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Contract Law Cases
1st
Case
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Summary
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How to Use
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HANDOUT No
...
The Offensive Weapons Act 1959
prohibited the ‘offering for sale’ of various
offensive weapons, including flick knives
...
Shop Window
Self-service store
The defendant changed the format of their
shop from counter service to self service
Section 18 of the Pharmacy and Poison Act
1933 provided that the sale of certain drugs
should not occur ‘other than under the
supervision of a registered pharmacist”
...
He as
prosecuted under the Protection of Birds
Act 1954 for ‘offering for sale’ wild birds
...
Concerning: display of goods in a shop
window; invitation to treat
Legal Principle: The prosecution failed
...
Therefore, the
shopkeeper was not offering it for sale
...
Meaning that the offer to
purchase is made at the cash
desk by the purchaser
...
This means that shops
are not compelled to sell goods at
the price at which they are
displayed as the purchaser if
offering to buy the item at the
stated price at the checkout: the
shopkeeper can reject that offer if
desired
...
It was held that the contract
was formed when the goods were
presented at the cash desk and that the
display of goods on the shelf was merely
an invitation to treat
...
Legal Principle:
The court held that the
advertisement was an invitation to treat and
not an offer
...
Offer,
Invitation to
Treat
Offer,
Invitation to
Treat
ADS,
Invitation to
Treat
1
***Carlill v Carbolic Smoke Ball Co [1893]
1 QB 256
Bowerman v ABTA [1996] CLC 451
Advertisement
FACTS:
The defendant sold a patent medicine
(the ‘smoke ball’)
...
”
The claimant caught the flu after using
the ball as directed and claimed the sum
of £100
...
Advertisement
Issues:
Holiday booked with ABTA member
ABTA notice in travel agent’s office
Was notice “descriptive” or “contractual”?
HELD: (2-1) there was an offer
To explain that unilateral
offers can be made to the
world at large and acceptance
need not be communicated
Acceptance in a Unilateral
Contract: there is no need to
communicate acceptance to
the offeror
...
Carlill was applied in Bowerman v
Association of British Travel Agents Ltd
A notice displayed in the offices of members
of the Association of British Travel Agents
(‘ABTA’)
Notice stated that ABTA would reimburse
holidaymakers in certain circumstances
In the actual booking of the holiday, this was
not referred to, or put into the terms of sale
It was held that there was contract between
ABTA and people who had booked holiday
with ABTA members
...
This
unilateral offer waived the need for
communication of acceptance prior to a
claim being made on the basis of it
...
Important to note:
Need to perform the conditions named
in it
...
Important to note:
No need to communicate acceptance to
the offeror
Held: that the ABTA notice would
Invitation to
Treat, Unilateral
Offer
reasonably have been read by a
member of the public (in the position
of the promise) as containing an offer
of protection
...
The tenant completed the form and
returned it to the council
...
Response to invitation to
treat does not result in a contract at
that point
...
The tenant’s claim
for breach of contract failed, since his
completed application for was held to
be an offer to buy in response to the
council’s initial letter which was an
invitation to treat
...
In
this case, the court held that the form
had a specific character that made it an
offer rather than an invitation to treat,
which the tenant had accepted by
signing and returning
...
Invitations to tender are
normally invitations to treat:
therefore the person making
the invitation to tender is not
bound to accept any of the
responses (offers) to the
tender
...
57
Tenders:
Spencer v Harding (1870) LR 5 CP 561
Compare:
Blackpool & Fylde Aero Club v Blackpool
BC [1990] 3 All ER 25
Facts:
The defendants sent out a circular as
follows: ‘ We are instructed to offer to the
wholesale trade for sale by tender the
stock-in-trade of Messers G Eileck & Co
amounting as per stock-book to £2,503 13s
1d
...
Payment to be made in cash
...
The Court rejected this
argument, held that the defendants
invitation to tender was not an offer to sell
to the highest bidder
Held: If Club submits a conforming tender
before the deadline, it is entitled to have it
opened and considered
Unilateral contract
Council will consider tender, if Club
follows stipulated procedure BUT no
obligation to accept tender
Parties issuing invitations to
tender are bound to consider
(though not necessarily to
accept) a tender properly
submitted before any deadline
...
Tenders are more frequently
encountered in the context of construction
projects were an employer invites various
contractors to tender for the work to be
done
...
Tenders
The contract made between the club and
the council that it was a unilateral
contract by which the council made the
offer of a unilateral contract (to consider
all timely bids) which was accepted by the
club tendering on time
...
It was held that he was entitled to the
reward
...
So the case is weak
authority for saying that one can accept
in ignorance of an offer
...
Counter Offers
***Hyde v Wrench (1840) 3 Beav 334
Contrast:
Stevenson v Maclean (1880) 5 QBD 34
‘Acceptance’ that does not match the
offer = a counter offer
...
Hyde rejected this price and
offered to pay £950
...
Wrench then sold the farm
to a third party
...
Facts:
McLean telegraphed Stevenson offering
to sell 3,800 tons of iron’ at 40s net
cash per ton, open till Monday’
...
” McLean
did not respond and at 1:34pm
Stevenson telegrammed again, accepting
the original letter
...
That telegram crossed with
Stevenson’s second telegram
...
To show that a counter offer
will destroy an initial offer
such that it may no longer be
accepted
...
An inquiry for information is not
a counter offer
Lush J in this case distinguished
Hyde v Wrench, differentiated
between a ‘counter proposal’ (ie a
counter offer) which terminates
the original offer and a ‘mere
inquiry’ (request for further info)
which does not
...
The Court
held that the counter offer of the £950
had impliedly rejected the original offer
and, since the original offer had been
destroyed, it was no longer open for
Hyde to accept
...
It was a mere request for
information
...
It was
validly accepted
...
As Lush J said:
“Here there is no counter-proposal
...
’
There is nothing specific by way of offer or
rejection, but a mere inquiry, which should
have been answered and not treated as a
rejection of the offer”
...
"
(2) Includes a price variation clause
27 May: Buyer replies with order
(a) "On terms below and overleaf" – did
NOT include price variation clause
(b) Order includes a tear off slip “We
accept [the Buyer’s] order on terms stated
thereon”
5 June: Seller replies
Returns acknowledgement slip
Covering letter, delivery ‘in accordance
with our revised quotation of 23 May’
Held: Acknowledgement slip was an
acceptance and by signing it, the Seller
accepted the Buyer’s counter-offer (no
price variation clause)
Tekdata v Amphenol [2009] EWCA Civ
1209; [2010] 2 All ER (Comm) 302
The traditional offer and acceptance
analysis was applied to a standard ‘battle of
forms’ situation where, over the course of
doing business for many years, the buyer’s
purchase order on one set of terms was
met by a seller’s acknowledgement on
another set of terms
...
The
battle was won by last shot
since this had been expressly
accepted
...
g,
taking delivery of the goods
...
Lord Denning:
“The terms and conditions of both
parties are to be construed together
...
If
the difference is irreconcilable, so that
they are mutually contradictory, then
the conflicting terms may have to be
scrapped and replaced by a reasonable
implication
...
The
uncle had states that ‘if I hear no more
from you I shall consider the horse mine
at £30 15/-‘ The nephew did not reply
but asked an auctioneer to withdraw the
horse from an auction
...
In order to claim
against the auctioneer, the uncle needed
to prove that there was a contract
between him and his nephew for the
sale of the horse
...
Legal Principle:
The court held that there was no
contract since the nephew had never
communicated his intention to accept
to his uncle ‘or done anything to bind
himself’
...
The offer letter was sent
on 2 September, but it did not arrive
until 5 September, whereupon Adams
posted a letter of acceptance at once
...
Adams
claimed breach of contract
...
The
claimant responded to the offer with
an acceptance posted the next day via mail
...
If use of post contemplated
This case considered the issue of
acceptance of a contract and
whether or not a revocation of an
offer sent by post was an
acceptable way to revoke an offer
despite the fact that the offer had
unknowingly already been
accepted by post
...
Postal rule applied if the letter of
acceptance is received after notice of
revocation of the offer has been sent
...
Held: D
had become a shareholder
...
Postal Rule: where the acceptance Is
posted but is never received
...
Legal Principle:
The court held that the contract was
made at the time the letter was posted,
Acceptance by
Post; The ‘Postal
Rule’
Postal Rule: Consequences
Household Fire v Grant (1879) 4 Ex D
216
The postal rule applies: If the
letter of acceptance is never
received by the offeror
Postal Rule
Hughes)
Postal Rule: Exceptions/Qualifications
***Henthorn v Fraser [1892] 2 Ch 27
***Holwell Securities v Hughes [1974] 1
All ER 161
It must be reasonable to use the post
Facts
On 19 October 1971, the defendants
granted the claimants an option to
purchase some land
...
But that letter never arrived
...
Use of the postal rule must
not create ‘manifest
inconvenience or absurdity’
...
Method Prescribed by Offeror
Manchester Diocesan Case [1969] 3 All ER
1593
The claimant decided to sell some land by
tender
...
On 25 Aug 1964, the defendant
completed the form of tender and sent it
to the claimants surveyor
...
Not until jan 7 that the claimant solicitor
wrote to the defendant
...
It was
held that there had been because, although
the acceptance should have been sent to 15
Berkeley St, acceptance sent to the
defendants surveyor was no less
advantageous to the defendant
...
On these facts the mode
specified was not mandatory and
the mode used was equally as
advantageous to the offeror
...
Instantaneous Methods
Entores v Miles Far East [1955] 2 All ER
493
***Brinkibon v Stahag Stahl [1982] 1 All
ER 293
Facts:
English company received telex offer from
Dutch company
...
Where was the contract made?
CA held it was where the acceptance was
received and that was in England because
it had been sent by the Dutch to the
English company
...
Actual communication (receipt)
principled applied to telex
communications so that the
communication took effect when
received
...
g
...
In this case Lord Denning explained the
principle as follows:
“ Let me first consider a case where two
people make a contract by word of mouth in
the presence of one another
...
There is no contract
at that moment
...
Not until I
have his answer am I bound
...
and therefore acceptance could only be
effective when the office re-opened
...
com
[2004] 2 SLR 594
The issue arose in the context of a
professional negligence dispute over
whether a share purchase transaction had
been completed or not on a particular day
...
The defendant solicitors
submitted that the email was not effective
from the moment it was received because
it was sent after working hours, and it
could not have been effective until it came
to the recipient’s eye on the Tuesday
morning
...
Owing to an employee’s mistake a
particular type of commercial laser printer
was advertised for sale on the defendant’s
website for $66 instead of $3,854
...
The
outcome in each case will depend
on the context, including the
intentions of the parties and
“sound business practice”
...
In the context in
which the email had been sent (that is, a
transaction which all had agreed could
have been completed that evening), then
the email was not outside working hours
...
If that email had been an
acceptance (which Blair J held it was not
in this case for other reasons), then it
would have taken effect at 18:00 hrs
...
Nevertheless, this judgment is the only
authority on the issue of when an email
communication can be said to be effective
in relation to contractual offer and
acceptance
...
The orders had been accepted by
the defendant’s automated responses
...
They sought to enforce the
contracts
...
Bringing an Offer to An End General Rules of Revocation
Byrne v Van Tienhoven (1880) 5 CPD 344
Revocation must occur before offer has
been accepted
Revocation must be communicated to
offeree before it is effective
Letter of revocation effective on receipt
o 1 Oct
...
D posts letter of
revocation
o 11 Oct
...
P confirms by letter
o 20 Oct
...
)
arrives
o Held: Contract formed on 11th
o To demonstrate that
communication of revocation
must be received
o Postal rule does not apply to the
revocation of offer so that a
revocation is not effective until
received, whereas a postal
acceptance sent after dispatch of
revocation but before its arrival
would result in immediately
binding contract
...
This
was so despite the lack of agreement
between the parties
...
He promised that he
would transfer legal title to the property
to them of they paid off all of the
mortgage repayments
...
The
father died after some repayments had
been made
...
Their claim failed
...
The terms
had been agreed but no written contract
To demonstrate the revocation of
a unilateral offer
It is not possible to revoke a
unilateral offer once the offeree
has commenced performed of the
requested act
...
Legal Principle
The contract was a unilateral contract,
since it involved an act (payment of the
mortgage) in return for a promise (to
transfer the house once all of the
payments had been made)
...
However, Lord Denning also
stated that the promise would not be
binding if the act was left incomplete
and unperformed
...
The principle from Errington also accepted
in this case where Goff LJ stated that:
Offer
In unilateral contracts the Offeror is entitled
to require full performance of the condition
imposed otherwise he is not bound
...
Until then the
Offeror can revoke the whole thing, but
once the offeree has embarked on
performance, it is too late for the Offeror to
revoke his offer
...
The defendant
promised the claimant that if he arranged
for a bankers draft for the deposit to be
delivered to the defendant before 10
...
The claimant duly
complied with the request but the
defendant refused to complete
...
Soulsbury v Soulsbury [2007] EWCA
Civ 969
Shuey v United States 92 US 73 (1875)
Held: A unilateral contract did exist
...
The question was whetehr
what constituted a binding contract that
could be enforced by the claimant
against the estate of the deceased
...
7
months later, a notice revoking the offer
was published
...
The
court found in favour of the defendant
(US)
...
Since a unilateral offer is a
promise in return for an act, it
may be accepted by anyone who
performs the act stipulated in the
offer
...
This case is the
generally accepted authority for
this proposition, although it is an
American case and therefore
carries only persuasive authority
in England & Wales
...
that an offer can be withdrawn at
any time up to it being
The offeree had not begun ‘partperformance’ before the offer was
revoked
...
The offer was to remain open for six
weeks
...
After Routledge
had received Grant’s letter withdrawing the
offer, he wrote back to Grant, within the
six weeks, accepting Grant’s offer
...
unconditionally accepted
...
The court held the offer could be
withdrawn within the six week period
without incurring any liability – if one
party has six weeks to accept an offer,
the other has six weeks to put an end
to it
...
The offeror (Grant)
did not have to keep his offer for any
specific time and, as chief justice Best
put it, “till both parties are agreed,
either has a right to be off”
...
Uncertainty & Agreement
Fatal Vagueness
Scammell v Ouston [1941] 1 All ER 14
Walford v Miles [1992] 2 AC 128
Facts:
The claimants wished to acquire from the
defendants a new van giving an old van in
part exchange
...
The House of
Lords allowing the defendants appeal, held
that that phrase was too vague for there to
be an enforceable contract
...
HL held it was only
agreement to negotiate and
unenforceable for uncertainty as it
extended for indefinite period
...
Normally vagueness in the words
used (contrasts incompleteness) can be
cured by the courts
...
No implied duty to
negotiate in good faith
...
33
Facts:
By an agreement made on 21 May, the
claiamnts agreed to buy form the
defendants 22, 000 standards of softwood
goods of fair specification over the season’
subject to certain conditions
...
The claimants purported to exercise
the option on Dec 22 but the defendants
could not perform as they had already sold
their supply to a 3rd party
...
The defendants argued that the option
agreement was too uncertain to be binding
because it did not sufficiently describe the
goods and contemplated a further
agreement
...
In application to the facts, the
court ruled that "fair
specification" was not vague
enough to void the contract
...
Therefore,
the option contract was valid
...
First, whether
the description of the goods in the option
clause was sufficient, and second, whether
the option clause "contemplate[d] a future
bargain the terms of which remained to be
settled
...
However,
performance had been requested and
goods had been delivered
...
No contract despite performance
Although the courts may decide that there
is no valid agreement and halt performance
of the contract, they are reluctant to do so
once performance has started
...
They made a letter of
intent, providing for the whole contract
price, contemplating full contract terms
would be based on MF/1 terms
...
13
but saying it would not be effective until
executed and exchanged
...
On 25 August terms were varied
...
The Judge held that after the letter of
intent expired, they entered a contract for
RTS to do the work for an agreed price,
but that did not include the final draft
version of the MF/1 terms
...
Molkerei
argued there was a contract of expiry, not
on the MF/1 terms, and RTS argued there
was no contract, or if there was it was on
MF/1 terms, as amended through the
negotiations
...
a dealing with the
construction of a different contract
...
By analogy
to the case of a tied house there is to be
implied in this contract a term that the
petrol shall be supplied at a reasonable
price and shall be of reasonable quality
...
”
Facts:
The claimant agreed to sell some land to
the defendants for a coach station on the
terms that the defendants bought all their
petrol from him
...
The land was conveyed the
petrol agreement was acted for 3 years
...
The claimant successfully
brought an action for breach of contract
...
In June
of 1921, the Board defined terms of
agreement:
the Board agrees to sell (and May &
A term yet to be determined
means that there is no contract if
it is an essential term; it is simply
an agreement to agree and is not
enforceable
...
On January 7, 1922, referred to
verbal negotiations for an extension of the
agreement and confirmed sale of the
tentage which would be available up to
March 31, 1923
...
As May & Butcher
insisted on this, the Board no longer
considered itself bound by the contract and
May & Butcher sued for breach
...
The court cannot read terms into
an incomplete contract
...
HL refused to imply ‘reasonable price’ to
be paid BUT the decision is now seen as a
rather restrictive approach
Implied Terms Under
The Sale of Goods Act 1979, s
...
15
General Principles on Uncertainty
15
The court always leans against a conclusion
which will leave parties who clearly
intended to contract without a legally
binding contract, and that this is the more
so where they have acted as though they
were bound
...
Mamidoil-Jetoil v Okta Crude Oil
Refinery [2001] EWCA Civ 406
Rix LJ discussed the approach
where a party said that an
agreement was not binding: “In
my judgment the following
principles relevant to the present
case can be deduced from these
authorities, but this is intended
to be in no way an exhaustive list:
i) Each case must be decided on
its own facts and on the
construction of its own
agreement
...
This may be summed
up by the principle that “you
cannot agree to agree”
...
iv) However, particularly in
commercial dealings between
parties who are familiar with the
trade in question, and particularly
where the parties have acted in
the belief that they had a binding
contract, the courts are willing to
imply terms, where that is
possible, to enable the contract to
be carried out
...
vi) Particularly in the case of contracts for
future performance over a period, where
the parties may desire or need to leave
matters to be adjusted in the working out
of their contract, the courts will assist the
parties to do so, so as to preserve rather
than destroy bargains, on the basis that
what can be made certain is itself certain
...
vii) This is particularly the case where one
party has either already had the advantage
of some performance which reflects the
parties’ agreement on a long term
relationship, or has had to make an
investment premised on that agreement
...
But even
in the absence of express language, the
courts are prepared to imply an obligation
in terms of what is reasonable
...
x) The presence of an arbitration clause
may assist the courts to hold a contract to
be sufficiently certain or to be capable of
being rendered so, presumably as
indicating a commercial and contractual
mechanism, which can be operated with
the assistance of experts in the field, by
which the parties, in the absence of
agreement, may resolve their dispute
...
Formation: Intention to Create Legal Relations
Commercial Agreement
16
Carlill v Carbolic Smokeball Company
[1893] 1 QB 256
Honour clauses: ‘Gentleman’s agreement’
The plaintiff claimed to have won the
football pools
...
It was held that the plaintiff was not
entitled to recover because the agreement
was based on the honour of the parties
(and thus not legally binding)
...
It does not apply to agreements (such as
football pools) which are stated to be
‘binding in honour only’
Commercial
Agreement
Honour clauses: ‘Gentleman’s agreement’
Facts:
It was held that a commercial agreement
between a British manufacturer and their
appointed distributor in the USA which
expressly stated that it was ‘not subject to
legal jurisdiction’ in either country was
sufficient to rebut the presumption that it
was intended to be a contract
...
As part of the
arrangement, the defendants gave the
plaintiffs a letter of comfort which stated
that it was the company's policy to ensure
that the business of its subsidiary is at all
times in a position to meet its liabilities
...
It was held that the letters of comfort were
statements of the company's present policy,
and not contractual promises as to future
conduct
...
It is presumed that there is an intention to
create legal relations in commercial
agreements
...
Commercial
Agreement
Construed the letter of comfort
to see whether the parent
company had made a promise as
to the future that had been
broken (it was held not to have
done so) rather than a warranty
of existing fact (which was
accurate so that there was no
breach)
...
If so, this is the line with the
approach to “letters of intent”
generally which, subject to words
clearly negating contractual
intention appear to be legally
binding providing sufficiently
complete and certain
...
It however does not apply to so-called
‘comfort letters’ which are interpreted as a
statement of fact rather than a contractual
promise
...
Legal Principle:
The Court of Appeal held that the
agreement was not enforceable since there
was a general presumption that there is
no intention to create legal relations
between the family members
...
They came back to
England during his leave
...
The husband promised to pay £30 per
month until she was able to return
overseas
...
The wife sued to enforce
continued payment of the £0 monthly
...
They met to
make arrangements for the future
...
When the mortgage was
paid off he would transfer the house from
joint names to the wife's name
...
It was held that when the agreement was
made, the husband and wife were no
longer living together, therefore they must
have intended the agreement to be binding,
as they would base their future actions on
it
...
The husband had to transfer the
house to the wife
...
Security for the loan was a mortgage
on the properties of the company
...
This agreement was to
remain in force until Credit for Industry
Ltd's loan had been repaid
...
The issue before the court was whether the
company, John G Snelling Ltd, could
enforce the agreement against Brian
Snelling since the company was not a party
to the agreement of 22 March
...
An agreement was made that the Parkers
would sell their house and live with the
Clarkes
...
Mrs Clarke wrote to the Parkers
giving them the details of expenses and
confirming the agreement
...
Mr Clarke
changed his will leaving the house to the
Parkers
...
They claimed
damages for breach of contract
...
Therefore the Parkers
were entitled to damages
...
Where domestic parties are clearly in
business together, the presumption will
likely be that they are intending legal
consequences unless there is clear
evidence to the contrary
...
2
Consideration
Benefit/ Detriment Analysis:
19
Currie v Misa (1875) LR 10 Ex 153
Facts:
This case involved a dispute concerning the
stopped payment of a cheque; however the
facts are not important to the legal
principle
...
”
To provide the classic definition
of consideration
...
”
Consideration;
definition
Function of Consideration
Three Basic Rules of Consideration
First Rule: Consideration must not be ‘past’
20
Roscorla v Thomas [1842] 3 QB 234
Lampleigh v Brathwait (1615) 80 ER 255
Pao On v Lau Yiu [1979] 3 All ER 65
FACTS:
On 28 September 1840 Roscorla's servant
bought a horse for his master from
Thomas for £30; Roscorla was to pay for
the horse at a later date
...
Roscorla gave Thomas the £30
and in return Thomas gave Roscorla a
memorandum which stated that
'I have this day sold to Roscorla a bay nag
for £30 which I warrant not to exceed five
years off, and to be sound in wind and
limb, perfect in vision, and free from vice
...
The issue before the court was whether the
warranty was given before or at the time
of making of the contract or whether it
was given after the contract had been
made
...
There was no link between the
consideration and the promise; ie there was
no bargain
FACTS;
Braithwaite had killed another man and
asked Lampleigh to secure a pardon
...
Braithwaite then failed to
pay the £100
...
Services performed at promisor's request
and later promise
Implication of payment (old doctrine of
implied assumpsit)
Facts:
The claimants threatened not to proceed
with the sale of shares unless the
defendant agreed to renegotiation on other
peripheral issues
...
The claimants tried to enforce
the agreement but the defendants resisted
on the basis of duress
...
The misrepresentation must be
made before the contract is
formed
...
To demonstrate an exception to
the general rule that
consideration cannot be past
...
The court, however,
considered that the original request by
Braithwaite in fact contained an implied
promise that he would reward and
reimburse Lampleigh for his efforts;
therefore, the previous request and the
subsequent promise were part of the same
transaction and were enforceable
...
Criteria was
restated in this case:
1
...
The parties must have understood that
the act was to be remunerated further by
economic duress
To set out the requirements of
economic duress
...
o Previous request device as a
means of avoiding past
consideration
o Consideration in the form of
promising to perform an
21
basis that the facts disclosed ordinary
commercial pressure that was not
sufficient to amount to duress
...
a payment or the conferment of some
other benefit and payment (in other
words, an implied promise to pay to be
qualified at a later date
...
The payment, or the conferment of a
benefit
...
Legal Principle:
The Privy Council stated that duress
requires ‘coercion of the will which vitiates
consent’ so that any seeing agreement was
given involuntarily
...
Legal Principles:
The wrappers were held to be part of the
consideration, even though they were
thrown away when received
...
This is
irrelevant
...
A peppercorn does not cease to
be consideration if it is established that
the promisee does not like pepper and will
throw away the corn
...
6d PLUS three
wrappers from their chocolate bars
...
8d
...
Chappell sued to prevent the promotion
since they would receive a much lower
loyalty from it
...
e
...
e
...
The promise not to complain was held
to be insufficiently tangible to amount to
good consideration
...
e
...
When the plaintiffs asked for
some security, the defendant promised to
provide some goods but never produced
them
...
It was held that normally in such a case,
the bank would promise not to enforce the
debt, but this was not done here
...
General rule: consideration must be
sufficient but not necessarily adequate (i
...
it
must have some value but not necessarily
equivalent value)
Forbearance
Promising to refrain from suing (where
right exists) can amount to consideration
Actual forbearance (rather than the
promise of it)
Problem Area: Sufficiency of Consideration and Performance of Existing Duties
Existing Public/ Legal Rules
Collins v Godefroy (1831) 1 B&Ad 950
But Contrast:
Ward v Byham [1956] 2 All ER 348
FACTS:
A police officer was promised a sum of
money by the defendant in a trial in
return for the officer giving evidence,
since it was important to the defendant
that the officer did so
...
Plaintiff was already obliged to attend
the trial and give expert evidence
Held: The promise was unenforceable as
no consideration was given
FACTS:
A mother’s promise to keep her
illegitimate child ‘well looked after and
happy’ in return for money towards the
child’s upkeep from its father was held
to be sufficient consideration (since
there is no legal duty to keep a child
happy)
...
He was already
under a legal duty to attend court
...
Existing Contractual Duty Owed to 3 Party
23
NZ Shipping v Satterthwaite (The
Eurymedon) [1974] 1 All ER 1015
A contract for the carriage of a machine by
ship to New Zealand provided that the
owners of the goods could not sue the
carriers or stevedores unless any claim was
brought within one year of the action
giving rise to the cause of action
...
A stevedore
damaged the machine whilst unloading it
...
The stevedore sought to rely upon the
clause in order to escape liability
...
Existing contractual duty owed
to a third party
...
Relying on the case
of Scotson v Pegg, there is
nothing to prevent consideration
owed to a 3rd party being valid
consideration for a new promise
to another party
...
The
claimant's action was
unsuccessful
...
This reasoning produced the
desired result that the stevendores were
protected by the exclusion clause
because they were parties to that
unilateral contract (rather than merely
being 3rd parties to the contract of
carriage
...
e
...
Two sailors deserted in the Baltic
...
He
agreed at the time but ultimately
refused to pay
...
General rule – no consideration is provided
(by A) if the promise is to perform the
existing duty owed to the promisor (B)
CONTRAST WITH: Hartley v
...
Therefore, there was no
consideration given by the sailors in
return for the captain’s promise to pay
additional wages
...
24
Williams & Roffey
applies
...
The
purchaser did not want to agree to the
variation in terms but feared that
refusal would delay the completion of
the boat which would have jeopardized
a lucrative charter agreement that was
being negotiated on the basis of the
original completion date of the boat,
sought to recover the additional sum by
claiming that their agreement had been
obtained by duress
...
Their own contract contained a penalty
clause for late completion, so it was in
their interests to finish the work on
time
...
Williams
fell behind schedule because , they
claimed, they had not quoted a high
enough price for the work
...
When the work was
complete, Roffey refused to pay,
claiming that the new agreement with
Williams was void for lack of
consideration (since Williams were
already fulfilling a contractual
obligation
...
e
...
Legal Principle:
It was held that pressure of this nature
could amount to duress
...
In this case, the
claim was unsuccessful, not due to the
nature of the pressure but due to the
delay in commencing action
...
This
practical benefit was sufficient
consideration
...
Myrick
...
Alteration promise to pay moreavoiding the Stilk v Myrick restriction
where the promisor’s promise gives rise
to factual benefits to the promisor (and
so provides consideration to enforce the
promise)
...
26
Second Sub-Issue: Wanting to pay less
27
Rule in Pinnel's Case (1602) 5 Co Rep 117a
Foakes v Beer (1884) 9 App Cas 605
Re Selectmove [1995] 2 ALL ER 531
Facts:
Cole owed Pinnel £810s
...
6d
...
Cole claimed
that there was an agreement tha the part
payment would discharge the full debt
...
They agreed
that Foakes could pay in instalments
...
Later, Beer demanded
an additional interest payment
...
B agrees not to sue for interest if F pays in
instalments over 5 years
B changes her mind and sues for
interest
Held: B can recover the additional sum
because F provided no consideration for
her promise
Selectmove Ltd
...
A tax collector met with the
manager on July 15, 1991 and discovered the
company was in financial difficulty
...
The collector indicated
he would have to get approval from his
superiors
...
Between August and November 1991 the
company submitted its current obligations
in part and made seven £1,000 payments in
Payment of a lesser sum may
discharge the full debt if some
additional consideration is
provided
...
Legal Principle:
Pinnel was unsuccessful in claiming the
balance of the unpaid debt
...
However, since Pinnel
gained some benefit by part payment
having been made early, this was
sufficient consideration to enforce his
promise to forego the balance of the
debt
...
Alteration promise to accept
less than the debt owed: needs
to be supported by
consideration and this
consideration is not provided
by performance of existing
contract i
...
by making a part
payment of the existing debt
...
Payment
earlier at creditors request
...
Selectmove
argued that Williams v Roffey
Bros was the appropriate
precendent as the Crown would
have a practical benefit for
waiting to retrieve the money
owed as it would generate more
money from an operating
company rather than forcing a
sale immediately
...
Consideration,
Part Payment of
Debt
“Payment of a lesser sum on the day in
satisfaction of a greater sum cannot be any
satisfaction for the whole, because it appears
to the Judges that by no possibility, a lesser
sum can be a satisfaction to the [claimant]
for a greater sum; but the gift of a horse,
hawk, or robe etc
...
”
Legal Principle:
Beer succeeded in the claim for the
interest payment
...
Promissory
Estoppel
28
1992
...
In September 1992
the Crown sought a liquidation order for
the company and the payment of the
arrears in the amount of £17,466
...
Selectmove argued that the Crown had
accepted the agreement in July 1991
...
Third Rule: Consideration Must Move from the Promisee
Promissory Estoppel
The Origins
Hughes v Metroplitan Railway (1877) 2
App Cas 349
Forfeiture clause operating on set date
Negotiations took place for the tenant to
buy property
The tenant was led to believe that
forfeiture would not occur during
negotiations
Held: Landlord not allowed to insist on
strict legal rights
Concerned the doctrine of
waiver- that is, that parties
should be prevented from
going back on a promise to
waive certain rights
...
Due
to the war, occupancy rates were
drastically lower than normal
...
Neither party
stipulated the period for which this
reduced rent was to apply
...
Central London Property
Trust sued for payment of the full
rental costs from July 1945 onwards
...
Promissory estoppel as a defence
to prevent a promisor from going
back on his promise to forgo
legal rights (accept less than he is
owed) where the debtor has
acted on that promise and it
would be unfair to do so
...
Metroplitan Railway Co (1877) which
concerned the doctrine of waiver- that is,
that parties should be prevented from
going back on a promise to waive certain
rights
...
He also stated obiter that if central
London had tried to claim for the full rent
from 1940 onwards, they would not have
been able to
...
Promissory
Estoppel,
Consideration
Requirements for Promissory Estoppel
29
Promise by Representation
Hughes v Metropolitan Railway (1877) 2
App Cas 349
Express, implied or by conduct
Reliance by Promisee
Promisee must act equitably
D & C Builders v Rees [1965] 3 All E
...
837
Facts:
D owed P builders £482 and was taken to
know that P was in financial difficulties
when D offered £300 in full settlement
...
CA held that there
was no consideration to support P’s
promise
...
R did not act equitably in applying
pressure
Held by Lord Denning: No estoppel
granted
NB: The majority simply applied Foakes v
Beer; no consideration had been provided
by R
Requirement for Promissory
estoppel to apply: It must be
equitable for the promisor to go
back on his promise
...
Duress will prevent the promissory
estoppel defence from operating as the
promise must be freely given
...
Each
of these partners were jointly and severally
liable for the whole debt
...
Allegedly agreed to accept one –third of
the sum due from each
...
The other 2 partners declared
bankruptcy and Wright Ltd
...
In prospect of success, the
Court of Appeal held that Collier might
have a case in promissory estoppel but
reaffirmed the rile in Pinnel’s Case that
part-payment of a debt cannot discharge
the debt if unsupported by further
consideration
...
W’s demand was
therefore set aside
...
When TMM heard of
this they waived all infringements in return
for Tungsten paying 10% Royalty and also
30% 'compensation' if sales exceeded 50KG
in any month
...
Tungsten
struggled to make payments
...
Confirms that on reasonable notice can
return to strict legal rights
During the period when the
promise was operative, and until
reasonable notice expired, the
right to compensation was
extinguished so that TMMC could
not later claim compensation for
that period
...
Held: TMM could not enforce the
compensation payments during the war
years but could enforce them on
termination of the war
...
Generally promissory estoppel will merely
suspend legal rights rather than extinguish
them
...
Cannot use estoppel instead of
consideration to form contract
A husband promised to make maintenance
payments to his estranged wife but failed
to do so
...
The doctrine of promissory
estoppel applies subject to certain
requirements:
The doctrine can only be used as
a defence
...
It does not
create new rights
...
There was no preexisting agreement which was later
modified by a promise
...
Although she had provided no
consideration for her husband’s promise,
the High Tree principle applied
...
Shield or Sword?
Combe v Combe [1951] 2 KB 215
BUT contrast promissory estoppel with proprietary estoppel
Crabb v Arun DC [1975] 3 All ER 865
The claimant owned land along the side of
which was a road owned by the defendant
council
...
He wished to divide his land
into 2 to be sold off but to do that he
would need another right of access at point
B
...
The
defendant erected a boundary fence and
put gates at points A and B
...
e
...
31
had access point A so that for the rest of
his land he was dependent on access point
B
...
The
claimant brought an action seeking, first, a
declaration that he had a right of access at
point B and a right of way along the road
and, secondly, an injunction retraining the
defendant from interfering with those
rights
...
The Mahers said that they
did not wish to complete all the demolition
work until it was clear that there were no
problems with the lease
...
Further demolition
work was then carried out by the Mahers
but Waltons began to have second
thoughts about the deal and instructed
their solicitors to go slow
...
Facts:
The claimant had been one of the main
suppliers of garments to the defendant
retailer for 30 years
...
One issue was whether the
parties had entered into a long-term
contract which could not be terminated by
so short a period of notice
...
The
claimants alternative argument was that,
even if there was no concluded long-term
contract, the defendant was estopped from
terminating the relationship by so short a
notice period
...
The case was
not one of proprietary estoppel
because the promisor (Waltons)
was not promising to confer
rights over its land: rather it was
promising to enter into a
contract to take a lease
...
Held: D estopped from denying implied
promise to complete (i
...
create) contract
Because D stood by in silence while P
acted to his detriment
It was unconscionable for D to adopt
course of conduct to encourage P’s
assumptions
Promissory estoppel extended to
enforcement of voluntary obligations
Held: the Mahers accepted that there was
no formally binding contract because, as
with all contracts for interest in land, the
agreement was ‘subject to contract’ which
required an exchange of contracts
...
A ‘Walton Stores’ argument was rejected
but the CA left the possibility open for
future development
This case firmly rejects the view that
under the present English law promissory
estoppel can be used as a cause of action
(even if the claim is limited to the
protection of the claimant’s reliance
interest)
...
The court of appeal here accepted that
different principles apply to different types
of estoppel
...
Economic Duress
Siboen and The Sibotre [1976] 1 Lloyd’s
Rep 293
FACTS:
The defendants chartered two vessels from
the claimant
...
This
was completely untrue
...
The claimants therefore agreed to
renegotiate the contract to lower the cost
of charter
...
Most relevant issue is one-sided contract
variation (i
...
benefit is just for one party):
the basic principle is that no real consent
was given
Grew out of physical duress
Pao On v Lau Yiu [1980] AC 614
This was the first case where
economic duress was recognised
as giving rise to a cause of action
...
The Universe Sentinel [1983] 1 AC 366
Subsequently reformulated as ‘no other
realistic choice than to agree’
Dyson J in DSND Subsea v Petroleum Geo
Services [2000] BLR 530
Facts
The claimant DSND, was carrying out
construction work for the defendant, PGS,
an oil rigs in the North Sea
...
The true question is ultimately
whether or not the agreement in question is
to be regarded as having been concluded
voluntarily”
...
To amount to economic duress
there had to be a coercion of the will so as
to vitiate consent
...
Most relevant issue is one-sided contract
variation (i
...
benefit is just for one
party): the basic principle is that no real
consent was given
Original requirement was for coercion
of the will, vitiating consent
Facts:
A strike organized by ITWF was
delaying the production of a ship that
was being built for the claimant
...
The claimant
made a payment but sought to recover
the payment on the basis that it was
obtained by duress
...
To illustrate the view that the
test for duress should consider
whether the innocent party
was given any practical
alternative other than
compliance
...
Either pay
into the union funds or lose income
because the production of the boat is
delayed
...
The pressure/threat must be illegitimate
but difficulty in identification: “illegitimate
pressure must be distinguished from the
rough and tumble of the pressures of
33
suspended its work pending the signing of
a contractual variation with more
favourable terms for DSND
...
The Judge rejected
that duress argument for 3 reasons
...
Secondly, in
ant event PGS had not entered into the
agreement because of duress and had had
realistic practical alternatives
...
The case is
perhaps particularly significant for Dyson
J’s succinct statement of the law on duress
at in which, controversially, he separated
out he lack of a practical choice as a third
element and in which he referred to a list
of relevant factors in deciding whether the
pressure was illegitimate
...
These include:
whether the victim protested at the time;
and whether s/he affirmed or sought to
rely on the contract”
Legitimate vs Illegitimate Pressure
R v HM Attorney-General [2003] UKPC
22
Facts
R was a member of the SAS
...
The publicity lead to
controversy amongst the patrol as it was
motivated by commercial gain and
distorted the truth placing blame on some
of the dead and surviving members of the
patrol
...
R was told that he must sign the
confidentiality agreement if he wished to
continue in the regiment or be Returned to
Unit which would be a considerable
demotion for the claimant and was
generally given as a form of punishment
...
He signed the agreement in Oct 1996 and
in March 1997 took the decision to leave
the Army
...
However, there must still be
absence of choice
...
He
may have been faced with overwhelming
pressure, but he still had choice
...
34
the memories of his lost colleagues
...
R
sought to have the confidentiality
agreement set aside as it was signed under
military orders he raised both duress and
undue influence in his defence
...
A consignment of cigarettes
ordered by the claimants went stray ad the
defendant agreed to re-deliver but the
goods were stolen prior to the delivery
...
The claimants
were told that their credit facilities would
be withdrawn if they did not agree to pay
for the stolen cigarettes so they agreed but
subsequently claimed that the agreement
was obtained through duress
...
It engaged the
claimant to transport the goods but, due to
a miscalculation of the costs involved, the
claimant increased the price of delivery
after the contract had commenced and
threatened to cease delivery in breach of
contract if the new price was not accepted
by the defendant
...
D insists on price increase and P agrees
Held:
P had no alternative available
D was large company, P was small
company
The court held that threats of lawful
action (to withdraw from credit facilities)
could amount to illegitimate pressure but
that it did not do so in this situation
...
It was held that this did amount to
economic duress as the threat to breach
the contract was illegitimate pressure and,
due to the timeframe involved, the
defendant would have been unable to find
an alternative means of ensuring that its
goods reached the customer
...
3
TERMS- The Content of a Contract
Express & Implied Terms
What is a Term?
36
Distinguish: Terms & Representations
Factors in Distinguishing between Terms & Representations
Importance of the statement:
Bannerman v White (1861) 10 CB NS
844
Verification:
Ecay v Godfrey (1947) 80 Lloyd’s Rep
286
Facts:
The defendant was the purchaser of hops
...
’ The seller
stated (wrongly) that they have not be so
treated
...
The seller
sued on the basis that the discussions were
preliminary to the contract and not part of
it
...
He stated that as far as he was aware the
boat was sound and free from vice but
advised the claimant to have it
surveyed
...
To show that the more important
a pre-contractual statement, the
more likely it is to be considered
a term of the contract
...
The court held that the
statement was no important to the
purchaser that it became a term of the
contract that had been breached
...
It is
not merely that the statement is important
to the other party but that he makes this
importance clear to the other ahead of any
statement being made
...
The
statement was not sufficiently emphatic to
amount to a term and the advice to have
the boat surveyed demonstrated the
defendant did not wish the claimant to
rely on the statement
...
Facts:
The claimant asked the defendants to
source a ;well vetted’ Bentley
...
It had, in fact,
done 100,000 miles, which the claimant
discovered after purchasing the car
...
Morris LJ dissented because he
considered that the application of
that test to the facts meant that
there was a warranty
...
Held: The statement relating to the age of
the car was not a term but a
representation
...
Legal Principle:
The statement regarding mileage was held
to be a term of the contract
...
Incorporation of
terms; specialist
knowledge
...
She
ordered a cigarette machine from the
manufacturers which was faulty
...
L’Extrange
claimed for breach of a term implied by
the Sales of Goods Act 1893 that the
goods were unfit for the purpose
...
Binding in absence of fraud,
misrepresentation [or duress]
Even if the document is unread
Electronic signatures are included within
this principle; see the Electronic
Communications Act 2000, s7
Concerning:
Incorporation of terms; signed contract
Legal Principle:
L’Estrange’s claim failed
...
To demonstrate incorporation
of an exclusion clause by
signature
When a document containing contractual
terms is signed, then, in the absence of
fraud, or, I will add, misrepresentation, the
party signing it is bound and it is wholly
immaterial whether he has read the
document or not
...
Exclusion of
Clause
Limitation to the rule:
Misrepresentation of document effect/extent
Curtis v Chemical Cleaning & Dyeing
[1951] 1 KB 805
Peekay Intermark v Australia and NZ
Banking [2006] EWCA Civ 386
Facts:
The claimant took a wedding dress to
be cleaned
...
When
asked the shop girl said that the clause
only referred to exclusion for liability for
damage to beads or sequin on the dress
...
The dry
cleaners attempted to rely on the
exclusion clause
...
The
To show that an exclusion
clause in signed contract can
be wholly or partially
invalidated by a
misrepresentation as to its
effect
An investor could not argue that
he had been induced into
entering a contract to make an
investment by a
misrepresentation as to the
nature of that investment when
the true nature of the transaction
Legal Principle:
The claim was successful
...
The court said that the exclusion clause
would be effective only if the event of
damage to sequins or beads
...
Held: The later correction did not correct
the earlier misrepresentation
...
had been communicated to him
in the final terms and conditions
of the contract, which he had
signed without actually reading
...
Document must be ‘contractual’
Grogan v Robin Meredith Plant Hire
[1996] CLC 1127
Arose from adult illiteracy but now very
rarely succeeds
Signed document was a timed sheet
A timesheet is an administrative document
and a reasonable person would not expect
it to contain contractual conditions
...
The circumstances
surrounding the document's use by the
and the parties' understanding of its
purpose should be considered
...
Mr Lee
then used that document to obtain a
mortgage on the property for £2,000
...
Mr
Lee was a friend of Mr Parkin who was
Mrs Gallie's nephew
...
She had told
them she would assign her house to the
nephew as a gift on condition that he
allowed her to remain there rent free for
life
...
She signed the document
in both their presence but could not find
her glasses so had not been able to read it
...
However, in the action
against the building society Mrs Gallie
raised the plea of non est factum (it’s not
my deed)
...
Against that background, a
transfer to Lee rather than to her
nephew was not so very different
...
The
mistake regarding the legal effect of the
document must not result from
carelessness of the claimant
...
The document was not
radically different to that which she
believed it to be in that she believed that
she was relinquishing her rights to the
property in any event
...
To illustrate that an exclusion
clause will only be incorporated if
it is on a document that might
reasonably be expected to contain
contractual terms
...
The court did
not accept that the exclusion clause had
been incorporated into the contract since
it has not been brought to the claimant’s
Incorporation by Notice
First Rule: Nature of incorporating document
Chapelton v Barry Council [1940] 1 KB
532
Facts:
The claimants hired two deckchairs and
received two tickets from the council’s
beach attendant in return for payment
...
One chair collapsed
and the claimant was injured as a result
...
Held: Ticket was only a receipt
Incorporation: reasonable notice
in time
...
The ticket might come later
and so was not part of the
contract formation process
...
Second Rule: Reasonable notice must be given at or before the time the contract is made
First Issue: Reasonable notice
Parker v South East Railway (1877) 2 CPD
416
O’Brien v MGN [2001] EWCA Civ 1279
Facts:
Mr
...
The ticket had
a clause on the back which provided that
the railway company would not be liable in
respect of any luggage exceeding £10
...
Offeree does not need actual (subjective)
knowledge of the terms
Requirement is for the offeror to do what
is ‘reasonably sufficient’ to bring the terms
to the offeree’s attention
for an interesting, modern example
A newspaper offered a scratch card
competition
...
They sought
to rely upon the rules, which would allow
them to carry out a further draw to
allocate the prize
...
To show that a party who wishes
to rely on an exclusion clause
must take reasonable steps to
bring it to the attention of the
other party
...
Parker’s claim was successful since the
railway company could not prove that they
had brought the claimant’s attention to
the exclusion clause
...
The judgment indicates the
uncertain scope of the
‘particularly onerous or unusual’
Interfoto principle
...
Held: The rules were incorporated
...
They were neither
particularly onerous nor unusual nor
outlandish, and whilst they might have
done more to provide access to the rules,
they had reasonably done enough
...
Drivers were required to stop at a
barrier on entry to the car park and take a
ticket from a machine
...
Each ticket contained a statement
saying that ‘This ticket is issued subject to
the conditions of issue as displayed on the
premises’
...
These included a clause which
excluded liability for damage to property
and personal injury
...
The defendants argued that they
were covered by the exclusion clause
...
g
...
There were 47 of these
transparencies and they had been kept
inadvertently for an additional 2 weeks and
a charge of £3,783
...
CA held that this term has not been
incorporated since it was particularly
onerous and unusual and therefore had to
be fairly and reasonably brought to the
other's attention, which had not happened
...
Incorporation by reasonable
notice and automatic machines
...
Legal Principle:
The claim was successful
...
Lord Denning concluded that the contract
was formed at the moment that the
barrier was activated:
A higher standard of
incorporation will apply of the
particular clause is considered to
be onerous or unusual
...
‘if one condition in a set of printed
conditions is particularly onerous or
unusual, the party seeking to enforce it
must show that that condition was fairly
brought to the attention of the other party
in the most explicit way
...
He pays his money and gets a ticket
...
He cannot get his oney
back
...
But it will remain unmoved
...
”
Incorporation of
Terms
...
The claimants sent a
confirmation note which detailed the
equipment ordered ad provided in small
capitals that ‘orders are subject to our
conditions of sale- for extract see reverse’
...
Condition 7
...
By
condition 7
...
3 the purchaser was required
to give notice of defects within 7 days of
discovery
...
4 the purchaser
was required to allow such time and
opportunity as estimated by the supplier
41
And:
O’Brien v MGN [2001] EWCA Civ 1279
available on request’
...
The tubes proved to be
defective and it was necessary to return
them to the claimants for modification
...
33
...
The
defendants disputed the deduction, having
regard to their standard conditions of sale,
condition 7
...
Particularly onerous or unusual – who
decides, and when?
Particularly onerous or unusual – who
decides, and when?
to be necessary to remedy defects
...
Pursuant to condition 7
...
In allowing the defendant’ appeal, the
Court of Appeal (by a majority) held as
insufficient notice has been given of it,
condition 7
...
Second Issue: Time of Incorporation
Olley v Marlborough Court Hotel [1949] 1
KB 532
Facts:
Mr and Mrs Olley booked into the
Marlborough Court Hotel
...
While they were out for the
evening, their key was taken from
reception and used to gain access to their
room
...
The
hotel attempted to disclaim liability based
on a notice displayed on the wall of the
Olley’s hotel room which states that:
To show that exclusion clauses
must be introduced before or at
the time of the contract
...
The contract was formed at
the reception desk, at which time the
Olleys has not been to their room and,
therefore, could not have seen the notice
...
Exclusion
Clause; timing
of notice;
express notice
“The proprietors will not hold themselves
liable for articles lost or stolen unless handed
to the manageress for safe custody
...
Knowledge of terms is tested subjectively,
thus prior relations are therefore not
enough unless there was actual subjective
knowledge of the condition
...
Usually, David
MacBrayne Ltd
...
The Lochiel, the
ship carrying the car, sank due to
negligent navigation on the part of
MacBrayne
...
Both said they knew the notes
contained conditions but not what the
conditions were
...
Argued that even though it was not
signed, the term letting McCutcheon
assume the risk of an accident had been
incorporated into their contract through
a course of dealing
...
Compare the following 2 cases:
Hollier v Rambler Motors [1972] 2 QB
71
British Crane Hire v Ipswich Plant Hire
[1975] QB 303
Facts:
Hollier had had a service or repair done by
the defendant’s garage on three or four
occasions
...
When used, the form was filled in
to describe the details of work to be done
and the price, and signed by Hollier
...
’ While Hollier’s car was in the
garage, it was substantially damaged by a
fire that arose from faulty electric wiring
on the defendant’s premises which has not
bee properly inspected or maintained
...
The
defendant relied on the clause set out in
the invoice
...
The defendants,
Ipswich Plant Hire (IPH), were doing some
work on some marsh land and needed a
dragline crane urgently so contacted the
claimant, British Crane Hire (BCH), to hire
one
...
In consumer contracts, where the
exclusion clause seeks to protect
the (stronger) position of the
seller, the courts may require
evidence of a large number of
past transactions in order to find
incorporation via a previous
course of dealings
...
The Court of
Appeal held that the term was not
incorporated into the contract by the
previous course of dealings
...
The clause
was in general terms and did not refer
specifically to negligence
...
The indemnity clause was here
held to be incorporated not
because of a course of dealings
but rather because such terms
were customarily included (ie it
was ‘trade practice’) in the trade
(hiring out plant) to which both
parties belonged
...
Unfortunately the crane sank in the marsh
land so much that it was out of sight
...
However, it cost a
great deal of money to get it out
...
A copy of the
terms and conditions of hire were handed
to the defendant on delivery of the crane,
although the defendant had not yet read or
signed it
...
defendant was unaware of it at the time
the contract was made, however, the court
implied the term into the contract as both
parties were in the business of plant hire
and it was known to both that the use of
such terms was prevalent in the trade
...
The ship was grounded at
the jetty at low tide and broke up on
the rocks
...
The defendants
claimed that there was no express term
relating to the safety of the ship and, as
such they could not be liable for breach
of contract
...
Concerning:
Terms implied in fact
Legal Principles:
The court held that there was an implied
term in the contract that the ship would
not be damaged
...
Therefore the defendants were
liable for breach of this implied term
...
‘Officious Bystander’ Test
Shirlaw v Southern Foundries [1939] 2 KB
206
Facts:
The claimant had been employed as a
managing director of Southern Foundries
the office of employment was to last for 10
years
...
HELD:
44
The Court of Appeal applied the officious
bystander test and did imply the term
...
remove directors
...
There was
no breach of contract for his dismissal
based on the employment contract as they
had not dismissed him from being a
managing director but only as a director
...
The
claimant asked the court to imply a term
that the defendant would not act in a way
making it incapable for him to perform his
contract
...
Necessary to give effect to parties’ reasonable expectations
***Equitable Life v Hyman [2000] 3 All
ER 961
FACTS:
Equitable Life (est 1762) issued ‘with
profits’ life assurance policies, which are a
way of saving for retirement
...
e
...
They could choose to have their
annuity at a "guaranteed annual rate"
("GAR") that would be fixed, or a "current
annuity rate" ("CAR") that would fluctuate
according to the market
...
From 1993 the
current annuity fell below the guaranteed
one
...
The directors of
Equitable Life decided they would reduce
the level of terminal bonuses for GAR
policyholders, from the higher figure
shown on the GAR policyholders' annual
bonus notices, to a lower figure (if
necessary to zero) so as to equalise the
benefits so far as possible
Lord Steyn:
‘the legal test for the implication
of such a term is a standard of
strict necessity’
...
’ The
case concerned ‘with profit’
pension policies issued by a life
assurance society (which were
treated as contractually binding
as between the members and the
directors)
...
Steyn: ‘In my judgement an
implication precluding the use of
the directors’ discretion in this
way is strictly necessary
...
’
Life assurance with guaranteed
minimum return (‘Guaranteed annuity
rate’ (GAR))
Articles of association gave directors
discretion to apportion final bonus
Directors decided to give GAR
pensioners lower final bonus (£1
...
Second Category: Terms implied in law
46
To illustrate that contractual
terms may be implied by law at
common law
...
Irwin alleged a breach
on the part of the council of its implied
covenant for their quit enjoyment of the
property
...
g
...
They had not worked the requisite 40
years before retirement to get
full superannuation (or pension) benefits
...
Their employer did not tell
them this
...
Reynold QC, counsel for the employees,
argued a ‘necessary’ term of employment
was information about exercising rights
under the superannuation scheme
...
The
decision does not mean that in
most contracts of employment,
employers now have an implied
duty to inform employees as to
their rights
...
But compare:
Crossley v Faithful & Gould Holdings
[2004] EWCA Civ 293
An employee, who has resigned on mental
health grounds, had followed his employers
advice in backdating his resignation for tax
reasons
...
The employee brought a claim for damages
arguing that there was a term implied by
law into his employment that his employer
The Court of Appeal rejected the
implication of such a term for 2
principal reasons
...
Secondly,
it would impose an unfair and
unreasonable burden on
employers
...
The term was clearly not
implied in fact
...
The implication was also
not required to give business efficacy to the
contract
...
This was
done by the imposition of a legal duty even
though no contractual term could be
implied in fact
...
It was submitted that their contract of
employment contained an implied term
that obliged the defendants to bring the
offer to their attention
...
Claim for an implied term rejected as
being too wide
More significantly, Dyson LJ rejects
‘necessity test’, preferring “reasonableness,
fairness and the balancing of competing
policy considerations”
47
would take reasonable care for his
economic well-being
...
1589
A bank's insurance policy which covered
loss through theft committed by persons
present on the bank's premises
contemplated theft by a thief who was
physically present on its premises
...
Within that case,
Lord Cozens-Hardy MR explained
that “It is the duty of the court
...
This literal
approach is best explained in that
when interpreting a contract, the
court will look exactly to the
normal meaning of the words,
regardless of the intention of the
parties
...
The Securities and
Investments Board(now under the FSA)
started a compensation scheme
...
ICS would then sue on
the investors' behalf
...
The question was whether
ICS, and not the investors, had a right to
claim damages and rescission against the
building societies
...
This turned on the
meaning of the term ‘additional residential
payment’ (ARP)
...
The
owners argued that, on the true
construction of the contract, they were
owed £4,484,862
...
The scope
of that clause could be plausibly construed
in 2 ways
...
Interpretation is the meaning
that the document would convey
to the reasonable person (with all
the relevant background
knowledge)
...
Background is the ‘matrix of
facts’ – includes anything which
would have affected the way the
language of the document would
be understood by the reasonable
person
...
BUT excludes parties’ previous
negotiations and subjective
intentions
...
Distinguish meaning of words
(dictionary definition) AND
meaning of document (judged
against relevant background)
...
Words normally given ‘natural
and ordinary meaning’ BUT not
where it would result in
absurdity
...
They
also decided that, had they
reached the contrary view on
construction, the developers
would have been entitled to
rectification of the contract
...
Rather one
should go straight to preferring
the construction most likely to
a purposive approach (particular emphasis
on the commercial purpose of the
transaction
Parties’ intentions on contractual content
were assessed by reference to objective
criteria
...
Owners succeeded in the lower courts but
the developers appeal was allowed by the
House of Lords, which held that the
smaller sum was due
...
Parties’ intentions on contractual content
were assessed by reference to objective
criteria
...
give effect to the commercial
purpose of the contract
...
4
Types of Terms
Types of ‘Consequences’ Terms
Exclusion Clauses/ Terms
1
...
Consumer Contracts
Common Law Controls
1
...
Challenging the working of the term
The contra proferentem rule
Andrews Bros v Singer & Co [1934] 1 KB
17
?????
Construe (ie, interpret) ambiguities
against person seeking to rely on clause
For example: “No liability for breach of
implied conditions of fitness” would not
apply to express conditions
Interpretation when attempting to exclude liability for negligence
Prelimary issue: Standards of Performance
1
...
Negligence Liability
Canada Steamship v The King [1952]
AC 192
Facts:
The claimants’ goods were stored in a shed
leased from the Crown (the defendant)
...
By clause 7 of
the lease ‘ the lessee shall not have any
claim…against the lessor for…damage…
...
The Privu
Council held that that exclusion clause did
not exclude liability for the defendant’s
negligence because, applying the principle
in the Alderslade case, the defendant could
realistically have been strictyly liable for
damage to the goods (eg by breach of its
strict obligation to keep the shed in
repair)
...
see Lecture Handout No
...
As a result of negligence and
breach of contract the claimant’s vessels
sunk
...
Generally treated with less
hostility by the courts
The House of Lords held that where the
clause limits liability rather than excludes
liability altogether the courts should apply
the natural meaning of the clause and not
be too eager to find ambiguity
...
The relevant
words must be given, if possible, their
natural, plain meaning
...
Clauses of limitation are
not regarded by the courts with the same
hostility as clauses of exclusion
...
A
clause in the standard term provided that
‘Under no circumstances shall the
Company be responsible for any injurius
act or default by any employee of the
company unless such act or default could
have been forseen and aboided by the
exercise of due diligence on the part of the
company as his employer
...
Held: No rule that exclusion
clause could not cover
fundamental breach
Lord Diplock: It is wrong to
place a strained construction on
words in commercial (nonconsumer) contract
The more serious the breach, the
less likely it is that
Construction of exemption clause:
natural and ordinary meaning
with clear words needed to cover
a breach of this nature
...
Legal Principle:
At first instance, the court held that the
exclusion clause did cover the breach
...
However, the
House of Lords reversed the decision of
the Court of Appeal: although the
defendant company was in breach, it
was allowed to rely on the exclusion
clause because the clause clearly and
unambiguously covered the breach that
had occurred
...
The agreement purported to
exclude the usual statutory implied
obligations protecting the buyer
...
Was this contract made ‘in the
course of a business?” CA held either the
contract must be an interal part of the
business, or, it is merely incidental to the
business, it must be carried out with
sufficient regularity to render it a contract
in the course of business
...
A company can ‘deal as a
consumer’ with s
...
6(2( UCTA will prevent
the exclusion of the implied
statutory obligations
...
14
Sale of Goods Act 1979
Was transaction integral part of business?
Here merely incidental, and not regular
Held: P was dealing as a consumer
Selling in the course of business
Contrast:
Stevenson v Rogers [1999] 2 WLR 1064)
Types of Liability:
Facts:
The defendant was a fisherman
...
The claimant
brought an action against the defendant
based on breach of S
...
S
...
The defendant argued that the
sale of the boat was not in the course of
his business
...
Held: The sale was in the course of the
business and therefore the defendant did
have to ensure the boat was of satisfactory
quality
...
However, this
case was not concerned with UCTA 1977
as such and the Court of Appeal expressly
distinguished R & B Customs Brokers on
the basis that it was dealing with a
different statutory provision
...
Negligence liability, s
...
Contract liability, s
...
3(2)(b)(i) and (ii) – to
provide substantially different contractual
performance OR to provide no
performance at all
Effect of s
...
Indemnities (s
...
5)
UCTA
Section 4 – applies where buyer deals as a
consumer; term must satisfy
reasonableness test
Section 5 – term is void if attempting to
exclude manufacturer’s negligence liability
for defective products
4
...
6 UCTA Applies to ALL
contract relationships: business-business,
business-consumer and consumer-consumer
(see s
...
12) – attempts to exclude are
void, whether business-business, businessconsumer or consumer-consumer
Description and satisfactory quality (SOGA,
ss
...
Supply of Goods & Services Act 1982 (Hire
etc), s
...
Misrepresentation, s
...
3
Misrepresentation Act 1967
Term subject to reasonableness test
Varieties of Exclusion Clauses, s
...
11 and Schedule 2
Guidance contained in Schedule 2
Helpful summary by:
Potter LJ in Overseas Medical Supplies v
Orient Transport (1999) (Official
Transcript at [10]
Parties’ relative bargaining power
Whether customer received inducement to
agree to the term
Whether customer knew/ought reasonably
to have known about the term
?????
Case law on ‘reasonableness’
Mitchell v Finney Lock Seeds
FACTS:
The Claimant farmer George Mitchell
purchased 30lb of Cabbage seed from the
defendants for £192
...
The cabbage
seeds only produced a small green leaf
plant not fit for human consumption
...
The
claimant had lost £60,000 + interest on the
defective seeds
...
Example of Interventionist Approach
Mitchell v Finney Lock Seeds [1983] 2 All
ER 737
St Albans v ICL [1995] FSR 686
Smith v Eric Bush [1989] 2 All ER 514
Held: Clause was unreasonable because:
Who was in best position to insure?
Who was at fault?
No negotiation of term and previous
practice in settling claims
Facts:
A contract to provide software (COMCIS)
for the implementation of the Community
Charge ("poll tax") of International
Computers Ltd limited its liability to
£100,000
...
Because of
errors in the software, the loss to the
council was £1,313,846
...
International Computers Ltd claimed that
the liability limitation should remain
...
On
appeal the Court of Appeal
reduced the amount of damage
but upheld the overall decision
...
There was no contractual
relationship between the claimant and
defendant as the mortgage company
arranged the survey and the claimant made
payment to the mortgage company
...
In
considering if such a clause was reasonable
under the Unfair Contract Terms Act 1977
the court took into account the fact that it
was a modest house to be used as the
family home and concluded that it was an
unreasonable clause and therefore
ineffective
...
section 11(3), not section 11(1)
...
This is,
therefore, a rare case where the
reasonableness test was being applied to a
situation in which the claimant was a
consumer
...
The contract contained
the defendants’ standard terms which
included a limit of liability clause of 2
terms, one excluding liability for any
‘claims for indirect or consequential losses
whether arising from negligence or
otherwise’ and the other limiting liability in
any event to the contract price paid (which
was here £104,600)
...
5 M
for breach of contract compromising loss
of profits (of some £4
...
Facts:
AXA entered into standard agreements
with various companies (the “appointed
representatives”)
...
The appointed representatives disputed the
Held: Term was reasonable
Parties of equal bargaining power; contract
negotiated by experienced businessmen
In those circumstances, court should not
interfere
Court of Appeal held that each of the 2
terms in the limit liability clause was
reasonable under section 11 of UCTA 1977
...
There was…
here, no language to the effect
that the parties were agreed that
no representations had been
made or relied on
...
General themes of interpretation cannot
56
amounts claimed
...
One of the clauses in dispute was the
entire agreement clause included in the
standard agreement
...
This means the parties can’t rely
on any other representations that have
been made before the contract was entered
into, unless incorporated
...
But
it also found the alleged statements the
appointed representatives relied on were at
best, collateral warranties, and not
misrepresentations
...
The failure to use clear drafting and the
reliance on a simple form of entire
agreement clause would have resulted in
AXA being unable to preclude any claims
for misrepresentation
...
Certain elements
will need to be the subject of separate
bespoke provisions – the more valuable
the right that is sought to be modified or
excluded, the clearer the language will
need to be
...
Was an assessment of the fairness of the
term excluded by reg 6(2)?
Bank said term concerned adequacy of
remuneration
Held: Term could be assessed for fairness
...
The
judgement debt was ordered to be paid by
instalments but it did not include the
contractual interests so that, having paid
off the instalments, the debtor would find
that he still owed money in respect of the
interest
...
Nevertheless, HL concluded that any
unfairness to consumers resulted from the
inability to add the contractual interest to
the judgement debt and not from the term
itself
...
This was a somewhat
surprising decision because one
would have expected the
Supreme Court to be anxious not
to give this Regulation a wide
meaning so that the fairness of
charges could be assessed
...
Was the term unfair?
House of Lords held: No – term was fair
Typical parties would assume interest
payable, so no significant imbalance
Yet borrowers who agreed instalments in
court would be unpleasantly surprised to
get later bill for interest
Office of Fair Trading v Abbey National
Plc [2009] UKSC 6
Facts:
Abbey National, Barclays Bank, Clydesdale
Bank, HBOS, HSBC Bank, Lloyds
TSB, Nationwide Building Society and
the Royal Bank of Scotland asked for
declarations that their standard terms for
charging customers were incapable of
being penalties at common law
...
The
OFT argued that the breach of contract
was not going into overdraft, but the
customer telling his bank to go into
overdraft
...
58
to regard the overdraft charges as
not part of the price for banking
services because most customers
do not incur such charges
...
There was no
need t regard as relevant that the
system of ‘free-in-credit’ banking
is subsidized from unauthorized
bank charges
...
Ashbourne acts for over 700 gyms in the
UK, typically those at the lower end of the
market
...
The Ashbourne
contract imposed a minimum membership
period of between one and three years on
members
...
Other versions of the Ashbourne contract
provided that, if a gym member committed
even a minor breach of the agreement, the
gym could terminate the agreement and
claim all membership fees payable in
respect of the entire minimum period
...
Although one
may regard this as a rather
tortuous distinction, it was
stressed that it was only ‘the
definition of the main subject
matter of the contract’, as
opposed to the consequences for
members which could not be
assessed for fairness
...
Ashbourne had in fact registered
over 17,000 default reports with credit
reference agencies
...
It also
alleged that Ashbourne's use of unfair
contract terms and its credit reference
agency reporting practices contravened the
CPRs
...
The OFT considered
that members who decided to pay by
monthly subscriptions were offered credit
agreements within the meaning of the
Consumer Credit Act 1974, and that, as the
agreements had not been properly
executed, they were only enforceable upon
an order of the court
...
Comparison of UCTA 1977 and UTCC Regulations 1999
Reform of UK Unfair Term Legislation
60
61