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Introduction
What is a contract?
A contract is a legally binding agreement or can be considered
as a promise or set of promises which the law will enforce. This
agreement will create rights and obligations that may be
enforce in the courts of law. The natural method of enforcement
is an action for damages for breach of contract, whereby the
court may order performance by the party in the default. Poole
(2008) also confirms that contracts are enforce legally with
represents the vehicle for a plan of exchanges. However, the
purpose of the agreement must not be illegal or contrary to
public policy (notion of free contract). Contract can be done in
three forms, namely; orally, written and partly oral and written.
For a contract to be valid there must be an offer, acceptance,
consideration and an intention to create legal
relationship.
1. In the essence of a contract there must be an offer and
the offer must be accepted. An offer is classified as an
expression of willingness to contract on the specific terms
without any further negotiation and must be distinguished
from an invitation to term.
2. An acceptance is the final expression of the assent to the
form of the offer in response to that offer that have be
made. Acceptance is achieved by showing the person
making the offer that the terms of the offer are agreed to.
This may be done orally, in writing, or even implied from
conduct (usually by doing the thing required). The latter
mode is hazardous and an artist should seek or give at
least oral acceptance of an offer.
The acceptance must be communicated to the offeror; it cannot
be inferred from silence. For eg: Felthouse v. Bindley
(1862) 142 E.R. 1037.
Classes of Contract
Contract by deed- A deed is classified as a formal legal
document signed, witnessed and delivered to effect a
conveyance or transfer of property or to create a legal
obligation.
Simple contract: this type of contract is informal and maybe
made in any way ie writing, orally or they maybe implied by
conduct.
Bilateral contract: this type contract is a promise by one
party in exchanged for a promise by another party (one to one
contract). For eg: Sale of goods contract, there the buyer
promises to pay the price. The seller promises to deliver the
goods. In this case there is an offeror and an offeree. An offeror
is the person who makes the offer and the other hand an
offeree is the person to whom the contract is made.
Unilateral contract: This is when a promise is made by one
party in exchanged fo ran action by another party. (A one to all
contract). For eg: X promises a reward to anyone who will find
his lost wallet. X bound himself to the promise, but no one is
bound to search of the lost wallet. However, if Y on the other
hand seen the offer, found the wallet and returns it, he is
therefore entitled to the reward. The principle: 1 OFFEROR
MANY OFFEREES.
Advertisements
Advertisement in the general rules constitutes an invitation to
treat. For eg: in the case (Partridge v Crittenden (1968)).
Rewards
2. The terms of the acceptance must exactly match the terms of the offer.
Communication
The general rule is that the offeror must receive the acceptance before it
is effective: For example in the case below:
Held:
There was no contract. You cannot have silence as acceptance.
Acceptance can be through conduct, see example of case below :
Brogden v Metropolitan Railway (1877) 2 App. Cas. 666
The claimants were the suppliers of coal to the defendant railway
company. They had been dealing for some years on an informal basis with
no written contract. The parties agreed that it would be wise to have a
formal contract written. The defendant drew up a draft contract and sent
it to the claimant. The claimant made some minor amendments and filled
in some blanks and sent it back to the defendant. The defendant then
simply filed the document and never communicated their acceptance to
the contract. Throughout this period the claimants continued to supply the
coal. Subsequently a dispute arose and it was questioned whether in fact
the written agreement was valid.
Held:
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
Court of Appeal
Ex-Cell-O wished to purchase a machine from Butler. Butler sent out a
quotation of 75,535 along with a copy of their standard terms of sale.
The terms included a price variation clause and a term that the seller's
terms would prevail over any terms submitted by a purchaser. The
machine would be delivered in 10 months. Ex-Cell-O put in an order for
the machine at the stated price and sent a set of their terms which did
not include the price variation clause. The order contained an
acknowledgement slip which required a signature by Butler and was to be
returned to Ex-Cell-O. This slip stated that the contract would be subject
to the terms stated overleaf. Butler duly signed the slip and returned it.
The machines were then delivered and Butler sought to enforce the price
variation clause and demanded an extra 2,893. Ex-Cell-O refused to pay.
Held:
The offer to sell the machine on terms provided by Butler was destroyed
by the counter offer made by Ex-Cell-O. Therefore the price variation
clause was not part of the contract. The contract was concluded on ExCell-O's terms since Butler signed the acknowledgement slip accepting
those terms. Where there is a battle of the forms whereby each party
submits their own terms the last shot rule applies whereby a contract is
concluded on the terms submitted by the party who is the last to
communicate those terms before performance of the contract
commences.
takes place when the letter is placed in the post box as in the cases
below:
Adams v Lindsell (1818) 106 ER 250
The defendant wrote to the claimant offering to sell them some wool and
asking for a reply 'in the course of post'. The letter was delayed in the
post. On receiving the letter the claimant posted a letter of acceptance
the same day. However, due to the delay the defendant's had assumed
the claimant was not interested in the wool and sold it on to a third party.
The claimant sued for breach of contract.
Held:
There was a valid contract which came in to existence the moment the
letter of acceptance was placed in the post box.
This case established the postal rule. This applies where post is the
agreed form of communication between the parties and the letter of
acceptance is correctly addressed and carries the right postage stamp.
The acceptance then becomes effective when the letter is posted.
For example: Adams v. Lindsell (1818)
D posted a letter on Tuesday offering to sell wool at a certain price to C,
indicating that c should accept in due course of post.
C did not receive the letter until Friday as D had addressed the letter
incorrectly. C sent his letter of Acceptance that evening.
By Sunday
D thought that he would have received a letter if C wanted the wool, so
he sold it to somebody else.
Court of Apeal held: there was a contract between them.
The general acceptance of postal rule is that acceptance is completed
when posted.
However the court decides there are exception of communication to the
rules (which would have been that the acceptance is only good when the
letter arrives: for example: in the case of Adams v Lindsell 1818 and
Household Fire Insurance v Grant 1879
The postal rules only apply to letters of acceptance, not offers revocation
of offers or counter offers. The postal rules only apply in the case where
It is relatively easy for the parties to exclude the postal rule, see case
below:
Holwell Securities v Hughes [1974] 1 WLR 155
Dr Hughes granted Holwell Securities an option to purchase his house for
45,000. The option was to be exercisable 'by notice in writing' within 6
months. Five days before the expiry, Holwell posted a letter exercising the
option. This letter was never received by Hughes. Holwell sought to
enforce the option relying on the postal rule stating the acceptance took
place before the expiry of the option.
Held:
By requiring 'notice in writing', Dr Hughes had specified that he had to
actually receive the communication and had therefore excluded the
postal rule.
that part of the bargain has been performed. For eg: A agrees
with B to pay B 10 to wash As cat and b washes the cat. Bs
consideration is executed ie complete because he has
performed his side of the bargain. He can then hold A to his
promise to pay him the 10.
Executory consideration: this is used to describe the status of a
persons promise in a contract where that part of the bargain
has not yet been performed. For eg: A promise to pay B if wash
the cat, but promise to pay him in two weeks time.
Consideration must have some economic value, not matter
how small. For example, in the case of:
Chappell v Nestle (1959): Where chocolate bar wrappers
were taken as part payment for a record as part of a promotion.
It was recognised that the use of chocolate bar wrappers have
little value, however there was some value, which was all that
was needed.
Void contracts: This is when the whole transaction is regarded
as nullify, as though as there has not been no contract between
the parties. So therefore any goods or money obtained under
this agreement must be returned and wherever any of the
items have been sold to any 3rd party the good must be
recovered by the original owner/s.
Consideration
In contract law consideration is concerned with the bargain of the
contract. A contract is based on an exchange of promises. Each party to a
contract must be both a promisor and a promisee. They must
each receive a benefit and each suffer a detriment. This benefit or
detriment is referred to as consideration.
Rules of consideration
There are various rules governing the law of consideration:
(a)
The 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, see case below:
Lampleigh v Braithwaite [1615] EWHC KB J17
The defendant had killed a man and was due to be hung for murder. He
asked the claimant to do everything in his power to obtain a pardon from
the King. The claimant went to great efforts and managed to get the
pardon requested. The defendant then promised to pay him 100 for his
efforts but never paid up.
Held:
Whilst the promise to make payment came after the performance and was
thus past consideration, the consideration was proceeded by a request
from the defendant which meant the consideration was valid. The
defendant was obliged to pay the claimant 100.
(b) Consideration must be sufficient but need not be
adequate, see case below:
There is no requirement that the consideration must be market
value, providing something of value is given eg 1 given in
exchange for a house would be valid. The courts are not
concerned with whether the parties have made a good or bad
bargain:
Chappel v Nestle [1960] AC 87 House of Lords
Nestle ran a sales promotion whereby if persons sent in 3 chocolate bar
wrappers and a postal order for 1 shilling 6d they would be sent a record.
Chappel owned the copyright in one of the records offered and disputed
the right of Nestle to offer the records and sought an injunction to prevent
the sales of the records which normally retailed at 6 shillings 8d. Under
s.8 of the Copyright Act 1956 retailers were protected from breach of
copyright if they gave notice to the copyright holders of the ordinary retail
selling price and paid them 6.25% of this. Nestle gave notice stating the
ordinary selling price was the 1 shilling 6d and three chocolate bar
wrappers. The question for the court was whether the chocolate bar
(e) Unless the promisor goes beyond their duty, see example of
case below:
ensured the child was well looked after and happy. The father made
payments but then when the mother remarried he stopped making
payments. The mother brought an action to enforce the agreement. The
father argued that the Mother was under an existing legal duty to look
after and maintain the child and therefore was not providing any
consideration for the promise to make payment.
Held:
By promising to ensure the child was well looked after and happy she had
gone beyond her existing legal duty and therefore had provided
consideration. She was entitled to the payment.
(g) Unless the party goes beyond their existing duty, see case
below:
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 and
In the case where the courts make a finding of mistake this will generally
render the contract void ab initio (from the beginning) so it is as if
the contract never existed. This represents an important distinction from
voidable contracts. Where a contract is voidable, the contract exists and is
valid until such time as the innocent party takes action to set the contract
aside. Thus where there is a voidable contract a person acquiring goods
under a contract will obtain good title to those goods. If a contract is void,
no title passes. This distinction is most relevant where the goods have
been sold on to a third party. A purchaser of the goods will acquire good
title if the original contract was voidable, but will not obtain title if the
contract is void.
1. Common mistake
Common mistakes exist where both parties to the contract make the
same mistake. Three categories have emerged as giving rise to a cause of
action:
Res extincta
Res extincta will apply where both parties enter a contract with the belief
that the subject matter exists when in fact it does not exist. The contract
will be held to be void for mistake, see example below:
Res sua
This applies where a party contracts to buy something which in fact
belongs to him. This will generally render the contract void. Although if
the action is based in equity this will render the contract voidable:
2. Mutual mistake
A mutual mistake is one where the parties are at cross purposes. The
courts apply an objective test to see if the contract can be saved. Ie
would a reasonable person looking at the correspondence between the
parties have understood the contract to have a single meaning. If yes the
contract is valid on that meaning. If a reasonable person could not
determine the meaning then the contract will be void for mistake:
Inter absentes
Where the parties are not physically present when the contract is made,
eg where the contract is made through dealings through the post,
telephone or over the internet, the courts will only make a finding of
mistake if the claimant can demonstrate an identifiable person or business
with whom they intended to deal with. A mistake as to their attributes will
not suffice:
Held: The contract was void for unilateral mistake as the claimant was
able to demonstrate an identifiable existing business with whom they
intended to contract with.
Inter praesentes
Where the parties contract in a face to face transaction the law raises a
presumption that the parties intend to deal with the person in front of
them:
Court of Appeal
Two sisters Hilda and Elsie Ingram sold their car to a rogue calling himself
Mr. Hutchinson. They agreed a price for cash, but when the rogue offered
a cheque Elsie said the deal was off. She wanted cash or no sale. The
rogue then gave them his full name and address and Hilda went to the
post office, which was two minutes down the road, to check the details
out. When she returned she informed Elsie that the details checked out
and the sisters agreed to let Mr. Hutchinson take the car. The cheque was
dishonoured and the car was sold on to Mr. Little. The sisters brought an
action to recover the car.
Held: The contract was void for mistake. The Court of Appeal held that
the sisters only intended to deal with Mr. Hutchinson at the address given
because they were not willing to offer a sale for payment by cheque from
anyone else. This case has received widespread criticism and has not
She signed the document in both their presence but could not find her
glasses so had not been able to read it. The agreement between Mr Lee
and Mrs Gallie had been held to be voidable for misrepresentation.
However, in the action against the building society Mrs Gallie raised the
plea of non est factum (its not my deed).
Held: The House of Lords found against Mrs Gallie. The document was not
radically different to that which she believed it to be in that she believed
that she was relinquishing her rights to the property in any event.
Furthermore the House of Lords stated that the plea of non est
factum should not be too widely applied and reserved for those who
through no fault of their own are unable to read the document eg blind,
illiterate or incapacitated through age.
was not entitled to end the contract. Missing the rehearsals did
not go to the root of the contract.
http://e-lawresources.co.uk/Bettini-v-Gye.php
Bettini v Gye: In this case the claimant was contracted to the
defendant to sing for a whole season. He agreed to be in
London for the rehearsals for six days before the rehearsal
starts. Due to ill-health he arrived in London two days before
the first performance, therefore the defendant repudiated the
contract. In the course of action by the claimant for breach of
contract, this was held that the missing days of rehearsals was
not a breach of an obligation which went to the route of the
contract and there was no right to repudiate. In this case
damages for breach of warranty were the only option which
was available to the promoters of the opera performances.
Conditions
These are the most important terms of contract. Serious
consequences if
Warranties
Of lesser importance than conditions, and can be breached
without such
serious consequences. Innocent party can sue for damages but
is not able
to terminate the contract.
case law (see e.g. Trollope and Colls Ltd. V. North West
Regional Hospital Board (1973) makes clear that term only
implied if contract cannot work without it;
Implied Terms (2)
1. Terms implied by fact (cont.): Both tests are subjective in
the sense that they ask what parties in the case at hand would
have agreed, not what a reasonable person in their position
would have agreed. So the term cannot be implied if one of the
parties was unaware of the subject matter of the term or facts
on which it is based. See e.g. Spring v. National
Amalgamated Stevedores and Dockers Society (1956).
Terms implied in fact
Terms implied as fact are based on the imputed intention of the parties.
Two tests have developed:
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 contract makes business sense without the term, the courts
will not imply a term.
Held:
The 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 with
British safety standards.
The term must also be sufficiently certain:
2) Implied terms: these are read into the contract by the court
on the basis
of the nature of the agreement and the parties apparent
intentions, or on
the basis of law on certain types of contract.
Significance of wording
Where possible, words are to be given their natural and
ordinary
meaning. This may be departed from where this would lead to
absurdity
References
Contract, tort and restitution by Graham Stephenson, Palgrave Mac Millan 2007
Book Contract, Tort, and Remedies by: D G Cracknell 4 th edition2005 old bailey
press Holborn college London,
implied term, and is often cited by employees who claim to have been constructively
dismissed. It implies a duty on the part of an employer not, without reasonable and proper
cause, to conduct itself in a manner calculated or likely to destroy or seriously damage the
relationship of trust and confidence between the parties (Courtaulds Northern Textiles
Limited v Andrew [1979] IRLR 84, EAT).
It is important to note that the duty to maintain mutual trust and confidence is not a duty to
act reasonably. Rather, it is a duty to act rationally and not so perversely as to constitute a
manner in which no reasonable employer would act. No malice is necessary (although this
may well be helpful in showing that the implied duty has been breached), and an honest
mistake can result in the duty being breached.
The duty to maintain trust and confidence is often relied upon in the context of bonus
disputes. In such disputes, the wording of the express bonus clause (if there is one) is key as
this forms a contractual straitjacket in which an employer must exercise its discretion in a
way which does not destroy mutual trust and confidence by being irrational or perverse. For
example, in Clark v Nomura International plc [2000] IRLR 766, the relevant express clause
stated that there was a discretionary bonus scheme which is not guaranteed in any way and
is dependent upon individual performance. The court found that this meant that the
employer was required to base the bonus on individual performance and not on other factors
such as the overall performance of the business. However, there was a further implied
requirement that it exercise discretion in a way that was rational. In Midland Bank plc v
McCann EAT/1041/97 the bonus clause stated that the bonus was intended to attract,
motivate and retain managers, and the EAT found that the employer was not acting
irrationally in not awarding a bonus to a manager who was shortly to leave its employment.
While the duty to maintain mutual trust and confidence is, in theory, binding on both
employer and employee, it has typically been relied upon by employees, as an employer who
is trying to identify a contractual term that has been breached is more likely to be in a
position to rely upon an express term (as employers typically dictate the content of the
employment contract) or another implied obligation on the employee such as the duty of
fidelity. However, there are cases in which the employee's breach of the implied duty to
maintain mutual trust and confidence has been found to justify dismissal, eg in the case of an
employee who provided a reference for a former colleague on a false basis. However,
employers should be fairly cautious in seeking to rely on a breach of this implied duty in
seeking to terminate an employee's employment, and should ensure that the employee's
misconduct is serious enough to be held to have undermined trust and confidence.
Giving references
There is no general implied duty for an employer to provide a reference for either a current or
a former employee. However, if an employer does decide to provide a reference, it must
exercise reasonable care and skill in doing so to ensure the accuracy of any facts that are
contained in it. This implied duty exists even if the employment has ended. An individual
who loses out on a job because of a careless reference from a current or ex employer can
recover damages for a breach of this implied term if he or she can show that he or she has lost
a reasonable chance of employment and therefore sustained financial loss.
2.
3.
4.
Time
2. Relative expertise:
http://e-lawresources.co.uk/Oscar-Chess-Ltd-v-Williams.php
making beer. He asked the seller if the hops had been treated with
sulphur and 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.
Held:
The statement that the hops had not been treated with sulphur was a
term of the contract rather than a representation as the claimant had
communicated the importance of the term and relied on the statement.
His action for breach of contract was successful.
http://e-lawresources.co.uk/Bannerman-v-White.php
Ecay v Godfrey [1947] 80 Lloyds Rep 286
The defendant sold a boat to the claimant. He stated that as far as he was
aware the boat was sound and free from vice but advised the claimant to
have it surveyed. The boat turned out to be defective.
Held:
The statement that the boat was sound was merely a representation. The
statement was not sufficiently emphatic to amount to a term and the
advice to have the boat surveyed demonstrated the defendant did not
wish the claimant to rely on the statement.
http://e-lawresources.co.uk/cases/Ecay-v-Godfrey.php
Schawel v Reade [1913] 2 IR 81
The claimant purchased a horse from the defendant. The claimant went to
see the horse and had told the defendant that he wished to use the horse
for stud purposes. Whilst he was examining the horse, the defendant told
him that the horse was sound. He stated that if there was anything wrong
with the horse he would tell him and told him there was no need to get a
vet to check him out. In reliance of these statements the claimant
purchased the horse which turned out to have a hereditary eye disease
and was therefore not able to be used as a stud.
Held:
The statement was a contractual term. The defendant had assured him he
could rely on his word and the claimant had communicated the purpose
for which the horse was to be used. The defendant was thus in breach of
contract.
http://e-lawresources.co.uk/cases/Schawel-v-Reade.php
4. Timing
The longer the time lapse between making the statement and entering
the contract the more likely it will be a representation:
Statements that are made during the course of negotiations could amount
to the terms of a contract or a representation. It is important to know
whether a particular statement is a term of contract or if it is a
representation as this will determine the appropriate cause of action
and remedy available. If the statement amounts to a term of the
contract which is not fulfilled, the innocent party may sue for breach of
contract. If the statement is merely a representation which turns out to
be untrue, the innocent party may bring an action for
misrepresentation.
current occupant was in fact a tenant protected under the Landlord and
Tenant Act 1954. This was a misrepresentation as to law which had
previously been assumed not to be an actionable misrepresentation
through analogy with case law based on restitutionary claims for mistake
of law. The rule barring recovery for mistake of law was abolished by the
House of Lords in Kleinwort Benson v Lincoln County council. The High
court held that actions based on misrepresentation of law could now be
actionable based upon that change of law. The claimant's action was
therefore successful.
There was no misrepresentation since the claimant had not said anything
to mislead the defendant as to the value of the land. Silence can not
amount to misrepresentation. However, the court refused an order of
specific performance as the claimant had sought to take advantage of the
defendants ignorance by rushing him into signing the lease.
"[6] the Insured will not have any duty or obligation to make any
representation, warranty or disclosure of any nature, express or
implied (such duty and obligation being expressly waived by the
insurers
[7] and shall have no liability of any nature to the insurers for any
information provided by any other parties
[8] and any such information provided by or nondisclosure by
other parties including, but not limited to, Heath North America &
Special Risks Ltd (other than section I of the questionnaire) shall
not be a ground or grounds for avoidance of the insurers'
obligations under the policy or the cancellation thereof."
Chase sought to rely on this clause to argue that the insurance
company could not rescind the contract.
Held:
The clause was ineffective. The insurers were entitled to rescind
the contract of insurance through both the misrepresentation and
the non-disclosure.
Held:
Where a statement is rendered false by a change in
circumstances there is a duty to disclose the change. A failure to
do so will result in an actionable misrepresentation.
Inducement/reliance
Once it has been established that a false statement has been made it is then
necessary for the representee to demonstrate that the false statement induced
them to enter the contract. There can be no inducement or reliance if
the representee was unaware of the false statement:
If the representee or their agent checks out the validity of the statement they
have not relied on the statement:
Once it has been established that a false statement was made and that it
induced the contract, it is necessary to determine the type of misrepresentation
in order to determine the available remedy.
Fraudulent misrepresentation
Fraudulent misrepresentation
i) knowing it to be false,
ii) without belief in its truth, or
iii) recklessly, careless as to whether it be true or false
title to the car which was worth 6,400. The trial judge accepted neither
submission. He held that if the figures on the hire-purchase agreement
had shown a deposit of 1200 and a cash price of 6,000, then the
Finance Company would have paid 4,800 to the Dealer and would have
had no recourse against it since the deposit would have been correctly
shown as 1200. Because the Finance Company were induced to pay an
extra 1600, that was the relevant loss suffered by the Finance Company.
Both parties appealed.
Held:
Damages under s. 2(1) Misrepresentation Act 1967 should be assessed on
the basis of damages available in the tort of deceit not general
contractual principles. This applies in the absence of fraud. The wording
of s.2(1) was clear and not capable of an alternative construction.
Bars to rescission
The right to rescind the contract may be lost where a third party
acquires rights, where the representee affirms the contract,
through lapse of time or where restitution in integrum impossible.
(Case summary)
Lapse of time
The right to rescind will be lost after a lapse of time. If the misrep is negligent or
fraudulent, time only starts to run from discovery. If a wholly innocent misrep
time runs from the entering of the contract:
The defendant in a misrepresentation claim is liable for all losses flowing from the
inducement whether or not they were foreseeable at the time. This can give rise to difficult
questions in assessing loss in misrepresentation claims and the early instruction of expert
evidence may be required.
What is a misrepresentation and comparison with similar claims
A claim for misrepresentation arises where one party to a contract (the representor) made an
untrue statement of fact that induced the other (the representee) to enter into the contract.
Claims for misrepresentation are governed by both the common law and the
Misrepresentation Act 1967 (MA 1967).
The false statement may be made innocently, negligently or fraudulently.
Statements of intention, opinion and promises whilst not actionable misrepresentations, may
carry with them implied representations of fact. There are also occasions where silence can
give rise to an actionable misrepresentation.
When considering whether a misrepresentation is actionable the context in which it was made
is key.
For more detail see Practice Note: What statements will establish a misrepresentation claim?.
Required element of a misrepresentation claiminducement
For a misrepresentation claim to succeed, the claimant must show that he was induced by the
representation to enter into the contract.
This will involve analysis of the context and application of the 'but for test', namely, that 'but
for' the misrepresentation, the claimant would not have entered into the contractthat is that
the representation played a real and substantial part in the claimant's decision to enter into the
contract.
Inducement alone, however, is not enough and it must be shown that the defendant intended
for the representee to be induced by his misrepresentation. Whilst this requirement is less
easy to apply where the representation is implied, nonetheless if the representor intended
what he said to be relied on by the representee, he will be taken to have intended that the
representee should rely on the objective meaning of what he said.
For more detail see Practice Note: What is inducement for the purposes of a
misrepresentation claim?.
Required element of a misrepresentation claimfalsity and fraudulent and
innocent misrepresentations
For a misrepresentation claim to succeed, the representation relied on must have been false.
This is so whether the representor made the untrue statement innocently, carelessly or
deliberately and fraudulently.
It may sometimes be necessary or important to plead fraudulent misrepresentation. In such
case, it is the lack of an honest belief in a statements truth that makes it fraudulent. However,
claims for fraudulent misrepresentation must be supported by robust evidence.
Where the misrepresentation was not made fraudulently, damages are not available if the
maker of the statement had reasonable grounds for believing that the representation was true.
Damages may be awarded in lieu of rescission. Damages awarded for loss will be adjusted to
reflect any damages awarded in lieu of rescission.
For more detail see Practice Note: Nature of an actionable representationfalsity and
fraudulent and innocent misrepresentations.
If the representee suffered loss as a result of having been induced to enter into the contract by
the misrepresentation, he may have a claim for damages:
1.
where the misrepresentation was not fraudulent, but the representor is unable to show
that he had reasonable grounds to believe the facts stated were true
3.
where the misrepresentation was not fraudulent, but the court decides in its discretion
to award damages in lieu of rescission
Damages may be also awarded in lieu of rescission whether or not the representee was
entitled to damages in any event.
There are anomalies between the recovery of damages in the similar claims of breach of
contract and negligent misstatement.
The defendant in a misrepresentation claim is liable for all losses flowing from the
inducement whether or not they were foreseeable at the time. This can give rise to difficult
questions in assessing loss in misrepresentation claims and the early instruction of expert
evidence may be required.
(case summary)
Where the contract becomes illegal to perform it will frustrate the contract:
(case summary)
(case
(case summary)
(case summary)
No frustration
1.
2.
3.
4.
(Case summary)
Held:
The contract was not frustrated. The fact that a contract becomes
more difficult to perform or not so profitable is not sufficient to
amount to frustration. It was still possible to perform the
contract.
(case
summary)
2. A contract will not be frustrated if the impossibility is the fault of either of the
parties:
(case
summary)
Maritime National Fish v Ocean Trawlers [1935] AC 524
The claimant owned five fishing vessels one of which was
chartered to the defendants. The fishing vessels were all fitted
with otter trawler nets. New legislation was introduced requiring
licences to be held by those using otter trawl nets. The claimant
applied for five licences but was only granted three. He had to
name which vessels the licence would be used on. He named his
own vessels and excluded the vessel which the defendant was
using. This meant that the defendant was unable to use the
vessel for fishing. The claimant sued the defendant for the price
of hire and the defendant in his defence stated the defendant had
committed a breach in not providing a licence so he was not
obliged to pay for the cost of hire. The claimant argued there was
no breach as the failure to provide a licence was a frustrating
event in that the decision to grant licences rested with the
secretary of state.
Held:
The contract was not frustrated since the claimant had chosen to
keep the three licences granted for himself rather than using one
to fulfil his contractual obligation. He had therefore induced the
frustrating event and was therefore in breach of contract.
3. Where there exists a force majeure clause this will apply rather than the law
of frustration. The clause must actually cover the event which occurred:
(case
4. Frustration will also not exist where the frustrating event should have been
foreseen:
(case
(case
Where a contract is found to be frustrated, both parties are released from their
obligations under the contract and neither party may sue for breach.
s.1(2) All money payable under the contract ceases to be payable and
any money already paid may be recovered. Where expenses have been incurred
this may be deducted from the amounts payable or paid. This is at the discretion
of the court and is subject to what is just and equitable in the circumstances of
the case. There is no provision allowing expenses to be recovered which exceed
the amounts paid or payable.
S. 1(3) - Where a valuable benefit has been conferred this must be paid for.
Held:
There was no requirement that the damage was foreseeable. The
defendant was liable for all the direct consequences of their action.
Case
Following the Wagon Mound no 1 the test for remoteness of damage is that
damage must be of a kind which was foreseeable. Once damage is of a
kind that is foreseeable the defendant is liable for the full extent of the damage
no matter whether the extent of the damage is foreseeable
The Wagon Mound test was considered and applied in:
Case
road users of the danger. The boys took a lamp down the hole.
One of them dropped the lamp and an unforeseeable explosion
occurred resulting in extensive burns.
Held:
The damage was not too remote it was foreseeable that the boys
may suffer a burn from the lamp. The fact that the burn resulted
from an unforeseeable explosion did not prevent the type of
damage being foreseeable.
Case
Case
Case
away. The council never took it away. The boys had been working
on the boat for 6-7 weeks when one of them suffered severe
spinal injuries, resulting in paraplegia, when the boat fell on top
of him. The boys had jacked the boat up to work on the underside
and the jack went through the rotten wood. The claimant brought
an action under the Occupiers Liability Act 1984. The trial judge
found for the claimant. The Court of Appeal reversed the decision,
holding that whilst it was foreseeable that younger children may
play on the boat and suffer an injury by falling through the rotten
wood, it was not foreseeable that older boys would try to do the
boat up. The claimant appealed.
House of Lords held:
The claimant's appeal was allowed. The risk was that children
would "meddle with the boat at the risk of some physical injury"
The actual injury fell within that description.
Lord Steyn:
"The scope of the two modifiers - the precise manner in which the
injury came about and its extent - is not definitively answered by
either The Wagon Mound (No. 1) or Hughes v. Lord Advocate. It
requires determination in the context of an intense focus on the
circumstances of each case."
Case
The claimant had suffered from ME over a period of time and was in
recovery when he was involved in a minor car accident due to the
defendant's negligence. The claimant was not physically injured in the
collision but the incident triggered his ME and had become chronic and
permanent so that he was unable to return to his job as a teacher. He was
successful at his trial and awarded 162,000 in damages.
Held:
Provided some kind of personal injury was foreseeable it did not matter
whether the injury was physical or psychiatric. There was thus no need to
establish that psychiatric injury was foreseeable. Also the fact that an
ordinary person would not have suffered the injury incurred by the
claimant was irrelevant as the defendant must take his victim as he finds
him under the thin skull rule.
Case summary
Case
References: [2008] UKHL 13, [2008] 2 WLR 499, [2008] 2 All ER 943, [2008] ICR 372, [2008]
AC 884, [2008] PIQR P11
Links: Bailii
Coram: Lord Bingham of Cornhill, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord
Mance, Lord Neuberger of Abbotsbury
Ratio: The claimants husband had committed suicide. She sought damages for financial loss
from his former employers under the 1976 Act. He had suffered a severe and debilitating injury
working for them leading to his depression and suicide. The employers said that these damages
were too remote.
Held: The employers appeal was dismissed.
Lord Bingham said: Mr Corrs suicide was not a voluntary, informed decision taken by him as an
adult of sound mind making and giving effect to a personal decision about his future. It was the
response of a man suffering from a severely depressive illness which impaired his capacity to
make reasoned and informed judgments about his future, such illness being, as is accepted, a
consequence of the employers tort. It is in no way unfair to hold the employer responsible for this
dire consequence of its breach of duty, although it could well be thought unfair to the victim not to
do so. and The law does not generally treat us as our brothers keeper, responsible for what he
may choose to do to his own disadvantage. It is his choice. But I do not think that the submission
addresses the particular features of this case. The employer owed the deceased the duty already
noted, embracing psychological as well as physical injury. Its breach caused him injury of both
kinds. While he was not, at the time of his death, insane in MNaghtens terms, nor was he fully
responsible. He acted in a way which he would not have done but for the injury from which the
employers breach caused him to suffer. This being so, I do not think his conduct in taking his
own life can be said to fall outside the scope of the duty which his employer owed him.
Lord Hoffmann said: On a but for test, his jump from the top of the multi-storey carpark can be
said to have been caused by his employers negligence. But the developing case law has placed
limits on the extent of the but for consequences of actionable negligence for which the negligent
actor can be held liable. This case engages and questions the extent of those limits . . The
question in this case, therefore, is whether Mr Corrs deliberate act of jumping from a high
building in order to kill himself, an apparent novus actus, albeit one that was causally connected,
on a but-for basis, to the original negligence, broke the claim of causative consequences for
which Mr Corrs negligent employers must accept responsibility.
Statutes: Fatal Accidents Act 1976 1, Law Reform (Miscellaneous Provisions) Act 1934
This case cites:
Appeal from Corr v IBC Vehicles Ltd CA (Bailii, [2006] EWCA Civ 331, Times 21-Apr06, [2006] ICR 1138, [2007] QB 46, [2006] 2 All ER 929, [2006] 3 WLR 395)
The deceased had suffered a head injury whilst working for the defendant. In addition to
severe physical consequences he suffered post-traumatic stress, became more and more
depressed, and then committed suicide six years later. The claimant . .
Approved Wright v Davidson ((1992) 88 DLR (4th) 698, Canlii, 1992 CanLII 1020 (BC
BA), [1992] 3 WWR 611, (1992), 64 BCLR (2d) 113)
(British Columbia Court of Appeal) The court rejected a claim for damages for a suicide
after the deceased claimant had suffered injury in a road collision because the conscious
decision of the deceased to take her own life had occurred without any . .
Cited St Georges Healthcare National Health Service Trust v S (No 2); Regina v Collins
and Others ex parte S (No 2) CA (Times 03-Aug-98, Bailii, [1998] EWCA Civ 1349, [1999]
Fam 26)
The patient came to hospital pregnant. The doctors advised a caesarian section but she
refused it. The doctors said that she lacked capacity and applied to the court for leave to
proceed.
Held: It was wrong to apply to the court to override . .
Cited Commissioner of Police for the Metropolis v Reeves (Joint Administratix of The
Estate of Martin Lynch, Deceased) HL (Times 16-Jul-99, Gazette 11-Aug-99, House of
Lords, Bailii, [1999] 3 WLR 363, [1999] UKHL 35, [2000] 1 AC 360, [1999] 3 All ER 897)
The deceased was a prisoner known to be at risk of committing suicide. Whilst in police
custody he hanged himself in his prison cell. The Commissioner accepted that he was in
breach of his duty of care to the deceased, but not that that breach was . .
Cited Daniel MNaghtens Case HL ((1843) 10 Cl & Fin 200, [1843] 8 ER 718, Bailii,
[1843] UKHL J16, [1843] EngR 875, Commonlii)
Daniel MNaghten suffered from a mental disorder under which he believed that he was
being persecuted by various bodies in authority, including the Tory Party. He sought to kill
the Tory Prime Minister Sir Robert Peel, but shot and killed instead . .
Cited Stapley v Gypsum Mines Ltd HL ([1953] AC 663, Bailii, [1953] UKHL 4, [1953] 2
All ER 478, [1953] 3 WLR 279)
The question was whether the fault of the deceaseds fellow workman, they both having
disobeyed their foremans instructions, was to be regarded as having contributed to the
accident.
Held: A plaintiff must share in the responsibility for the . .
Cited Regina v Kennedy HL (Bailii, [2007] UKHL 38, Times 19-Oct-07, [2007] 4 All ER
1083, [2007] 3 WLR 612, [2007] Inquest LR 234, [2008] 1 Cr App Rep 19, [2008] Crim
LR 222, [2008] AC 269)
The defendant had been convicted of manslaughter. He had supplied a class A drug to a
friend who then died taking it.
Held: The House was asked When is it appropriate to find someone guilty of
manslaughter where that person has been involved . .
Cited Kirkham v Anderton, The Chief Constable of the Greater Manchester police CA
([1989] 2 QB 283, [1990] 3 All ER 246, Bailii, [1989] EWCA Civ 3)
The claimants husband hanged himself in Risley Remand Centre after the police had
failed to warn the prison authorities that he was (as the police knew) a suicide risk. He
was suffering from clinical depression and had previously attempted suicide . .
Cited AMP General Insurance Ltd v Roads & Traffic Authority of New South Wales
([2001] Aust Torts Reports 81, [2001] NSWCA 186, Austlii)
(Supreme Court of New South Wales) Spigelman CJ said: There was no duty upon the
employer . . to protect the deceased from self harm. . .
Cited Simmons v British Steel plc HL (House of Lords, [2004] UKHL 20, Bailii, Times
04-May-04, [2004] ICR 585, 2004 GWD 14-315, [2004] PIQR P33, 2004 SLT 595)
The claimant was injured at work as a consequence of the defenders negligence. His
injuries became more severe, and he came to suffer a disabling depression.
Held: the Inner House had been wrong to characterise the Outer House decision as . .
At first Instance Corr v IBC Vehicles Ltd QBD (Bailii, [2005] EWHC 895 (QB), [2006]
PIQR P11)
The claimants husband had been employed by the defendant and had suffered severe
head injuries because of malfunctioning machinery. He suffered post-traumatic stress
disorder and that led to depression. He ultimately committed suicide. His widow . .
Cited Gray v Thames Trains Ltd and Another CA (Bailii, [2008] EWCA Civ 713, Times
09-Jul-08, [2009] 2 WLR 351)
The claimant was a victim of the Ladbroke Grove rail crash. He later committed and was
convicted of a manslaughter and detained under the 1983 Act. He said that the accident
had caused a major personality change. The defendant relied on the defence . .
Cited St George v The Home Office CA (B3/2007/2778, Bailii, [2008] EWCA Civ 1068,
Times 22-Oct-08)
The claimant was taken into prison. He was known to be subject to epilepsy, with high
risks on withdrawal from drugs, but was allocated a high bunk. He had a seizure and fell,
suffering head injuries. He sought damages in negligence. The defendant . .
Cited Chubb Fire Ltd v The Vicar of Spalding & Churchwardens and Church Council of
The Church of St Mary & St Nicholas, Spalding CA (Bailii, [2010] EWCA Civ 981)
The appellants had supplied a dry powder extinguisher to the church. Vandals discharged
the extinguisher, requiring substantial sums to be spent cleaning the dust. The churchs
insurers sought to recover the costs saying that the appellant should . .
Cited Gnango, Regina v SC ([2012] 2 All ER 129, [2012] 2 WLR 17, [2012] 1 Cr App R
18, [2012] 1 AC 827, Bailii, [2011] UKSC 59, SC Summary, SC, UKSC 2010/0165, Bailii
Summary)
The prosecutor appealed against a successful appeal by the defendant against his
conviction for murder. He and an opponent had engaged in a street battle using guns. His
opponent had shot an innocent passer by. The court was now asked as to whether . .
Duress
In order for a party to establish that they have suffered from duress during the formation of a
contract they must be able to show that there has been some illegitimate pressure as in Barton
v Armstrong [1976] AC 104. Nevertheless, as put by Smith (1997: 56) one must distinguish
between wrongdoing and lack of consent before a contract can be rescinded on the grounds
of duress. Duress is a defence under the common law and is concerned largely with
threatening behaviour. Therefore, unless there has been a serious threat to the party
concerned, they will be less likely to establish a claim of duress and may have to rely on
undue influence if they have merely been pressured into entering into the contract. In effect,
duress is more serious and will be evident on the facts of the case. Thus, as argued by
Beatson (1991: 113); in order for duress to be established it must be shown that there was a
very high degree of interference with the victims decision making process. Essentially,
duress will be demonstrated if there is evidence of pressure that is extremely grave. Once it
has been established that there exists some illegitimate pressure it must then be shown that
the pressure induced a coercion of the will, which vitiates consent as in Pao On v Lau Yiu
Long [1980] AC 614 and but for that illegitimate economic pressure, the claimant would not
have entered the relevant contract or made a payment; SL Huyton SA v Peter Cremer GmbH
& Co [1999] 1 Lloyds Rep 620. Effectively, duress on its own will not render the contract
voidable, it will need to be shown that the party would not have entered into the contract had
it not been for the duress in which the party suffered. Consequently, if one party has entered
into the contract under duress then the contract is voidable by the injured party.
Undue Influence
Undue influence occurs when one party exerts on another party any pressure or influence,
which subsequently induced that party to enter into the contract. There are two different types
of undue influence which exist, namely; actual and presumed. Actual undue influence
happens when one party to a contract inflicts illegitimate pressure onto the other party in
order to take advantage of that party. Presumed undue influence, on the other hand, happens
when one party takes advantage of a relationship involving trust and confidence with the
other party. In Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, it was held by the
court that; undue influence includes cases of coercion, domination, victimisation and all the
insidious techniques of persuasion. Consequently, if there has been some illegitimate
pressure placed upon a party in order to enter into a contract then undue influence will be
established if that pressure does not involve a serious threat. This was a significant decision
as it illustrated that undue influence will depend entirely upon the circumstances of the case
(Adkinson, 2008: 7341). Nevertheless, in demonstrating that undue influence has occurred
one must demonstrate that the transaction entered into was manifestly disadvantageous in
order for the innocent party to succeed because as said by Birks (2004: 34); not all cases of
undue influence can be regarded as cases of wrongs. This was highlighted in Macklin v
Dowsett [2004] EWCA Civ 50 where it was held that; a transaction that is so manifestly
unfair to the transferor can itself be evidence of a relationship of ascendency/dependency.
This decision provides an example of how the court will intervene in order to protect the
vulnerable from exploitation (Walden-Smith, 2005: 4). A contract will thus be rendered
voidable if undue influence is established as shown in Dunbar Bank Plc v Nadeeem [1997] 2
All ER 253.
Duress
This means when a contract is made using threat of violence or unlawful constraint.
However, in the case of Cummings v Ince, the use of threat was directed towards someone
close to the person who engaged in the contract. In this case, the court decided that the
contract with an elderly lady would be unenforceable because the agreement was made
when she had been threatened to reside in a mental hospital.
In the case of Skeate v Beale (1840), the court had decided that since the threat had been
directed towards property, this did not constitute duress.
However, in the case of The Siboen and the Sibotre (1976), the court decided that serious
threats that constituted burning a house or damaging expensive paintings should be
considered as duress.
Therefore, this meant that duress also covered property in the most serious circumstances.
In the case of Atlas Express v Kafco (1989), the court had decided that because there was a
threat made to a small business for them to breach the rules of a contract that was made;
this would be considered as duress, known as economic duress.
However, in the case of CTN Cash and Carry v Gallagher (1994), the court decided that there
was no economic duress present.
In the case of Universe Tankships of Monravia v ITWF (1982), it was decided that the threat
made by the union in the matter of a ship, because workers demanded a change in
circumstances was seen as economic duress. Furthermore, in the case of North Ocean
Shipping v Hyundai Construction (1979), it was decided that the economic duress was
present in the contract, due to unfair pressure.
In another case of Pao On v Lau Yiu Long (1980), this was where the court decided that a
threat of breach of contract due to business circumstances was seen as acceptable.
Therefore, a case where economic duress has been present is considered by the courts
based on individual circumstances.
Undue Influence
Undue influence had been introduced to deal with cases where duress does not apply. This
is where the influence is considered as unnecessary.
A circumstance where undue influence applies is when there in no relationship present
between the parties, therefore, it becomes the responsibility of the party who is claiming
that there is undue influence to be able to prove that it exists.
Another circumstance where undue influence can apply is when there is a relationship
present where one party puts their trust in another party. In the case of Allcard v Skinner
(1887), there was a presumption of undue influence.
Where there is trust involved, such as between family members, undue influence may be
presumed, evidence would be required in order to show that what is assumed in untrue.
In the case of Re Brocklehurst (1978), there was evidence to suggest the presence of
independence when deciding whether to enter into the contract; on this occasion there was
evidence to show that the presumption was untrue.
However, in the case of Lloyds Bank v Bundy (1975), it was decided that the relationship
between a bank worker and a customer may be considered as such a relationship where
one party puts trust within the other, only if the bank is given that trust.
In the case of TSB v Camfield (1994), husband and wife had secured a loan against their
house for purposes of a business venture. The wife had acted as surety for the finance and
had thought that the liability for which she was responsible had been limited, however this
was unlimited. The bank had failed to ensure that the wife received independent and
separate legal advice. The business failed and the husband and wife were liable to pay the
bank. On appeal from the wife, the court decided that the wife would not be liable to pay. It
would have been the responsibility of the bank under the doctrine of notice to be aware of
the rights of a weaker party.
Barton v Armstrong
Armstrong was the chairman and held the largest sharing holding
in Landmark Corporation Ltd a public company. Barton was the
managing director and also had a substantial shareholding in.
There were two other directors Bovil and Cottrel. There had been
a long history of ill will between the parties and 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 and wanted him to be removed for
abusing certain privileges and 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 and 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 and he believed he would be able to turn the
company around without Armstrong's dealings. However, the
company became insolvent shortly after and Barton sought to
have the contract set aside.
Held: 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
Skeate v Beale
Case summary
Case summary
Economic duress
The doctrine of economic duress was first canvassed by Kerr J
in The Sibeon and the Sibotre. Whilst the contract was not held to
be voidable for duress, Kerr J did state that where there exists
coercion of the will so as to vitiate consent, it should be possible
to set the contract aside. However, commercial pressure was not
enough.
Case summary
affect on share prices. The defendant could have sued for specific
performance of the agreement but this would have delayed
matters and damaged the company's reputation. The defendant
had taken legal advice on all these matters before agreeing to the
guarantee and indemnity. The claimant then sought to enforce
the guarantee and the defendant sought to have the agreement
set aside for economic duress.
Held: 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 the defendant did not protest at the time. He
also could have enforced the contract of sale through specific
performance and thus had another avenue of redress available to
him. He had taken legal advice and took no steps to avoid the
agreement prior to the claimant 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.
2.
3.
4.
After entering into the contract, did they take steps to avoid
it?
Case summary
of Appeal
Case
summary
"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.""
[2003] UKPC
22 Privy Council
R was a member of the SAS. He was a member of the patrol
Bravo Two Zero which became infamous after other members of
the patrol had published books on the activities and a film was
made based on the books. The publicity lead to controversy
amongst the patrol as it was motivated by commercial gain and
distorted the truth placing blame on some of the dead and
surviving members of the patrol. In response to this the Ministry
of Defence introduced confidentiality agreements to prevent
future publications. R was told that he must sign the
confidentiality agreement if he wished to continue in the regiment
or be Returned to Unit which would be a considerable demotion
for the claimant and was generally given as a form of
punishment. R asked if he could take legal advice on the
agreement and was told that he could not. He signed the
agreement in Oct 1996 and in March 1997 took the decision to
leave the Army. The following year he wished to put his side of
the events of Bravo Two Zero to correct the earlier errors and
save the memories of his lost colleagues. He entered a contract
with a publisher and the Attorney- General brought a claim
seeking an injunction to prevent publication. R sought to have the
confidentiality agreement set aside as it was signed under
military orders he raised both duress and undue influence in his
defence.
Held: A lawful demand may constitute illegitimate pressure where
the demand is not justified. 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 and justified and thus did not amount to
illegitimate
pressure.
Division
In 1998 an agreement was entered in to between IFR (English
company) and Federal (Italian company) whereby IFR were to
distribute and give sole right of resale of certain specified items
including radio, electronic and telecommunication equipment. The
agreement was to last for 2 years. This succeeded an earlier
agreement and contained a jurisdiction clause (stating the
agreement would be governed by English law) and 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 affect 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 and Pao On) and stated that where there is
no consent the contract must be void ab initio as oppose to
voidable.
Held: 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.
Undue influence exists where a contract has been entered as a result of pressure which falls
short of amounting to duress, the party subject to the pressure may have a cause of action in
equity to have the contract set aside on the grounds of undue influence. Undue
influence operates where there exists a relationship between the parties which has been
exploited by one party to gain an unfair advantage. Undue influence is divided into actual
undue influence and presumed undue influence. Where a contract is found to be entered
into as a result of undue influence, this will render the contract voidable. This will enable the
person influenced to have the contract set aside as against a party who subjected the other to
such influence. In addition, in some instances the party influenced may be able to have a
contract set aside as against a party who was not the person inflicting the influence or
pressure.
There are three classes of undue influence which were set out in the case of Bank
of Credit & Commerce International v Aboody [1990] 1 QB 923 (Case summary)
Bank of Credit and Commerce International v Aboody [1990] 1 QB 923
Court
of Appeal
A husband exerted actual undue influence 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 and wife owned shares. The couple were
unable to repay the mortgage and the bank sought to repossess the home.
The wife sought to have the mortgage set aside on the grounds that it
was procured by actual undue influence of the husband.
Held:
The husband had exerted actual undue influence on the wife. However,
the transaction was not to the manifest disadvantage of the wife since
she owned shares in the company. In considering whether a transaction
was to the manifest disadvantage the court was to have regard to any
benefits received in addition to the risks undertaken. Therefore the bank
were granted possession.
NB - it is no longer necessary to establish manifest disadvantage in cases
involving actual undue influence.
The Court of Appeal set out the classes of undue influence:
Class 1 - Actual undue influence (requires proof of the influence)
Class 2 a - presumed undue influence (relationship as a matter of law
gives rise to presumption that influence was exerted)
Class 2 b - presumed undue influence (requires proof of relationship of
trust and confidence if established the presumption of influence arises)
Class 1 - Actual undue influence
Class 2a - Presumed undue influence
Class 2b - Presumed undue influence
"Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The
objective is to ensure that the influence of one person over another is not abused. In everyday life people
constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to
enter into transactions, whether great or small. The law has set limits to the means properly employable for this
purpose. The law will investigate the manner in which the intention to enter into the transaction was secured: If
the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The
means used is regarded as an exercise of improper or 'undue' influence, and hence unacceptable, whenever the
consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to
be more precise or definitive. The circumstances in which one person acquires influence over another, and the
manner in which influence may be exercised, vary too widely to permit of any more specific criterion."
Manifest disadvantage?
Originally it was a requirement that the claimant seeking to find relief through
actual undue influence must also establish that they had suffered a manifest
disadvantage (See BCCI v Aboody above).
However, it was held in CIBC Mortgages v Pitt [1994] 1 AC 200 (case summary)
that manifest disadvantage was not required in cases of actual undue influence.
Case summary
of Appeal
Court
A husband exerted actual undue influence 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 and wife owned shares. The couple were
unable to repay the mortgage and the bank sought to repossess the home.
The wife sought to have the mortgage set aside on the grounds that it
was procured by actual undue influence of the husband.
Held:
The husband had exerted actual undue influence on the wife. However,
the transaction was not to the manifest disadvantage of the wife since
she owned shares in the company. In considering whether a transaction
was to the manifest disadvantage the court was to have regard to any
benefits received in addition to the risks undertaken. Therefore the bank
were granted possession.
NB - it is no longer necessary to establish manifest disadvantage in cases
involving actual undue influence.
The Court of Appeal set out the classes of undue influence:
Class 1 - Actual undue influence (requires proof of the influence)
Class 2 a - presumed undue influence (relationship as a matter of law
gives rise to presumption that influence was exerted)
Class 2 b - presumed undue influence (requires proof of relationship of
trust and confidence if established the presumption of influence arises)
CIBC Mortgages v Pitt [1994] 1 AC 200 (also actual undue
influence)
Case summary
substantial benefits even where the vulnerable party also receives a benefit. The
court should consider the transaction as a whole.
Royal Bank of Scotland v Etridge
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 and 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, and 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
and 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.
Class 2b - Presumed undue influence
Establishing the presumption
Under class 2b there is no automatic presumption arising as a matter of law. Here it
must be established that there is a relationship of such a kind that one party in fact
placed their trust and confidence in the other to safeguard their interest. Any
relationship is capable of amounting to this examples include husband and wife,
cohabitees, employer and employee. The important distinction between class 2 a
and 2b is the fact that the trust and confidence relationship must be proved. In
modern times it is no longer the case that wives will generally place all their trust
in their husbands to deal with the financial matters although in some marriages this
may be the case. If the wife exercises independence of mind in financial matters
then no presumption will be established.
Case summary
to stand surety for her husband's debts by the combination of two factors:
(a) the transaction is on its face not to the financial advantage of the
wife; and (b) there is a substantial risk in transactions of that kind that,
in procuring the wife to act as surety, the husband has committed a legal
or equitable wrong that entitles the wife to set aside the transaction.
It follows that unless the creditor who is put on inquiry takes reasonable
steps to satisfy himself that the wife's agreement to stand surety has
been properly obtained, the creditor will have constructive notice of the
wife's rights.
What, then are the reasonable steps which the creditor should take to
ensure that it does not have constructive notice of the wife's rights, if
any? Normally the reasonable steps necessary to avoid being fixed with
constructive notice consist of making inquiry of the person who may have
the earlier right (i.e. the wife) to see whether such right is asserted. It is
plainly impossible to require of banks and other financial institutions that
they should inquire of one spouse whether he or she has been unduly
influenced or misled by the other. But in my judgment the creditor, in
order to avoid being fixed with constructive notice, can reasonably be
expected to take steps to bring home to the wife the risk she is running
by standing as surety and to advise her to take independent advice. As to
past transactions, it will depend on the facts of each case whether the
steps taken by the creditor satisfy this test. However for the future in my
judgment a creditor will have satisfied these requirements if it insists
that the wife attend a private meeting (in the absence of the husband)
with a representative of the creditor at which she is told of the extent of
her liability as surety, warned of the risk she is running and urged to take
independent legal advice. If these steps are taken in my judgment the
creditor will have taken such reasonable steps as are necessary to
preclude a subsequent claim that it had constructive notice of the wife's
rights. I should make it clear that I have been considering the ordinary
case where the creditor knows only that the wife is to stand surety for
her husband's debts. I would not exclude exceptional cases where a
creditor has knowledge of further facts which render the presence of
undue influence not only possible but probable. In such cases, the
creditor to be safe will have to insist that the wife is separately advised."
Exceptionally, it has been held that a relationship of trust and confidence existed
between a bank manager and his client:
Case summary
A father secured the debts of his son's business on his farm which
had been in the family for generations. The father and son had
both banked at the branch for many years and relied on advice
given. The son's company also banked at the same branch and
the bank manager was aware of the dire financial position of the
company. The bank had allowed the son to run up an overdraft
exceeding security given thus far and was fearful that the
company would go under leaving them with an unsecured debt.
The bank manager and the son called at the farm with the forms
already filled in. The father was told of the amount of the charge
which was 11,000 and exceeded the value of the farm and he
was also required to give a guarantee. The father agreed to sign
in order to help his son. He was not given the opportunity to think
it over or to obtain legal advice.
Held:
There was a relationship of trust and confidence between the
father and the bank manager giving rise to a presumption of
undue influence under class 2 b. The charge and guarantee were
therefore set aside.
NB the normal relationship between a banker and customer is not
one of trust and confidence but a business relationship whereby
the bank is looking out for its own interest (See Natwest v
Morgan) however, the bank manager in giving evidence admitted
that the father relied implicitly and solely on the advice given by
him and the father stated that he had trusted the bank and had a
long relationship with the bank and generally acted on advice
given.
However, it has been held that the normal relationship between banker and client is
not one of trust and confidence:
Case
Held:
Mrs Williams was successful on both grounds.
For both undue influence and misrepresentation there is no
requirement to establish that a person would not have entered
the contract but for the influence or misrepresentation. It was
sufficient for undue influence, that an equitable wrong has been
committed. For misrepresentation 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 and 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 and class 2b
The party accused of exercising undue influence may rebut 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 and had received legal advice before agreeing to
the transaction.
Constructive notice
Constructive notice arises where the bank is
1. put on enquiry and
2. fails to take reasonable steps to ensure that the transaction was entered freely
without the exercise of undue influence.
Enquiry
Consideration of factors which put the bank on enquiry:
Bank Of Scotland v Bennett & Anor [1998] EWCA Civ 1965
Case summary
the light of all the facts which the lender does know, it is put on
inquiry that there is a real risk that the wifes apparent consent to
the transaction may have been obtained by some improper
conduct (pressure, abuse of trust and confidence or
misrepresentation) on the part of the husband."
Conoco Ltd v Khan & Anor [1996] EWCA Civ 968
Case summary
Conoco Ltd v Khan & Khan [1996] EWCA Civ 968 Court of
Appeal
The defendants, Mr and Mrs Khan, owned a petrol station which
was run by Mr Khan. Mr Khan entered an agreement with the
claimant supplier of petrol whereby the defendants were to
borrow 300,000, which was to be secured on the petrol station,
to be repaid by 5 annual instalments. The loan was to pay for the
supply of petrol during that five years. Also by the agreement the
defendants were not to purchase petrol from any other supplier.
The defendants breached the agreement by purchasing petrol
elsewhere. The claimants terminated the contract and demanded
the balance outstanding under the loan standing at 240,000.
Mrs Khan raised class 2 b undue influence in her defence stating
she took no part in the running of the business and always signed
what her husband asked her to. She did not speak English and
had no knowledge of the affect of what she signed. She trusted
her husband implicitly not to prejudice her interest. She had not
been given any advice at all as to what she was signing.
Held:
The bank was not put on enquiry. The agreement was a
commercial agreement under which she was to obtain benefits.
The claimant would have no reason to consider that the wife
should obtain independent advice.
The current factors to be considered were set out in:
Case summary
Case summary
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.
Held:
Mrs Thompson was unsuccessful. The bank were 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 and 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
summary
Natwest v Beaton
Case
Damages
Repudiation
Rescission
Specific performance
Injunctions
Restitutionary awards
Case
summary
Case
Case summary
summary
Poussard v Spiers (1876) 1 QBD 410
Case summary
It may also be available for breach of an
innominate term, where the breach
substantially deprives the claimant of the
whole benefit of the contract.
Rescission
Rescission is an equitable remedy available at
the discretion of the judge. Rescission seeks
to place the parties back in their precontractual position and thus represents an
unraveling of the contract. Rescission is
Specific performance
Specific performance is an equitable remedy
available at the discretion of the judge. It is
an order by the court requiring one party to
Case
2. Type of contract
Specific performance is most commonly
ordered for contracts for the sale of land
The courts are unlikely to order specific
performance for contracts for personal
service.
3. Equity
Clean hands:
Walters v Morgan (1861) 3 DF & J 718
Case summary
Lamare v Dixon (1873) LR 6 HL 414 Case
summary
Hardship:
1.
2.
3.
Case
Case summary
Case
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