Revision Plan Contract Law 17 topics

1. Themes & Ideas

2. History
a. Classical
b. Neo Classical
3. Contemporary - Relational theory
4. Formation (COVERED FOR MOCKS)
a. Offer&Acceptance
b. Consideration&Estoppel
c. Intention to create legal relations&Capacity, Privity
5. Content
a. Express Terms & Representations
b. Implied Terms
c. Categorisation of terms
d. Exclusion Clauses
6. Vitiating Factors
a. MisRep
b. Undue Influence
c. Duress
7. Discharge of Contract
a. Agreement
b. Performance
c. Breach
Basics of Contract (Lecture 1)
Unilateral: performed by/affecting 1 person/party.t
Bilateral: performed by/affecting both sides
Promises & Agreements
Gratuitous promises (unilateral) - Promise in return for an act (bilateral) - Promise in return for a
promise (bilateral)
Consensus ad idem -the meeting of minds: the two parties are in agreement as to the terms of the
contract.
Standard Forms Some Businesses use standard terms for increased efficiency, reduces negotiation &
introduces certainty
Written in favor of the party presenting them.
Used by large corporations to deal on their terms & exclude or limit liability
Impersonal not open to negotiation
The small print
Special Relationships - Some contracts reflect a special relationship. These are different to routine
contracts. The nature of the agreement imposes different standards on one or more of the parties.
The relationship is based on trust & confidence Rights & Powers must be exercised in good faith.
Extends beyond contract into Trusts.

The historical Context of Contract Law (Lecture 2)
Two views explaining the emergence of contract law
1. Classical Contract Law Develops a results of the social & economic changes in the 18
th
century
informed by political ideas of thinkers like Adam Smith & John Locke.
2. Although there are major changes in society contract law develops over a much longer period &
the beginnings can be seen much earlier. The link in 1 is overstated.
Common law- emerges as court develops common approach (cases) [Common law- individualist
bargain must be upheld]
Statutes- products of parliament
Equity- emerges via Lord Chancellors court .. Courts merge contract & equity in 1873 [Equity-
conscience & fairness]

The Changing Nature of the 18
th
Century
1) The Industrial Revolution
2) Shift from property to trade- Atiyahs view point
3) Classical Economists (Smith, laissez- faire)
4) New political ideas (Hobbes, Locke)
5) Development of Government & the relationship to the people.

Some Theorists views on the emergence of classical contract
Hobbes perceived man to be selfish & presumed that the need for monarchy is simply to have safety
thus establishing an individualistic approach to contract
John Locke the relationship of the government & the people was one of a social contract in which the
citizens surrender their freedom in return for safety
Adam Smith the reason for the emergence of classical contract is due to economic rationale. Mans
desire to become wealthy & happy opened gateways for contracts to be formed. This shows an
individualistic approach to contract as parties enter on their own accounts & for their own purposes.
Max Weber argued thats contractual freedom is based on the economic state in which the contract is
formed in. His view is that freedom of contract is far more dominant than it used to be with one party
being at a bigger advantage than the other even if both parties freely entered the contract.
Atiyah the rise of classical contract law was due to the consequences of the industrial revolution. He
talks about the notion of fairness to bargain it was established at the birth of classical contract that it
should be done so fairly by the Chancery.
Simpson believe that classical contract law existed way before the economic consequence of the
Industrial Revolution & states that it existed during the Tudor period.
Neo-Classical Contract (Lecture 3)
New free-market economy contracting included:
(i) Parties do not owe any duty to each other at the outset.
(ii) Parties bargain or negotiate
(iii) Each party relies on his/her own judgment
(iv) Agreements freely made without duress.
(v) Contents are agreed between the parties
(vi) Each party is bound & must pay for failure to perform
Established what you need for a valid contract; an offer. Something capable of acceptance; Offer =
clear & unambiguous. Acceptance- The offer itself must be accepted. Intention- the parties must
intend it to be a valid agreement. Capacity - for example, certain limitations are placed upon parties
such as minors, mentally disordered persons etc. Consideration - The price paid for the promise
bought. This is probably the most contentious & difficult area in practice

Notion of fair bargains became almost irrelevant. Previously the courts would have taken into account
the fairness of the bargains, however with the new ideas from the notion of free will bargains, the
court sought that the decisions made were individualistic & so the fairness of the consideration
applied became irrelevant.
Attack on Freedom of Contract as there was a rise in standard form contracts. With this came the
inequality of bargaining power, as there was a bigger concentration on economic power. Also there
was the concept of welfarism which meant that there were different political agendas.
Intervention
o Courts & Parliament are prepared to imply terms or redraw the traditional rules.
o Statutory Intervention e.g. Sale of Goods Act 1979, Unfair Contract Terms Act 1977
o Judicial Intervention: Williams v Roffey 1991 1QB 1
Development of areas in Intervention so the court may be able to rescue one party from a bad bargain
Duress /Promissory Estoppel/Mistake/MisRep/Fraud/UI /Restraint of trade
Importance of Consideration as an element of an effective contract
o An essential part of the agreement.
o All contracts require some consideration
o the price for which the promise is bought
o Demonstrates an exchange of promises rather than just evidence of an agreement.
Case Law
Hartley v Ponsonby 1857 119 ER 1471
Lloyds Bank v Bundy 1975 3 All ER 757
Nat West Bank v Morgan 1985 1 All ER 821
Schroeder v Macaulay 1974 3 All E.R. 616
Stilk v Myrick 1809 EWHC KB J58
Williams v Roffey 1991 1QB 1

Relational Ideas/ Relational Contract Theory (lecture 4)
Discrete-relational Spectrum

^ ^
Discrete Relational
Discrete contracts = 1 off transaction, No intent to maintain future relations, Transaction completed
via immediate exchange.
Relational contracts ...Parties treat their contracts more like marriages than like one-night stands.
Obligations grow out of the commitment that theyve made to one another.they are not frozen at the
initial point of commitment, but change as circumstances change; the object of contracting is not
primarily to allocate risks, but to signify a commitment to co-operate.. (Gordon quoted in Macaulay)
Parol Evidence Rule Evidence cannot be admitted..to add to, vary or contradict a written instrument. In
relation to contracts, the rule means that, where a contract has been reduced to writing, neither party
can rely on extrinsic evidence of terms alleged to have been agreed (Treitel)
Avoiding the parol evidence rule, you can use the following
Written agreement not the whole agreement
Implied Terms
Oral warranties
Custom
Rectification
Collateral Agreements

However there is a GAP between the paper deal & the real deal as you cannot predict what the future
holds:

the world changes & surprises us: wars break out in places where we do not expect them.OPEC
drives up energy costs unexpectedly; new technologies, often involving computers change things
so that an older contract no longer makes sense (Macaulay 2003, 46)

If the relationship is a strong one initial terms may be viewed as unimportant.
Those who negotiate may not record the deal there may be different assumptions.
Negotiations may preclude incorporation of some things.
How do courts deal with the gap? Implied terms Waiver Estoppel Bending the rules e.g. Williams
v Roffey

FORMAT DEFINITION/NOTES CASES
FACTS/RELAVANCE/PRINCIPLE
OFFER In order to amount to an offer
it must be shown that the
offeror had the intention to be
bound

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 CA Carlil
bought product, followed instructions, it didnt work, & she
claimed the 100 reward. D. argued. Held she was entitled:
deposit of 1,000 =intent therefore not a sales puff. Acceptance
through full performance.
Offer leads to binding
contract on acceptance; an
invite to treat cant be
accepted its an invitation for
offers.
o Goods on display are
generally not offers but an
invitation to treat.
Customer makes offer to
purchase goods; trader
decides whether to accept
the offer
Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401
CA Self-checkout case regarding pharmaceuticals that require a
pharmacist.Ccourts need to determine where the contract came
to play. Goods on the shelf are an invite to treat not an offer.
Fisher v Bell [1961] 1 QB 394 Flick Knife Case - on display in
shop. Not an 'offer' -> an invitation to treat. Court applied the
literal rule of statutory interpretation. Offering / exposing for
sale in the Restriction of Offensive Weapons Act 1959 = only a
true offer would be prohibited by the Act
o Adverts are invites to treat:
o EXCEPTION In some
instances an advert can
amount to an offer Carlill v
Carbolic Smoke Ball
co [1893] 1 QB 256
Partridge v Crittenden (1968) 2 All ER 421 D. put advert in
classified section of a magazine offering bramble finches for
sale. S.6 of the Protection of Birds Act 1954 -> offence to offer
such birds for sale. Charged & convicted, appealed against his
conviction. The Ds conviction was quashed. The advert was an
invitation to treat not an offer. The literal rule of statutory
interpretation was applied.
o Contracts by tenders
represent an invite to treat;
each tender submit,
amounts to an offer. If
request says acceptance of
lowest or highest tender or
specifies any other
condition this will amount
to an offer; unilateral
contract, acceptance takes
place on performance of
the condition
Spencer v Harding Law Rep. 5 C. P. 561 D. advertised sale by
tender of stock in trade belonging Eilbeck & co. Ad specified
goods could be viewed; time of opening for tenders & must pay
in . No reserve. C submitted highest tender but D. refused
sale. Not stated highest tender=acceptance. The ad was invite to
treat, the tender was an offer, D. could choose to accept the
offer or not
Harvela Investments Ltd v Royal Trust of Canada (CI) Ltd (1986)
AC 207 Ds specification that it binds itself to accept the highest
bid meant invites to submit tenders, amounts to an offer. By
submitting highest bid, C accepted offer & unilateral contract
was formed. Outerbridges referential bid deemed invalid,
because other specification of the invite implied no referential
bids.
o Auctions - Where an
auction takes place with
Payne v Cave (1789) 3 TR 148 Old English case, stands for the
proposition that an auctioneer's request for bids is not an offer
reserve, each bid is an
offer which is then
accepted by the auctioneer
(Sales of Goods Act 1979 s
57). Where the auction
takes place without
reserve, the auctioneer
makes a unilateral offer
which is accepted by the
placing of the highest bid
but an invitation to treat. The bidders make the offers which can
be accepted by the auctioneer.
British Car Auctions v Wright [1972] Invitation to treat Attempt
to prosecute the British Car Auction for selling an un-
roadworthy car. At an Auction there was no offer to sell the
vehicle & the prosecution failed.
Barry v Davies [2000] EWCA Civ 235 Offer&unilateral Contract C
submitted highest & only bid at auction, without reserve. Items=
two engine analysers worth 14,000. C submitted bids of 200
each. Auctioneer refused sale. C brought action; breach of
contract claiming damages of 27,600. C entitled to damages.
When auction is without reserve, auctioneer makes unilateral
offer; accepted when submitting highest bid. Binding contract.
TERMINATE Death of Offeror or Offeree Bradbury v Morgan (1862) Judgment was given for the P.,
Bradbury.
Lapse of time. An offer will
terminate after a reasonable
lapse of time. What amounts to
a reasonable period will
depend on the circumstances.
Ramsgate Victoria Hotel v Montefoire (1866) LR 1 Ex 109 D.
offered to purchase shares in the Cs. Company. 6 months later
C. Accepted offer but in time value of shares fell. D. had not
withdrawn the offer but refused to go through with the sale. C.
brought an action for performance of the contract. Offer no
longer open due to the nature of subject matter. Offer lapsed
after a reasonable period of time. no contract & the Cs. action
was unsuccessful.
Revocation (Retraction)
Offeror is free to withdraw at
any time before acceptance
unless a deposit has been paid
Dickinson v Dodds (1876) 2 Ch D 463 D. offers to sell house to
C. promised to keep offer open till Friday. Thursday D. accepts
offer from 3
rd
party for house. D asked a friend to tell the C.
offer was withdrawn. C went round to the Ds house Friday
morning claiming to ac cept the offer. C brought action seeking
performance. Offer revoked. No contract existed between
parties. No obligation to keep the offer open until Friday since C
had provided any consideration in exchange for the promise.
Errington v Errington Woods [1952] 1 KB 290 CA Father-in-law
purchased house for son/daughter-in-law. House was put in the
father's name paying deposit as a wedding gift & promised the
couple if they paid the mortgage instalments=transfer house to
them. Father ill & died. Mother inherits house. After death son
lived with mother but the wife refused & continued to pay
instalments. Mother brought action to remove the wife from the
house. Wife entitled to remain in the house. The father had
made the couple a unilateral offer. The wife was in course of
performing the acceptance of the offer by continuing to meet
the mortgage payments.
Counter Offer
An offeree responds to an
Hyde v Wrench (1840) 49 ER 132 Chancery Division D. offered to
sell farm to C. for 1,000. C. offered 950, D. refused. C. tried
offer by making an offer on
different terms.
to accept original offer of 1,000. D refused to sell to C & C
brought action for specific performance. There was no contract.
Where counter offer is made it destroys the original offer so that
it is no longer open to the offeree to accept.
ACCEPTANCE Communication
The general rule is that the
offeror must receive the
acceptance before it is
effective:
Entorres v Miles Far East [1955] 2 QB 327 CA C. sent telex
message from England offering to purchase 100 tons of
Cathodes from D. in Holland. D. sent back a telex from Holland
to London accepting. Question for court was at what point did
contract came into existence. If acceptance was effective from
the time telex was sent the contract was made in Holland &
Dutch law would apply. If acceptance took place when the telex
was received in London then the contract would be governed by
English law. To amount to an effective acceptance/acceptance
needed to be communicated to the Offeree. Therefore the
contract was made in England.
Felthouse v Bindley [1862] EWHC CP J35 Court of Common Pleas
SILENCE
Nephew discussed buying horse from uncle offering to purchase
horse & said if I don't hear from you by the weekend I will
consider him mine. Horse was sold by mistake at auction.
Auctioneer had been asked not to sell the horse but forgot.
Uncle commenced proceedings against auctioneer for
conversion. Action depended upon whether a valid contract
existed between the nephew & the uncle. There was no contract.
You cannot have silence as acceptance.
Brogden v Metropolitan Railway (1877) 2 App. Cas. 666
PERFORMANCE C. (supplier of coal to D.s railway company)
dealt for some years on informal basis with no written contract.
Parties agreed its wise having formal contract written. D. drew
up a draft contract & sent to C.. C made some amendments &
filled some blanks & sent it back to the D. The D. filed document
but never communicated their acceptance. Throughout this
period Cs. Continued to supply the coal. A dispute arose & it
was questioned whether in fact the written agreement was valid.
The written contract was valid despite no communication of the
acceptance. The acceptance took place by performing the
contract without any objection as to the terms.
Butler Machine Tool v Ex-Cell-O Corporation [1979] 1 WLR 401
CA LAST SHOT DOCTRINE - TERMS OF LAST DOCUMENT
PREVAIL.S
The Postal Rule agreed that
parties will post as a means of
communication rule will apply.
The postal rule states that
where a letter is properly
Adams v Lindsell (1818) 106 ER 250 D wrote to C offering sale
of wool & asking for reply 'in the course of post'. Letter delayed
in post. On receiving letter C posted letter of acceptance the
same day. Due to delay Ds assumed C not interested in the
wool & sold it to a 3
rd
party. C sued for breach of contract. Valid
addressed & stamped the
acceptance takes place when
the letter is placed in the post
box
contract which came in to existence the moment the letter of
acceptance was placed in the post box. This case established
the postal rule. Applies where post is agreed form of
communication between parties & the letter of acceptance is
correctly addressed & carries the right postage stamp. The
acceptance then becomes effective when the letter is posted.
Holwell Securities v Hughes [1974] 1 WLR 155 D granted C
option to purchase his house (45,000). Option was to be
exercisable 'by notice in writing' within 6 months. 5 days before
expiry, C posted a letter exercising the option. This letter never
received by D. C sought to enforce option relying on the postal
rule stating the acceptance took place before the expiry of the
option. By requiring 'notice in writing', D had specified that he
had to actually receive the communication & had therefore
excluded the postal rule.
Postal LOSS/STRIKE Household fire insurance co v grant D
applied for shares in Household Fire & Carriage Accident
Insurance Company. Company allotted the shares to D, &
suitably addressed to him, posting letter containing notice of
shares. Letter was lost in post he never received acceptance.
Later the company went bankrupt, & asked D for the
outstanding payments on the shares, which he refused saying
there was no binding contract. Liquidator sued. The question
was whether D offer for shares had been validly accepted, & was
he legally bound to pay?
Terms of Acceptance must be
same as term of offer terms
differ amounts to offer - no
contract will exist
Hyde v Wrench (1840) 49 ER 132 Chancery Division (Decided by
Lord Langdale MR) no contract. Where counter offer is made it
destroys the original offer so that it is no longer open to the
offeree to accept.
The agreement must be certain
When viewed objectively it
must be possible to determine
exactly what the parties have
agreed to. Compare the
following two cases
Scammell & Nephew v Ouston [1941] AC 251 HL parties entered
agreement, C were to supply a van for 286 on HP terms over 2
years & D was to trade in his old van for 100. There was
disagreement & C refused to supply van. No certainty as to the
terms of the agreement. Whilst there was agreement on price
theres nothing in relation to the HP terms stating whether it
would be weekly or monthly instalments or how much the
instalments would be.
Sudbrook Trading Estate v Eggleton [1983] AC AC 444 HL lease
gave tenant an option to purchase freehold of property at a
price to be agreed by two surveyors 1 appointed by tenant/1
appointed by landlord. Tenant sought to exercise option but
landlord refused to appoint a surveyor. Landlord claimed clause
was vague to be enforceable as it didnt specify a price. Clause
wasnt too vague to be enforceable as theres a mechanism to
ascertain the price.
CONSIDERATION
Bargain of
contract; based
on exchange of
promises. Each
party must be
promisor/promi
se.
Each receives a
benefit/suffers
a loss. This
benefit or loss is
referred to
as consideration
.
Consideration must be
something of value in the eyes
of the law - (Thomas v
Thomas) (1842) 2 QB 851. one
sided promise not supported
by consideration=a gift. Law
doesnt enforce gifts unless
made by deed. Common law
obeys requirement
of Consideration (sometimes
courts go to lengths to invent
consideration eg Ward v
Byham [1956] 1 WLR
496, Williams v Roffey
Bros [1990] 2 WLR 1153)
equity will, in some instances,
uphold promises which are not
supported by consideration
through the doctrine of
promissory estoppel.
MUST NOT BE PAST Re McArdle (1915) Ch 669 CA D carried out
improvements/repairs on a bungalow. Bungalow formed part of
the estate of her husband's father who died leaving the property
to his wife for life then on trust for McArdles husband/four
siblings. After the work had been carried out brothers & sisters
signed a document stating in consideration of you carrying out
the repairs we agree that the executors pay you 480 from the
proceeds of sale. However, the payment was never made.
Promise to make payment came after the consideration had
been performed therefore the promise to make payment was
not binding. Past consideration is not valid.
Past consideration may be valid where it was preceded by a
request: Lampleigh v Braithwaite [1615] EWHC KB J17 D killed a
man & was due to be hung for murder. He asked C to do
everything in his power to obtain a pardon from the King. C
went to great efforts & managed to get the pardon requested. D
then promised to pay him 100 for his efforts but never paid
up. Whilst the promise to make payment came after the
performance & was thus past consideration, the consideration
was proceeded by a request from D which meant the
consideration was valid. D. was obliged to pay C 100.
must be sufficient; need not be adequate Chappel v
Nestle [1960] AC 87 HL
Wrappers did form part of the consideration as the object was to
increase sales & therefore provided value. The fact that the
wrappers were simply to be thrown away did not detract from
this. Chappel were granted the injunction & Nestle could not sell
the records as they had not complied with the notice
requirements under s.8.
must move from the promisee Tweddle v Atkinson [1861] EWHC
QB J57 QB
Couple were getting married; father of bride entered agreement
with father of groom that theyd each pay the couple a sum of
money. The father of the bride died without having paid. The
father of the son also died so was unable to sue on the
agreement. The groom made a claim against the executor of the
will. The claim failed: groom was not party to agreement &
consideration did not move from him. Therefore hes not
entitled to enforce the contract
An existing public duty will not amount to valid consideration
Collins v Godefrey (1831) 1 B & Ad 950 KB C.=Collins was
subpoenaed to court as a witness in separate court case
involving the D.= Godefrey. He had sued his attorney for
malpractice & Collins was required by the court to attend as an
expert witness. Collins never gave evidence but was required to
standby for 6 days in case. After trial Collins gave Godefrey
invoice to cover his time spent at court & demanded payment by
the next day. Without giving him the full day to pay, Collins
commenced an action to enforce payment. Collins was under a
public duty to attend court due to the subpoena. Where there
exists an existing public duty this cant be used as
consideration for a new promise. Godefrey was not required to
pay him.
EXCEPTION Unless it goes beyond their duty.Glasbrook Bros v
Glamorgan County Council [1925] AC 270 HL D. owners of
colliery asked the police to provide protection during a miner's
strike. Police provided protection as requested & provided man
power as directed by D. although they disputed the level of
protection required to keep peace. End of the strike the police
submitted invoice to cover extra costs of providing protection.
D. refused to pay arguing police under an existing public duty to
provide protection & keep peace. Providing additional officers to
that required, the police had gone beyond their duty. They were
therefore entitled to payment
An existing contractual duty will not amount to valid
consideration Stilk v Myrick [1809] EWHC KB J58 King's Bench
Division C. was a seaman on route London to the Baltic & back.
He was to be paid 5 per month. During the voyage 2 of 12
crew left. Captain promised remaining crew that if they worked
ship undermanned back to London hed divide wages due to the
deserters between them. C. agreed. Captain never made extra
payment promised. C. was under existing duty to work ship
back to London & undertook to submit to all the emergencies
that entailed. He hadnt provided consideration for the promise
of extra money. Entitled to nothing.
EXCEPTIONS Unless the party goes beyond their existing duty
Hartley v Ponsonby [1857] 7 EB 872 Half of a ship's crew
deserted on a voyage. The captain promised the remaining crew
members extra money if they worked the ship & completed the
voyage. The captain then refused to pay up. crew entitled to
extra payment promised on grounds that they had gone beyond
existing contractual duty or the voyage had become too
dangerous frustrating original contract & leaving crew free to
negotiate a new contract.
or if they confer a practical advantage: Williams v Roffey
Bros [1990] 2 WLR 1153 The D.s= building contractors who
entered agreement with Shepherds Bush Housing Association to
refurbish block of 27 flats. Contract subject to a liquidated
damages clause if they did not complete the contract on time. D
engaged C to do the carpentry work for an agreed price of
20,000. 6 months after commencing the work, C realised he
had priced the job too low & would be unable to complete at
originally agreed price. He approached the D who had
recognised that the price was particularly low & was concerned
about completing contract on time. D agreed to pay C an
additional 575 per flat. C continued work on the flats for a
further 6 weeks but only received additional 500. C ran out of
money & refused to continue unless payment was made. The D
engaged another carpenter to complete the contract & refused
to pay C the further sums promised arguing C had not
provided consideration as he was already under an existing
contractual duty to complete the work. Consideration was
provided by C conferring a benefit on D by helping them to
avoid the penalty clause. Therefore the D was liable to make the
extra payments promised.
If the existing contractual duty is owed to a 3rd party this may
be used as valid consideration for a new promise: Scotson v
Pegg [1861] EWHC Exch J2 Purchaser of coal paid the D to carry
& to unload coal. C was the supplier of the coal who had also
paid the D to carry & unload coal. C brought an action to recover
the money paid arguing the D was already under an existing
duty to carry & unload the coal & thus provided no
consideration. An existing contractual duty owed to a 3rd party
to the contract amounts to valid consideration for new promise.
Consequently C could not recover the sums paid & the D was
entitled to get paid twice for doing the same thing.
Part payment of a Debt Part payment of a debt is not valid
consideration for a promise to release the debt in full Pinnel's
Case 1602 5 Rep, 117 Court of Common Pleas C was owed 8
10 shillings. D paid 5 2 shillings & 2p. C sued for amount
outstanding. C entitled to full amount even if agreed to accept
less. Part payment of debt isnt valid consideration for a promise
to forebear the balance unless at the promisor's request part
payment is made either:
a) before the due date or
b) with a chattel or
c) to a different destination
exceptions to rule in Pinnel's case: Hirachand Punamchand v
Temple [1911] 2 KB 330 CA C= money lenders in India. Lent
money to D Lieutenant Temple who was army officer serving in
India. C sought money from D but unable to get response, they
contacted his father. Talk occurred between C & father's
solicitors. C asked how much the father would be prepared to
pay to settle son's accounts. Amount agreed which was
substantial amount though not full amount. C promised to send
promissory note relating to the son's debt to the father when
payment received. Father paid, but C retained promissory note /
sued son to enforce balance. Payment made by father =
sufficient to discharge balance. Where person making payment
in return for discharging the debt owed by another this will
amount to good consideration as the existing duty to make
payment was not owed by them but a third party
ESTOPPEL Promissory estoppel- an
equitable doctrine which can
stop a person going back on a
promise which isnt supported
by consideration; developed by
an obiter statement by
Denning in Central London
Property Trust Ltd v High Trees
Ltd [1947] KB 130 basing the
doctrine on the decision
in Hughes v Metropolitan
Railway (1876-77) L.R. 2 App.
Cas. 439 . The HL affirmed
existence of promissory
estoppel in contract law
in Tool Metal Manufacturing v
Tungsten [1955] 1 WLR 761

Requirements: pre-existing
contract or legal obligation
which is then modified. There
must be a clear/unambiguous
promise. Change of position. It
must be inequitable to allow
the promisor to go back on
their promise

Pre-existing contract/legal obligation -> modified Combe v
Combe [1951] 2 KB 215 CA Husband promised to make
maintenance payments to his estranged wife but failed. Wife
brought an action to enforce the promise invoking promissory
estoppel. Action failed. There was no pre-existing agreement
which was later modified by a promise. Wife sought to use
promissory estoppel as sword & not a shield.
There must be a clear an unambiguous promise Woodhouse
A.C. Israel Cocoa Ltd v Nigerian Product Marketing Co Ltd [1972]
AC 741 A contract for the sale of some coffee beans was agreed
to be payable in pound sterling. The sellers mistakenly sent
invoice stating price was payable in Kenyan Shillings. At the time
the value of pound sterling & Kenyan shillings was equal. The
buyers accepted the delivery & invoice without objection.
Subsequently the value of pound fell dramatically in relation to
Kenyan shillings. Buyers sought to revert to pound sterling as
stated in the contract. The buyers conduct in accepting the
invoice unquestionably amounted to an implied clear&
unambiguous promise to accept on those terms.
Change of position Alan v El Nasr [1972] 2 WLR 800 By contract,
sellers agreed to sell 250 tons of coffee beans at 262 Kenyan
shillings per cwt to El Nasr payable on credit. At the time of the
contract the value of Kenyan shillings & pound sterling were of
equal value. Whilst the contract specified the price payable in
Kenyan shillings, the credit account referred payment in pound
sterling. There were a number of other discrepancies between
credit agreement & contract such as date of shipping & the
quantity to be shipped these were rectified in revised agreement
however, new agreement still referred to payment in pound
sterling. Sellers accepted the first instalment of 57K in pound
sterling without objection, however, the value of the pound
dropped dramatically resulting in loss of 165,530.45 shillings.
Sellers then sought to revert to Kenyan shillings & demanded
further payment. Buyers raised promissory estoppel in defence;
in accepting the instalment in pound sterling & redrafting the
credit agreement without changing the currency there was an
implied promise that theyd not revert to Kenyan Shillings. The
sellers argued the buyers hadnt acted to their detriment in
reliance of this promise as theyd gained a benefit Detrimental
reliance=not a requirement of promissory estoppel. It only
needs to be established that the promisor has changed their
position.
It must be inequitable to allow the promisor to go back on their
promise D & C Builders v Rees [1966] 2 WLR 28 CA D instructed
C to do building work at his home to the value of 746. D paid
250 on account & C reduced the bill by 14 & there was a sum
owing of 482. C wrote to D several times pressing payment but
unsuccessful; there had been no complaints as to the
workmanship at this time. C at the time was in financial need &
the business was verging bankruptcy a fact D was aware of. C
telephoned the home & D answered & said she would give them
300 in satisfaction of the whole debt. C refused & said he
would take the 300 & give her a year to clear the balance. He
called at the house to collect the money but D remained firm
that she would only pay 300 & demanded that C wrote on the
receipt 'in completion of the account' otherwise shed pay
nothing. C needed the money immediately so reluctantly agreed
to write this but stated he fully intended to pursue the balance
as the money paid did not cover the costs he had incurred. He
brought an action to recover the balance. D sought to rely on
estoppel relying on the written receipt as demonstrating a
promise to accept the lesser sum. Cs were successful. D could
not rely on estoppel as there was no true agreement to accept
less & because D had taken advantage of the builder's position
& mislead them as to her financial position.
INTENT TO
CREAT LEGAL
RELATIONSHIP
Intent to create legal
relations is aimed at sifting
cases that arent appropriate
for court. Not every agreement
= binding contract which can
be enforced through courts. Eg
agreement to meet a friend at
pub. Moral duty, not a legal
duty.. In order to determine
which agreements are legally
binding & have an intention to
create legal relations, law
draws distinction between
social/domestic
agreements & agreements
made in a commercial context.
Intention to create legal relations in social & domestic
agreements In social & domestic agreements the law raises
a presumption that the parties do not intend to create legal
relations: Jones v Padavatton [1969] 1 WLR 328 CA mother
promised to pay daughter $200 per month if she gave up her
job in US & went to London to study the bar. Daughter was
reluctant at first, she had a well-paid job with Indian embassy in
Washington & was happy & settled however her mother
persuaded her that itd be in her interest go. The mother's idea
was that the daughter could join her in Trinidad as a lawyer.
Initial agreement wasn't working out as the daughter believed
the $200 was US whereas the mother meant Trinidad dollars
which was less than half what was expected. This meant the
daughter could only afford to rent 1 room for her & her son to
live in. Mother then agreed to purchase a house for the daughter
to live in. She purchased a large house so the daughter could
rent out other rooms & use the income as maintenance. The
daughter married & did not complete her studies. The mother
sought possession of the house. Question for the court was
whether there existed a legally binding agreement between the
mother & daughter or whether the agreement was merely a
family agreement not intended to be binding. The agreement
was purely a domestic agreement which raises a presumption
that the parties do not intend to be legally bound by the
agreement. There was no evidence to rebut this presumption.
This presumption may be rebutted by evidence to the contrary.
This evidence may consist of:
A written agreement: Errington v Errington Woods [1952] 1 KB
290
Where the parties have separated: Merritt v Merritt [1970] 1 WLR
1211
Where theres 3rd party to agreement: Simpkins v Pays [1955] 1
WLR 975
Intention to create legal relations in commercial agreements
Where an agreement is made in a commercial context, the law
raises a presumption that the parties do intend to create legal
relations by the agreement: Esso Petroleum v Customs &
Excise [1976] 1 WLR 1 HL Esso ran a promotion whereby any
person purchasing four gallons of petrol would get a free coin
from their World Cup Coins Collection. The question for the
court was whether these coins were 'produced in quantity for
general resale' if so they would be subject to tax & Esso would
be liable to pay 200,000. Esso argued that the coins were
simply a free gift & the promotion was not intended to have
legal effect & also that there was no resale. There was an
intention to create legal relations. The coins were offered in a
commercial context which raised a presumption that they did
intend to be bound. However, the coins were not exchanged for
a money consideration & therefore the coins were not for resale.
Again this presumption can be rebutted by evidence to the
contrary-Binding in honour only clauses: Jones v Vernon Pools
(1938) C claimed to have won the football pools. The coupon
stated that the transaction was "binding in honour only". It was
held that C was not entitled to recover because agreement was
based on honour of the parties (and thus not legally binding).
(DECISION BOUND Ferrera v Littlewoods Pools [1998] EWCA Civ
618 CA)
CAPACITTY Minors
Contracts For Necessaries
Sale of Goods Act 1979
s.3(3) defines
necessaries as: goods
suitable to the
condition of life of the
minor & to his actual
requirements at the
time of sale & delivery

Minors Benefit (Minors
Contract Act 1987)
Contracts of employment.




Nash v Inman C entered into a contract to supply D (a
Cambridge undergraduate student) with, amongst other things,
11 waistcoats. D was a minor who was already adequately
supplied with clothes by his father. When C claimed the cost of
these clothes D sought to rely on lack of capacity & succeeded
at first instance. C was unsuccessful; he couldnt show the
minor was adequately supplied with clothes.
Clements v London & NW Railway Co-contract young railway
porter agreed to join an insurance scheme & to forgo any claims
he might have under the Employers' Liability Act. He had
forfeited his rights under the Act, the contract as a whole being
for his benefit. It was held that the contract was for the minor's
benefit & that he should be able to obtain employment which
wou1d be difficult if he could not make a binding contract
De Francesco v Barnum 14 yr old girl apprenticed for 7 years to
learn stage dancing. Terms restrained her from several acts eg
not being maintained by Barnum; not able to accept other work
& being deemed to have resigned if wishing to marry. beneficial
contracts of service require that the beneficial terms outweigh
the onerous terms. In this case they did not - the restrictions on
her were too harsh so the contract was not considered binding.
Mental Incapacity Section
7 of the Mental Capacity
Act 2005
Drunken persons Section 3
of the Sale of Goods Act
1979
Individuals will be bound by their contracts unless:
disordered or drunk that they did not understand the nature
of what they were doing
The other party was aware of this
PRIVITY
2 rules 1
st
that
a 3
rd
party may
not have
obligations
imposed by
terms of a
contract, & 2
nd
,
that a 3
rd
party
may not benefit
from terms of a
contract.
consideration must move from
the promisee



Tweddle v Atkinson 1861The fathers of a husband & wife agreed
in writing that both should pay money to the husband, adding
that the husband should have the power to sue them for the
respective sums. The husband's claim against his wife's fathers'
estate was dismissed, the court justifying the decision largely
because no consideration moved from the husband.
Only a promisee may enforce
the promise meaning if 3
rd

party is not a promisee hes
not privy to contract.

Dunlop Tyre Co v Selfridge [1915] AC 847
C sold tyres to Dew & Co, wholesale distributors, on terms that
Dew would obtain an undertaking from retailers that they
shouldnt sell below C list price. Dew sold some of the tyres to
the D, who retailed them below list price. C sought injunction &
damages. The action failed because although there was a
contract between D & Dew, C were not a party to it & "only a
person who is a party to a contract can sue on it," (per Lord
Haldane).
EXCEPTIONS
COLLATERAL CONTRACT






Shanklin Pier Ltd v Detel Products Ltd[1951] 2 KB 854 Shanklin
Pier Ltd hired a contractor to paint Shanklin Pier. They spoke to
Detel Products Ltd about whether a particular paint was suitable
to be used, & Detel assured them that it was, & that it would last
for at least seven years.
[1]
On the basis of this conversation
Shanklin Pier Ltd instructed the contractors to use a particular
paint, which they did. The paint started to peel after three
months, & Shanklin Pier attempted to claim compensation from
Detel Products A collateral contract existed. Shanklin Could not
sue for the contract for sale of paint.

CONTENT DEFINITION/NOTES CASES FACTS/RELAVANCE/
PRINCIPLES
Contents of
a contract are
known
as terms or
clauses.
Contract
terms may
be express or
implied & they
may be classed
as; conditions,
warranties or
innominate
terms.

EXPRESS TERMS
1. An express term - if not
fulfilled the innocent party may
bring an action for breach of
contract.
2. A representation - if not
fulfilled the innocent party may
bring an action for MisRep.
3. As part of a collateral
contract - the innocent party
may sue on the collateral
contract. The main contract
remains intact:
4. A sales puff - not intended
to be binding. Has no legal
effect. eg Red Ball gives you
wings. N/A
Esso Petroleum v Mardon [1976] QB 801 CA D entered tenancy
agreement with C in respect of a new Petrol station. Cs experts
estimated the petrol station would sell 200k gallons of petrol.
Estimate was based on figures prepared prior to planning
application. Planning permission changed the prominence of the
petrol station which would have an adverse effect on the sales
rate. C made no amendments to the estimate. The rent under
the tenancy was also based on the erroneous estimate.
Consequently it became impossible for D to run the petrol
station profitably. In fact, despite his best endeavours the petrol
station only sold 78,000 gallons in the first year & made a loss
of 5,800. The CA held that there was no action for MisRep as
the statement was an estimate of future sales rather than a
statement of fact. However, C was entitled to damages based on
either negligent misstatement at common law or breach of
warranty of a collateral contract.
those agreed
between parties
themselves
1. The parole evidence rule:
where contract is in writing
only the terms included in the
written document are terms
any verbal statements will be
representations

2. Relative expertise: If the
representor has the greater
knowledge, it is more likely to
be a contractual term.
Conversely if the representee
has the greater knowledge it is
more likely to be a
representation:


Oscar Chess Ltd v Williams [1957] 1 WLR 370 CA D purchased
second hand Morris car on basis it was a 1948 model. The
registration document stated it was first registered in 1948. The
following year her son used the car as a trade in for a brand new
Hillman Minx which he was purchasing from C. The son stated
car was a 1948 model & on that basis C offered 290 off the
purchase price of the D. Without this discount D wouldnt have
been able to go through with the purchase. 8 months later C
found the car was in fact a 1939 model & worth less. They
brought action for breach of contract arguing the date of the
vehicle was a fundamental term of the contract thus giving
grounds to repudiate the contract & claim damages. The
statement relating to the age of the car was not a term but a
representation. The representee, Oscar Chess ltd as a car dealer,
had the greater knowledge & would be in a better position to
know the age of the manufacture than D.
Dick Bentley Productions v Harold Smith Motors [1965] 1 WLR
623 CA C knew the D, who was a car trader specialising in the
prestige market, for some time. C asked D to look out for a well
vetted Bentley car. D obtained a Bentley & recommended it to C.
D told him the car had been owned by German Baron & had
been fitted with replacement engine & gearbox & only done 20k
miles since replacement. C Purchased the car but it developed
faults. D had done some work under the warranty but then more
faults developed. It transpired the car did 100k miles since the
refit. The question for the court was whether the statement
amounted to a term in which case damages would payable for
breach of contract, or whether the statement was a
representation, in which case no damages would be payable
since it was an innocent MisRep & C has also lost his right to
rescind due to lapse of time. The statement was a term. The D
as a car dealer had greater expertise & C relied upon that
expertise
3. The importance of the
statement & reliance: Where
the representee indicates to
the representor the importance
of the statement, this is likely
to be held to be a term:
Bannerman v White (1861) 10 CBNS 844 C agreed by contract to
purchase some hops to be used for making beer. He asked the
seller if the hops had been treated with sulphur & told him if
they had he wouldn't buy them as he would not be able to use
them for making beer if they had. The seller assured him that
the hops had not been treated with sulphur. In fact they had
been treated with sulphur. The statement that the hops had not
been treated with sulphur was a term of the contract rather than
a representation as C had communicated the importance of the
term & relied on the statement. His action for breach of contract
was successful.
4. Timing The longer the time
lapse between making the
statement & entering the
contract the more likely it will
be a representation
Routledge v Mackay [1954] 1 WLR 615 CA C acquired a Douglas
BSA motorcycle & sidecar by exchanging another motorcycle &
paying 30. The registration documents stated that it was a
1942 model & this is what the D stated the year of the
motorcycle to be when C came to look at it. The motorcycle was
in fact a 1936 model but had been modified & re-registered by
a previous owner. The purchaser went away to think about it &
then returned a few days later a written agreement was
produced to the effect of the exchange which ended with the
words "It is understood that when the 30 is paid over that this
transaction is closed". Statement was representation & not
contractual term. Registration document was not prima facie
evidence of a contractual term. Neither party was expert, &
there was a lapse of time between the making of the statement
& entering the contract giving C the opportunity to check the
statement. Furthermore there was no mention of the date in the
written agreement & the words of the agreement stating the
transaction is considered closed excluded any possible collateral
warranty.
IMPLIED TERMS
Not expressly
stated, but
courts are
willing, or
required by
statute to
imply.

Statutory implied terms - The
Sale of Goods Act 1979 & the
Supply of Goods & Services Act
1982

Terms implied by common law

Implied through custom
(particular term is prevalent in
a trade the courts may imply a
term in a contract of the same
type in that trade)
Hutton v Warren [1836] EWHC Exch J61 C was a farmer who had
a tenancy on the D fields. C had planted corn & Barley on the
fields & worked the fields to ensure the crops would grow.
Before the field was due to be harvested the tenancy was
terminated. C then submitted a bill to the D for the work & cost
of seed spent on the field as was customary in farming
tenancies. D refused to pay stating there was nothing in the
tenancy agreement stating that such compensation was payable.
The court implied a term into the tenancy providing for
compensation for the work & expenses undertaken in growing
the crops. The term was implied as it was common practice for
farming tenancies to contain such a clause.
Terms implied in fact
1) The business efficacy test:
This asks whether the term
was necessary to give the
contract business efficacy ie
would the contract make
business sense without it? -
The courts will only imply a
term where it is necessary to
do so.

The Moorcock (1889) 14 PD 64 C tied his ship at the D wharf
on Thames. Thames is a tidal river & at times when the tide
went out the ship would come into contact with river bed. Ship
became damaged due to uneven surfaces & rocks on the river
bed. C sought to claim damages from the D & the D argued that
there was no provision in the contract warranting the condition
of the river bed. The court implied a term in fact, that the river
bed would be safe for mooring. The court introduced the
business efficacy test ie the term must be necessary to give the
contract business effect. If the contract makes business sense
without the term, the courts will not imply a term.
2) The officious bystander
test:
Had an officious bystander
been present at the time the
contract was made & had
suggested that such a term
should be included, it must be
obvious that both parties
would have agreed to it.
Shirlaw v Southern Foundries [1939] 2 KB 20 C had been
employed as a managing director of Southern Foundries the
office of employment was to last for 10 years. Federated
Foundries then purchased controlling share in the company &
altered the company's Articles of Association giving them power
to remove directors. They then dismissed C as a director who
brought an action for wrongful dismissal. 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. However, if he was not a director he was
not able to be a managing director. C asked the court to imply a
term the D would not act in a way making it incapable for him to
perform his contract. CA applied the officious bystander test &
did imply the term.
The officious bystander test: If a third party was with the parties
at the time the contract was made & had they suggested the
term should be implied it would be obvious that both parties
would reply with a hearty 'oh of course'. It must be obvious that
both parties would agree to the term at the time the contract
was made.
Terms implied at law
The courts may imply a term in
law in contracts of a defined
type eg Landlord/tenant,
retailer/customer where the
law generally offers some
protection to the weaker party

Liverpool City Council v Irwin [1977] AC 239 Liverpool council
owned a block of flats in which the D was a tenant. The common
parts of the flats, the lifts, stair cases, rubbish chutes etc, had
fallen into disrepair. A rent strike was implemented by many of
the tenants including the D. The council sought to evict the D
for non-payment of rent & she counter claimed for breach of an
obligation to repair. However, the tenancy agreement did not
mention any obligation to repair. In fact the tenancy agreement
only imposed obligations on the tenant with no mention of the
obligations of the landlord. The D asked the court to imply a
term that the council had an obligation to repair the common
parts of the block of flats. Courts did imply a term. The term
arose as a legal incident in contracts of a defined type between
landlord & tenant that the landlord was to take reasonable care
to maintain the common parts. However, there was no breach of
this duty
In addition to being a contract
of a defined type, the term
must be a reasonable one to
include:

Wilson v Best Travel [1993] 1 All ER 353 C injured when he fell
through glass patio doors whilst on holiday in Greece. The glass
conformed to Greek safety standards but not to British safety
standards. C brought an action against the travel agent asking
for a term to be implied as a matter of law, that all
accommodation offered by the D should conform to British
standards. Courts did not imply a term. Whilst this was a
contract of a defined type, it was reasonable for the travel
agency to ensure that all accommodation offered, no matter
where in the world, conformed to British safety standards.
CATEGORISE
Conditions,
warranties &
innominate
terms
Traditionally,
contractual
terms=conditio
ns
or warranties.
The category
of innominate
terms was
created in Hong
Kong Fir
Shipping;
important for
parties to
identify which
terms=conditio
ns & which are
warranties. Brea
ch of contract =
it is important
to determine
which type of
term has been
breached in
order to
establish the
remedy
available.
Conditions Major term of the
contract which goes to the root
of the contract. If a condition
is breached the innocent party
is entitled to repudiate (end)
the contract & claim damages:
Poussard v Spiers (1876)1 QBD 410 Madame Poussard entered a
contract to perform as an opera singer for three months. She
became ill five days before the opening night & was not able to
perform the first four nights. Spiers then replaced her with
another opera singer. Madame Poussard breached condition &
Spiers were entitled to end the contract. She missed the opening
night which was the most important performance as all the
critics & publicity would be based on this night.
Warranties Minor terms of
contract which arent central to
existence of contract. If a
warranty is breached the
innocent party may claim
damages but cant end the
contract:
Bettini v Gye (1876) QBD 183 Bettini agreed to perform as an
opera singer for a three month period. He became ill & missed 6
days of rehearsals. The employer sacked him & replaced him
with another opera singer. Bettini was in breach of warranty &
therefore the employer was not entitled to end the contract.
Missing the rehearsals did not go to the root of the contract.
Innominate terms Established
in the case of Hong Kong Fir
Shipping. Rather than
classifying the terms
themselves as conditions or
warranties, the innominate
term approach looks to the
effect of the breach &
questions whether the
innocent party to the breach
was deprived of substantially
the whole benefit of the
contract. Only where the
innocent party was
substantially deprived of the
whole benefit, will they be able
to treat the contract as at an
end
Hong Kong Fir Shipping v Kawasaki Kisen Kaisha [1962] 2 QB 26
CA A ship was chartered to the D for a 2 year period. Agreement
included a term that the ship would be seaworthy throughout
the period of hire. Problems developed with ship engine & the
engine crew were incompetent. Consequently the ship was out
of service for a 5 week period & then a further 15 week period.
D treated this as a breach of condition & ended the contract.
The Cs brought an action for wrongful repudiation arguing the
term relating to seaworthiness was not a condition of the
contract. Ds were liable for wrongful repudiation. Court
introduced the innominate term approach. Rather than seeking
to classify the term itself as a condition or warranty, the court
should look to the effect of the breach & ask if the breach has
substantially deprived the innocent party of the whole benefit of
the contract. Only where this is answered affirmatively is it to be
a breach of condition. 20 weeks out of a 2 year contract period
did not substantially deprive the D of whole benefit & therefore
they were not entitled to repudiate the contract
Schuler v Wickman Tools [1974] AC 235 HL C=manufacturers of
tools & D=sales company granted the sole right to sell certain
tools manufactured by C. Term of contract between parties was
described as being a condition & provided that D would send a
sales person to each named company once a week to solicit
sales. This imposed an obligation to make 1,400 visits in total.
D failed to make some of the visits & C terminated the contract
for breach of condition. Despite the fact the contract had
expressly stated the term was a condition, the HL held that it
was only a warranty.
Lombard North Central v Butterworth [1987] QB 527 D leased a
computer from the C. C was to pay 584 by 20 instalments
every 3 months. A term of the lease agreement provided that
punctual payment was required & breach of this term would
entitle the lessor to terminate the agreement. The D got into
arrears with the instalments & C took possession of the
computer & sold it on for 175. C sued the D claiming arrears &
all future payments amounting to 6,869 in total. The term
relating to prompt payment was a condition. The parties by their
agreement had demonstrated that prompt payment was an
essential term & the consequence of breach was clearly set out.
Nicholls LJ stated that even one late payment would entitle the
lessor to terminate irrespective of the effect of the breach.
NEED FOR COMMERCIAL
CERTAINTY

Bunge Corporation v Tradax [1981] 1 WLR 711 HLA contract for
the sale 5,000 tons of soya beans required the buyers to give
the sellers 15 days notice of readiness of loading. This term
was stated as a condition. The buyers gave a shorter notice
period & the sellers treated this as terminating the contract &
claimed damages. The price of soya beans had dropped by over
$60 per ton. The initial hearing was decide by arbitration where
it was held that the sellers were entitled to end the contract &
awarded $317.500 representing the decrease in value of the
soya beans. The buyers appealed to the High court who reversed
this decision applying the innominate term approach from Hong
Kong Fir. CA reversed the decision & the buyers appealed to the
HL. The term was stated as a condition & should be treated as
such. The need for certainty in commercial contracts & the fact
that the innominate term approach had caused much litigation
meant that it should only be used where it was impossible to
classify the term as a condition or warranty by reference to the
term itself.
EXEMPTION/EXC
LUSION CLAUSES
excludes liability
or limits liability
Incorporation clause
amounts to a term of contract
Working through either:
a. Signature
LEstrange v Graucob (1934) C purchased cigarette vending
machine for cafe. She signed order form stating in small print
'Any express or implied, condition, statement of warranty,
statutory or otherwise is expressly excluded'. Vending machine
Limitation
clause = Limits
liability (more
favourable
courts
understand
business need
to limit liability,
if businesses
didnt limit
liability they
would be
initially screwed.
b. Notice
c. Course of Dealing

SIGNATURE
Once signed = BOUND!!
(courts are strict)
didnt work & C sought to reject it under the Sale of Goods Act
for not being of merchantable quality. In signing the order form
she was bound by all the terms contained in the form
irrespective of whether she had read the form or not.
Consequently her claim was unsuccessful.
Curtis v Chemical Dry Cleaning (1951) C took wedding dress to
cleaners. She was asked to sign a form. She asked the assistant
what she was signing & assistant told her it excluded liability for
damage to beads. Form in fact contained clause excluding all
liability for all damage howsoever caused. Dress returned badly
stained. Assistant had MisRep the effect of the clause & thus
could not rely on the clause in the form even though C had
signed it.
NOTICE
Timing=CRUTIAL
Term must be brought to the
attention of a party at the time
of contracting or prior
anything post contractual
would be ineffective




HOWEVER, because of UCTA
1977 this would be invalid
because you cannot exclude
liability for death or personal
injury
Olley v Marlborough Court [1949] 1 KB 532 C booked into a
hotel. In the hotel room on the back of the door a notice sought
to exclude liability of the hotel proprietors for any lost, stolen or
damaged property. C had her fur coat stolen. The notice was
ineffective. The contract had already been made by the time C
had seen the notice. It did not therefore form part of the
contract.
Thornton v Shoe Lane Parking [1971] 2 WLR 585 CA C was
injured in a car park partly due to the D negligence. C was given
a ticket on entering the car park after putting money into a
machine. The ticket stated the contract of parking was subject
to terms & conditions which were displayed on the inside of the
car park. One of the terms excluded liability for personal injuries
arising through negligence. The question for the court was
whether the term was incorporated into the contract ie had the
D brought it to the attention of C before or at the time the
contract was made. This question depended upon where the
offer & acceptance took place in relation to the machine. The
machine itself constituted the offer. The acceptance was by
putting the money into the machine. The ticket was dispensed
after the acceptance took place & therefore the clause was not
incorporated into the contract.
Receipts/tickets
Ticket showed only a proof of
purchase so courts did not
include exclusion causes here.
a. TYPE OF DOCUMENT IS
IMPORTANT!!!

Chapelton v Barry UDC (1940) DECK CHAIR HIRE CASE - pile of
chairs & a nearby notice stating "hire of chairs 2d per session of
3 hours - Public requested to obtain ticket from attendant". C
took a chair & obtained a ticket. He then went to sit down & fell
through the canvas. Judge would have found for C, but said that
the wording on the ticket, "The council will not be liable for any
accident or damage arising from hire of the chair" obliged him
to find for D." On appeal it was decided there was no restriction
on the notice because the ticket (which might not be obtained at
the same time as the hiring of the chair), could not modify the
terms of the contract
Parker v south Eastern train (1877) Bag left in railway station &
ticket said see back & on the ticket it limited liability to 10 C
lost his bag & had not read the back of the ticket. Courts said
INVALID Handing over a ticket with an exclusion clause is
INSUFFICIENT!!! Ticket doesnt have contractual force
Thompson v L M & S Railway Co (1930) Ticket said subject to
timetable. Its not contractual but Being directed to Other info
makes it VALID & CONTRACTUAL
Nature of clauses Onerous
Terms? (burdenous)
Onerous terms MUST be
specifically drawn to the
attention of the party
(THORNTON CASE ^)

Interfoto Picture Library v Stiletto Visual Programmes ltd. (1988)
C delivered 47 photographic transparencies to D in jiffy bag. D
was planning to use them for a presentation, but did not. It
never opened the transparency bag or read Interfoto's standard
terms & conditions, which were inside the bag. Condition 2 said
there was a holding fee of 5 for each day over fourteen days.
After around a month, Interfoto sent a bill for 3,783.50.
Because the amount was exorbitant & it was an onerous term
it should have been brought to the attention of the parties.
DENNING: Some clauses (ONEROUS) should be printed in RED
INK with a red pointed hand indicating it!
Course of dealing
Exemption clause may become
part of a contract if there have
been previous dealings!
Course of dealings CASES
illustrating regular &
inconsistent dealings & where
courts will incorporate this in
cases.

Spurling v Bradshaw [1956] 1 WLR 461 D used services of a
warehouse to store goods on regular basis. Each time he
delivered goods to the warehouse he was asked to sign invoice
which contained an exclusion clause. Invoice came after contract
had been agreed. On one occasion he stored some barrels of
orange juice & signed the invoice. When he went to pick them
up, however, some of the barrels were empty & one contained
dirty water. Consequently he refused to pay for the storage. C
warehouse owners brought an action for the agreed price of
storage relying on the exclusion clause to demonstrate that they
were not liable for the damage to the goods. D argued the
clause had not been incorporated into the contract as he signed
the document after the contract was made. The clause was
incorporated through previous dealings. D would have been
aware of the term from the previous contracts & therefore it did
form part of the contract. C was entitled to payment & D had no
right to claim compensation for the damage to the orange juice.
Hollier v Rambler Motors [1972] 2 WLR 401 CA C had used
services of D garage on 3-4 occasions over five year period.
Each time he was asked to sign a document excluding liability
for damage. On this occasion the contract was made over the
phone & no reference to the exclusion clause was made. The
garage damaged the car during the repair work & sought to
invoke the exclusion clause through previous dealings. There
was not a sufficient number of or regularity of transactions to
amount to a previous course of dealings capable of
incorporating the exclusion clause. It was not reasonable to
expect C to remember the clause from one transaction to the
next. Consequently the garage was liable to pay for the damage.
Construction Must be clear &
not ambiguous

Contra proferentem rule
ambiguity will be construed
against party relying on the
clause!
Houghton v Trafalgar Insurance [1953] 2 All ER 1409 CA C, the
assured, claimed against the Trafalgar Insurance under an
insurance policy in respect of a car accident which resulted in
his car becoming a total loss. At the time of the accident the
five seater car contained six people - the driver & one
passenger in the front seats, & four passengers in the back of
the car, three being seated on the back seat & one on the
knees of another. The policy contained a clause which
excluded Trafalgar Insurance's liability for 'Loss, damage, &/or
liability caused or arising whilst any such car is... conveying
any load in excess of that for which it was constructed.'
Meaning of LOAD ambiguous in case & therefore clause
ineffective
Ailsa Craig Fishing v Malvern Fishing [1983] 1 WLR 964 HL A
contract between existed between Securicor & Aberdeen Fishing
Vessel Owners Association whereby Securicor were to provide
security cover in the harbour where the Cs vessels were
moored. As a result of negligence & breach of contract the Cs
vessels sunk. The contract contained a clause which provided
that in the event of negligence or breach, Securicor would not
be liable for any amount exceeding 1,000 in any one claim &
that it would not be liable for more than 10,000 in any twelve
month period. HL held that where the clause limits liability
rather than excludes liability altogether the courts should apply
the natural meaning of the clause & not be too eager to find
ambiguity. Lord Wilberforce stated 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.
EXCLUDING NEGLIGENCE

Canada Steamships v R Appeal was allowed against the SCC
judgment. It was said: clause 7 did not exclude negligence
liability in clear enough terms & clause 17 was ambiguous &
would be construed against the Crown. If a clause expressly
excludes liability for negligence (or an appropriate synonym)
then effect is given to that.
[3]
If not, one should ask whether the
words are wide enough to exclude negligence & if there is doubt
that is resolved against the one relying on the clause. If that is
satisfied, then one should ask whether the clause could cover
some alternative liability other than for negligence, & if it can, it
covers that.

Another form of liability for damage was strict
liability, & so the exclusion clause did not work to cover
negligence.
Excluding negligence usually
covering strict liability only
needs careful wording to
exclude liability for negligence
1) To be effective must
include terms such as
a. HOWSOEVER CAUSED
b. No liability
WHATSOEVER
c. SOLE RISK

Hollier v Rambler Motors [1972] 2 WLR 401 CA no reference to
the exclusion clause was made. The garage damaged the car
during the repair work & sought to invoke the exclusion clause
through previous dealings. not a sufficient number of or
regularity of transactions to amount to a previous course of
dealings capable of incorporating the exclusion clause.
Alderslade v Hendon Laundry (1945) 1 KB 189 C took laundry to
be cleaned - when he picked it up it was gone. On Cs receipt it
stated that the launderer was not responsible for loss of
damage; & that this was limited to 20 times the cost of cleaning.
The laundry had duty to take reasonable care & any excluding
clause indicated that there was some liability - the clause did
not include negligence of the launderer.
Even where an exclusion
clause has been incorporated
into a contract, it may not have
been incorporated in a
collateral contract.
Photo Production v Securicor [1980] AC 827 HL A contract for
provision of security services by Securicor at the Cs factory. The
security guards negligence caused the destruction of the Cs
factory by fire. The contract contained a clause excluded liability
for negligence of Securicors workers. Where the parties are
negotiating at arms-length, & have set out who should bear the
risks, the courts should be unwilling to interfere
Andrews v Hopkinson [1957] 1 QB 229 C saw a car in the Ds
garage, which the D described as follows: "It's a good little bus. I
would stake my life on it". C agreed to take it on hire-purchase
& D sold it to a finance company that made a h-p agreement
with C. When the car was delivered C signed a note saying he
was satisfied about its condition. Shortly afterwards, due to a
defect in the steering, the car crashed. C was stopped from
suing the finance company because of the delivery note but he
sued the D. It was held that there was a collateral contract with
the D who promised the car was in good condition & in return
the plaintiff promised to make the h-p agreement. D was liable.
Effectiveness
UCTA/regulations
The Act does not apply to
insurance contracts; the sale of
land; contracts relating to
companies; the sale of shares; &
the carriage of goods by sea
(Schedule 1); or to international
supply contracts (s26).

REASONABLENESS
George Mitchell v Finney Lock Seeds [1983] QB 284 CA C farmer
George Mitchell purchased 30lb of Cabbage seed from D for
192. C planted the seed over 63 Acres & spent many hours of
labour on the crops. The cabbage seeds only produced a small
green leaf plant not fit for human consumption. The contract
contained a clause which limited liability to the price of the
seeds. C had lost 60,000 + interest on the defective seeds. The
CA held that the clause was unreasonable as the buyer would
not have been aware of the fault whereas the seller would.
THE TEST
UCTA Schedule 2
Relative bargaining power
Inducement
Did the customer know /
ought to know of terms?
If it relates to condition
Goods manufactured to special
order of customer
Clause not negotiated
Fault lay with suppliers
Buyers could not have insured against risk: suppliers
couldve insured
Limiting liability to price grossly disproportionate

VITIATING
FACTORS
DEFINITION/NOTES CASES FACTS/RELAVANCE/
PRINCIPLE
MISREP= false
statement of
fact or law
which induces
the representee
to enter a
contract. Where
statement made
during
negotiations is
not a term an
action
for MisRep may
be available
where the
statement turns
out to be
untrue.

3 types of
MisRep: innocen
t MisRep,
negligent
MisRep &
fraudulent
MisRep.
MisRep-
contract
is voidable
Remedy-
False statement
There must be a false
statement of fact or law as
oppose to opinion or estimate
of future events:

Bisset v Wilkinson [1927] AC 177 Privy Council Farm being sold
in new Zealand, seller didnt know anything about farming etc.
the buyer said how many sheep can this land hold the seller
said I dont know but he said I think x amount he bought the
land the amount of sheep held on land was less he tried to
terminate the contract however court. It was a true honest
intention. HONESTLY HELD LAYMAN, NOT LIABLE
Esso Petroleum v Mardon [1976] QB 801 CA Mr Mardon entered
a tenancy agreement with Esso Petroleum in respect of a new
Petrol station. Esso's experts had estimated that the petrol
station would sell 200,000 gallons of petrol. This estimate was
based on figures which were prepared prior to planning
application. The planning permission changed the prominence
of the petrol station which would have an adverse effect on the
sales rate. Esso made no amendments to the estimate. The rent
under the tenancy was also based on the erroneous estimate.
Consequently it became impossible for Mr Mardon to run the
petrol station profitably. In fact, despite his best endeavours the
petrol station only sold 78,000 gallons in the first year & made a
loss of 5,800. CA held that there was no action for MisRep as
the statement was an estimate of future sales rather than a
statement of fact. However, C was entitled to damages based on
either negligent misstatement at common law or breach of
warranty of a collateral contract.
A statement of opinion
amounts to an actionable
MisRep where the representor
= in a position to know the
facts

Smith v Land & House Property Corp (1884) 28 Ch D 7 C
purchased a hotel. The seller described one of the tenants as
being 'most desirable'. In fact, as the seller knew, the tenant was
in arrears & on the verge of bankruptcy. held to be a statement
of fact rather than opinion as the seller was in a position to
know the facts.
depends on type
or MisRep
(generally=resci
ssion & or
damages).
Law relating to
MisRep found in
common law
with the MisRep
Act
1967 providing
some further
details.
A statement as to future intent
cant amount to a MisRep
unless representor had no
intention of carrying out the
stated intent
Edgington v Fitzmaurice (1885) 29 Ch D 459 C purchased shares
in D company. The company prospectus stated the shares were
being offered in order to raise money to expand the company. In
fact the company was experiencing financial difficulty & the
money raised from the sale of the shares was going to be used
to pay the company debts. Despite the fact that the statement
related to a statement of future intent, it was an actionable
MisRep as the D had no intention of using the money to expand
the company
False statement of law will now
amount to an actionable
MisRep

Pankhania v LB Hackney [2002] EWHC 2441 Cs purchased
property induced by a representation that the current occupiers
of the property were contractual licensees, whose occupation
could be terminated on giving a 3 month notice. In fact the
current occupant was in fact a tenant protected under the
Landlord & Tenant Act 1954. This was a MisRep as to law which
had previously been assumed not to be an actionable MisRep
through analogy with case law based on restitutionary claims for
mistake of law. Rule barring recovery for mistake of law was
abolished by the HLs in Kleinwort Benson v Lincoln County
council. The High court held that actions based on MisRep of law
could now be actionable based upon that change of law. C
action successful.
Silence will not generally
amount to a MisRep

Unless it is a contract of
uberrimae fidei. ie one of
utmost good faith such as an
insurance contract or where
the representor is in a fiduciary
position. In such contracts a
duty exists to
disclose all material facts & a
failure to do so may give rise
to an action for MisRep.

Smith v Hughes (1871) LR 6 QB 597C had purchased a quantity
of what he thought was old oats having been shown a sample. In
fact the oats were new oats. C wanted the oats for horse feed &
new oats were of no use to him. The seller was aware of the
mistake of C but said nothing. C brought an action against the
seller based on mistake & MisRep. both actions failed. The
action based on MisRep failed as you cannot have silence as a
MisRep. D had not mislead C to believe they were old oats. The
action based on mistake failed as the mistake was not as to the
fundamental terms of the contract but only a mistake as to
quality.
HIH Casualty & General Insurance v Chase Manhattan
Bank [2003] UKHL 6 HL The clause was ineffective. The insurers
were entitled to rescind the contract of insurance through both
the MisRep & the non-disclosure.
(CHANGE OF CIRCUMSTANCES) With v OFlanagan [1936]Doctor had had enough of work &
wanted to sell he advertised it including the profit hed been
making however he fell badly ill & more of his patient went
elsewhere for care- at the time of the contract he did not voice
this change & therefore was held liable Statement becomes false
due to circumstances changing
Inducement/r
eliance

Establishing false statement;
necessary for representee to
demonstrate statement
induced contract entry. no
inducement/reliance
if representee naive of false
statement:
Horsfall v Thomas [1862] 1 H&C 90 C purchased a gun which
had a concealed defect. His action for MisRep failed as he hadn't
inspected the gun before purchasing it. Therefore the MisRep
did not induce him to enter the contract as he was unaware of it.
If the representee/agent
checks validity of the
statement =theyve not relied
on it
Attwood v Small [1838] UKHL J60 C purchased Corngreaves
estate from D for 600k. Corngreaves estate consisted of mining
land, iron works & various properties including mansion house.
Many properties were subject to leasehold & generated income.
The mines were to be worked by & profit to go to the C. A
preliminary agreement was made between the parties whereby C
agreed to purchase subject to being satisfied that the reports &
accounts given by D were accurate. C then had his accountants
& directors check out the accounts & reports who were satisfied
they were accurate. C then proceeded with the purchase. It then
transpired that the accounts had greatly exaggerated the income
generated by the estate & C sought to rescind the contract
based on the MisRep contained in the reports & accounts. C was
unsuccessful. (Experts checked reports = not reliance on
accounts but own judgment.)
If the representee is given the
opportunity to check out the
statement but does not they
are still able to demonstrate
reliance
Redgrave v Hurd (1881) 20 Ch D 1 A solicitor purchased into the
partnership in the solicitors' firm. He was told the partnership
had an income of 300 per year & was given the opportunity to
look at the accounts. He declined the offer to check the accounts
& took them at their word. In fact the income was only 200 per
year. He was entitled to rescind the contract as he relied on the
statement. The fact that he had declined the offer to check the
books reinforced rather than negated that reliance.
Types of MisRep

a. Fraudulent
Lord Herschell defined
fraudulent MisRep in Derry v
Peek.

The burden of proof lies on the
C

Derry v Peek (1889) 5 T.L.R. 625 In a company prospectus D
stated the company had the right to use steam powered trams
as oppose to horse powered trams. However, at the time the
right to use steam powered trams was subject of approval of the
Board of Trade, which was later refused. C purchased shares in
the company in reliance of the statement made & brought a
claim based on the alleged fraudulent representation of D. The
statement was not fraudulent but made in the honest belief that
approval was forthcoming.
Lord Herschell defined fraudulent MisRep as a statement which
is made either.
I. knowing it to be false,
II. without belief in its truth, or
III. Recklessly, careless as to whether it be true or false.
b. Negligent
Under statute-
Under s.2(1) MisRep Act 1967,
a negligent MisRep is a
statement made without
reasonable grounds for belief
in its truth. The burden of
proof being on the representor
to demonstrate they had
reasonable grounds for
believing the statement to be
true.

This burden of proof is difficult
to discharge




Common Law (TORT)-

s2(1) MisRep Act 1967
Where a person has entered into a contract after a MisRep has
been made to him by another party thereto & as a result thereof
he has suffered loss,
then, if the person making the representation would be liable
to damages in respect thereof had the MisRep been made
fraudulently, that person shall be so liable notwithstanding
that the representation was not made fraudulently,
Unless he proves that he had reasonable grounds to
believe & did believe up to the time the contract was
made that the facts represented were true.
Hedley Byrne C =advertising agency made advertising work for
Easipower. Hedley was responsible for any amount which was
not paid by Easipower since theyto pay for advertising orders.
Later Hedley became curious about financial position of
Easipower affording another advertising which Hedley may give
on credit. Easipower Bank [D] gave a report of Easipowers
financial position; theyve enough resources for ordinary
business proceedings, but stated that the report was given
"without responsibility." Based on the report which was given by
the respondents, Hedley added another orders on behalf of
Easipower which later on were not covered by sufficient
resources. It meant a loss of 17,000 for Hedley Byrne. Hedley
sued the respondents for damages under the tort of negligence.
Negligent, although honest, MisRep, may give rise to action for
damages for financial loss even if no contract existed between
advisor/advisee & no fiduciary relationship. The law will imply a
duty of care when the advisee seeks information from an advisor
who has special skill & where the advisee trusts the advisor to
exercise due care, & that the advisor knew or ought to have
known that reliance was being placed upon his skill &
judgment. However, in this case there was an express disclaimer
of responsibility & there was therefore be no liability. This case
established the doctrine of negligent MisRep, but in this case the
disclaimer effectively barred the claim
c. Innocent


Where the representor can
demonstrate reasonable
grounds for belief in the truth
of the statement. See s.2(1) MA
1967
Solicitor selling practise honestly believe it was making X profit
it was false
It was a MisRep, but he honestly believed that was true as the
accounts suggested he was true!
a. From Act
i. Believed it was true
ii. Reasonable grounds for belief
Remedies
a. Rescission
b. Indemnity
c. Damages
Rescission - setting aside of
contract by innocent party;
Voidable by INNOCENT party.
Contract valid unless/until set
aside - Effect is contract is
void ab initio void from the
beginning MUST be Restitutio
in Integrum completely
restorable (totally)
BARS TO RESCIND!!
Affirmation
Lapse Of Time
Long v Lloyd [1958] Driving defective lorry. Right to rescind lost
when driven after C became aware of MisRep.
Leaf v International Galleries [1950] Buyer bought painting
believing it was by constable, Innocent MISREP. Painting not a
Constable. Buyer sought rescission due to innocent MisRep. Held
- 5 years unreasonable delay
Indemnity - Financial payment
to make good a loss suffered
by representee. Only in respect
of obligations to 3rd parties
incurred as
necessary/inevitable result of
contract
Whittington v Seale Hayne 1900 Poultry farmers could recover
rent, rates & repairs but not loss of profits. Courts held: they can
claim for the misrep TORT to indemnify you for 3
rd
parties
involved!!

Damage -fraudulent
MisRep=innocent party
entitled to rescind contract &
claim damages. Damages
awarded arent based on
contractual principles but
damages available in tort of
deceit. Thus no requirement
that the damages are able
Doyle v Olby [1969] 2 QB 158 C, Doyle, purchased a business
from the D, Olby, as a result of a several fraudulent MisReps
relating to the profitability & operations of the business. The
trial judge assessed damages on contractual principles as to
what position C would have been in had the statements been
true & awarded a sum of 1.5k. However, C had suffered loss to
the extent of 5.5k as a result of entering the contract. C
appealed on the assessment of damages. Contractual damages
are not applicable to MisRep since a representation is not a term
of a contract. Where there has been a fraudulent MisRep
damages should be assessed in the tort of deceit.
Smith New Court Securities v Scrimgeour Vickers [1996] 3 WLR
1051Sale by def. of 28 million Ferranti shares for 82p each. P
initially prepared to pay only 78p each. Share price went down, P
sold shares losing 11m.
HL Held - P entitled to recover their full loss, ie difference
between share purchase & sale price.
HL set out following principles:
- P can recover all losses flowing from transaction
- Damage need not be foreseeable
- P can recover full price less any benefits received from
transaction
- Entitled to recover consequential losses
- P must take all reasonable steps to mitigate losses.

UNDUE
INFLUENCE UI
DEFINITION/NOTES CASES FACTS/RELAVANCE/
PRINCIPLE
Contract entered result of pressure; falls short of
amounting to duress. Contract entered into as a
result of UI; render the contract voidable.
UI existing relationship between parties,
exploited by one, to gain an unfair advantage.
Divided into actual UI & presumed UI
Manifest disadvantage? (MD)
Originally a requirement, that C seeking to find relief through
actual UI must also establish that they suffered a MD (BCCI v
Aboody).
Held in CIBC Mortgages v Pitt [1994] 1 AC 200 that MD was not
required in cases of actual UI.
Classes of UI:
3 classes of UI
set out in BCCI
v Aboody [1990]
1 QB 923

Class1-Actual UI
Class2a-
Presumed UI
Class2b-
Presumed UI
Class 1 - Actual UI
Requires proof; contract was
entered into as a result of
actual influence exerted. C
must plead/prove acts which
they assert amounted to UI.
RBS v Etridge [1998] 4 All ER 705 HL "UI- 1 of the grounds of
relief developed courts. Objective: ensure that influence of one
person over another not abused The law sets limits to the
means properly employable for this purpose. Law will
investigate the manner in which the intention to enter into the
transaction was secured: If intention produced by an
unacceptable means, law wont permit transaction to stand.
Means used is regarded as an exercise of improper or U I
The circumstances a person acquires influence over another, &
the manner in which influence may be exercised, vary"
Class 2a - Presumed UI
Establishing the presumption
No requirement to prove
improper influence was
exerted. Instead it must be
established:
1. Relationships capable of
giving rise to presumption
of UI those of a fiduciary
nature & include:
a. Parent: child
b. Solicitor: Client
c. Doctor: Patient
Doesnt include husband/wife!

2. The transaction is one
which cannot readily be
explained by the
relationship of the parties
Where transaction is obviously
not to the benefit of the
vulnerable party but confers
great advantage to the party in
a fiduciary position, law will
raise presumption the
transaction was entered result
of abuse of relationship.
Natwest Bank v Morgan [1985] AC 686 HL Family home subject
to a mortgage for the purchase price & a second charge
securing a loan of the husband's business. Couple unable to
meet the payments & got into debt. Abbey bank obtained
possession order. Natwest offered rescue package to help
couple save the home where they would pay off the existing
mortgages & give bridging loan lasting 5 weeks for purposes of
aiding husbands business. Manager called at couples' home in
order to explain the effect of the charge & to obtain the
signatures of both parties. He was at the house for 20 minutes &
spent 5 minutes alone with the wife. Husband reluctant to leave
them & was said to be hanging around. Manager told the wife
the charge was to pay off existing debt/to provide bridging loan
for period of 5 weeks which was what the bank had intended to
provide, however, actual document didnt limit the amount or
time. Mrs Morgan told the manager that she didnt want to be
exposed to any risks of her husbands business. Manager
assured her that risks were limited in the way he described. At
no time did the manager advise her to get independent legal
advice. She signed the charge. Bank later called in the charge. In
her defence the wife stated that the bank manager had
exercised UI over her in procuring her signature. normal
relationship between a customer & banker was not one so as to
give rise to a relationship of trust & confidence. Lloyds Bank v
Bundy was confined to its facts but not expressly overruled. The
wife had not established a relationship of trust & confidence &
therefore no presumption of UI could arise.
Bank of Credit & Commerce International v Aboody [1990] 1 QB
923 CA Husband exerted actual UI over his wife in order to get
her to sign a charge securing the family home on the debts
owed by the company in which the husband & wife owned
shares. Unable to repay the mortgage, the bank sought to
repossess the home. Wife sought to have mortgage set aside on
grounds that it was procured by actual UI of the husband. The
husband had exerted actual UI on the wife. However, the
transaction was not to the MD of the wife since she owned
shares in the company. In considering whether a transaction was
to MD the court was to consider benefits received in addition to
risks undertaken. Bank granted possession.
NB - it is no longer necessary to establish MD in cases involving
actual UI
CIBC Mortgages v Pitt [1994] 1 AC 200 HL Mr Pitt wished to
purchase shares. Pressured his wife into signing a mortgage of
150,000 securing the family home. Stated purpose of loan
purchase a holiday home & pay off the existing mortgage.
Husband used the money to purchase shares/then used those
shares as collateral to purchase further shares. For a time the
shares did very well & he was a millionaire on paper. The wife
saw no benefit from these shares as any income was always
used to purchase more shares. In 1987 the stock market
crashed. Bank sought to enforce the security under the
mortgage which at the time exceeded the value of the home.
Wife raised actual UI in defence. Overruling BBCI v Aboody - it is
not necessary for a C to demonstrate MD where a defence is
based on actual UI. However, as the transaction on its face did
not seem to the MD of the wife, because the stated purpose was
to purchase a holiday home, the bank was not put on enquiry,
thus couldnt be fixed with constructive notice.
Class 2b - Presumed UI
Establishing the presumption
No automatic presumption.
Must be established that there
is a relationship; one party in
fact placed trust & confidence
in other to safeguard their
interest. Any relationship
capable of amounting to this;
husband/wife,
employer/employee.
Distinction between 2a & 2b is
that trust & confidence
relationship must be proved. It
is no longer the case that
wives will place their trust in
husbands to deal with financial
matters. If the wife exercises
independence of mind in
financial matters then no
presumption will be
established.
Barclays Bank v O'Brien [1993] QB 109 Mr O'Brien chartered
accountant also had shareholding in company in which he was
auditor. Company was experiencing financial difficulty. The
bank wished to find security for company debts. O'Brien offered
marital home telling his wife that the charge was limited to
60,000 & that it was only to last for a few weeks. Initially wife
refused to sign, later persuaded to sign as the husband told her
the company would fail if she didnt & her son, who also had an
interest in the company, would lose his home. In fact charge was
not limited in amount/time. The wife agreed to sign the charge.
Manager of the bank had left sent the documents to their local
branch with instructions the wife was to be advised of full extent
of liability should be advised to take independent advice before
signing. However, the bank clerk got the wife to sign & failed to
carry out the instructions. Bank sought to enforce charge & the
wife raised UI/MisRep in her defence to have the charge set
aside. Defence based on UI failed because wife held to exercise
independence of thought on financial matters/was used to
dealing with family finances whilst husband was working away.
Wife was successful with regards to MisRep. Charge set aside as
bank had constructive notice of MisRep & failed to take
reasonable steps to ensure the charge was obtained without
influence or Mrs O'Brien was aware to the extent of liability.
Meet with wife separately
Advise as to risks
Ensure free will & full knowledge
held that a relationship of trust & confidence existed between a
bank manager & his client: Lloyds Bank v Bundy [1975] QB
326 CA Father secured debts of his son's business on his farm
which had been in family generations. Father/son had banked at
the branch for years relying on advice given. Sons company also
banked at same branch & bank manager was aware of the dire
financial position of the company. Bank allowed son to overdraft
exceeding security given thus far & was fearful that the
company would go under leaving them with an unsecured debt.
The bank manager/son called at the farm with the forms already
filled in. Father was told the amount of the charge which was
11,000 & exceeded value of the farm & he was also required to
give a guarantee. Father agreed to sign to help his son. Not
given the opportunity to think it over or obtain legal
advice. There was a relationship of trust & confidence between
the father & the bank manager giving rise to a presumption of
UI under class 2 b. The charge & guarantee were therefore set
aside. NB the normal relationship between a banker & customer
is not one of trust & confidence but a business relationship
whereby the bank is looking out for its own interest however
bank manager, giving evidence admitted the father relied
implicitly/solely on advice given by him & the father stated he
trusted the bank/had a long relationship with the bank.
normal relationship between banker & client isnt of trust &
confidence:
National Westminster Bank v Morgan [1985] 1 AC 686 See above
A relationship of trust & confidence has also been seen in
employer & employee relationship: Credit Lyonnaise Bank
Nederland v Burch Miss Burch started working for her employer
at the age of 18. Became close to director, Mr P, trusted him
implicitly. At 21 she purchased a flat. 5 yrs later, still working
for him but the company experiencing financial difficulty. Mr P
asked her to put her flat up as security for a loan taken for
company. He said that his home & villa in Italy were also secured
on debt but they wouldnt accept 100% mortgage on these
properties/needed another 20,000. She agreed to allow her
home to be used believing that it was 20,000 & that Mr Ps
properties would be sold releasing the debt so there was no risk
to her. Bank wrote to her/informed her the charge was unlimited
in amount/time & advised her to seek independent advice. She
was not told of the extent of the company's borrowings which
stood at 270,000 neither did the bank satisfy them that she
had in fact received independent advice. The agreement of Miss
Burch had been obtained by UI & bank had notice of this as the
transaction was so obviously to her disadvantage. The bank had
taken insufficient steps to avoid constructive notice. Therefore
the transaction could be set aside.
No need to establish that the party subject to influence would
not have entered into the contract but for the influence. There is
also no need to establish a causal link in relation to MisRep
beyond reliance: UCB Corporate Services Ltd. v Williams [2002]
EWCA Civ 555 Williams family ran a garage business as a
partnership with the benefit of a franchise from Toyota. Toyota
threatened withdrawal unless showrooms were
extended/improved. The cost for this was 500k. Williams
approached bank for a loan which asked for security by way of a
charge on the three showrooms in addition to a charge on each
of the partners' homes. The D, Mrs Williams, was the wife of one
of the sons. She had signed the charge without having been told
the full extent of the liability. The signature was executed in the
presence of all the other partners & witnessed by Mr.Howells,
the solicitor of the partnership. The charge secured all debts
present & future of the partnership & provided for joint &
several liability of all the partners. Unable to repay the loan =
bankrupt. UCB sought to enforce the charge & Mrs Williams
raised UI & MisRep in her defence. The trial judge held that UI &
MisRep were established. However, he held that Mrs Williams
would have signed the charge in any event had she known the
full facts & also that UCB were not fixed with constructive notice
as a solicitor had witnessed the signature therefore they could
assume Mrs Williams had been advised accordingly. Mrs
Williams appealed to the CA. Mrs Williams was successful on
both grounds. For both UI & MisRep there is no requirement to
establish that a person would not have entered the contract but
for the influence or MisRep. It was sufficient for UI, that an
equitable wrong has been committed. For MisRep it is sufficient
to demonstrate the party relied on the false statement. UCB
were fixed with constructive notice. The fact that the signature
was witnessed by a solicitor does not necessarily mean that they
would have advised her. The role of a solicitor will depend upon
what they had been instructed to do. If there were no
instructions to advise Mrs Williams they would not be expected
to do so & it was wrong of UCB to assume this had taken place.
They were under a duty to check if she had in fact been advised.
Rebutting the
presumption in
class 2a & class
2b
The party
accused of
exercising UI
may rebut the
UI & third parties
Generally the UI is exercised
between a husband & wife.
Where a wife establishes UI it
will entitle her to have the
transaction set aside as
against her husband, however,
the transaction is generally
Constructive notice
Constructive notice arises where the bank is
1. put on enquiry &
2. Fails to take reasonable steps to ensure that the transaction
was entered freely without the exercise of UI.
Enquiry
Consideration of factors which put the bank on enquiry:
Bank Of Scotland v Bennett & Anor [1998] EWCA Civ 1965 The
presumption by
demonstrating
that the
vulnerable party
exercised free
will in entering
the transaction.
This is most
commonly
established by
demonstrating
that they were
fully aware of
the risks
involved & had
received legal
advice before
agreeing to the
transaction.

with a bank who was not a
party to the influence.
Following the decision in
Natwest v Morgan, it became
clear that banks were not
acting in a fiduciary capacity
so as to give rise to a
presumption of UI. There had
to exist another factor in order
to have the contract set aside
as against a bank. Barclays
Bank v O'Brien [1993] QB
109 (Case summary)
introduced the concept
of constructive notice.

bank held a guarantee & charge on the Bennett family home
securing the debts of a business in which the husband was the
director & 47% shareholder. The wife also held shares (11%). The
wife was the sole beneficial owner of the matrimonial home. The
wife was against her husband's involvement in the business. He
had left a well paid reliable job to start it. She had no faith in the
business & did not want to sign the charge but her husband
pressured her & threatened to end the relationship if she did not
sign. The trial judge held that the charge was procured by actual
UI of which the bank had constructive notice. The bank
appealed. The charge was procured by actual UI although the
trial judge erred in finding constructive notice. The trial judge
had assumed the bank had the knowledge that the wife was the
sole beneficial owner of the property & only held an 11% sharing
holding when there was in fact no evidence that they were aware
of these facts.
Conoco Ltd v Khan & Anor [1996] EWCA Civ 968 D, Mr & Mrs
Khan, owned a petrol station run by Mr Khan. Mr Khan entered
agreement with the C, supplier of petrol, where the D was to
borrow 300k which was to be secured on the petrol station, to
be repaid by 5 annual instalments. Loan was to pay for supply of
petrol during the five years. Also by the agreement the Ds
werent to purchase petrol from any other supplier. Ds
breached agreement. Cs terminated contract/demanded the
balance outstanding under the loan standing at 240,000. Mrs
Khan raised class 2 b UI in defence stating she took no part in
the running of the business & always signed what her husband
asked her to. She didnt speak English & had no knowledge of
the effect of what she signed. She trusted her husband. She
hadnt been given advice as to what she was signing. Bank
wasnt put on enquiry. Agreement was commercial under which
she was to obtain benefits. C would have no reason to consider
that the wife should obtain independent advice.
the current factors to be
considered were set out in:
Royal Bank of Scotland v Etridge [1998] 4 All ER 705 HL The
case concerned a number of conjoined appeals concerning
banks seeking possession of homes where a wife had signed a
charge or mortgage agreeing to secure the debts of the husband
on the family home. The HL reviewed the current authorities &
restated some of the principles. The main changes:
Manifest disadvantage
This term should no longer be used as it is ambiguous & leads
to many misunderstandings & is often misapplied. Instead the
transaction must be one which cannot readily be explained on
ground of friendship, relationship or charity.
Constructive notice
A bank will be put on enquiry whenever a wife offers to stand
surety for her husband's debts. There is no need to show that
the bank was aware of the relationship capable of giving rise to
a presumption of influence. There is no absolute obligation on a
bank to have a private meeting with the wife provided they take
other steps to satisfy themselves that the wife has been
appropriately advised. This may be achieved through
confirmation from a solicitor that she has been advised.
The steps a solicitor should take as a core minimum:
(1) He will need to explain the nature of the documents & the
practical consequences these will have for the wife if she signs
them. She could lose her home if her husband's business does
not prosper. Her home may be her only substantial asset, as
well as the family's home. She could be made bankrupt.
(2) He will need to point out the seriousness of the risks
involved. The wife should be told the purpose of the proposed
new facility, the amount & principal terms of the new facility, &
that the bank might increase the amount of the facility, or
change its terms, or grant a new facility, without reference to
her. She should be told the amount of her liability under her
guarantee. The solicitor should discuss the wife's financial
means, including her understanding of the value of the property
being charged. The solicitor should discuss whether the wife or
her husband has any other assets out of which repayment could
be made if the husband's business should fail. These matters
are relevant to the seriousness of the risks involved.
(3) The solicitor will need to state clearly that the wife has a
choice. The decision is hers & hers alone. Explanation of the
choice facing the wife will call for some discussion of the
present financial position, including the amount of the
husband's present indebtedness, & the amount of his current
overdraft facility.
(4) The solicitor should check whether the wife wishes to
proceed. She should be asked whether she is content that the
solicitor should write to the bank confirming he has explained
to her the nature of the documents & the practical implications
they may have for her, or whether, for instance, she would
prefer him to negotiate with the bank on the terms of the
transaction. Matters for negotiation could include the sequence
in which the various securities will be called upon or a specific
or lower limit to her liabilities. The solicitor should not give any
confirmation to the bank without the wife's authority.
The solicitor's discussion with the wife should take place at a
face-to-face meeting, in the absence of the husband. The
solicitor's explanations should use non-technical language.
The solicitor should obtain from the bank any information he
needs. If the bank fails for any reason to provide information
requested by the solicitor, the solicitor should decline to provide
the confirmation sought by the bank.
Agency? Where a bank instructs solicitors to advise the wife, the
solicitor acts solely for the wife & not as an agent for the bank:
Barclays Bank Plc v Thompson [1997] 4 All ER 816 CA Mrs
Thompson was the sole beneficial owner of the family home.
She signed a mortgage securing the debts of the husband's
business on the family home. She had received advice from a
firm of solicitors appointed by the bank who were also the
husband's solicitors. The advice she received was defective in
that it failed to explain the full extent of liability. The solicitors
wrote to the bank certifying that Mrs Thompson had been
advised. The bank later sought possession of the property. Mrs
Thompson argued that the fact that the solicitor was that of the
bank that the knowledge of the defective advice should be
imputed to the bank. Mrs Thompson was unsuccessful. Bank
entitled to assume that the solicitors had correctly advised the
wife. The doctrine of imputed knowledge had not survived
Barclays Bank v O'Brien. The correct analysis was in terms of
constructive notice & reasonable steps. Whilst the solicitor was
the agent of the bank there was no duty of an agent to disclose
their short comings to the principal.
This applies even where the bank paid for the advice:
National Westminster Bank Plc v Beaton & Anor [1997] EWCA Civ
1391

DURESS DEFINITION/NOTES CASES
FACTS/RELAVANCE/PRINCIPLE
Duress in
contract law
relates to where
a person enters
an agreement as
a result of
threats. Where a
party enters a
contract
Duress to the person

Where a person enters a
contract as a result of threats
of physical violence, the
contract may be set aside
providing the threat
was a cause of entering the
contract. There is no need to
Barton v Armstrong [1976] AC 104 Privy Council Armstrong was
the chairman & held the largest sharing holding in Landmark
Corporation Ltd a public company. Barton was the managing
director & also had a substantial shareholding in. There were
two other directors Bovil & Cottrel. There had been a long
history of ill will between the parties & a struggle over who
should have controlling power with Armstrong being the most
aggressive. The other directors in the company were also
unhappy with Armstrong & wanted him to be removed for
because
of duress they
may have the
contract set
aside.
Originally, the
common law
only recognised
threats of
unlawful
physical
violence,
however, in
more recent
times the courts
have
recognised econ
omic duress as
giving rise to a
valid claim.
Where the threat
is to goods the
courts have
been less willing
to intervene,
although analog
ous claims in
restitution
suggest
that this positio
n of the law may
change. The
basis of
theduress as
a vitiating
factor in
contract law is
that there is an
absence of free
consent. Duress
operates at
common law.
Pressure not
amounting to
duress may give
establish that they would not
have entered the contract but
for the threat:

abusing certain privileges & they disagreed with the way he ran
the company believing him to be putting the company at risk of
insolvency. However, Armstrong refused to resign. The three
managed to take control of subsidiary companies & removed all
credit facilities from Landmark Corp. When Armstrong
discovered the credit had been removed he made a number of
death threats to Barton to pressure him into signing an
agreement which contained various elements including the
purchase by Barton of Armstrong's shares in the company at a
substantial over value. Barton agreed to this partly due to the
threats but also due to the fact that it would mean that
Armstrong would no longer have controlling interest & he
believed he would be able to turn the company around without
Armstrong's dealings. However, the company became insolvent
shortly after & Barton sought to have the contract set aside. The
contract could be set aside. Where there is duress to the person
there was no obligation to show that he would not have entered
the agreement but for the threat, it simply being sufficient that
the death threats were a cause.
Duress to goods
Duress to goods is not
recognised as giving rise to
grounds for having the
contract set aside:

Skeate v Beale [1840] 11 Ad & El 983 A landlord was owed
money by a tenant. He seized goods owned by the tenant &
threatened to sell them immediately unless the tenant entered
an agreement for repayment of the sums owned. The tenant
agreed to the repayment terms but then sought to have the
agreement set aside for duress. Duress to goods will not suffice
to render a contract voidable. However, this decision has
received widespread criticism & is out of line with restitutionary
claims:
Maskell v Horner [1915] 3 KB 106 D demanded money from C
by way of a 'toll fee' for his market stall. D had no legal basis for
demanding this money. D threatened to seize the C's stock &
sell it if he did not pay up. C paid the toll fee for a considerable
period of time & then brought an action for money had &
received to recover the money paid under duress. C was entitled
to recover the sums paid in the law of restitution. This decision
is out of line with the law on duress of goods in contract law &
is considered by some as demonstrating that the position taken
in contract law should be revised.
Economic duress first
canvassed by Kerr J in The
Sibeon & the Sibotre. Whilst
the contract was not held
voidable for duress, Kerr J
stated that where theres
coercion of will so as to vitiate
Occidental Worldwide Investment v Skibs (The Sibeon & The
Sibotre) [1976] 1 Lloyds Rep 293 D chartered two vessels from
the C. D told C that they would go bankrupt if they did not lower
the cost of charter. This was completely untrue. C feared that
they would lose valuable customers & they were also were owed
substantial amounts of money by D which they feared they
would lose if D did become insolvent. The Cs therefore agreed
rise to an action
forUI in equity.
The affect of a
finding of
duress & UI is
that the contract
is voidable. The
innocent party
may rescind the
contract & claim
damages. The
normal bars to
rescission
operate
(see misrep
lecture).
consent it should be possible
to set the contract aside.
However, commercial pressure
was not enough.


to renegotiate the contract to lower the cost of charter. They
later sought to have the renegotiated contract set aside. Whilst
recognising that it would be possible to render a contract
voidable for economic duress, it was not established in this
case. To amount to economic duress there had to be a coercion
of the will so as to vitiate consent. Commercial pressure was not
sufficient.
NB: This was the first case where economic duress was
recognised as giving rise to a cause of action. More recent cases
look to absence of choice rather than coercion of the will
vitiating consent. See: The Universe Sentinel

Following Kerr J's line of reasoning, economic duress was found
to exist in The Atlantic Baron, however, C lost their right to
rescind:
North Ocean Shipping v Hyundai Construction (The Atlantic
Baron) [1979] QB 705 D agreed to build a ship for the Cs for a
certain price specified in US dollars. After entering the contract
the US dollar was devalued by 10%. D threatened not to
complete unless the Cs paid an additional 10% on the
contractually agreed price. The Cs had a valuable charter lined
up so agreed to pay the additional sums & did pay them without
protest. 8 months after delivery of the ship the Cs brought an
action to recover the additional sums paid. The contract was
voidable for duress, however, since the Cs had left it so long in
bringing their claim they had affirmed the contract & lost their
right to rescind. C threatened not to complete the main contract
for the purchase of shares unless subsidiary agreements were
met including a guarantee & an indemnity. D was anxious to
complete the main contract as there had been a public
announcement of the aquisition of shares & did not want to
undermine public confidence in the company & the consequent
affect on share prices. D couldve sued for specific performance
of the agreement but this would have delayed matters &
damaged the company's reputation. D had taken legal advice on
all these matters before agreeing to the guarantee & indemnity.
C then sought to enforce the guarantee & D sought to have the
agreement set aside for economic duress. There was no
economic duress. The Privy Council identified 4 factors to
consider in assessing whether economic duress was present:
Did the person claiming to be coerced protest?
Did that person have any other available course of action?
Were they independently advised?
After entering into the contract, did they take steps to avoid it?
In the present case D did not protest at the time. He also
couldve enforced the contract of sale through specific
performance & thus had another avenue of redress available to
him. He had taken legal advice & took no steps to avoid the
agreement prior to C seeking to enforce the guarantee.
Therefore no economic duress could be established. It was
simply commercial pressure far short of duress.
The Privy Council identified 4 factors to consider in assessing
whether economic duress was present:
1. Did the person claiming to be coerced protest?
2. Did that person have any other available course of action?
3. Were they independently advised?
4. After entering into the contract, did they take steps to
avoid it?
The requirement of vitiation of consent was replaced in The
Universe Sentinel with the absence of choice: Universe
Tankships v International Transport Workers Federation, The
Universe Sentinel [1983] 1AC 366 HL The ITWF blacked a ship,
The Universe Sentinel, to prevent it from leaving port. They
made several demands in relation to pay & conditions & also
demanded the ship owners pay a large sum of money to the
Seafarers International Welfare Fund. The ship owners agreed in
order that the ship could leave port & then sought to recover the
sum paid to the welfare fund. The money had been extracted
under economic duress & could be recovered. The HL held that
earlier case law had been wrong to look at coercion of the will
so as to vitiate consent. During an analogy with the defence in
criminal law where it is recognised that a D acting under duress
has the intention to commit the offence but is excused from the
crime because they had no choice but to submit.
Accordingly two elements of duress were identified:
Compulsion of the will - absence of choice
Illegitimacy of the pressure
Illegitimacy of the pressure
Initially it was thought that
the threat must be unlawful:
However, dicta form Lord
Hoffman in the Privy Council
case of R v Attorney General
for England & Wales [2003]
UKPC 22 suggests a different
approach:
"The legitimacy of the pressure
must be examined from two
aspects: first, the nature of the
pressure & secondly, the
nature of the demand which
the pressure is applied to
support: see Lord Scarman in
the Universe Tankshipscase, at
p 401. Generally speaking, the
threat of any form of unlawful
action will be regarded as
illegitimate. On the other
hand, that fact that the threat
is lawful does not necessarily
make the pressure legitimate.
As Lord Atkin said in Thorne v
Motor Trade
Association [1937] AC 797,
806:
"The ordinary blackmailer
normally threatens to do what
he has a perfect right to do -
namely, communicate some
compromising conduct to a
person whose knowledge is
likely to affect the person
threatened ... What he has to
justify is not the threat, but
the demand of money.""
R v Attorney-General for
England & Wales [2003] UKPC
22 Privy Council
Lawful demand may constitute
illegitimate pressure where the
demand is not justified.
Dimskal Shipping v ITWF (The Evia Luck) [1991]4 All ER 871 CA
The ITWF threatened strike action unless certain demands were
met. The cost of strike action would be astronomical for Dimskal
& therefore they agreed to the demands. They later sought to
have the agreement set aside as being procured by duress.
There was clearly present a coercion of the will & absence of
choice the main question for the court was the legitimacy of the
pressure. At the time of the threatened strike the Evia Luck was
in Sweden. The court had to determine whether English law
applied or Swedish law applied to the threatened strike action as
under Swedish law the threatened strike would be lawful so
there would be no illegitimate pressure applied, however, under
English law the strike would be unlawful & the threat would be
regarded as illegitimate. English law applied & the threat was
therefore unlawful & illegitimate.

CTN Cash & Carry v Gallagher [1994] 4 All ER 714 CA D sent a
consignment of cigarettes to the wrong address. The cigarettes
were then stolen. D mistakenly believed that the cigarettes were
at the C's risk & sent them an invoice. D threatened to withdraw
the C's credit facility unless the invoice was paid. The Cs needed
the credit facilities & so paid the invoice & then sought to
reclaim the money on the grounds of economic duress. The
threat to withdraw credit facility was lawful since under the
terms of the credit agreement credit could be withdrawn at any
time. Therefore the threat was legitimate &
consequently, economic duress could not be established.
However, there must still be
absence of choice. R was not
acting under military orders to
sign the agreement. He may
have been faced with
overwhelming pressure, but he
still had choice. The MOD were
justified in introducing the
confidentiality agreement
therefore the demand was
both lawful & justified & thus
did not amount to illegitimate
pressure.
Effect of a finding of duress
Since duress operates to
deflect the will of the party
rather than vitiate consent, the
effect of a finding of duress is
always to make the contract
voidable not void:


IFR ltd v Federal Trade Spa [2001] EWHC 519 QB In 1998 an
agreement was entered in to between IFR (English company) &
Federal (Italian company) whereby IFR were to distribute & give
sole right of resale of certain specified items including radio,
electronic & telecommunication equipment. The agreement was
to last for 2 years. This succeeded an earlier agreement &
contained a jurisdiction clause (stating the agreement would be
governed by English law) & an arbitration clause which were not
in the earlier agreement. Three months before the contract was
due to expire IFR gave notice in writing that they would not be
renewing the contract when it expired. Under Italian law this
termination would give rise to compensation. However, no such
compensation was payable under English law. Federal sought to
raise duress to render the 1998 agreement void so as to take
advantage of the Italian right to compensation. The effect of a
finding of duress has always been to render a contract voidable
as oppose to void, however, a voidable contract would not have
aided Federal as they had acted on the contract without protest
for nearly 2 years so would most certainly have lost their right to
rescind. In their argument they raised the earlier case law
relating to vitiating consent (The Sibeon & Sibotre, The Atlantic
Baron & Pao On) & stated that where there is no consent the
contract must be void ab initio as oppose to voidable. Following
later case law (Universe Sentinel etc) the basis of duress is not
the absence of consent; when acting under duress the actor will
give consent for the contract. The contract is therefore initially
valid. It is the absence of choice that renders the contract
voidable.

DISCHARGE
CONTRACT
DEFINITION/NOTES CASES
FACTS/RELAVANCE/PRINCIPLE
Discharge of a
contract relates
to the
circumstances
in which the
contract
is brought to an
end. Where a
contract is
discharged,
each party is
freed from their
continuing
obligations
under the
contract. A
contract may be
discharged in
one of the
following ways.
Agreement
Performance
Breach
Agreement When both parties agree to bring the contract to an end & release each other from
their contractual obligations. For a contract to be discharged through agreement there must
be Accord & Satisfaction.
Accord = agreement; Each party must agree to end the contract. The agreement must be freely
given.
Satisfaction = consideration; Both parties must also provide consideration. If both parties have
continuing obligations then generally the consideration will be simply each of them giving up
their rights under the contract. The only time consideration becomes an issue is where one party
has fully performed their part of the contract when the other has not. The non-performing party
must then provide consideration to make the agreement binding. Also if the agreement is made
by deed there is no requirement to provide consideration. There is in effect a contract to end a
contract.
Performance where both
parties have fully performed
their contractual obligations. If
one party does not fully
perform the contract this will
amount to a breach of contract
& the other party may have a
claim for damages unless the
contract has been frustrated. If
the non-performance amounts
to a repudiatory breach
(breach of condition) the other
party will be released from
their obligations. Where a
contract is one where the price
Cutter v Powell [1795] EWHC KB J13 C husband agreed by contract to
act as a second mate on the ship the 'Governor Parry' on a return
voyage to Jamaica. The voyage was to take eight weeks & he was to be
paid on completion. A term in the contract stated: "Ten days after the
ship 'Governor Parry,' myself master, arrives at Liverpool, I promise to
pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds,
continues & does his duty as second mate in the said ship from hence
to the port of Liverpool. Kingston, July 31st, 1793." Six weeks into the
voyage C husband died. C sought to claim a sum to represent the six
weeks work undertaken. The wife's action failed. Payment was on
condition that he worked the ship to Liverpool, since he did not fulfil
this condition the widow was entitled to nothing.
Divisible/Severable contracts- rule relating to discharge through
full performance applies where there exists an entire contract. Where it
is possible to divide a contract into separate parts, eg. if a sum is
agreed to be payable per week or hour, then the courts can award a
sum for the separate parts of the contract which have been completed:
is payable on completion, then
completion is generally
required in order to discharge
the contract. This is often
expressed in the terms of
being a condition precedent.
Completion triggers
the requirement of payment:
no completion, no
payment. This general rule was
established in Cutter v Powell
& is obviously capable of
causing injustice:
Ritchie v Atkinson (1808) 10 East 295 By contract C agreed to carry a
cargo of specified quantity of hemp & iron. The price agreed was 5
per ton for the hemp & 5 shillings per ton of iron. C only carried part of
the agreed quantity. D argued the contract had not been fully
performed & therefore no payment was due. Contract could be divided
into separate bits as the parties agreed a price per ton. C was thus
entitled to payment for the amount carried although D was entitled to
damages for non-performance in relation to the amount not carried.
Rose & Frank Co v Crompton Bros [1925] AC 445 HL C & D entered an
agreement for the supply of some carbonised tissue paper. Under the
agreement Cs were to be Ds sole agents in the US until March 1920.
The contract contained an honourable pledge clause which stated the
agreement was not a formal or legal agreement & shall not be subject
to the jurisdiction of the courts in neither England nor the US. Ds
terminated the agreement early & the Cs brought an action for breach.
The honourable pledge clause rebutted the presumption which
normally exists in commercial agreements that the parties intend to be
legally bound by their agreements. Agreement had no legal affect &
was not enforceable by the courts.
Substantial performance where a court is satisfied that substantial
performance is present. The court may then award the contractually
agreed price & deduct sums to reflect the amount not performed. If
however, the performance is not held to amount to substantial
performance C is entitled to nothing. Difficulty arises as to what
amounts to substantial performance. There is no precise limit set down
but is to be determined on the facts of individual cases. Bolton v
Mahadeva [1972] 1 WLR 1009 CA C installed central heating in Ds
home. The agreed contract price was 560. D was not happy with the
work & refused to pay. Defects in the work amounted to 174. The
action by C to enforce the payment failed since the court held there was
no substantial performance.
Hoenig v Isaacs [1952] 2 All ER 176 CA C agreed to decorate & furnish
Ds flat for 750 payable by two instalments & the balance on
completion. C completed the work but D was unsatisfied some of the
furnishings & refused to pay the all the final instalment. The cost of the
defects in the furniture came to 56. C had substantially performed the
contract & was therefore entitled to the contractually agreed price
minus the cost of the defects
Acceptance of partial performance Where one party freely agrees to
accept partial performance, then a sum is payable for the work
completed. The main focus is on free acceptance: Sumpter v
Hedges (1898) 1 QB 673 CA C agreed to build two houses & stables for
D. It was agreed that 565 would be payable on completion. C
commenced performance & then ran out of money & was unable to
complete. He had performed just over half of the contract. D completed
the work himself. C sought to recover 333 representing the value of
the work he had completed. He argued that in completing the work
himself, D had thereby accepted partial performance & prevented C
from completing the contract. C action failed. The court held that D had
no choice but to accept partial performance as he was left with a half
completed house on his land.
Tender of performance Where a party is willing to perform & tries to
tender performance but the other party does not accept the
performance then the party seeking to tender performance is
discharged from the contract & the non-accepting party is liable in
damages for non-acceptance Startup v MacDonald (1843) 6 Mann & G
593 A contract stated that 10 tons of oil were to be delivered to D
within the last 14 days of March. C delivered the oil at 8.30pm Saturday
March 31st. D refused to accept the delivery because of the lateness of
the hour. C had tendered performance within the agreed contractual
period & was thus entitled to damages for non-acceptance.
Performance prevented by the promisee Where the promisee prevents
completion of the performance then the promisor is entitled to
payment for the work which has been completed: Planche v
Colburn [1831] EWHC KB J56 KB C agreed to write a book on costume
& armour for D as part of a series called 'the Juvenile Library'. Agreed
contract price was 100 payable on completion. C commenced writing
& had completed a great deal of it when D cancelled the series. D
refused to pay C despite his undertaking & the fact that C was still
willing to complete. C brought an action to enforce payment. C was
entitled to recover 50 because D had prevented the performance.
Breach where there exists a
breach of condition (as oppose
to breach of warranty) this will
enable the innocent party the
right to repudiate the contract
(bring the contract to an
end) in addition to claiming
damages. A contract cannot be
discharged by a breach of
warranty.
Anticipatory breach a party indicates their intention not to
perform their contractual obligations, the innocent party is not
obliged to wait for the breach to actually occur before they bring
their action for breach: Hochster v De la Tour (1853) 2 E & B
678 C agreed to be a courier for the D for 3 months starting on
1st June 1852. On the 11th May D wrote to C stating he no
longer wanted his services & refused to pay compensation. C
obtained a service contract elsewhere but this was not to start
until 4th July. C brought an action on 22nd May for breach of
contract. D argued that there was no breach of contract on 22nd
May as the contract was not due to start until 1st of
June. Where one party communicates their intention not to
perform the contract, the innocent party need not wait until the
breach has occurred before bringing their claim. They may sue
immediately or they can choose to continue with the contract &
wait for the breach to occur.
This gives the innocent party the option to either sue
immediately or continue with the contract themselves & wait for
the breach to occur before bringing their action. This can be
beneficial or risky: White & Carter (Councils) Ltd v
McGregor [1961] UKHL 5 HL C supplied bins to the Local
Authority & were allowed to display adverts on these bins. D
owned a garage. Ds sales manager entered a contract with C for
them to place adverts on the bins for a period of 3 years. The
agreed price was payable by three annual instalments & if one of
the payments was late the whole price became immediately due.
D had not authorised the sales manager to enter the contract &
phoned C on the same day as the contract had been made
telling them that he did not want the advertising. C ignored D's
communication & arranged for the advertising plates to be made
up & placed on the bins. D refused to pay the first instalment &
C submitted a bill for the full three years of advertising. C was
not obliged to accept the breach of contract & could continue
with the contract. They were thus entitled to full payment for
the three years advertising.
NB this case seems to ignore the general rule of the duty to
mitigate loss applicable to claims for damages.
Avery v Bowden (1856) 5 E & B 714 By contract C was to carry
cargo for D. C arrived early to collect the cargo & D told them to
sale on as they did not have any cargo for them to carry & would
not have by the agreed date. C decided to wait around in the
hope that D would be able to supply some cargo. However,
before the date the cargo was supposed to be shipped the
Crimean war broke out which meant the contract became
frustrated. C therefore lost their right to sue for breach. Had
they brought their action immediately they would have had a
valid claim.