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Contract Law
Scottish cases
...

English, not followed in judicial precedent but still important
...
Mainly a European concept, but
has been used in Scots Law
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Smith v Bank of Scotland 1997 SC (HL)
Supreme Court
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Mrs Smith the appellant sought a reduction with bank of Scotland that she had co-signed, as
a result of misrepresentation on her husband’s behalf
...

She signed the contract for the security of her husband’s business which she had no financial
interest in
...

The Lord Ordinary in the court of first instance held that the action of partial reduction
should be dismissed, as the law of Scotland does not allow a contract to be reduced just
because someone was ignorant of misrepresentation
...


Unjustified enrichment-Originates from Roman law
...

Freedom of contract- the courts try to take as little action in relation to contracts as possible, as it is
important that people have the freedom to create contracts without having to go through court, as
contracts are such an important part in the running of society
...
” per Lord JC Moncreiff in
Turnbull v McLean & Co (1874) 1 R
...

Materiality of breach- A contract can and often will provide certain terms which are material- where
this occurs, the parties’ agreement on the matter will be honoured
...
Wade arrives in Glasgow to find out that he has not been advertised
Waldon treated this breach of contract as material and cancelled Wade's performance
...
The court held
that Wade's breach of contract was immaterial and that the remedy of rescission was not
permissible, resulting in Walton having to pay damages
...

The Lorry was then destroyed by fire
...

The lorry was garaged at Dovehill, instead of the address stated in the insurance agreement
...

The question raised in court was whether the insurers were liable, however they argued that
the answers on the proposal form were not answered correctly, as the vehicle was garaged
elsewhere
...
Refusal to perform may lead to rescission
...

Offer/ Invitation to treat

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Must be an offer from one party to another
Offer- actually proposing to perform an obligation for the party-the intention to be legally
bound by the contract, and is valid as soon as it is accepted
...

Invitation to treat- inviting someone to buy something- an advertisement is usually
considered as an invitation to treat
...

Pharmaceutical Society of GB v Boots Cash Chemists (1952) 2 QB 795

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The defendant (boots) shop had one room which was self service, which had a chemist’s
department, supervised by a pharmacist, in which some substances that were listed under
legislation were in containers on shelves with prices on them
...

The items are examined by the pharmacist, then the money is received and the items
bought
...

In an action brought by the plaintiffs alleging that the provisions of section 18 of the Act
requiring the sale of poisons included in Part I of the Poisons List to be effected by or under
the supervision of a registered pharmacist were infringed by the defendants:Held, that the display of the articles on the shelves, though coupled with an invitation to the
customer to select and take any that he wished to buy from the shelves, did not amount to
an offer by the defendants to sell, but merely to an invitation to the customer to make an
offer to buy: and that offer was made and accepted at the cashier's desk and the sale was
therefore effected under the supervision of a registered pharmacist, as required by the Act
...

The pursuers won the case
...

The pursuer, Carlill used the smokeball as specified, and contracted influenza
...

She sued, and won the case
...


Acceptance
An acceptance is consent expressed by the offeree to the terms expressed in the offer
...

If the offeree rejects the offer, it is dropped as soon as the rejection is made clear to the offerer
...

Acceptance is unqualified if it accepts all the terms
...

If a counter offer is made, the original offer no longer stands
...

Silence is not usually viewed as a valid form of acceptance
...

If the offer is being revoked, the letter of revocation must reach the offeree before acceptance
reaches them
...

McMillan v Caldwell 1991 SLT 325 – revocation of posted offer can be done verbally
...

Seller made an advertisement for the sale of heritable objects
...
The offer was then amended formally,
however this amended offer was met with a qualified acceptance with 15 qualifications
...

At the meeting, and after some private discussion the agents for the sellers verbally
withdrew the qualified as the sellers were no longer prepared to conclude missives on those
terms
...

After reconsidering, the agent was told to make a formal acceptance of the qualified
acceptance, as it had not been formally withdrawn in writing
...




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The pursuer then sought implement of the missives that were supposedly concluded,
arguing that they were formal missives, and they could not be contradicted by an oral
withdrawal
...

Held, that a formal written offer to purchase or sell heritable property could be withdrawn
verbally, even if error was not an issue, as long as notice of withdrawal was communicated
to the other party before an acceptance of the offer had been sent (p
...
330B-C), and
decree of reduction and of absolvitor pronounced
...

What a reasonable person in the parties position would have done
...

When the court is considering whether or not the parties intended to enter into a contract at a
particular time, it adopts an entirely neutral approach
...
This is where someone,
who is not viewed as vulnerable by society, is forced into consenting to a contract by means of
intimidation and/or forcefulness
...
”
per Lord Deas, Priestnell v Hutcheson (1857) 19 D
...

Hislop v Dickson Motors (Forres) Ltd 1978 SLT (News) 73Court of Session Outer House



The pursuer was employed by the defender as a cashier-bookkeeper
...
The defender owned up to making the false entries
...

The pursuer raised an action concluding for production and reduction of the withdrawal
form and the cheque, for payment to the pursuer of £576 (the total of the £381 and the
£195) and delivery to the pursuer of the car
...

The defenders replied that the pursuer voluntarily signed over her car and things
...


Russo v Hardey 1997 GWD 6-246
The test for force and fear is whether the force in question would be enough to overcome someone
of reasonable firmness, taking into consideration the gender of the victim and their relation to the
person applying the pressure
...

If the only threat made is to do a lawful act, then it is not a case of force and fear, as shown in
Hunter v Bradford Property Trust 1997 SLT 33-34
...

Trustee Savings Bank v Balloch 1983 SLT 240

Facility and Circumvention
Where a weak minded person is taken advantage of by on the behalf of another party
...

MacGilvary v Gilmartin 1986 SLT 89
Anderson v Beacon fellowship 1992 SLT 111
Facility- Not to be confused with insanity
...
It all depends on the circumstances of the case
...

Fraud and circumvention- Loss and causation
...


MacKay v Campbell SC (HL) 1967 53
Pascoe-Watson v Brock's Executor 1998 SLT 40
Undue influence-Where a party places trust in another party and the trust is abused, but only where
the influencer gains material benefit and the other person had no opportunity for independent
advice
...

Problem: main witness deceased; requires medical records, evidence of other carers, expert witness
(old age psychiatry)
Case to be proven: that on balance of probabilities Lt Col Kynoch would not have changed his will in
this particular fashion
Lieutenant Colonel Kynoch died at 94, leaving a will, a codicil and an informal writing
...

Kynoch’s sons and daughters sought for the codicil to be reduced
...

The codicil was reduced as it was found that white had taken advantage of Kynoch in his weakened
state of mind by threatening to quit after he had established a dependence on her
...

The victim was easily influenced by his housekeeper to change his will
...


Error
Error of the law does usually not affect the validity of the contract, however an error on fact may
affect the validity of the contract
...

Standard of error- Bell’s five principles:

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Subject matter
Persons undertaking or to whom it is undertaken
The price or consideration
The quality of the thing engaged for
the nature of the contract or engagement entered into

Essential errors:
1) Error as to the nature of the contract
2) Error as to the identity of the other party (only where this is material to the contract)
3) Error as to the subject matter of the contract
4) Error as to price
5) Error as to quality, quantity or extent

Bilateral or Unilateral error:
Mutual- parties have misunderstood each other
...
The court will try and decipher the terms of
the offer an acceptance, and then take into account what a reasonable person would have
understood from the negotiations
...

Court of Session Inner house First division
Contract about a piano: hire-purchase or credit sale by instalments?
“commercial contracts cannot be arranged by what people think in their inmost minds
...

Stuart v Kennedy (1885) 13 R 221
Price to be calculated by foot, but one party thought it was superficial foot and the other thought it
was linear foot
...

Unilateral- one party argues that they made a mistake and want to get out of the contract
...

Royal Bank of Scotland v Purvis 1990 SLT 262
Stewart v Kennedy (1890) 17R HL 25
Spook Erection (Northern) Ltd v Kaya 1990 SLT 676

If one party leads another to make a unilateral error, then the contract can be reduced
...

A contract can also be reduced in the exceptional circumstance where one party knew of the other
party’s mistake, and took advantage of it
...
An error of
transaction must usually be material, concerning a substantial part of the contract, which usually
refers to Bell’s five principles
...
- Steuarts
Trustees v Hart- Voidable!

When doe Steuart’s Trustees apply?
Is the error part of the facts?
Angus v Bryden 1992 SLT 884
Sale of fishing rights – river fishing and sea fishing?
Spook Erection (Northern) Ltd v Kaye 1990 SLT 676
In a sale of land, sellers wrongly believed that the land was burdened with a 990 year lease, while
the buyers knew that the lease was only for 99 years and about to expire; but the buyer did not
know of the seller’s erroneous belief – the lease was not mentioned in negotiations or contractual
documents
Error in motive
Intention is accurately stated in contract, but was based on mistaken facts
...
If a party enters the contract as the result of a misleading statement the remedy
of reduction may be available due to error in motive, leading the contract to be voidable
...


A misleading statement can render the contract voidable if a party would have otherwise declined
the contract ad the statement not been made
...

Statements which are not classed as a basis for error of motive:
Exaggerated/optimistic statements about the nature of the advertisement
Expressions of opinion (Flynn v Scott 1949 SC 442 (OH))
Expression of hope/ expectation

Usually there is no duty of disclosure in contract, so silence is not seen as misrepresentation
...


Misrepresentation
There are three types of misrepresentation:
Innocent
Negligent
Fraudulent

Innocent misrepresentation
Preconditions
The remedy is reduction
The court orders that the parties are restored to their original positions, however this is sometimes
not possible in extreme cases and the party leave without a remedy
...

The Law Reform (Miscellaneous Provisions) (Scotland) Act 1985

Damages may be available as a remedy, as well as reduction of the contract
...
” Erskine
Remedy is reduction in contract law, however, damages may be sought in delict
...
25-7
...

Illegal contracts include:
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Contracts illegal at common law
Contract to commit a crime or delict
Contract with enemy “alien” in wartime
Contract to defraud inland revenue (Tax evasion)
Contract involving corruption in public life
Contract detrimental to the administration of justice

If the contract serves an illegal purpose, it is declared void
...

Pearce v Brooks (1866) LR 1 Exch 213

Pearce agrees to sell Brooks a carriage on hire purchase, knowing that she is a prostitute who plans
to use the carriage for her “work”
...
However, because he knew it would be used for illegal purposes and went ahead
with the contract anyway, the contract was declared void and he was unable to claim damages
...

Dowling and Rutter v Abacus Frozen foods Ltd (No
...
Immigration found that some were illegal so A refused to pay
...


Two principles:
No action arises out of an immoral situation
And
In an immoral situation the position of the possessor is the better one
...

Cuthbertson v Lowes 1870 8 M 1073One party tries to sell the other potatoes under old Scottish measurements (scots acre) contradicts
Weights and measures Act- decides to keep potatoes and not pay
...

Equitable remedy- pursuer got recompensation under unjustified enrichment as the illegality of it
was not severe
...
g
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Contracts contrary to Public policy
Contracts in restraint of personal liberty
Contracts prejudicial to freedom of marriage
Contracts furthering sexual immorality
Restrictive Covenants
Prohibitive terms in employment contracts or included in the sale of a business
...

Problems with enforcement can arise if specific terms are too broad
...
These are only enforceable of
they are reasonable or in public interest
...
The courts will try and create a balance between the
employer and the ex-employee
...
However, it is up to the person
relying on the term (namely the employer) to prove to the courts that it is a reasonable term to
include in the contract and should be enforced
...
Whereas in the sale of a business, both parties are in the same position in terms
of negotiation
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Preventing lawful
competition is not classed as a legitimate business interest
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Restriction must not be excessive in its aim
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Courts take into account:
Nature of the business
Area from which customers come
Position held by employee- responsibilities, access to info
Length of time during which he would be able to harm his employer's interests
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D ignored this and took on a job with Levi and
Bluebell sought an interdict
...
- responsible dutiful position with access to information
that other employees would not have
...


Poaching of clients
Influence over existing clients- Scottish farmers dairy co v McGhee 1933 SC 148
Employee must adhere to the notice period- Accounting Secretarial and Personnel Ltd v Hallford
2000 GWD 27-1038
Even a brief period of employment can be restrictive- Accounting Secretarial and Personnel Ltd v
Power 2000 GWD 27-1039
Sale of a business
Clauses incorporated into contract to protect the goodwill of a business
...
Restrictive covenants placed on
the sale of a business usually requires the seller to refrain from opening or operating within a certain
area for a certain time
...


Partnership Contracts
The interests protected here are similar to those in employment RCs
...

Dallas MacMillan and Sinclair v Simpson 1989 SLT 454
Randev v Pattar 1985 SLT 270
Anthony v Rennie 1981 SLT (Notes) 11

Width of restriction
Test of reasonableness- considers whether the RC protects a reasonable business interest
...

Damages to recover loss suffered as a result of breach of contract, sometimes paired with an
interdict in the same case
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Based on copyright, trademark and
patent (invention) infringements
...


The court will not:
Substitute a reasonable covenant
Alter the terms of the Covenant
……
...

However, if covenant split into different obligations, if not interrelated, and can be separated,
courts will do this to uphold one part and refuse to enforce another:
Mulvein v Murray 1908 SC 528

Other situations:


Solus agreement- Agreement by which a retailer will only sell the goods of one
manufacturer for a period of time in return for a discount
...
Esso Petroleum Co Ltd v Harpers [1968] AC 269

Implied/incorporated terms
Implied terms are not expressly stated, but are natural or obvious
...
Obviously in return, employees turn up to work on
time, obey instructions and don’t act against employer’s interests
...

Greater Glasgow Health Board v Keppie Henderson 1987 SLT 387
Terms implied by the custom of a particular trade
Terms may be implied by the custom of a particular trade-there is a specific way of doing things
that is so fundamental it is not usually expressly stated in the contract
...

There is strict test for terms that are not expressly stated in the contract:
"The concept of an implied condition is one with which we are familiar in relation to contracts
of every description, and if we seek to trace any such implied conditions to their source it will
be found in almost every instance that they are founded either on universal custom or in the
nature of the contract itself
...
“ Lord MacLaren
Duthie & Co Ltd v Merson & Gerry 1947 SC 43
Strathlorne Steamship Co Ltd v Baird & Sons Ltd 1916 SC (HL) 134
Implied term or general principle?
*Smith v Bank of Scotland 1997 SC (HL) 111- Good faith is more or less expected from banks
...

Scottish Power plc v Kvaerner Construction (Regions) Ltd 1999 SLT 931
The term can be implied that both parties behave reasonably towards each other
...
Courts must objectively look at the case and
decide what the parties actually agreed to
...

Crawford v Bruce 1992 SLT 524

Leases of property- contract provided for regular rent reviews (common clause)- the contract did
not state what the basis for rent reviews would be
...

Lothian v Jenolite 1969 SC 111, 1970 SLT 31
North American and Continental Sales Inc v Bepi (Electronics) Ltd 1982 SLT 47
Thomson v Thomas Muir (Waste Management) Ltd 1995 SLT 403
Trollope & Colls v NWMHB [1973] 1 WLR 601 (HL)
Delay in construction- but the contract did not state what would happen if there was delayswho would pay? The parties offered the court 5 different implied terms- court could not read
into contract
...

The act applies to consumer contracts between a selling business and a consumer
...
”

Sections 13-15 implied into contract of sale

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Strict liability if seller is found to be in breach
Implied terms equate to duties of the seller

Section 14(2) of the Sale of Goods Act:
Goods sold in the course of business must be of satisfactory quality for customers;
(a) fitness for all the purposes for which goods of the kind in question are commonly supplied,
(b) appearance and finish,
(c) freedom from minor defects,
(d) safety, and
(e) durability

‘Sales in the course of business’
Buchanan-Jardine v Hamilink 1983 SLT 149
- farm was closing down and sale were being closed up
...
Sale and proceeds of sale would still appear on
balance sheet of business- loophole closed
...


**MacDonald v Pollock & Pollock [2012] CSIH 12
Sale of a boat used in cruises = a sale in course of business?

Products must be of reasonable quality, but perfection cannot be expected
...
14(3) – fitness for a particular purposeBusiness to business contract- large plastic shipping containers- when empty they could fit into
each other to be stored away, however, they were stacked in Kuwait, where temperatures were
60-70 c - melted and turned into a congealed mess
...
If you buy a
product for a particular climate and purpose, you should ensure the goods you buy are fit for
what you need them for
...

(c) Freedom from minor defects
Bartlett v Sidney Marcus Ltd [1965] 1 WLR 1013- the buyer of the car was made aware that that a car
had some minor scratches/blemishes
...

**Millars of Falkirk Ltd v Turpie 1976 SLT (News) 66 - Turpie owned Ford Grenada, but things started
to go wrong- power steering started to leak- garage could not fix it
...

As a solicitor, he decided to represent himself- he lost the objective view through emotion- car was
of satisfactory quality to be sold at the time- Minor teething troubles are to be expected when
buying a new car
...
The case was overruled in 2011 but changed the law on the facts
regarding satisfactory quality
...

d) Safety
Wormell v RHM Agriculture Ltd [1987] 1 WLR 109
**Douglas v Glenvarigill Motors [2010] CSOH 14; 2010 SLT 634
Douglas bought an audi, but the fault occurred just after a year after he bought the car (engine
would cut out) Automatic seats were moving on their own
...

e) Durability
**Thain v Anniesland Trade Centre 1997 SLT (Sh Ct) 102
Other issues regarding satisfying quality:
Second-hand goods- Standards of satisfactory quality has lowered with regards to second hand
goods
...

Thain v Anniesland is the first Scottish decision on the new standard
...
14 (2C) if a fault or defect is:

1
...
Should have been apparent by examination, where the buyer examines the goods before the
contract is made
Remedies for breach of implied terms under the Sale of Goods Act 1979
All sales contracts in general:
If there is a material breach the goods can be rejected and money refunded unless an amount of
time has passed
...

Consumer contract remedies:
Primary remedy of repair and replacement, but seller must have time to replace or repair the goods
...


Incorporation of terms

Different from implied/express terms
Incorporated by reference to them in the contract
Incorporation by notice-ticket sales:
Where terms are recorded elsewhere and attention is drawn to them the test is whether it is
properly incorporated (objective stance, expectation of a reasonable person)
If we enter into a contract through transportation, we can expect the terms and conditions to be
elsewhere
...
C
...

**Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163- Limitation of liability clause was not stated
before entry was allowed into parking
...
However his
car gets damaged, and he is shown a sign excluding liability after the he had entered the car park
...

If onerous terms are necessary, they must be displayed prominently-they cannot be hidden in small
print
...
If the term is onerous
and has reasonably been brought to the party’s attention it will be regarded as not incorporated
...
However, there can sometimes be hidden terms which can catch people out
...

Documents handed over to a party

Hood v Anchor Line 1918 SC HL 143
Parker v SE Railway Co (1877) 2 CPD 416

Was reasonable notice given?
The reference to the condition
Henderson & Ors v Stevenson (1875) 2R HL 71
Grey v L
...
E
...
1930 SC 989

Difficulty in reading the condition due to the size of print etc

Williamson v North Of Scotland Navigation Co 1916 SC 554

Term incorporated by course of dealing
Here the disputed provision is not in the contract and no notice of it has been given, but the parties
can adopt a term of the contract where they have previously acted as if the contract term had been
agreed; difficulty regarding verbal contracts
...
However in contracts of carriage or deposit, parties normally understand
that the contract will be subject to a number of published conditions (e
...
railway/bus etc)

If the ticket is more than a voucher/receipt, and person knew that there were conditions but did not
read them – these will be binding if of the type expected in that kind of contract (subject to UCTA
1977/ UTCCR 1999)
If conditions had been read by the individual, these will be binding (subject to UCTA 1977/UTCCR
1999)
If person did not know of the conditions, these will only be binding (again subject to UCTA/UTCCR) if
properly brought to person’s attention (according to case law: conditions clearly printed on front of
ticket or – if actual conditions to be found in another document, clear reference on front of ticket
...
g
...

Limitation clause- Restriction of liability of a party who is in breach of contract; any damages payable
will not exceed a certain limit
...
A maintenance contract
...

Application of UCTA:
Applicable to attempts to exclude or limit liability
...

Applicable to exclusion and limitation clauses found in contracts and also to such terms if found in a
non-contractual notice as well as manufacturer’s guarantees
...
Does NOT
apply to insurance contracts and contracts for the sale of heritage
...
It does not apply to private
transactions except in relation to attempts to exclude liability for defects of title in the contracts for
sale of goods or hire purchase
...

Or failure to perform on time set by contract
...
Delays
in performances can constitute a failure to perform and therefore a breach of contract
...

Self-help remedies
Retention- not performing your side of the bargain until the other side has performed theirs
...
- there is a risk that by reading too much into a
breach, we could then become guilty of a breach of contract by withholding pay etc
...
g
...

Rescission- termination of the contract
...
Courts do not look
favourably on this, and it is tricky to get away with rescission without being held in breach of
contract- high element of risk
...

See mutuality of contractual obligations under General Principles
Graham v United Turkey Red Company Ltd 1922 SC 533- mutuality can cease after the start of the
claimed breach- Graham entered into agency contract where he was to sell cotton goods supplied by
UTR- he was only supposed to sell UTR goods, none from competitors
...
1960 onwards, Graham decided to sell goods
from competitors to make ends meets
...
Held that UTR could retain payment from the time he breached the
contract onwards
...
206-7)
Payments supposed to go to Scottish Enterprise went straight to Bank of East Asia
...
Because McKann was in breach of contract, Macari
decided to withhold his contractual obligation to live in Glasgow
...

Overruled CSIH decision
“The guiding principle is that the unity of the overall transaction should be respected
...
” (per Lord Hope at [42])
Forster v Messrs Ferguson & Forster [2010] CSIH 38
Rescission
Termination if the contract is sought
...

See Materiality of breach of contract under general principles

Effects of rescission:
Termination of the contract
Party rescinding frees itself from performance of FUTURE obligations, but remains bound by those
up until the rescission/breach occurring
...

Four scenarios:


One party cancels the contract, e
...
indicating that the performance is no longer required
...
This is a breach of the contract, as
the other party is entitled to rely on the fact that the performance is to be made and may
have made the contract on the faith of the performance
...

The party puts it out of their own power to perform by the due date
...

In the event of an anticipatory breach, the innocent party has the right to either:
A) Reject/disgard the intimation of the breach and wait for the due date to arrive
...

B) Accept the repudiation and treat the contract as breached and claim immediate damages for
the breach
...

Refusing repudiation and continuing to perform
If we accept that a party is subject to risk by not accepting a repudiation, can the party who has
refused the repudiation attempt to force the other party to perform?
White & Carter v McGregor 1962 SC (HL) 1
McGregor is manager of garage in Clydebank and had agreed previously with W&C to advertise their
adverts on the litter bins
...
McGregor did not want this, so told W&C that they would not pay
...
The contract stated that if the first payment was not
made, then the whole payment would be due even if the contract had been ended
...

This case has been distinguished in England and wales, and followed in Scotland:
Salaried staff London Loan co Ltd v Swears and Wells Ltd 1985 SC 189
AMA (New Town) Ltd v Law (2013) CSIH 61
Scottish Law Commission (1999) Consultation paper 174
Judicial Remedies
Specific Implement- One party wants the other party to fulfil their side of the bargain
...
In
England the only legal right arising from a breach of contract is a claim of damages; specific
performance is not matter of legal right, but a purely equitable remedy, which the Court can
withhold when there are sufficient reasons of conscience or expediency against it
...
”
Specific implement unavailable:





To enforce an obligation to pay money (because otherwise it would result in imprisonment
for civil debt)
To enforce a contract involving a personal relationship (because this would be an undue
restraint on personal liberty)
Where decree unenforceable (aliens) or performance impossible
Where the subject matter is of no special significance in itself and money compensation
would be adequate

Scotland: Retail Parks Investments Ltd v The Royal Bank of Scotland 1996 SC 227- Specific
implement
...

Damages
Monetary substitute for performance, representing the losses suffered by the innocent party as
result of a breach of contract
...


Loss
The purpose of damages in contract is to compensate, to place the innocent party in the same
position they would have been in, had there not been a breach
...

Government sought a damages claim against Blake, but there wasn't really much damage done, but
they were aiming for the profits of the sale of his book
...
A lot of money had been spent and contracts were entered into with actors
etc
...
Wanted damages and the profit that they had
potentially lost
...


Ruxley Electronics and construction ltd v Forsyth (1996) AC 344- Key Case!!!!!
...

Ruxley Electronics and C
Courts can also look at loss in terms of amenities, hurt feelings etc
...

Photographer hired-did not turn up which is a clear breach of contract
...
Court held
that as the bride's feelings were hurt, the photographer had to pay her £50- double the fee
...
He always looked forward to
his 2 week holiday abroad
...
He claimed for damages
...
- fee was doubled
...

Bliss v SE Thames Health Authority [1985] IRLR 308
Breach of contract by employer solantium for loss does not count in employment contracts
...
Near Gatwick airport
...
However, the house was in the flight path to Gatwick noise,
shuddering glass etc everytime a plane flew overhead
...

Closer to home: Angus Joinery Ltd v McKay 2010 GWD 39-788
Mr McKay gets new windows and doors for anniversary windows were not installed properly- drafts,
doors wouldn't shut- arguments were caused etc
...


Causation
Sometimes there can be more than one likely cause for the loss
...
Ltd
...

Limits liability- the blame for everything cannot be pinned on one person
...
should be such as may fairly and reasonably be considered either arising naturally,
i
...
according to the usual course of things, from such breach of contract itself, or such as may
reasonably be supposed to have been in the contemplation of both parties at the time they made
the contract as the probable result of the breach
...
Hadley made flour
etc
...
Baxendale argued he did not know the mill would be completely out of use
during the transportation of the parts
...
Had Baxendale known about the time restrictions and was still late he would be liable for
special damages as well
...

Ordinary damages- normal damages relating to the breach-first rule-puts the pursuer back into the
position they were in before the breach
...

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528
Laundry company-boiler breaks down
...
A laundry business cannot
run without a boiler
...
They claimed for breach of contract, trying to get ordinary damages for the breakdown of
the business and special damages for the loss of business due to losing out on the proposed
Government contract
...

The aggrieved party in breaches of contract can only recover the part of the loss that was reasonably
foreseeable at the time the contract was made
...


Parsons v Uttley Ingham [1978] QB 791
Mouldy nuts and poisoned pigs
Storage silos supplied to store food for pigs which were supposed to be ventilated
...
Was this foreseeable by the supplier of the silos? It was held that
it could be foreseen that whatever food was stored in the hoppers would go off if the storage did
not have sufficient ventilation and would cause the animals to become ill
...
There was a lapse in power, and the supply of cement was halted
...
BB made a claim for damage, with SP
responding with the claim that they did not know what a lapse in electricity would do
...

Question was whether BB entitled to damages for that i
...
could SP be deemed to have knowledge
of complications relating to the method of construction
...

Cosar Ltd v UPS Ltd 1999 SLT 259
Key decision (dictum of Lord Hoffmann): Remoteness is not an external rule of law imposed on
parties, but is rather dependent on the parties’ agreement
...

A new test of reasonableness could have been derived from Donoghue v Greater Glasgow Health
Board [2009] CSOH 115; 2009 G
...
D
...
It is up to the aggrieved party to try and minimise their losses
...
If they do not minimise their
losses in situations where they should have done, this will work against them in court
...
The subsequent transaction entered by the pursuer must arise from
consequences of the breach and also must be in the ordinary course of business
...
Gunther found this out
and raised claims against them
...
However he
could have by getting the goods from three different places
...

Johnstone v Harris 1977 SC 365

Liquidated damages clauses
Sometimes parties will build in liquidated damages clauses whereby they calculate the sum of
damages a party will get if there is a breach of contract, at the time the contract is made
...
The sum may not be more than a reasonable damages claim, as the
purpose of liquidated damages clauses is to compensate, not to penalise or punish the other party
for the breach
...
The test to
distinguish between an enforceable liquidated damages clause and an unenforceable penalty clause
was developed by Lord Dunedin:
“The 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
...
Such as:
It will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount
in comparison with the greatest loss that could conceivably prove to have followed from the breach
...
…
NB: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 contrary, that is just the situation when it is probable that pre-estimated damage was the true
bargain between the parties
...

If there is a delay in the completion then there will be a reduction of costs or some other form of
compensation
...

The court will go beyond the words and language used in the clause before deciding whether or not
it is effective
...

Clydebank Engineering Co v Castaneda (1904) 7 F (HL) 77 (the Spanish Navy case)
International contract- Spanish Govt ordered a fleet of ships and Scottish shipbuilders came up with
best option
...
A liquidated damages clause was incorporated into the contract
...
The House of Lords made compensation available
...

But see the contrasting Scottish decision of Dingwall v Burnett 1912 SC 1097
A recent decision: Hill and Anor v Stewart Milne Group and Gladedale (Northern) Ltd [2011] CSIH
50**
Novel use of liquidated damages clauses: Bluewater Energy Services BV v Mercon Steel Structures BV
and Others [2014] EWHC 2132 (TCC)
Sub-contractor to pay liquidated damages for replacing key personnel without the employer’s prior
approval
...

Acceptilation- tell other party that the obligation no longer has to be performed
Novation- new agreement substituted for another one
...

Compensation
Confusion

Most contracts fall under the category of performance
...


a) Obligations arising from a breach of contract, gratuitous promise or unjust enrichment prescribe
after five years - provided there has been no ‘relevant claim’ and the subsistence of the obligation
has not been relevantly acknowledged
b) Obligations relating to land and arising from partnership contracts prescribe after 20 years
c) Rights of ownership in land and rights to recover stolen property from a thief do not prescribe at
all
Termination by frustration
By unforeseen events
or
For which neither party is at fault
...
Frustration operates to kill the contract and discharge the parties from
further liability under it, and as a result must be kept within "very narrow limits and ought not to be
extended"
...


This rule of frustration must be the exception rather than the rule
...

Supervening Impossibility:
“Supervening impossibility is the emergence of a new state of affairs, due to subsequent legislation
or other supervening events, in which the performance of the contract has become either
impossible, or something fundamentally different from what was originally contemplated it is only
where there is supervening impossibility in the proper sense of the word that the Court will interfere
to relieve parties of their obligations
...
Days before a
concert was supposed to occur, the hall caught on fire
...
C argued that it was not his fault and that the contract should be terminated
as a result of a frustrating circumstance
...
The property burned down, and it was
suggested that the contract should be terminated due to frustration
...
Before the party started, it
was damaged to the point it was not usable, and therefore the contract was frustrated
...
C
...
The lease was frustrated as the fishing area could not be used
for it's purpose
...
g an artist
...

Robinson v Davidson 1871 LR 6 Ex 269
Performer of contract who has been chosen for special skills dies
Condor v The Barron Knights [1966] 1 WLR 87 – the injured drummer
Musicians- Barron Knights
Atwal & Anor v Rochester [2010] EWHC 2338 (TCC) – the builder who suffered a heart attack
Building contract- substantial extension being mainly done by Mr Rochester who suffered a heart
attack which meant he could not complete the contract
...
Court held that it was a frustration of
contract
...
Atwal's had selected R
because he was well known to the family
...

Barrier to the operation of the doctrine of frustration
...

Gillespie v Howden 1885 12 R 800
Supervening illegality
James B
...
It is plain that a contract to do what it has become illegal to do cannot
be legally enforceable
...
Price was high- supposed to be paid in installments
...
Price was high- supposed to be paid in installments
...
Illegal for Clyde to trade with Austrian company as they were the
enemy
...

Accrued rights- things that happened before frustrating events still have an effect
...

Radical alteration to performance
If performance is radically altered, it could grounds to frustrate a contract
...
(1874) LR 10 CP 125
Commercial impossibility
Although it is now possible to fulfil the contract, it sometimes is not worthwhile anymore
...
Ltd
...
1909 SLT 417
Tsakiroglou & Co
...
- Loss of profits
...
As it was groundnuts, they would not go off in
the time it took to get to Hamburg
...

McMaster & Co v Cox McEuen & Co 1921 SC (HL) 24
An agreement will not be frustrated simply because performance of the contract would be
commercially onerous or unprofitable
...
It must be positively
unjust to hold the parties bound“

“Objectively unreasonable”?

It is therefore unlikely that economic conditions alone will be enough to allow a contracting party to
escape from burdensome obligations under a shipping contract
...


Defeat of contractual purpose
A type of commercial impossibility?
Very exceptional – see two English cases:
Krell v Henry [1903] 2 KB 740
An event in Pall Mall- booking rooms for coronation
...
Loads of people wanted their money back- contract was frustrated
...
They are still liable for performance until that point
...
g
...
Both parties are relieved from future performance, but B
remains liable to pay for the deliveries that were made
...
(…) Whether the court has a wider power to
apportion losses between the parties is a matter of academic controversy
...
It is derived from Roman law, and
describes situations in which enrichment of any kind would be unjustified
...

Morgan Guaranty Trust Co of New York v Lothian Regional Council 1995 SLT 299
Payments were based on a void contract
...
)

Enrichment by transfer
The impoverished party voluntarily transfers something over to the enriched
...

The transferor made the undue transfer in question as a result of an error thinking it was due
because of the legal obligation owed to the transferee
...

Knowledge that a transfer is not due precludes the condictio indebtiti
Bank of New York v North British Steel Group 1992 SLT 613-paying the wrong person
...
She thought the car would be jointly owned, but the
husband was the sole owner
...


Condictio causa data causa non secuta- an action for recovery of a transfer of property where the
purpose for the transfer had failed
...

Enrichment by Imposition
The impoverished imposes enrichment (e
...
improve another’s property) upon the enriched, without
the latter’s authorisation or knowledge
...
The impoverished person worked under error, usually that the property belonged to
him recovery without error
...

In case of payment of money, the party can still recover the money even though he paid another
party with full knowledge and relevant facts
...

Defences:
Change of position or loss of enrichment:
Credit Lyonnais v G Stevenson & Co LTD (1901 9 SLT 93

Transco plc v Glasgow City Council 2005 SLT 958-subsidiarity- Gas
company had duty to maintain gas pipelines which run under Glasgow city council bridge
...

Royal bank of Scotland v watt 1991 SC 48
W was in pub in Edinburgh and acquainted someone else- who kept buying drinks
...
- Negligence renders
this defence unavailable
...




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