Notesale: Turn your study into money

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Contract Law Revision – Key Cases, Statutes and Opinions
Offer and Acceptance
Carlill v Carbolic Smoke Ball Company (1892) declared that a unilateral contract was created by the
newspaper advertisement and Carlill completed its performance so CSBC had to pay the £100;
additionally the placing of £1000 demonstrated their intent to create legal relations and the
seriousness of their offer, distinguishing it from ‘mere puff’
Grecoair Inc v Tilling (2005) defined that “an offer is an expression of willingness to contract on
specified terms, made with the intention that it is to be binding as soon as it is accepted by the
person to whom it is addressed”
Gibson v Manchester City Council (1979) UKHL ruled that the council only gave an invitation to treat,
not an offer, so the invitation to complete certain steps to begin buying the council house was not
legally binding until the steps were completed, which they were not when the council changed
Pharmaceutical Society of GB v Boots Cash Chemists (1953) defined that items on display are only
invitations to treat, and the contract for sale is formed when the customer brings the items to the till
and the cashier accepts this offer of purchase, which is vital for allowing retailers to refuse sale and
customers to change their minds once they pick up an item (and here for pharmacist supervision)
Partridge v Crittenden (1968) held that a newspaper advert for the sale of live birds was only an
invitation to treat, since the EWCA ruled that it was not an offer which was legally binding, meaning
that no illegal sale was made
Denton v Great Northern Railway Co (1856) demonstrated that publishing a timetable is an offer of
a service so it differs from the general advertisement rule, since it is important for public policy to
ensure trains and buses arrive at the time they are advertised to, so here a contract was formed
even though Denton did not yet buy a ticket, due to an exchange of values, so he won damages
Barry v Davies (2000) involved the EWCA decision that an auction with no reserve price was a
contract that the auctioneer is bound to sell to the highest bidder, so the refusal to sell to the very
low winning bid was a breach of contract, allowing the bidder to claim damages
Harvela Investments Ltd v Royal Trust Co
...
e
...
com (2004) suggests that a contract is formed when an
instantaneous email is received

Consideration
Currie v Misa (1875) defined consideration as consisting of some benefit accruing to one party or
some loss or responsibility undertaken by the other

Dunlop Pneumatic Tyre Co v Selfridge & Co (1915) UKHL held that Dunlop could not enforce its
contract with a third party against Selfridge since there was no consideration between them, even
though Selfridge was selling Dunlop’s tyres
Law of Property (Miscellaneous Provisions) Act 1989 outlines the requirements for a deed,
important since a promise in a deed is binding regardless of consideration
Forde v Birmingham City Council (2009) demonstrated that a promise to pay a sum of money in
exchange for a promise of a smaller sum is not an executory contract since there is no consideration,
as this is essentially just a gift for the difference in sums
Chappell & Co v Nestle Co (1960) UKHL confirmed that consideration does not have to be adequate
and exchanges need not be of equal value, though consideration must hold some value, so here the
chocolate wrappers held value since they increased sales, even though Nestle threw them away
White v Bluett (1853) held that there was no consideration for forgoing a debt if the son promised
to cease complaining about the will, since not complaining is an intangible benefit and regardless
Bluett did not have a right to complain which he was prevented from exercising
Thomas v Thomas (1842) emphasised how consideration need not be adequate, since an annual £1
ground rent was valid consideration for rent of the house, whilst the desire to comply with the
wishes of the widow’s dead husband was not consideration
Eastwood v Kenyon (1840) showed that past consideration is not valid consideration; here when
Eastwood borrowed money to pay for his ward’s education, the later promise from the husband to
repay Eastwood was not legally binding since Eastwood’s consideration was past
Pao On v Lau Yiu Long (1980) UKHL held that there can be valid consideration where past
consideration is sufficiently interlinked and reciprocal; it must have been done at the promisor’s
request, parties must have understood the act was to be remunerated by some benefit, and the
conferment of the benefit must have been legally enforceable had it been promised before the act
Foakes v Beer (1884) demonstrated at the UKHL that the part payment of debt was not sufficient
consideration since there is no additional benefit conferred (pre-existing duty), so Beer was granted
the interest on the debt even though he had signed that he waived his rights to it
Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) differed as the EWCA held that Williams
provided good consideration for the bonus payment per flat since he conferred the benefit of timely
completion, even though he had a pre-existing duty, which was especially valuable since courts
rarely award specific performance and timely completion was needed to avoid a delay penalty
Ward v Byham (1956) illustrated an exception that fulfilling a public duty is not valid consideration,
as the mother promised to keep her child happy, which was beyond her public duty to raise the child,
and therefore constituted valuable consideration for the father’s weekly payments
Atiyah argues that consideration now detracts from the real basis of liability, since it has shifted its
meaning from ensuring a good reason for the enforcement of a promise, to ensuring a good reason
for the recognition of an obligation or duty

Denning suggested that consideration has lacked success in meeting its supposed goal since it fails
to protect parties who rely on promises, since detrimental reliance should not be required as long as
the promisee acts upon the promise, as any act done on the faith of a promise should be regarded as
sufficient consideration to support it, regardless of benefit or detriment
Chen-Wishart enhances the instinct for reciprocity, cooperation and social equilibrium

Estoppel
Jorden v Money (1854) UKHL did not accept estoppel since the statement to not enforce a debt
which was stopping Money from getting married was a promise, and estoppel could only apply to
statements of existing fact, even though Jorden went back on his promise, showing that estoppel is
limited to representations of present fact, so representations of intention are not included
Hughes v Metropolitan Railway (1877) demonstrated promissory estoppel since the lease
agreement gave the tenant 6 months to complete certain repairs on threat of termination, so the
parties negotiated and agreed to defer the deadline, and the UKHL held that the landlord would be
estopped from enforcing the deadline since the tenant acted in detrimental reliance of the promise
– the right to terminate is not extinguished by suspended to allow the tenant to fulfil his duty within
a reasonable time (Hughes principle), following the common law doctrine of waiver/forbearance
Central London Property Trust v High Trees House (1947) reaffirmed the Hughes Principle by
allowing CLP to claim the full rent from HTH once the flats rented had returned to full capacity after
WWII, but in obiter Denning J stated that CLP would have been estopped from claiming the full rent
whilst the flats were under-capacity since HTH acted on the basis of the promise, even though there
was no consideration from HTH
D&C Builders v Rees (1966) ruled that Rees could not rely on estoppel when D&C signed that they
would accept part payment, since there was no true agreement due to the poor financial position of
D&C that Rees had knowingly taken advantage of
BP Exploration Co (Libya) Ltd v Hunt (No 2) (1979) outlined that estoppel requires a legal
relationship between parties; representations made (express or implied) by A that he will not
enforce his strict rights against B; and reliance by B on the representation which renders it
inequitable for A to enforce his rights, or to enforce them until B is restored to his former position
Waltons Stores (Interstate) Ltd v Maher (1988) was an exception to the rule that estoppel can only
be used as a defence, since the Australian High Court allowed Maher to use estoppel to bring an
action since Maher acted to their own detriment by incurring demolition costs in reliance of the
representations made to definitely grant Maher a lease by the unconscionable Waltons

Intent to Create Legal Relations

Rose and Frank Co v Crompton Bros (1924) demonstrated that a lack of intent to create legal
relations can be found when arrangements are not entered into as legal agreements;
Winn v Bull (1877) same for agreements made expressly subject to the creation of a formal contract
Leonard v PepsiCo Inc (1999) USDC held that “an obvious joke would not give rise to a contract”
since the nature of the promise indicates a lack of intent to create legal relations
Balfour v Balfour (1919) EWCA held that the domestic context creates a rebuttable presumption
that there is no intention to create legal relations, requiring proof of clear intent
Parker v Clark (1960) showed that intent for legal relationships could be found in the domestic
context where there was a sufficient exchange of documents detailing the financial arrangements

Privity
Dunlop Pneumatic Tyre Co v Selfridge & Co (1915) reflected the rules of privity to do with third
parties, since the contract between Dunlop and the other party did not give Dunlop a contractual
right against Selfridge, as only a person who is a party to a contract can sue on it, even if Dunlop was
affected by their actions, since Selfridge was not promised anything nor provided consideration
Hill v Tupper (1863) showed how third parties cannot be burdened, since X’s contractual promise to
Hill that allowed him an exclusive right to put pleasure boats on the canal does not allow Hill to sue
Tupper for hiring out boats himself, since the contract between X and Hill does not grant him a right
that is enforceable against Tupper
Beswick v Beswick (1968) UKHL held that if X agrees to sell his business to A in return for lifetime
employment and a weekly payment to his wife (B) upon his death but refuses to pay this weekly sum,
B cannot sue A due to privity of contract, but X’s administrator could sue A and order specific
performance to pay B
Alfred McAlpine Construction v Panatown (2000) examined both the narrow ground view that X
can recover damages on behalf of B for B’s loss when it is clear that A’s performance is for B’s
benefit, and the broad ground view that X is entitled to damages himself as A breached their
contract, and can do what he chooses with the money; the broad ground view was chosen to allow X
to recover damages to protect B, indicating that privity can be fair for 3rd parties without rights
Contracts (Rights of Third Parties) Act 1999, s
...
2 states that X and A can vary or terminate the contractual term without B’s consent, unless B has
communicated his assent to the term, or A is aware that B has relied on the term, or A can
reasonably be expected to foresee that B would reply on the term and B has relied on it
The Laemthong Glory (2005) if the contract demonstrates that X and A did not intend for the term
to be enforced by B, then B cannot enforce the term regardless of other factors

Duress (economic, to the person, to goods – contracts are voidable)
Barton v Armstrong (1976) UKPC ruled that as long as Armstrong’s threats were ‘a’ reason for
Barton’s agreement that B is entitled to void the contract, even if he may have entered into the
contract anyway (since it was a good bargain), since the moral implications of duress to the person
means a low threshold, and also places the burden of proof on the duressor that it was not a cause
Astley v Reynolds (1731) demonstrated how Astley was awarded back the excess interest he paid
since Reynolds only procured it by duress to goods by withholding his valuable silver plate
The Evia Luck (1991) was an early example of economic duress where economic pressure could
amount to duress when the pressure is illegitimate and has constituted a significant cause in
inducing the claimant to enter into the contract (‘but for’ test)
DSND Subsea Ltd v Petroleum Geo-Services AS (2000) Dyson J stated that more than ordinary
commercial pressure can constitute illegitimate pressure, which is when there is an actual or
threatened breach of contract, when the victim had no realistic practical alternative but to submit
to the pressure, when the victim protested at the time, and when he did not affirm the contract –
here the threatened breach was reasonable behaviour by a contractor acting in good faith in a very
difficult situation so there was no illegitimate pressure found
The Universe Sentinel (1983) UKHL ruled that money received by the ITWF was extracted under
illegitimate pressure and compulsion of will due to the absence of choice, so the demand meant
that duress was present even though the threat was of lawful action, because the claimant had no
choice but to pay or ITWF would black their ship and prevent it from leaving port
CTN Cash and Carry Ltd v Gallaher Ltd (1994) indicated that the threat to withdrawn CTN’s essential
credit facility unless money was paid was a legal threat, and since it was made in the belief of
genuine good faith, regardless of the truth, it is unlikely to be duress, and was not duress here
Kolmar Group AG v Traxpo Enterprises (2012) was an example where a duress claim was approved
partly because there were no reasonable alternatives available for the claimant that a reasonable
person would have taken, since this affects whether the claimant had a real choice and could have
instead resisted the pressure by, for example, pursuing practical and effective legal redress

Undue Influence
Royal Bank of Scotland v Etridge (No 2) (2002) involved husbands taking out loans using their
houses as security, with their wives’ signatures, then after their businesses failed and the bank
sought to sell the mortgaged house, the wives claimed undue influence in signing the loan
agreements – UKHL held that of 8 such claims, 5 were allowed, ruling that banks have a
responsibility to ensure that their customers have independent legal advice, without which there is
no valid security interest formed;
Actual U
...
was defined as evidence of “overt acts of improper pressure or coercion”, and presumed
U
...
required proof of trust and confidence in relation to financial affairs and a transaction which

calls for explanation, which if present, is normally sufficient to discharge the burden of proof onto
the influencer to prove U
...
was not present or was not the cause of actions, usually with the use of
countervailing evidence and disproving the ‘but for’ test
National Commercial Bank of Jamaica v Hew (2003) was the UKPC judgment that however great the
influence one person has over another, the equity of undue influence only intervenes if that
influences has been abused, reflecting how ‘undue’ refers to too much or unconscionable use of
influence over a person
Allcard v Skinner (1887) demonstrated that undue influence can arise under the influence of a
higher authority religious figure, here the Lady Superior of a nunnery to which Allcard passed on her
railway stock, though she could only recover as much of the gift as still existed, and ultimately her
claim failed as she took too long and was barred by laches
Hammond v Osborn (2002) indicated that a relationship of confidence and trust raises the
presumption of undue influence, which Hammond failed to disprove, even though she did not act
reprehensibly, so the large gift granted by her solitary elderly neighbour was rescinded
“R” v A-G for E/W (2003) UKPC ruled that the army did not unduly influence the SAS soldier into
signing the contract against sharing national secrets since they did not exploit their influence over
him, the contract was easy to understand (and he did), and the army did not act reprehensibly
Bridgeman v Green (1757) referred to 3rd parties gaining by undue influence, and the court ruled
that a nephew receiving, in good faith, money obtained by his uncle from the drunken rich man who
trusted him as his valet still had to return the gift, since it came through a corrupt polluted channel
BCCI v Aboody (1990) determined the causation test for undue influence that it was not appropriate
for the court to rescind a contract if evidence showed that on the balance of probabilities, the
claimant would have entered into the transaction regardless of the influence, as here the wife also
stood to gain from her actions
Pesticcio v Huet (2004) demonstrated that there is a relatively high-standard of independent legal
advice required to rebut the presumption, since Pesticcio’s independent legal advice was insufficient
to discharge the rebuttable presumption of undue influence as it did not free P from the impairment
of the influence on his free will

Mistake (void at common law, voidable in equity)
Smith v Hughes (1871) demonstrated that a party is not liable for the mistake of the other even
though Smith knew Hughes wanted old oats, since it was not specified in the contract
Bell v Lever Bros (1932) UKHL held that Lever Bros could not rescind Bell’s compensation package
when they found they could have fired him for free as he carried out illegal activities, since the
common mistake of the parties did not involve the agreement’s subject matter
Lewis v Averay (1972) indicated an innocent third party prevented a contract from being voidable if
it would harm him, though Shogun Finance shows this protection cannot extend to voided contracts

(main difference is that Shogun displaced the presumption that parties intend to deal with the
person in front of them by using thorough background checks, voiding the contract)
Lady Hood of Avalon v Mackinnon (1909) demonstrated that if a gift is made by mistake, then a lack
of consideration from the receiver means that the gift can be revoked
Cundy v Lindsay (1877) held the contract of sale for linen to a rogue was void, as Lindsay intended
to contract with a reputable company, not the rogue, so Lindsay could claim the linen from the
Cundy, an innocent third party who the rogue sold to because the original contract of sale was void
Hartog v Colin and Shields (1939) showed that C&S’s mistaken quote for price per pound instead of
per piece, as was the convention for hare skins, was not enforceable, since this was a mistake
concerning a term of the contract, and Hartog must have known that it was a mistake, voiding the
contract of sale
A Roberts & Co v Leicestershire CC (1961) demonstrated that if a party allows the other to sign a
document knowing that the other was mistaken as to the terms of that document, then the court
may allow rectification of the document, with this rectified document being legally binding
Raffles v Wichelhaus (1864) involved the sale of cotton from Bombay which was agreed to be sent
on The Peerless, but each party had a different Peerless ship in mind, as two ships were named the
same and arrived at different times, so Wichelhaus did not accept the delivery from the later
Peerless – EWHC held that courts should try find a reasonable interpretation to preserve contracts
where possible, but intention could not be found due to the common mistake so without a meeting
of the mind, there was no agreement and a voided contract
Shogun Finance v Hudson (2003) UKHL held that a third party who bought a car from a rogue, who
purchased it from Shogun using a fake identity which Shogun ran a credit check on, did not have
ownership of the car, since written agreements do not infer a presumption to sell to the immediate
purchaser if identity is of key importance, so the hire purchase contract with the rogue was voided
due to mistaken identity – dissenting Lord Nicholls held that for public policy, where there are two
innocent parties the loss is more appropriately borne by the person who takes the risks by parting
with his goods without receiving full payment
Sale of Goods Act 1979, s
...
2(1) extends categories of misrepresentation from fraudulent, negligent and innocent to include a
statutory claim under s
...
2(2) gives courts discretion to award damages in lieu of rescission for innocent misrepresentations,
usually when there has been no loss caused to the claimant or if rescission would result in a harsh
outcome for the representor
S
...
3 limit’s a party’s ability to exclude liability or restrict remedies for misrepresentation, stating that
such contract terms would have no effect unless the party claiming the term can satisfy the
reasonableness requirement in UCTA 1977 s
...
2(1) since
they could not discharge the burden of proof, even though they relied on a very reliable source of
information (Lloyd’s Register) as they had the actual information in possession, so HM had to pay for
the damages incurred by Ogden by the slower and costlier work due to the capacity of the barge
being less than was represented; demonstrates the strength of s
...
2(1) involving a hire purchase agreement where the third party customer
dishonestly sold the car upon bankruptcy caused the defendant to be liable as if they committed
fraudulent misrepresentation, as they was liable for all the consequences of the hire purchase
agreement which it had acquired for the third party through its innocent misrepresentation
Smith v Eric S
...

Long v Lloyd (1958) exemplified a bar to rescission since the claimant affirmed the contract by
declaring their intention to continue with it, since the lorry was sent back for repairs and continued
to be used, meaning the misrepresentations which induced the claimant were no longer actionable
Leaf v International Galleries (1950) demonstrated another bar to rescission is lapse of time, as a
claim 5 years after the sale of a painting was too late, regardless of the misrepresentation

Terms
Jacob’s v Batavia & General Plantations Trust (1924) demonstrated the parole evidence rule that in
general, courts are not to look beyond the document of contract terms for the purpose of greater
certainty, clarity and predictability – exceptions for this are contracts involving misrepresentation or
duress, collateral contracts, implied terms, or rectification is required
Curtis v Chemical Cleaning & Dyeing Co Ltd (1951) involved both express and collateral terms, as
Curtis signed a document excluding all liability of the company for the wedding dress on the oral
assurance that this only applied to the dress’s small parts, but when the dress was damaged beyond
use, the court ruled their oral statement was a collateral term which Curtis relied on, i
...
actionable

Cunliffe-Owen v Teather & Greenwood (1967) outlined that for implication by custom, customary
terms must be certain and clearly established (in law or generally well-known), notorious in the
market, recognised as legally binding in the market/trade, reasonable, and consistent with the
express terms of the contract – actual knowledge of terms by parties is not required nor relevant

Shell (UK) v Lostock Garage
The Moorcock (1889) used the business efficacy test to imply the term by fact that the river bed
would be safe for mooring, since the contract would not make business sense without that
reasonable term implied, as a ship would not be moored at a wharf where it isn’t safe
Shirlaw v Southern Foundries Ltd (1939) suggested the officious bystander test (if a bystander
suggested an express provision for it the parties would reply “oh, of course”) to find implication by
fact, in able to enforce unexpressed objectively-found intentions, which are seen as a proxy for true
subjective intentions since this is far harder to accurately ascertain
Sale of Goods Act 1979, s
...
13(1) that the goods must correspond with their description, with these default terms being
implied by law and so cannot be contracted out of
Lovell and Christmas v Wall (1911) reflected the traditional view of the courts that literal
interpretation should be used, without going beyond the four corners of the document
Investors Compensation Scheme v West Bromwich Building Society (No 1) (1998) ruled that
documents should be interpreted as how a reasonable person with all the background knowledge
which was reasonably available to the parties at the time of contract would interpret it
Pink Floyd Music v EMI Record (2010) demonstrated the presumption against interpreting terms in
a way which would lead to unreasonable results, as the EWCA ruled that an agreement preventing
selling Pink Floyd’s songs as singles to preserve artistic integrity should extend to apply to digital
distribution of their songs too, as the agreement may have referred to physical items but the
contextual approach must look at what parties intended, and otherwise it would be an absurdity

Exemption Clauses
Unfair Contract Terms Act 1977 enacted to control the use of standard form contracts and
exemption clauses to protect consumers
L’Estrange v Graucob (1934) upheld that an exemption clause excluding liability for the sale of a
cigarette vending machine was valid since the document was signed, even though the clause was on
brown paper in an unusual place and in small print
Olley v Marlborough Court (1949) ruled that a notice excluding liability for lost or stolen items did
not protect MC from liability for negligence and breach of contract when Olley’s possessions were
burgled, since notice was given after the contract was formed by a sign in the room

Chapelton v Barry DC (1940) held that an exclusion clause on the back of a ticket after payment to
rent a deckchair was not adequate notice since the consumer had no reason to believe that the
ticket was a contractual document with terms on it instead of a mere receipt
Thompson v LMS Railway Co (1930) demonstrated a low threshold of reasonableness for the
objective reasonableness test to determine whether or not an exemption clause is valid, since a
ticket stating that full conditions were located in a railway timetable, which had to be bought, still
constituted adequate notice
Richardson, Spence & Co v Rowntree (1894) suggested the importance of that instruction, since a
folded-over ticket with conditions partially obscured by a red ink stamp was deemed insufficient
notice; Henderson v Stevenson (1870) showed the same for tickets that do not point out the
conditions on the reverse side
J Spurling v Bradshaw (1956) Denning LJ stated in the EWCA that “the more unreasonable a clause
is, the greater the notice which must be given of it”
Lord Denning MR stated that when exemption clauses use wide words, judges should reject them as
being against the main purpose of the contract if they would give rise to an unreasonable result, or
cut them down to size in order to produce a result which is reasonable
Andrews Bros v Singer Cars (1934) demonstrated this opinion, since an exemption clause excluding
liability from “any breach of terms implies as to the condition of the car” was construed narrowly by
the court so that it only covered implied, not express, terms
Hollier v Rambler Motors (AMC) (1972) showed that limitation clauses must be construed wide
enough or expressly state to cover negligence, as “for damage caused by fire to customers’ cars”
only provided exemption from non-negligence liability
Unfair Contract Terms Act 1977 served to create a fourth hurdle for enforcing exemption clauses by
regulating such terms, on top of liability, reasonable notice, and applicability, aiming to control the
use of exemption clauses based on their reasonableness
Potential issues include overlap, such as an exemption clause for negligent (s
...
6, 7) and consumer contracts (s
...
13 outlines the different types of invalid exemption clause, stating that it prevents: “(a) making the
liability or its enforcement subject to restrictive or onerous conditions, (b) excluding or restricting
any right or remedy in respect of the liability, or subjecting a person to any prejudice in consequence
of his pursuing any such right or remedy, (c) excluding or restricting rules of evidence or procedure
[which are powers of courts not to be excluded by any contract]; and (to that extent) ss
...
13(a) so was invalidated by the court

Smith v Eric S Bush (1990) prevented avoiding UCTA by trying to include a clause eluding all liability
by excluding the surveyor’s duty of care in carrying out his work, since this would go against what
Parliament intended, since s
...
e
...
2 places absolute prohibitions on businesses exempting negligence liability, that they cannot
exclude or restrict liability for death or personal injury from negligence, or the case of other loss or
damage caused by negligence (unless the term/notice satisfied the requirement of reasonableness)
S
...
3(2) invalidating terms which exclude or restrict liability in
respect of breach of contract or terms which act as duty-defining clauses , unless they satisfy the
requirement of reasonableness
S
...
3(2)(b) rendered the clause invalid
George Mitchell v Finney Lock Seeds (1983) involved the negligent wrong supply of an inferior seed
type that caused crop failure and significant losses, so the defendant tried to rely on an limitation
clause limiting liability to the cost of the seeds – UKHL held that this could not be relied on since it
was not negotiated (consumer unlikely to be aware of it); the breach was completely the fault of
their negligence; insurance could easily have been obtained without affecting prices; and finally the
established practice was that seed merchants would settle damages far higher than the limitation
amount, therefore the term was invalidated since these factors made it unreasonable

Unfair Terms in Consumer Contracts Regulations 1999 has a broader approach than UCTA, aiming
to deal with unfair terms in contracts, not just exemption clauses, with reg
...
6(2) outlines the fairness review process, that it shall not relate to the definition of the
contract’s main subject matter or the adequacy of price or payment, with the assessment of fairness
occurring at the formation of the contract
Reg
...
for core terms)
OFT v Abbey National plc and Others (2009) demonstrated that the standard of plainness and
intelligibility required is very high since the purpose of the UTCCR is to promote consumer
protection, basing the test on whether a typical consumer who is reasonably well informed and
reasonably observant would understand the actual words used and how the terms affect the
parties' rights and obligations – factors affecting this test include complexity of language, whether
consumers have the opportunity to understand the terms before contracting, the existence of
previous contracts between the parties, and existence of information brochures given prior
The UKSC widened the scope for core terms by ruling that unauthorised overdraft fines were core
terms as part of the payment for the whole bank account package, though this reasoning is arguable
since only 20% of consumers incur such fees that form the “price”
Chen-Wishart believes that the OFT v Abbey National ruling left little scope for terms that would not
be deemed part of the main subject matter, stating that this decision was very possibly made on
public policy grounds to avoid discouraging banks from providing free bank accounts
Reg
...
6(1) stating how this should be assessed
DGFT v First National Bank plc (2001) UKHL ruled that FNB’s standard form loan agreement which
required borrowers in default to keep paying interest on the debt owed was not a core term, since it
was not a performance related primary term, but a default provision applying upon breach –
even though it was not a core term, it was not declared unfair since the consumer was sufficiently
aware of the term and it did not create a significant imbalance in the substantive fairness
Lord Bingham held in DGFT that good faith refers to fair and open dealing, looking at the procedural
fairness of contract formation, e
...
how it was entered into, clear expression of terms, bringing
attention to disadvantageous terms, not taking advantage of stronger bargaining position –
ultimately referring to good standards of commercial morality and practice
Schedule 2 contains an indicative and non-exhaustive list of terms which may be regarded as unfair,
serving to shift the burden of proof from the consumer onto the business; these three main types of
terms are those which defeat reasonable expectations, provide inadequate remedies for breach, and
place unreasonable burdens on the consumer

Reg
...
12(1) enables the DGFT and certain other bodies to apply for injunctions against businesses
using or recommending unfair terms draws up for general use in consumer contracts

Frustration (released from obligations, payment varies)
Krell v Henry (1903) ruled that the contract was frustrated since it was entered into on the common
presumption that the procession would take place and that presumption proved untrue in the
future, so the contract was frustrated after its formation due to impossibility of purpose, which
requires being thwarted to a high degree; on the other hand Griffith v Brymer (1903) was voided by
mistake since it was formed after the procession was officially postponed
Taylor v Caldwell (1863) first introduced frustration when a contract for hire of a music hall for four
nights of concerts was frustrated because the music hall burnt down after one night, as performance
which relies on the existence of something creates the implied condition that impossibility of
performance due to the perishing of that thing shall excuse the performance of payment
Paradine v Jane (1647) was the previous, harsh condition which upheld the strict rules of contract by
not excusing a tenant from paying rent even though she was driven out by enemy invasion
Jackson v The Union Marine Insurance Co (1875) demonstrated a lessened strictness on contractual
obligations since a contract for the charter of a cargo ship was frustrated since the ship was stranded
for 6 months, making the voyage undertaken after repair “different as a different adventure”
National Carriers v Panalpina (1981) outlined the requirements for frustration, that there
supervenes an event without fault of either party, the contract did not provide for what should
occur if the event happened, and the event must significantly change the nature of the outstanding
contractual rights and/or obligations from what the parties could reasonably have contemplated at
the time of its execution, that it would be unjust to hold them to the literal sense of the contract’s
stipulations in the new circumstances
James Scott & Sons v R&N Del Sel (1922) criticised the Caldwell view that a contract contained
implied terms for every possible frustrating event for being unrealistic (tiger milk-girl example)
Ertel Bieber & Co v Rio Tinto Co (1918) held that even though parties contracted to state that
frustration would only postpone the obligation instead of end the contract, the court held that since
the contract was frustrated it had to be set aside since its obligations became legally frustrated,
since the outbreak of WWI made it illegal to deal with the enemy for the English and German parties
BP Exploration Co (Libya) v Hunt (No 2) (1983) demonstrated how acquisition by the state can
create legal impossibility, frustrating the contract, since the Libyan government expropriated the oil
fields that the contract involved
Cricklewood Property & Investment Trust v Leighton’s Investment Trust (1945) showed the narrow
requirements of frustration, since government-issued restrictions on a building prevented use for 9

years, but since 90 years was still left on the lease, the court ruled that the unforeseen event of the
restrictions only interrupted a small fraction of the contract so it was not frustrated nor set aside
FC Shepherd & Co v Jerrom (1987) regarded physical impossibility by incapacity, that if a promisor is
sent to prison and this affects at least a substantial portion of the contract, then the promisee can
choose to set aside the contract through frustration, but the promisor does not have this right
Marshall v Harland & Wolff (1972) ruled for physical illness, frustration depends on whether future
performance of obligations would be impossible or radically different from the agreed terms of his
employment, also the nature and length of illness and employment and chances of recovery
Appleby v Myers (1867) indicated that a contract to supply and install machinery in a factory was
physically impossible when the factory burnt down due to destruction of subject matter, frustrating
the contract, with no costs claimable since payment was due on completion
Asfar v Blundell (1895) demonstrated that dates which were partially submerged and could still be
distilled for spirits, but not used for their intended purpose, were therefore useless for the sake of
the contract since this was a radically different purpose, frustrating the contract of sale
The Eugenia (1964) ruled that a 28-delay from having to take a different sea route did not make the
voyage pointless or too difficult to perform since there was no need for the ship to arrive earlier,
meaning there was no radical change caused by delay and hardship, therefore no frustration;
Additionally the claimant hirer breached the contract by ordering the ship to enter a warzone where
it was impounded, so the claimants could not rely on self-induced frustration to exit a contract
Herne Bay Steamboat Co v Hutton (1903) reflected how impossibility of purpose requires the
purpose to be thwarted to a very high degree, since a contract for a pleasure boat to watch the
naval review and cruise around the fleet was not frustrated when only the review was cancelled,
since the purpose was not completely thwarted as the cruise around the fleet could still occur, and
the naval review was not a sole common purpose
WJ Tatem v Gamboa (1939) showed the use of the foreseeability test for the allocation of risk upon
frustration occurring, since the courts inferred that the seizure of a ship during the Spanish Civil War
was foreseeable enough to be an impliedly accepted risk, preventing frustration of the contract and
placing the risk and liability on the hirer (frustration arose when seizure was longer than foreseeable)
The Super Servant Two (1935) involved anticipatory breach where the defendant prevented
themselves from performance by allocating one of the agreed transport vessels, SS1, to another
contract, so that the claimant’s contract could not be performed when SS2 sank – the EWCA held
that the contract was not frustrated since it was within the defendant’s control since they chose to
allocate SS1 to another contract and they had to bear the costs of transporting the claimant’s oil rig;
this has been criticised as overly harsh since SS1 was allocated before SS2 sank so it was not truly
within the defendant’s control
Chandler v Webster (1904) reflected the old, harsh common law position that for partially executed
contracts, sums or money paid or owed before the frustrating event are not recoverable and must
still be paid, since this obligation was still valid until the frustrating event, meaning here that the
claimant still lost the £100 paid and £41 owed despite the frustrating event (King’s procession)

Fibrosa Spolka v Fairbairn (1943) showed increased leniency towards frustrated contracts, as the
£1000 paid for the contract for machinery was frustrated due to the outbreak of war making it illegal,
though Fibrosa was awarded the £1000 back since despite Fairbairn incurring manufacturing
expenses, there was no benefit transferred and therefore a total failure of consideration, so the
£1000 was returned to avoid unjust enrichment (issues as trivial benefits would still prevent this)
Law Reform (Frustrated Contracts) Act 1943 dealt with money and non-money benefits acquired
through frustrated contracts, aiming to introduce rules to make frustration fairer for parties
S
...
1(3) refers to non-money benefits and states that if party A obtains a valuable non-money benefit
as part of performance before the frustrating event, then party B can recover a sum from A, not
exceeding the value of the said benefit to A – this is also subject to expenses incurred by A for the
purpose of performance
BP Exploration Co (Libya) v Hunt (No 2) (1983) can be looked at again, since BP claimed under s
...
30(1) mitigated harshness by placing on statutory footing the doctrine of
acceptance, that if the promisee voluntarily and freely accepted the part performance then the
promisor may recover the value of that part at the contract rate
Sumpter v Hedges (1898) illustrates this since Sumpter ran out of money and could not complete
the contract to build two houses, so Hedges had to finish construction himself – the court held that
Sumpter could not claim for the work he had done since Hedges had no choice but to accept and use
what had already been built, though he had a choice to use Sumpter’s materials so this was paid for
Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha (1962) demonstrated that for innominate
terms (those which are not clearly definable as conditions or warranties), the test for whether it is a
condition or warranty is if the claimant was substantially deprived of the whole benefit which he
was intended to obtain from the contract – here the ship being out of service for 20 weeks did not
substantially deprive the defendants of the whole benefit of the 2-year contract
Lombard North Central v Butterworth (1987) reflected the court’s strictness in upholding conditions
of contracts, since the hire-purchase of a computer which was to be paid for by 20 instalments due
every 3 months contained a term that punctual payment was required and breach of this would
entitle the lessor to terminate the agreement, and when the lessee was late with instalments and
the lessor took possession of the computer then sold it, the EWCA held that the term on prompt
payment was a condition which was clearly essential and it the consequence of breach was clearly
set out, so even one late payment legally entitled the lessor to terminate, regardless of true effect
Schuler v Wickman Took (1974) ruled that a term permitting termination if just one contracted visit
was not made, was an unreasonable term, and since the more unreasonable the result the more
unlikely it is that the parties could have intended, such terms must be made abundantly clear to
take effect, so failure to make one visit was not deemed a repudiatory breach of contract
White & Carter v McGregor (1961) indicated how continuing a contract after breach means that the
claimant as affirmed the contract, which can occur as long as the defendant’s cooperation is not
required, so the claimant’s valid completion of the contract allowed them to claim full payment – to
avoid wasteful performance Lord Reid emphasises that there must be some financial benefit for the
claimant in order to affirm the contract (legitimate interest), so if damages would grant the same
benefit then damages should be awarded instead; the ruling was controversial since it allows the
claimant to perform the contract in a very wasteful way by providing a service which is not wanted
or valued, something which damages would completely avoid in the first place

Remedies for Breach of Contract: Damages
Attorney General v Blake (2000) demonstrated the exceptional circumstances where the UKHL
awarded restitutionary damages (sale profits) instead of ordinary compensatory damages since
there was little/no identifiable loss suffered, though the defendant committed a breach of contract
Parsons v Uttley Ingham (1978) held that the since the promised performance of a functioning food
storage hopper was not completed (defective installation made food mouldy and killed pigs) and

since it caused the pigs to die, Parsons was awarded diminution damages for non-performance
(price of the food hopper) and the lost profits from not being able to sell his pigs anymore
Tito v Waddell (No
...
53(3) states that for defective goods which breach a warranty, diminution
damages should be granted for the loss of value, for the difference in value between no breach
Radford v de Froberville (1977) indicated that for building contracts, the default approach should
change from diminution damages to cost of cure, since the primary reasons for building contracts
are practical and aesthetic, not increased financial value; here a party’s failure to fulfil an obligation
to build a wall between her land and a neighbour’s meant she had to pay expectation damages on a
cost of cure basis to represent his genuine loss and desire for privacy, despite no financial loss
Ruxley Electronics and Construction v Forsyth (1996) demonstrated that where the cost of cure is
extremely high relative to the non-financial interest in performance, whilst the diminution in value is
negligible, as here where the construction of a pool slightly shallower than contracted did not
diminish value, the court did not award massive cost of cure damages since Forsyth had no intention
of rebuilding the pool (unjust enrichment) so his non-financial interest was insufficient, and Forsyth
had also received most of what he had bargained for, only suffering a negligible loss – since cost of
cure damages would overcompensate him and there was no diminution in value, the court awarded
damages for loss of amenity instead due to loss of personal preference, as there was still a breach of
contract; criticism of not reflecting an accurate financial representation is unfounded since the
damage itself was non-financial, so amenity damages of £2500 was not unfair for a £18,000 contract
Farley v Skinner (No 2) (2001) stated how the general principle is that compensation is only awarded
for financial losses resulting from breach, so a contract breaker is not generally liable for any distress,
frustration, anxiety, displeasure, etc
...
1 refers to loss of performance to third parties, which
is covered thoroughly in privity, with this act allowing a third party to enforce a term or claim
remedies for its breach if the contract expressly provides that he may or if the term purports to
confer a benefit on him, unless the contract states intent against this, and the third party must be
expressly identified by name or as a member of a class/answering a particular description
C&P Haulage v Middleton (1983) demonstrated how expectation damages are a cap on the
recovery of reliance damages in bad bargain cases since the courts aim to respect the contractual
allocations of risk, so here when C&P were wrongfully ejected from their premises, they could not
claim reliance damages for the money spent improving their premises since the contract stated that
they would not receive money for improvements done when the lease ended
Anglia TV v Reed (1972) showed how reliance damages can be awarded instead of the usual
expectation damages if the expectation damages are too unclear, since Reed caused Anglia TV to
abandon a film project by quitting, but since future profits were uncertain, the court awarded
reliance damages for the costs incurred in preparing for the film’s production instead

Limiting Factors of Damages
British Westinghouse v Underground Electric Railways (1912) demonstrated that the test for
whether the claimant has sufficiently mitigated his loss is that he must take avoid taking “any step
which a reasonable and prudent man would not ordinarily take in the course of his business”, only
taking reasonable steps, creating a low standard of reasonableness where the claimant does not
have to take risks or do something unaffordable to try and mitigate the loss
Pilkington v Wood (1953) indicated that damages could be awarded for the difference in value
between a house with and without a defective title, but not for the added loss incurred when the
claimant could not sell the house as easily because of the defective title, since this only occurred
since the claimant moved house, and it was not in the reasonable contemplation of the parties that
he would move so soon after the purchase;
Additionally it held that the claimant does not have to take significant financial risks to mitigate loss,
since the court held there was no duty to sue to vendor to mitigate his loss from Wood’s negligence
The Soholt (1983) showed the positive limb of mitigation to take positive steps to reduce losses,
seen here since the claimant could not claim for the loss of bargain when the ship could have been
bought far below market price, since it was the fault of the claimant that the ship was not acquired
for this price as they decided to legally terminate the contract when the ship was delivered late,
exemplifying the positive duty to renegotiate to mitigate their losses
Yetton v Eastwood Froy (1967) reflected the positive duty to get alternative employment, since the
claimant chose not to sell his products to other buyers when he could reasonably have done so,
exacerbating his losses, which the court held were not claimable since he should have mitigated it

The Borag (1981) concerned the negative limb to avoid taking unreasonable steps that worsen
losses, which is why the interest payments on an unnecessary high interest loan was not claimable;
Bacon v Cooper (1982) held that incurring hire charges was a reasonable step which reduced losses
Lambert v Lewis (1982) demonstrated that there must be a causal link between the breach and the
loss, which can be broken, seen here with the unreasonable acts of the claimant to continue using a
towing hitch that he knew was faulty, preventing him from claiming against the garage that supplied
the hitch when the hitch failed and caused a serious accident
Quinn v Burch Bros (1996) ruled that despite a breach of contract, it was the claimant’s voluntary
act to use inadequate equipment which cause his injury, so his negligence broke the causal chain
The Heron II (1967) contained clarification by the UKHL that the defendant only needs to foresee the
type of loss incurred, not the extent of the loss, to be held liable for it; also the loss must be
foreseen as a serious possibility, not just a slight possibility as tort law requires
Hadley v Baxendale (1854) referred to remoteness, that losses caused by the defendant cannot be
recovered if they are too remote, the test for which is whether losses could have been reasonably
contemplated as consequences of breach by the parties, at the time the contract was entered into;
Here although the defendant breached the contract by delivering the broken mill shaft too late, he
was not liable for loss of profits since he was not specifically aware that a delay would shut down
the whole mill, and it was reasonable to assume that Hadley could find another shaft to use
Victoria Laundry v Newman Industries (1949) showed the importance of such knowledge, as the
EWCA held Newman liable for the profits lost since Newman was in breach by delivering 5 months
late and also knew of the importance of the boiler plus how it was needed immediately, as they had
a pre-existing business relationship and expertise in the area; however exceptionally profitable
contracts that were lost could not be claimed since Newman did not know of them when the
contract was entered into, distinguishing between ordinary and exceptional profits

Agreed damage clauses
Dunlop Pneumatic Tyre Co v New Garage & Motor Co (1915) UKHL defined an agreed sum as a
penalty if it is “unconscionable in comparison with the greatest loss that could conceivably be
proved to have followed from the breach”, with relevant aspects of penalties including a description
which is not conclusive, a lack of proportionality between the sum payable and the seriousness of
the breach, and specified damages higher than the sum paid by the other party
CMC Group plc v Michael Zang (2006) EWCA held that an agreed term that Zang’s breach of
contract would require him to pay $45,000 was a penalty since it was unconscionably large and was
liable even for trivial breaches
Murray v Leisureplay (2005) EWCA ruled that a term entitling the claimant to a year’s gross salary
upon unfair dismissal was enforceable, since the court used discretional tolerance to allow it as it
was generous but not unconscionable, partly due to the difficulty in estimating what his actual loss
would be, so it was a reasonable estimate of loss at time of contract formation

Photo Production v Securicor Transport (1980) stated that agreed damages clauses should not, after
breach of primary obligations, impose a secondary obligation to pay a sum which is intended to be
in excess of that which would full compensate for the loss sustained, relating to the compensatory
principle of contract law, that the secondary obligation is only to repair the harm caused
Alder v Moore (1961) ruled that there was no penalty clause since the agreed term was not to never
play again, but simply a contract that he would pay back the £500 he was awarded after his injury if
he did play again, so the insurance company avoided the term being defined as a penalty clause by
making it a primary obligation instead of a secondary obligation arising on breach
Union Eagle v Golden Achievement (1997) UKPC held that a deposit of 10% could be forfeit despite
being paid just 10 minutes late as 10% was reasonable, to ensure commercial certainty and also
demonstrating the courts’ more lenient stance towards forfeiture in comparison to agreed damages
Workers Trust and Merchant Bank v Dojap Instruments (1993) UKPC ruled that a deposit can only
be forfeit or retained when the amount is reasonable, and 25% was both unreasonable and
unconscionable as it was far more than the trade norm of 10%, meaning that the seller could not
rely on the agreement that the 25% deposit would be forfeit in the buyer did not pay within 14 days
Jobson v Johnson (1989) EWCA decided that a clause stating the buyer would have to sell back the
shares for £40,000 if he defaulted on any instalment was unenforceable since the buyer defaulted
after paying £140,000 in instalments and such a clause would be unfair since it would massively
overcompensate the seller
Hoenig v Isaacs (1952) involved an action for the agreed sum (a claim to enforce payment of the
contract, not subject to limitations,) since the claimant completed performance, and the court
decided that such an action cannot be brought if the defects exceed 10% of the contract price;
An action for the agreed sum relates to the right to affirm, where the claimant must show
legitimate interest in continuing performance despite the repudiatory breach, and that cooperation
of the defendant was not required

Specific Performance
Sky Petroleum v VIP Petroleum (1974) showed that specific performance could be granted when a
petrol shortage meant that petrol became commercially unique under the circumstances, since
there was no other way the claimant garage could function as a business unless the defendant
provided the petrol, so petrol became unique like pieces of property are
Beswick v Beswick (1968) indicated how specific performance can also occur with sales of land,
since each piece of land is considered a unique piece of property
Trade Union and Labour Relations (Consolidation) Act 1992, s
...
Settled practice of the courts was to not grant specific performance if it would require the
defendant to carry out an activity as opposed to a single act; 2
...
Uncertainty of
terms was another issue since a set of terms would not be completely precise, e
...
what level of
trade had to be sustained, therefore requiring supervision; and 4

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