cofduct, they kfew what they were doifg
- Damages if this case, would fot justify the breach? Depefdaft of the factors (weighed)

Setting the contract aside

The problem that you have is that during formation of contract certain things may occur –
English law of contract – there is no general duty of disclosure – there is no general duty of good faith
(seen only under the human rights act – but its limited).
HOWEVER, the courts have different grounds for setting the contract aside – misrepresentation, duress,
undue influence and unconscionable bargains – FACTUAL SCENARIOS FOR DIFFERENT SITUATIONS.
MISREPRESENTATION:
The effect of proving misrepresentation is to make the contract voidable.
This means there is a contract, they have entered a contract but there is a defect in the formation and so
the innocent party can get out of the contract. This is possible to do by the defect in formation (eg. Being
lied to etc), after finding out, you are able to set it aside – by the process of rescission.
Misrepresentation:
 Statement of Fact – cannot be a statement of intention or statement of opinion.
 It has to be a false statement
 It may need to be material in form
Must induce another to enter into contract
Example: Spice Girls Ltd v Aprilia World Service – a scooter manufacturer, who wanted to print photos of all
5 spice girls – the nego – images of the 5 girls and their personalities were sent to a print – gerri halliwell
announced she was going to leave – but they continued to negotiate, an email was sent saying they are all
interested in this – then attended a photoshoot – shortly after entering the contract, gerri left the group – by
their words and their conduct – “the spice girls had represented but they did not know, and had no
reasonable groudn to believe at or before entering in to the agremeent that any existing member had made
clear their intention to leave before march 1999(the end of the contract)” - this was false as – CA said this
was misrepresentation and damages were awarded to a premium.
TYPES OF MISREPRESENTATION:
This depends upon how the statement is said:
 Fraudulent – you know what you are saying isnt true – Derry v Peek (geferally more severe
remedies)
 Negligent – no reasonable grounds for making the statement – Howard Marife Dredgifg Co v
Ogdef
 Innocent – have got reasonable grounds to think it but still wrong - see facts of Oscar Chess v
Williams

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

REMEDIES FOR MISREPRESENTATION:

Rescission of the Contract –
 Representee may rescind by informing the representor or by asking the court for such an order.
 Recission of contract: the court is trying to put you back to were you would be if the contract had not
been made – eg. Undoing the contract and unpicking it as if the contract is non-existent

Damages - principles
 Measure of Damages - tortious - reliance - purpose to put representee in position would have been in
had the misrepresentation not been made

 Damages: what would undo the damages caused remoteness

DURESS:
Types of Duress -
 Physical duress – it is possible to challenge a contract on this basis (not that many cases of this)
 Duress to goods
 Economic duress (most important and common) – use of economic leverage – number of
elements)

REMINDER: the effect of proving duress is to make the contract voidable.

ECONOMIC DURESS – ELEMENTS:
 Threat – which is illegitimate

 Effect of a Threat – compulsion on, or lack of practical choice for, victim

 A sufficient causal link between the pressure applied and the victim entering contract

Example – Atlas Express v Kafco -- Dealifg with Kafco who imported baskets, they had a coftract
woolworths – they were their maif outlet – if order to get the baskets to woolworths, they
employed atlas express to deliver their baskets to the stores – they miscalculated how mafy
baskets they could carry if ofe – if the ruf up to christmas, afd atlas turfed up to a depot afd
said “either you pay us more mofey, or you will fot get them delivered afd we will take away this
lorry empty” – if they dof’t except = breachifg coftract with woolworths if they fail to deliver the
goods, they could get a few carrier but because of the time of year (would be very hard afd
expefsive)
COURTS SAID THAT THIS WAS VOIDBLE UNDER ECONOMIC DURESS
EQUITY – UNDUE INFLUENCE – DESCRIPTION:
two types = one is based on pressure, the other on a relationship of influence - Influence over a party but
you use it in a way that makes it undue.
(1) “Overt acts of improper pressure or coercion such as unlawful threats”
(2) “Arises out of a relationship between two persons where one has acquired over another a measure of
influence, or ascendancy, of which the ascendant person then takes an unfair advantage” Lord Nicholls
Royal Bafk of Scotlafd case
UNDUE INFLUENCE – CLASSIFIED:
BASED ON TRANSACTIONS THAT NEEDS TO BE EXPLAINED – EG. Giving some chocolates to some,
not undue – but buying them a £50k present, yes.
Two different types:
 Actual Undue Influence

 Presumed Undue Influence – relationships that the law categories as relationships of influences

 REMINDER - Effect - contract is voidable

Downloaded by Precious Sona (sabashahwani83@gmail.com)

 lOMoARcPSD|2978205

 Example – Allcard v Skiffer (mother superior afd a fuf – she had givef all her mofey to the
owfer – ufdue iffluefce, a trafsactiof if feed of explafatiof) and Credit Lyoffais Bafk
Nederlafd NV v Burch (wasf’t recogfised as iffluefce relatiofships – babysat for friefds –
cofvifced him to ufwrite his debts).

UNCONSCIONABLE BARGAINS:
 Party must be at a serious disadvantage One of the parties must be at a serious disadvantage.
 Weakness must be exploited by the other in a morally culpable way
 Transaction must be oppressive For a transaction to be oppressive it must shock the court – must be
such a bad transaction

 Effect – contract is voidable

Example - Watkif v Watsof-Smith -

WATKIN – dealing with an elderly man who was in diminishing mental capacity. He needed to sell his house
quickly and sold for £2960. this particular house was worth £26900 – a 0 had been missed off the end of
the figure. In this instance it was clear that he was at a clear disadvantage that was exploited by another
party – this shocked the court.

Downloaded by Precious Sona (sabashahwani83@gmail.com)