Revision:Contract Law 2

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Privity of Contract

Privity of Contract

• Price –v- Easton [1833]
  • E agreed to pay £19 to P if third party did specific work. P’s claim for money failed. Any person who is not a party cannot sue or be sued under it.
• Dunlop –v- Selfridge [1915]
  • Dew agreed to buy tyres from Dunlop, would not sell at below a fixed price. Same agreement with client, S. Dunlop sought injunction but failed due to lack of privity.
• Consequences:
  • Gifts, embarrassment, purchaser only able to cover own costs.
  • Prevent enforcement of services already paid for.
  • Benefactor’s express wishes denied – Tweddle –v- Atkinson

Exceptions

• Statutory law
  • Road Traffic Act 1888 – third party insurance
  • Married Women’s Property Act 1882 – insurance can be enforced
  • Beswick –v- Beswick [1968]
    • Widow relied on Law of Property “other property” Act to enforce agreement between former husband and nephew. Failed – personal property.
• Trust law
  • Trust of money created in favour
  • Gregory & Parker –v- Williams [1817]
    • P owed money to W and G. Assigned all property to W who would pay off G. W failed to pay, but G could enforce.
  • Not accepted if claimant does not show express intention to claim benefit
  • Walford’s Case [1919]
    • Walford third party to charter party and shipowners, on 3% commission. Could claim due to being expressly named.
  • Must conform to general character of a trust
  • Green –v- Russell [1959]
    • Insurance policy covering employees. But no trust since policy could be revoked at any time.
• Restrictive Covenants
  • Tulk –v- Moxhay [1848]
    • T successfully sought injunction to prevent M from building on land in London as it would be “against conscience”
  • Only applies to land: Taddy –v- Sterious [1904]
    • Could not apply to the selling of tobacco at fixed prices
• Dunlop –v- Lambert rule
  • Darlington –v- Wiltshier [1995]
    • Third party was seen as a fiduciary as all rights had been handed over to the council – collateral contract enforceable.
  • McAlpine –v- Panatown [1998]
    • Rule relevant, P could recover damages even though U suffered loss. Accepted transfer of rights to U, yet P had right to sue as all accounts were bound to be settled by P.
• Leases
  • Enforceable with new landlords/tenants under Law of Property Act 1925
• Rules of procedure
  • Snelling –v- John Snelling [1973]
    • SSS all directors, agreement to forfeit own loan in to company upon resignation. JS left, sued S for loan amount, yet agreement upheld. Brothers and company were effectively the same.
• Holiday Cases
  • Jackson –v- Horizon Holidays [1975]
    • “family holiday” fell short. HH accepted liability, but refused to pay damages for all family. J sued successfully – loss of enjoyment of entire family was loss to him.
• Prosecuting Third Parties in exclusion clauses
  • Scruttons –v- Midland Silicones [1962]
    • Shipping company carrying chemicals under exclusion clause limiting damage claim to $500. Stevedores, sub-contracted, did $1800 damage and could not rely on exclusion.
  • The Eurymedon [1974]
    • Similar case, except stevedores allowed to rely on exclusion as they were named as agents
• Collateral Contracts
  • Shanklin Pier –v- Detel Products [1951]
    • S instructed painters to use paint advised by D. Paint peeled, hence D liable.
  • Agents, assignment and negotiable instruments

Vitiating Factors: Void and Voidable Contracts

• Void: Stating that the contract does not exist

• Voidable: Vitiating factor identified and acknowledged yet party can continue if to benefit, or avoid and set aside

Vitiating Factor: Misrepresentation

Rules

• Must be of material fact to be relied upon
  • Bisset –v- Wilkinson [1927]
    • Estimate as to sheep capacity of field was not expert and could not be relied upon. No misrepresentation.
  • Edgington –v- Fitzmaurice [1885]
    • Directors borrowed money for improvements, misrepresenting actual use to pay off debts
  • Carlill –v- Carbolic Smoke Ball [1893]
    • £100 “puff” argument failed. Simplex commendation non obligate failed because they had lodged £1000 in bank.
• Must have been made from one party to another
  • Peyman –v- Lanjani [1985]
    • L’s agent orchestrated £10,000 deal. P sued on discovering illegitimacy and successfully rescinded.
• Must have been made before or at the time of contracting
  • Roscorla –v- Thomas [1842]
    • T represented after sale of horse “sound and free fromv ice” – untrue, but made after deal.
• Statement must be an inducement
  • JEB Fastners –v- Marks Bloom [1983]
    • JEB engaged in takeover, relying on accounts negligently prepared. Accounts were no inducement and not material.
  • Smith –v- Chadwick [1884]
    • No misrepresentation after claimant admitted not being influenced by the false company director “Grieve” when buying shares.
• Onus is on the representee to prove inducement
  • Museprime Properties –v- Adhill Properties [1990]
    • A listed as rents under review, yet 2 completed, M relied on A’s misrepresentation, and M could rescind as they were induced even where a reasonable person may not have been
• Statement must not have been intended to form part of the contract
  • Couchman –v- Hill [1947]
    • Heifer “unserved” not a misrepresentation, rather a warranty.
• Actual and complete knowledge will defeat the representees claim
  • Redgrave –v- Hurd [1881]
    • H relied on Rs statement as to practice value, despite having opportunity to examine papers. Onus on R to show H had complete knowledge.

Fraudulent Misrepresentation

• Derry –v- Peek [1889]
  • Action in tort of deceit against directors failed. Honest belief that statement in prospectus regarding mechanism power for trams in Plymouth was true as it would be granted in course.
    • Knowingly, without belief in truth, recklessly or carelessly whether it be true or false
• Remedies
  • Damages according to the tort of deceit measure – put claimant in position they would have been in had deceit not have occurred.
  • Claimant may seek rescission of the contract in equity

Negligent Misrepresentation

• Common law: Hedley Byrne [1964]
  • Claimants to provide £100,000 advertising for Easipower on credit. Sought reference from Heller (D) who made a good reference. Easipower liquidation, unpaid Hedley seek action in tort, but failed as bank had disclaimed liability. OBITER: possible success where duty of care created.
    • Esso –v- Marden [1976]
      • Esso quoted throughput, M queried but contracted based on Esso’s experience. LA required pump movement, limiting throughput, M counter-claimed Es back rent claim, saying throughput was a warranty, duty of care relationship existed.
• Statute law: Misrepresentation Act 1967
  • Burden of proof partial reversed – defendant to show belief in truth
  • Negligent misrepresentation, choice to sue under Act or Hedley Byrne principle
    • No need to show special relationship if Act is chosen
    • Howard marine Dredging –v- Ogden & Sons [1978]
      • HMD negligently quoted depositing capacity, work took longer, OS successfully counter-claimed under section 2.1
  • Remedies for negligent misrepresentation
    • Damages
      • Hedley-Byrne principle: calculated according to standard tort measure; only awarded for a loss that is a foreseeable consequence of the negligent misrepresentation – reduced with contributory negligence
      • Statue: calculated to a tort measure; possibility of test of deceit to be applied which is more beneficial as in Royscot Trust –v- Rogerson [1991]
      • Rescission in equity

Innocent Misrepresentation

• Only rescission in equity
  • Yet, court able to award damages as an ALTERNATIVE where it is convinced that this is appropriate under section 2.2 of The Misrepresentation Act 1967
    • Zanzibar –v- British Aerospace [2000]
      • Z bought jet, claiming inducement through misrepresentation. Recission and damages as an alternative denied as delay in bringing action lost the right to rescind and so no damages in lieu could be provided.
  • S 2.2
    • No right of damages – these are at the discretion of the court
    • Damages are an alternative to rescission, hence only one can be awarded
    • Measure of damages is uncertain, but consequential loss is unlikely given that damages are in lieu of rescission
  • Prior to the Act, only rescission was available
  • Redgrave –v- Hurd [1881]
    • Two solicitors, sale of practice, misstated the income. Other backed out and the misrepresentor tried to claim specific performance, other solicitor counter-claimed for rescission

Equity and Misrepresentation

• Actionable misrepresentation is voidable and not void
• Right to rescind can be lost:
  • Restitution in integrum: possible to achieve status quo ante (return to previous position)
  • Lagunas Nitrate –v- Laguna Syndicate [1899]
    • Nitrate field purchased under innocent misrepresentation as to market strength. Purchaser profited for a while and then claimed rescission with market depression. Failed as field could not be restored.
  • Affirmation by rescinding party will defeat claim
  • Long –v- Lloyd [1958]
    • Misrepresentation of lorry as “exceptional condition”. Several faults were repaired by seller, but after break-down, purchaser failed to rescind as he had accepted the goods in less than satisfactory condition
  • Delay “defeats equity”
  • Leaf –v- International Galleries [1950]
    • Painting of Salisbury Cathedral misrepresented as one by Constable. Claim for rescission failed due to 5 year time lapse to brining an action
  • Defeated when third party has gained rights to goods in good faith
  • White –v- Garden [1851]
    • Rouge bought 50 tons of iron using false bill of exchange and resold it. Claimant seized from third-party wrongly.
  • Discretion of court but rescission and damages cannot both be awarded. However, rescission and an indemnity for other expenses can
  • Whittington –v- Seale-Hayne [1900]
    • W took a lease on a premises under oral misrepresentation that it was in sanitary condition. Untrue. Could not prove fraud so no damages, but indemnity representing expenditure of rent and rates was granted alongside rescission

Non-Disclosure and Misrepresentation

• No obligation at common law to volunteer information not asked for
  • Fletcher –v- Krell [1873]
    • Woman who applied for governess position did not reveal former marriage despite single women being preferred. No misrepresentation.
• Silence itself cannot be classed as misrepresentation
  • Hands –v- Simpson [1928]
    • Commercial traveller did not inform employers he had been disqualified from driving, which was vital to job. No misrepresentation.
• Exception: Uberrimae fides or “good faith” contracts
  • Locker and Woolf –v- Western Australian Insurance [1936]
    • Insured party did not reveal previous refusals to insurer, yet this was clearly material to the contract
• Exception: Fiduciary contracts
  • Tate –v- Williamson [1866]
    • Adviser persuaded man in debt to sell land to settle debts. Adviser purchased land at half value due to constructive fraud – contract set aside.
• Exception: part truth amounts to a falsehood
  • Dimmock –v- Hallett [1866]

Person selling land, revealed it was let by tenants but did not reveal that tenants were terminating lease – misrepresentation

• Exception: Where an original statement becomes false during negotiations
  • With –v- O’Flanagan [1936]
  • Doctor selling practice stated true income initially, but this was negligible by time of sale, failure to reveal this was a misrepresentation

Vitiating Factor: Mistake

Common Mistake

• Res extincta
  • Courtier –v- Hastie [1852]
  • Customary practice to sell grain when overheated. Captain did so, but owner had contracted with buyer. Contract void.
    • Operative mistake voids contract
  • McRae –v- Commonwealth Disposals Commission [1950]
  • M bought salvage rights to a wreck, on approximate co-ordinates. CCD claimed common mistake, but this was not upheld – clear representation that goods did exist.
    • More speculative – representation of existence
  • Barrow Lane and Ballard –v- Phillip Phillips [1929]
  • Seller stored 700 bags of nuts in warehouse, but 109 stolen, sued buyer for price but failed
    • goods had commercially perished and contract was void
  • Associated Japanese Bank –v- Credit du Nord [1988]
  • Sale and leaseback, CN guaranteed Bennett, but B insolvent and machines did not exist. Subject matter was radically different, fundamental to contract, therefore accessory contract of guarantee void.
• Res sua
  • Cooper –v- Phibbs [1867]
  • C took out three-year lease on fishery. Both believed P owned it, but C discovered life tenancy and was successful in having it set aside. HL granted P a lien in respect of considerable expense spent on improvements.
• Mistake as to quality of the contract
  • Three consequences: no common law effect; not operative; still bound by original obligations
  • Bell –v- Lever Brothers [1932]
  • LB employed B as chairman of subsidiary company with a brief to “rejuvenate”. B was successful and settled for £30,000 termination of services. LB discovered B had breached clause having entered in to private dealings. LB sued for return of settlement. Settlement invalid for common mistake – LB could merely have fired B. Mistake was not operative, settlement given in recognition of work done
  • Equity is still possible
    • Solle –v- Butcher [1950]
    • Lease of flat, both parties mistakenly believed rent not subject to Rent Restrictions Act. Set at £250 per annum, should have been £140. Tenant sued for the difference. No mistake at common law, BUT set aside in equity.
  • Possible common mistake means contract neither void nor able to be set aside in equity
    • Great Peace Shipping –v- Tsavilris Salvage [2001]
    • Salvor defendants chartered ship, relying on information given by OR as to proximity. Ship hundreds of miles away, TS tried to cancel, but GP claimed for five days hire. Not void at common law as no dispute over existence, but not set aside in equity as it was impossible to determine nature of the mistake.
  • Sometimes quality is easily mistaken – court response is varied
    • Leaf –v- International Galleries [1950]
    • Subject matter was agreed, mistake only as to quality – no rescission
    • Peco Arts –v- Hazlitt Gallery [1983]
    • PA bought drawing, both parties believed was an original. Express term that it was original inscribed by artist. Actually reproduction, and 11 years later, PA claimed for return of price and interest, successful as unable to truth could not have been discovered any earlier.

Mutual Mistake

• Parties at cross-purposes, courts will try to identify some mutual intent
• Raffles –v- Wichelhaus [1864]
  • Contract for sale of cotton on board Peerless sailing from Bombay. Two ships were sailing under the same name from Bombay – no common intention.
• Ambiguity as to the subject matter
• Scriven Bros –v- Hindley and Co [1913]
  • “tow” hemp is inferior in quality. Bidder won hemp believing it was superior product and rejected goods when it was “tow” – mutual mistake as no reconciliation possible
• Not mutual where only one party is mistaken
• Smith –v- Hughes [1871]
  • Smith offered oats which he bought, but refused delivery when they were discovered to be “new” rather than previous years. Believed he had been offered old oats. Not operable, merely because one party discovered it was less advantageous than he believed.

Unilateral Mistake

• Hartog –v- Colin Shields [1939]
  • Contract for hare skins. 10d and 1 farthing per 1b. Regular practice to sell per piece, reducing cost by one third. Buyers treid to enforce but failed, sellers said offer wrongly stated as would be common knowledge in trade – void for mistake.
• Test whether unilateral mistake is operable:
  • One party genuinely mistaken? Other party ought reasonable have known of the mistake? Party making the mistake was not at fault?
  • Sybron –v- Rochem [1984]
    • Manger awarded discretionary pension, yet later discovered he had been involve din fraud. Pension agreement set aside. Company had been mistakenly induced by manager’s breach of duty.
  • Other party is unaware of mistake – not operative
    • Wood –v- Scarth [1858]
    • Landlord believed clerk had made clear to tenant that £500 premium expected. Tenant unaware and contracted in good faith. Not void.
• Mistaken identity
  • Intended to contract with a different person
    • Kings Norton Metal Case [1897]
    • Contract for purchase of brass rivet wire. KN mistook creditworthiness and not identity, hence not void.
  • Mistake must be material to formation of the contract
    • Cundy –v- Lindsay [1878]
    • Blenkarn designed signature for handkerchiefs to be similar to Blenkiron (name of a reputable company). Blenkiron billed but Blenkarn had sold L’s handkerchiefs on, so L tried to recover. Contract void for mistake.
• Face-to-face mistaken identity
  • Ingram –v- Little [1960]
    • Sisters jointly owned a car, sold to rogue acting as important local figure, they looked him up and relied upon this. Court strangely accepted identity as material.
  • Lewis –v- Avery [1972]
    • Rogue represented himself as Richard Greene, producing false studio pass. L sued A for recovery, mistake not operative.
  • Adequate steps: Brown Shipley [1991]
    • Rogue assumed the identity of a company officer, persuading bank to issue a draft to pay for foreign currency he was buying from another bank. Fraud discovered and bank failed to recover as they had not done enough.

Mistake and Equity

• Rescission
  • Party claiming needs to show that it would be against conscience to allow the other party to take advantage of the mistake
  • Solle –v- Butcher [1950]
  • Rent Restriction Act had no affect on contract, but court allowed the tenant the chance to set aside contract in equity by terminating the lease.
• Refusal to grant specific performance
  • Where: unfair to expect performance; mistake was the other party’s misrepresentation; other party tried to take advantage
  • Webster –v- Cecil [1861]
    • W offered to buy land, C stated it cost more and rejected £2000 offer. W tried to enforce written agreement for sale for £1250. Failed as oral conversation contradicted the written agreement.
  • Tamplin –v- James [1880]
    • J bought inn at auction without checking plans. Believed he had bought land too, so he could not counter specific performance.
      • Courts will not protect a bad bargain.
• Rectification of a document
  • Craddock –v- Hunt [1923]
  • C sold house to H not intending yard to be included, however it was by conveyance mistake, therefore, rectification succeeded.

Non Est Factum

• Saunders –v- Anglian Building Society [1970]
  • Elderly widow wanted to transfer property to nephew to allow him to start business, with stipulation that she could remain there. Dishonest friend drew up contract, as a conveyance to him. Widow initially successful on repossession claim, yet HL overturned CoA decision and held that there was insufficient difference between the document she intended to sign and that which she actually signed.

Vitiating Factor: Duress and Undue Influence

Duress

• Common law: threat to vitiate the consent of the other party
• Cumming –v- Ince [1847]
  • Private mental asylum inmate coerced in to signing away title to all of her property with the threat that her committal order would never be lifted
• Threat can be violence or even death
• Barton –v- Armstrong [1975]
  • Former chairman threatened current managing director with death if he did not pay over a large sum of money for the former chairman’s shares.
• Threat to start a legal action is no duress
• Williams –v- Bailey [1866]
  • Young man forged his fathers signature on IOU notes, which the bank sought to recover by threatening legal action against the son if the father did not mortgage his farm. Not duress, but undue influence
• Threat to property is not duress
• Skeate –v- Beale [1840]
  • Promise given in return for recovery of goods that had been unlawfully detained was not duress.

Economic Duress

• Contract can be set aside where extreme coercion has rendered the agreement otherwise commercially unviable.
• DC Builders –v- Rees [1965]
  • R forced small firm to take £300 in full satisfaction rather than £462. They had no choice but to accept in the circumstances. This was economic duress.
• The Sibeon and Sibotre [1976]
  • World recession in shipping industry. Charters demanded regeneration of contract, ship owners had no choice but to agree.
    • Formal doctrine developed: did the party protest? Did the party try to argue openly about it?
• Atlas Express –v- Kafco [1989]
  • A was a carrier to deliver K’s goods to Woolworth. Estimate of 400-600 cartons at £1.10 each. Actually, 200 cartons only and A refused to carry more without £440 per load. K had to agree to protect contract with Woolworth.
  • Economic duress because: K had no alternative course and was independently advised.
• It is not always certain what the difference between legitimate and illegitimate pressure is
• The Universal Sentinel [1983]
  • Workers federation blacked a ship and coerced it to pay in to the fund to s4ecure release. This was economic duress with illegitimate pressure – although the court was undecided as to what was legitimate and what was not.
• The doctrine of economic duress is still uncertain
• The Atlantic Baron [1978]
  • Shipyard built tanker for shipping company and were paid in five instalments. Shipyard opened a letter of credit to refund payments made if they should fail. Shipyard demanded increase and company reluctantly agreed as they needed that ship for other contracts. Months later, they sued for the excess and failed. Economic duress had occurred but the open credit letter was sufficient consideration for the fresh agreement and the months delay affirmed the contract.

Undue Influence

• Distinctions – actual and presumed undue influence
• Bank of Credit and Commerce –v- Aboody [1990]
  • Wife avoided liability over surety transaction which her husband induced her to enter
  • Class 1 – actual: no special relationship so party alleging undue influence has to prove it
  • Class 2 – presumed: special relationship so undue influence automatically presumed unless evidence to the contrary
• Barclays Bank –v- O’Brien [1993]
  • Bank granted £135,000 to failing business on surety of jointly owned home. Bank failed to follow instructions to allow both to receive independent legal advice. Mrs O’Brien not liable.
• Actual Undue Influence
  • Williams –v- Bayley [1866]
    • Threats to son amounted to undue influence – Denning felt it should apply where there is inequality of bargaining strength.
  • Lloyds Bank –v- Bundy [1979]
    • L was the bank to farmer and his son and his son’s company. Bank manager and son persuaded farmer to make his farm security for son’s loan to company. Bank sought repossession but failed – conflict of interest.
• Presumed undue influence
  • Party alleging undue influence need only prove special relationship – a defence to undue influence is that the party had full legal and independent advice.
  • Lancashire Loans –v- Black [1933]
    • Woman induced daughter to stand guarantor. Daughter claimed undue influence successfully – she had no independent advice.
  • “Spiritual leadership” relationships also qualify
    • Allcard –v- Skinner [1887]
    • Woman encouraged to give up all property to order of religious sect. On claiming back railway stock after leaving, court accepted presumed undue influence but 5 year wait prevented her claim – delay defeats equity.
  • Class 2A: type of relationship such as doctor/patient
  • Class 2B: One party proves that they have placed trust in the other party (husband and wife)
  • “duty of notice” – creditor unable to enforce the defaulted loan where it has notice of equitable interest in the property.
    • Reasonable actions to take: personally interview in absence of the other; explain full extent; encourage independent advice
    • Massey –v- Midland Bank [1995]
    • Solicitor confirmed that M had received independent advice, and this was sufficient – the bank needed to do no more.
  • Is a solicitor appointed by the bank an agent of the bank?
  • Leading case: Royal Bank of Scotland –v- Etridge [2001]
  • Wife claimed undue influence – solicitor had not explained charge to her alone, thus bank fixed with notice of undue influence.
  • Held: not two types of undue influence, presumed merely evidential lift.
  • Guidelines: bank put on enquiry whenever wife stands surety; reasonable steps to satisfy; solicitor can act for more than one party unless real conflict of interest; advice should explain nature, seriousness, choice in absence of husband; bank has duty to obtain confirmation from solicitor – check name of solicitor, communicate directly with wife, send solicitor necessary information, should advise solicitors of suspicions, request written confirmation from solicitor; O’Brien principle covered those in sexual relationships as well

Effects of pleading undue influence

• Voidable by the party alleging undue influence under restitution in integrum
• Exception: where value of property has changed
• Cheese –v- Thomas [1994]
  • Elderly uncle contributed £43,000 to property; nephew contributed £40,000 in mortgage. In nephews name but to be solely occupied by uncle until death. Nephew defaulted, uncle sought return of £43,000 and court accepted undue influence and ordered house sold. Could only fetch £55,000 so uncle only entitled to 43/83 share.

Vitiating Factor: Illegality

• Contracts void by statute
  • Contracts of wager under The Gaming Act 1968
  • Contracts under The Restrictive Trade Practices Act 1976, subject to the scrutiny of the Director General of Fair Trading
• Contracts illegal by statute on formation
  • Re Mahmoud [1921]
    • Seeds Oils and Fats Order 1919 prevented trading of linseed oil without license. Defendant claimed to have licence, but did not, refused delivery and backed out. Claimant sued unsuccessfully – contract illegal.
    • Sometimes not illegal where provision of act is for different purpose
• Contracts illegal due to performance
  • Anderson –v- Daniel [1924]
    • Illegal to sell fertilisers without list of chemicals on invoice. Claimant sued unsuccessfully for price, because contract illegal due to no listing on invoice.
  • However, illegality must relate to the contract’s central purpose
  • St John’s Shipping –v- Joseph Rank [1956]
    • Contract for carriage of goods at sea was not illegal merely because ship loaded beyond legal loading line.

Contracts void at common law

• Contracts seeking to oust the jurisdiction of the courts
  • Scott –v- Avery clauses
• Contracts prejudicial to the family
  • Contracts threatening marriage void as well as those relinquishing parental responsibility
• Contracts in restraint of trade
  • Freedom of contract –v- courts wishing to protect right to livelihood and public being deprived of skill or expertise
  • Reasonableness: restraint is no wider than is needed to protect interests of the party inserting the clause; restraint must be reasonable in the public interest
  • Employee restraints
    • Succeeds only where clause protects a legitimate business interest and NOT where it merely prevents competition.
    • Is the work specialised?
      • Forster –v- Suggett [1918]
      • Clause prevented glass-blower from working for any competition. This was allowed as it was a trade secret.
    • What was the position held by the employee?
      • Herbert Morris –v- Saxelby
      • Clause prevented ex-employee from work with the sale and manufacture of pulley blocks and runways for seven years. Although S held a key position, this was too wide to be enforceable.
  • Soliciting clients generally upheld unless to wide
    • • Hanover Insurance and Christchurch Insurance –v- Schapiro [1994]
      • Brokerages sold on from HIB to C. Three directors left and established own business. Accused of soliciting clients, argued that clause too wide, court accepted but upheld that HIB clause was to be upheld as only HIB was involved in insurance clientele.
    • Geographical area covered must not be too wide
      • Fitch –v- Dewes [1921]
      • Conveyancing clerk not allowed to work within 7 mile radius of town centre for life in the same capacity. Reasonable due to rural nature of town and clerks contact with client base.
    • Duration of the restraint
      • Home Counties Dairies –v- Skilton [1970]
      • Milkman not allowed to enter any dairy employment, nor allowed to be a milkman for one year. First clause too wide, second reasonable.
    • Restraint must not be to wide
      • Mont –v- Mills [1994]
      • Managing director unable to work in paper industry for 12 months. Too wide – paper industry was all he knew.
    • Cannot achieve restraint through other means
      • Bull –v- Pitney Bowes [1966]
      • Employees forfeited pension rights if they took up work with a competitor. Void for public policy.
  • Vendor restraints
    • Sellers of business agree not to unfairly compete with purchaser of the business – prima facie void
    • British Reinforced Concrete –v- Schleff [1921]
    • Steel business sold, restriction preventing vendors from engaging in any similar business. One joined a similar business as a manager – too wide to protect legitimate interests.
    • More likely to be held reasonable than an employee restraint
    • Nordenfelt [1984]
    • N had established worldwide ammunition market. Sold business and was prevented from establishing similar business worldwide for 25 years. Upheld – world was the right market.
  • Mutual Undertakings
    • English Hop Growers –v- Dering [1928]
    • Bound to sell all product through association – protected the interests of all growers, and eliminated competition – mutual benefit.
    • Artists and agents
    • Schroeder Music –v- Macaulay [1974]
    • Unknown composer (inequality of bargaining strength), publishers received world copyright, no payment, royalties only on commercially exploited, no guarantees; extend or terminate at will. Plainly unreasonable.
    • Where compromises have been made, restrictions on mutual undertakings will be effective
    • Panayiotou –v- Sony Music [1994]
    • George Michael attempted to improve control over contract. In 1988, contract changed to reflect “superstar status”, this was a genuine compromise and the court refused his claim that the contract was contrary to public policy.
    • Solus agreements
    • Esso Petroleum –v- Harper’s Garage
    • Two loans from Esso on the agreement that only Esso petrol to be sold. Corner Garage of 21 years, Mustow Green over 4.5 years. First was void for excessive duration, but second fair and reasonable.

Contracts illegal at common law

• Contract to commit a wrong
• Dann –v- Curzon [1911]
  • Claimant unsuccessful in suing for £20 fee to start a riot in a theatre
• Contract to benefit from the crime of another
• Beresford –v- Royal Insurance Co [1937]
  • Relatives could not receive the life insurance from a suicide.
• Napier –v- The National Business Agency [1951]
  • Claimant received expenses of £6 a week which should have been £1. Deliberate agreement to avoid income tax, thus, N could not claim for back pay.
• Contracts aimed at corruption
• Parkinson –v- The College of Ambulance [1925]
  • Wealthy claimant asked to donate money to charity in return for a knighthood. No knighthood offered, and P could not claim back money.
• Contracts to interfere with justice
• Harmony Shipping –v- Davis [1979]
  • Witness agreed not to give evidence in return for cash, void and unenforceable.
• Contracts to promote sexual immorality
• Pearce –v- Brooks [1866]
  • Prostitute conducted trade from hired carriages. Owner sued for pay but failed.

Consequences of the contract being void

• Common law
  • The entire contract is not necessarily void
  • Money can sometimes be recovered
  • It is possible to sever the clause to avoid the whole contract being void
    • Goldsoll –v- Goldman [1915]
    • Vendor of imitation jewellery sold business and was restrained from engaging in the sale of real of imitation jewellery through the EU and America. Court severed “real” and clause stood
  • Will not sever where this will alter the whole character, nor where severance would defeat public policy
• Statute
  • Depends on the wording of the Act itself. Common law effects apply where act does not specify.

Consequences of the contract being illegal

• Illegal as formed
  • Illegal contracts are unenforceable – Dann –v- Cruzon [1911]
  • Property or money transferred in advance cannot usually be recovered
    • Even where parties are unaware of the illegality
    • Can be recovered: where not to recover is against public conscience; where illegality is not vital to the cause; where the party seeking the recovery is not in pari delicto (not as culpable); where the agreement has been induced by fraud.
• Illegal as performed
  • Recovery remedies available when one party is not aware of illegality
    • Marles –v- Trant [1954]
    • A seed supplier sold seed as “spring wheat”, T sold it on to M without an invoice which was illegal. M discovered it was “winter wheat” and sued successfully – despite illegality.

Discharging the Contract

By Performance

• Strict rule
  • Cutter –v- Powell [1795]
  • Wife sued for dead husbands ship wages. Had not completed performance by dying, so quantum meruit was denied.
• Application of the rule
  • Arcos –v- Ronaasen & Son [1933]
  • Staves a sixteenth of an inch narrower than those ordered – buyer able to reject delivery.
• BUT: de minimis non curat les – law will not remedy something trivial
  • Reardon Smith Line –v- Hansen-Tangen [1976]
  • Judges would not accept repudiation on the basis of a mere technicality.
• Avoidance of the strict rule
  • Divisible contracts – various parts can be enforced separately
    • Taylor –v- Webb [1937]
    • Landlord required to lease premises and keep them in good repair. Not maintained so tenant refused to pay. Not legitimate, clause to lease separate from clause to maintain.
  • Acceptance of Part Performance – strict rule does not apply where other party has accepted part-performance. Will not apply where other party does not have a choice
    • Sumpter –v- Hedges [1898]
    • Builder worked to build two houses and stables. Ran out of money so landowner completed using builders’ materials. Builder claimed part-performance but landowner had no choice – awarded value of used materials only
  • Substantial Performance – party can recover appropriate amount, providing that contract is not an entire contract
    • Dakin –v- Lee [1916]
    • Builder bound to carry out repairs, but some carelessly. Owner refused to pay. Builder could sue for price of work less an amount representing the value of defective work.
  • Prevention of performance – party trying to perform may have an action for damages
    • Planche –v- Colburn [1831]
    • Publisher hired author for a series, then decided to abandon. Writer able to claim for wasted work.
  • Tender of performance – party has offered to complete obligations and has been unreasonably refused
    • Startup –v- Macdonald [1843]
    • 10 tons of oil to be delivered before end of March. Delivered at 8.30am on a Saturday. Seller able to recover damages upon refusal.
• Stipulations as to time of performance
  • Traditionally, failure to perform would give rise to damages action and not repudiation
  • However: express time stipulation; surrounding circumstances emphasise time (perishable goods); one party has failed to perform so the other gives a deadline – allow repudiation.

By Agreement

• Problems: lack of fresh consideration and lack of proper form in speciality contracts
• Bilateral discharges – both parties gain a new benefit
  • Wholly executory arrangements – neither side have performed obligations; possibility of wavering of new rights and substituting terms. Consideration is not having to perform old obligations.
  • Party executory and partly executed – other can waive rights where one party wishes to give less than full performance – absence of consideration
  • Form is an issue – agreement to vary the terms in a contract requiring specific form may be invalid unless evidenced in writing
• Unilateral discharges – benefit only to be gained by one party; who is trying to convince the other party to waive rights
  • Consequences: requires deed of validity to be enforceable, but sometimes as in Williams –v- Roffey, where extra benefit is to be gained, this may be sufficient.
    • Possibility of discharge due to “accord and satisfaction” as in Pinnel’s Case by adding a new element that would count as consideration or making a smaller payment before full payment is due.
    • Discharge by the equitable doctrine of Promissory Estoppel

By Frustration

• Original Common Law Rule
  • A party is bound to perform their obligations regardless of intervening events
    • Paradine –v- Jane [1647]
      • P sues J for rent. J had been forced off land by invading army. J still bound to pay rent as he should have made express provision through force majeure.
    • Development of Frustration
  • Injustice of original common law led to exceptions. A party affected by an intervening act would be relieved of the strict obligation and therefore not be liable for breach of contract.
    • Taylor –v- Caldwell [1863]
      • T hired out the Surrey Gardens Music Hall to P for a series of concerts. Six days before the first, the hall was destroyed by an accidental fire. C was not liable for wasted advertising and other expenses.
  • This principle was extended to cover instances where envisaged performance was no longer possible, even when literal performance could occur.
    • Davis Contractors Ltd –v- Fareham UDC [1956]
      • D agreed to build 78 houses for F, costing £92,425, within 8 months. This took 11 months and cost £111,076 due to shortages of labour. D claimed frustration by the delay and the additional costs on a quantum meruit basis. No Frustration.
        • But: Lord Radcliffe asserted that frustration occurs where a contractual obligation has become incapable of being performed because external circumstances have caused the performance to be radically different from that agreed.

Frustrating Events

• Impossibility
  • Destruction
    • Taylor –v- Caldwell [1863]
  • Physical Unavailability
    • Jackson –v- Union marine Insurance [1874]
      • A ship ran aground and could not be loaded for some time. The court accepted that there was an implied term that the ship would be available for loading in a reasonable amount of time and the long delay amounted to a frustration.
  • Service Unavailability – Actual and Potential
    • Robinson –v- Davidson [1871]
    • Court held that a contract involving a pianist performing was conditional on her being well enough, and because of illness, she was excused and the contract frustrated.
    • Condor –v- The Baron Knights [1966]

TBK were to perform up to 7 nights a week. One member became ill, but ignored advice not to perform. The contract was frustrated, and it was necessary to have a potential fill-in.

• • • Morgan –v- Manser [1948]
      • Music hall artiste was contracted for 10 years, starting 1938. Conscription during 1940-46 undermined the contract and both parties were excused performance.
  • Delay
    • The Nema [1981]
      • Time charter of nine months agreed, anticipating 7 voyages. Due to strikes, only 2 possible and the contract was frustrated.
  • Outbreak of War
    • Metropolitan Water Board –v- Dick Kerr & Co [1918]
      • July 1914 – contract formed for construction of a reservoir, to be completed within 6 years. In 1916 government requisitioning and order prevented performance.
• Illegality
  • Change in the law
    • Denny, Mott & Dickinson –v- James B Fraser [1944]
    • Import of goods illegal when a change in the law prevented such goods being imported.
  • Outbreak of War
    • Re Shipton Anderson & Harrison Bros [1915]
      • Cargo of grain sold but war broke out prior to delivery. The government requisitioned the cargo.
• Commercial Sterility
• Frustration of the common venture
  • Krell –v- Henry [1903]
    • Room hired to watch coronation of Edward VII. Postponed due to kingly illness. Watching the coronation was “foundation of contract” and thus contract frustrated.
  • BUT all commercial purpose must be destroyed.
    • Herne Bay Steamboat –v- Hutton [1903]
      • Boat hired to observe Edward VII’s fleet. Although one purpose had disappeared, the fleet was still viewable. No frustration.

Limitations

• Self-induced frustration
  • Maritime National Fish –v- Ocean Trawlers [1935]
    • Fishing company owned 2 trawlers and hired another. Did not have a licence for all three, used its own, claimed frustration and failed – self-induced.
• Contract more onerous to perform
  • Davis Contractors –v- Fareham UDC [1956]
    • The builders not being able to make the same profit was not accepted as justification for frustration.
• Foreseeable risk
  • Amalgamated Investment & Property –v- John Walker [1977]
    • Defendants sold building to AIP. Unknown to both, it had been listed, resulting in price drop and prevention from redevelopment. Not frustration – associated risk with all old buildings.
• Force majeure clauses
  • Fibrosa Case [1943]
    • Clause only covered delays in delivery and not German invasion. Frustration.
• Absolute undertaking to perform

Common-law effects

• Chandler –v- Webster [1904]
  • Room hire for coronation to be paid on the day. Paid in advance so could not be recovered.
  • Overruled and modified in Fibrosa [1943] – payments could be recovered providing there was a total failure of consideration

Law Reform (Frustrated Contracts) Act 1943

• S1(2) - confirms principle of Fibrosa [1943]
• S1(2) – court has discretion to award reward for work done
• S1(3) – party able to recover for a partial performance which has conferred a valuable benefit on the other party – discretionary
  • BP Exploration Co –v- Hunt [1979]
    • H had special concession to explore for oil in Libya. BP financed in return for half share. Libya confiscated oil. Awarded $35 million.
• Limitations:
  • Contracts for carriage of goods by sea except time charter parties; insurance contracts; perishing of goods under SGA 1979

By breach

• Fundamental breach – deprives the other party of substantially the whole benefit they were to receive under the contract
• Breach of condition – where the term is so central that its breach renders to contract meaningless
• Different forms of breach:
  • Ordinary term – action for damages
  • Breach of a condition – by express or by statute
    • Must be a condition: Schuler AG –v- Wickman Machine Tools Sales [1974]
  • Anticipatory Breach – party gives notice, does not necessarily mean obligations will remain unchanged – often just a different manner of performance.
  • Hochster –v- De La Tour [1853]
    • H hired as a courier two months after contract date. DLT wrote to him to cancel contract. DLT said he could not sue unless he could show that on the due date he was ready to perform. Court disagreed – no requirement that he should wait for the breach.

Effects of breach

• Ordinary term – action for damages always available
• Condition – continue with damages or repudiate, or repudiate eand sue for damages
  • The Hansa Nord [1976]
  • Refusal to accept animal feed was unlawful – went ont o buy the goods and use them for the same purpose, hence, not sufficiently serious.
• Anticipatory breach
  • Damages
    • Frost –v- Knight [1872]
      • Defendant had promised to marry his fiancée when father died. Broke it off before father died, yet F sued successfully.
  • Possible to continue and wait for due date
    • Avery –v- Bowden [1855]
      • B contracted to load cargo for A. B unable to meet obligations, A waited for due date and contract was frustrated by Crimean War
  • Continue and wait has the danger of liability for breach themselves
  • Possibility of injustice for the party in breach
    • White & Carter ltd –v- McGregor [1962]
      • Party to supply bins for local council to be paid for by advertising revenue. One business backed out and WC went on to prepare bins and sued successfully for price.
  • Innocent party is entitled to recover benefits from the other party, who cannot then try to reduce damages
    • CMUZ –v- New Millennium Experience [2001]
    • Contract to build roof of dome, NME could repudiate but would have to compensate with “direct loss and damage”. They did so, and CMUZ became insolvent, NME claimed insolvency wouldn’t have enabled them to perform in any case; hence they should not be fixed with loss of profits. Court disagreed.

Remedies in Contract Law

Limitation periods

• Contract law – 6 years

Purpose of damages

• Put injured party in the position that they would have been in had the contract been performed

Remoteness of damage

• Two part test: loss than can be recovered and quantity
• Causation in fact
  • Stansbie –v- Troman [1948]
  • Decorator entrusted with keys, left flat unlocked, thief stole goods, decorator liable
• Remoteness of damage
  • Hadley –v- Baxendale [1854]
  • Delivery of mill crankshaft late. Claimant sued unsuccessfully as B unaware that the mill was not working.
  • Must be in reasonable contemplation
  • Parsons –v- Uttley Ingram [1978]
  • Sale and installation of animal feed hopper. Ventilation hatch secured, feed mouldy, 254 pigs died, loss too remote according to COA but HOL disagreed.

Quantification of damages

• Nominal damages
  • Staniforth –v- Lyall [1830]
  • L to load cargo, S hired boat out for greater profit so after L breached contract, nominal damages awarded.
• Bases of assessment
  • Loss of a bargain – place claimant in same financial position had breach not have occurred
    • Difference in value between indicated and actual
    • Difference between contract price and the price obtained in an “available market”
      • Charter –v- Sullivan [1957]
      • S bought car, then refused delivery. Demand easily outstripped supply so only nominal damages.
      • Thompson –v- Robinson Gunmakers [1955]
      • Similar to above, but supply greater. T able to recover full damages.
    • Loss of profit
    • Loss of chance
      • Chaplin –v- Hicks [1911]
      • Actress had duty to attend audition, wherein 12 actresses would be chosen of 50 present. She was wrongly prevented from attending and was able to recover
  • Reliance lost
    • Anglia Television –v- Reed [1972]
    • AT incurred expenses in preparation for film. R backed out in breach and AT able to recover expenses as these were easier to calculate than loss of profit.
    • Generally, not possible to claim for both loss of profit and reliance lost, but it can be possible to recover damages for the loss of a valuable amenity
    • Farley –v- Skinner [2001]
    • Claimant hired a surveyor to report on aircraft noise, wrong and negligent – successfully sued surveyor for damages for loss of an amenity
  • Restitution
    • Link with consideration – repayment of any sums paid in advance of the breach
    • Stocznia –v- Latvian Shipping [1998]
    • Shipyard to design and build a ship for the buyers. Shipyard rescinded before ownership passed. Buyers claimed for return of an instalment, claiming failure of consideration. Unsuccessful: based on whether seller had done something rather than buyer received nothing.
• Duty to mitigate
  • Duty to minimise the effects of a breach
    • Underground Electric Railways [1912]
    • Supply of turbines did not match specification, purchased from another supplier, so efficient, only losses sustained before the originals were recoverable
  • BUT claimant not bound to go to extraordinary lengths
    • Pilkington –v- Wood [1953]
    • Negligent solicitor claimed P could have sued vendor, when P claimed for hotels and travel after defective title prevented him living in residence. Rejected.
  • Anticipatory breach
    • White & Carter –v- McGregor [1962]
    • M argued that WC might have mitigated loss by not continuing to fit the bins. Failed.

Other common law remedies

• Liquidated damages
  • Only where sum identified in the contract represents an accurate and proper assessment of the loss
  • Bridge –v- Campbell Discount [1962]
  • Depreciation clause void as it had no relation to actual depreciation value
  • Dunlop Pneumatic Tyre –v- New garage & Motor Co [1914]
  • £5 for selling under recommended price reasonable.
  • Test: extravagant sum always a penalty; large sum for small debt is probably a penalty; single sum for a variety is likely to be a penalty; wording used by parties is not necessarily conclusive
• Quantum meruit
  • Recovery of an unqualified sum in respect of services already provided
  • Contract for services is silent on remuneration
  • Upton RDC –v- Powell [1942]
  • Retained fireman provided services with no fixed wage agreement. Reasonable sum awarded.
  • Fresh agreement can be implied to overrule original one
  • Steven –v- Bromley [1919]
  • S carried steel at agreed rate, and was able to claim more when delivery included extra goods.
  • Possible to claim for work done after other party wrongfully considers the contract discharged or prevents performance
  • De Barnady –v- Harding [1853]
  • Principal wrongly revoked agent’s authority to act on his behalf. Agent able to recover expenses and work done.

Effect of speculation in contract

• Careful to avoid claims in contract which should be in tort
• Addis -v- The Gramophone Company [1909]
• Claimant wrongly dismissed from post as manager. Claimed injury to reputation and distress. Not for contract.
• Exception – the holiday cases (mental distress)
  • Jarvis –v- Swan Tours [1973]
    • Holiday inferior and described as “house party”. Initially awarded nominal sum, but HOL awarded £125 for mental distress
  • Cook –v- Spanish Holidays [1960]
    • Couple without room on honeymoon night. Awarded damages for “loss of enjoyment”.
  • Extended to cover third parties as in Jackson –v- Horizon Holidays [1975]
  • Extended to solicitor negligence: Heywood –v- Wellers [1976]
    • Claimant awarded damages for mental distress where her solicitors, in breach of their contractual duty, failed to obtain an injunction to prevent her former boyfriend from molesting her
  • Extended to cover amenities: Ruxley –v- Laddingford Enclosures [1995]
    • Swimming pool built too shallow, prevented full enjoyment. Damages awarded.

Equitable remedies in contract law

• Operate where an award of damages would not serve the interests of justice
• Discretion of the court, thus subject to “maxims of equity”
• Injunctions
  • Restraint of trade
    • Fitch –v- Dewes [1921]
    • Lifelong restraint of clerk for taking up employment within 7 mile radius was reasonable
    • Fellowes –v- Fisher [1976]
    • 5 year restraint on conveyancing clerk was unreasonable – clerk relatively unknown in a densely populated area of Walthamstow.
  • Enforce provision protecting legitimate trade secrets
    • Faccenda Chicken –v- Fowler [1986]
    • Claim to prevent employee from selling chickens from refrigerated vans unsuccessful – no express provision in contract
  • Encourage compliance with a contract of personal service
    • Page One Records –v- Britton [1968]
    • The Troggs tied under very unfavourable terms. Found a new manager, old manager tried to enforce but failed.
• Rescission
  • Restitutio in integrum must apply
  • Clarke -v- Dickinson [1858]
  • C persuaded to buy shares under misrepresentation. LLP became LTD. Impossible to rescind.
  • Party must not have affirmed as in Long –v- Lloyd [1958]
  • Must not have delayed as in Leaf –v- International galleries [1950]
  • Third parties must not have gained rights as in Oakes –v- Turquand [1867]
• Specific Performance
  • Order of court for the party in default to carry out obligations, rarely granted due to difficulty in overseeing
  • Ryan –v- MTWCA [1893]
  • Landlord obliged to provide hall porter. Porter was useless, specific performance request failed as court could not oversee.
  • Will not be awarded where it would be against conscience to do so
  • Webster –v- Cecil [1861]
  • W tried to enforce written agreement with inaccurate statement of price. Failed.
• Rectification
  • Discretionary and only granted where it would be against conscience to allow the written agreement to stand
  • Craddock –v- Hunt [1923]
  • C sold house to H, not intending for yard to be included. By mistake it was and C successfully sought rectification.

Consumer Protection

Sale of Goods and Supply of Services

• Goods can be specific or unascertained – Sale of Goods Act 1979
  • Unascertained: yet to come in to existence – responsibility with seller until they are produced
  • Specific goods pass when parties decide that they should
    • Rule 1 – deliverable state – goods pass when contract is made
    • Rule 2 – where goods need something done before deliverable state, ownership passes when this has been done
    • Rule 3 – where the seller must measure to goods to ascertain price, property does not pass until this is done
    • Rule 4 – goods sold on sale or return, property only passes on acceptance
  • Unsolicited Goods and Services Act 1971
    • Aggressive selling techniques protection. Where written notification is sent that goods are unwanted and they are not collected within 30 days, goods can be claimed free.
  • Package Holiday Regulations 1992 – sellers liability to ensure buyer is not subject to misleading information

Consumer Protection Act 1987

• Potential defendants:
  • Producers: manufacturer; abstractor; industrialist carrying out industrial process
  • Importers, suppliers and own-branders: imports in course of business; retailers; own-branders who declare product as their own
  • Anyone in chain of manufacture; joint and several; strict liability
• Products covered:
  • Exemptions: buildings; nuclear power; agricultural produce that has not undergone industrial process
• Defects covered:
  • Safety defined from:
    • Manner for which the product has been marketed and warnings; what might reasonably be expected to be done with the product; the time when it was supplied by its producer to another
• Damage covered:
  • Death, personal injury and loss or damage to property
  • Limitations: small property damage under £275; no damages for business property; do damages for loss of defective product itself
    • Claimant must begin proceedings within three years
      • Court can override in personal injury
    • Absolute cut off of 10 years in all cases
• Defences
  • Complies with EU and statute obligations; defect did not exist at time of supply; not supplied in course of business; not him or her who supplied the product; knowledge at the time was not such that the defendant could have discovered the defect
• Criticisms:
  • Positive: producers on guard; product recall; more chance of an action due to joint and several liability
  • Negative: does not apply universally; limitation period very strict; does not apply pre 1988; too many defences?; causations till a requirement – standard of care similar to negligence and not enough like strict liability as it is supposed to be

Trade Descriptions Act 1968

• Criminal liability for making false and misleading statements
• Complements s13 of SGA 1979 regarding false descriptions
• Applies to sellers making false descriptions and where seller offers goods with false descriptions from another
• Section 2: descriptions relate to:
  • Quantity, size, manufacture, composition, fitness, testing, approval, date of manufacture, person of manufacture, history
  • Medium: verbally; written;
  • Must be misleading to a material degree; can be guilty even if unaware; anyone can be guilty not just seller; can still be convicted even if not in course of business
• Statements concerning services, accommodation and facilities
  • Prosecution must show knowledge or recklessness – must be false at the time it was made and not later
  • Defences
    • Due to a mistake or reliance on information supplied
    • Took all reasonable precautions and due diligence
    • Disclaimer provided providing it is “bold, precise and as compelling as the trade description itself”
    • Section 25: defence for newspapers that merely innocently publish a misleading advertisement

Comments

Originally written by JH08 on TSR Forums.