Download - Contract Law 4-5 LLB (1)
-
7/30/2019 Contract Law 4-5 LLB (1)
1/14
1. contract and intent for legally binding if contract lacks an intention to create legal relations and
is thus not a contract because they did not intend it to be. In th
case of domestic and social agreements, it
is presumed that there is not an intention to create legal
relations. In the case of commercial agreements, it is presume
that there is an intention to create legal
relations. be. The agreement has no legal effect at all.
2. Edmonds v Lawson: contract and intent for legally binding the courts will not examine the states of mind of the parties to
the agreement (a subjective approach), but will ask whether or
not reasonable parties to such an agreement would possess an
intention to create legal relations.
3. Balfour v Balfour (1919): domestic cases.
public policy
husband would be working overseas, he promised to pay his
wife an amount of money each month.
When the parties separated, the wife sued the husband for this
monthly amount. The court refused to allow her action on the
grounds that the agreement was not an
enforceable contract because, at the outset of their agreement,
'was not intended by either party to be attended by legal
consequences'. Problem is court would be overwhelmed.
4. Domestic agreemens cases:
Balfour v Balfour
Jones v Padavatton (1969)
Coward v MIB
Jones v Padavatton :the agreement between a mother and her
adult child did not create a contract
Coward v MIB : where the court found that an agreement
to take a friend to work in exchange for petrol money was an
arrangement which lacked contractual intention.
5. Domestic agreement
Merritt v Merritt
Merritt v Merritt
held that nature of the dealings, and the fact that the Merritts
were separated when they signed their contract, allowed the
court to assume that their agreement was more than a domesti
arrangement.
a family arrangement such as was considered by the court inBalfour v Balfour and in Jones v Padavatton. So the wife could
not sue on it. I do not think that those cases have any
application here. The parties there were living together in amit
In such cases their domestic arrangements are ordinarily not
intended to create legal relations.
6. Darke v Strout [2003] EWCA
the claimant would transfer her interest in the property to the
defendant and that she and the children would vacate the
property, in return for the defendant's financial support in
respect of rent and maintenance whilst she went back to
university and re-trained in order to become able to take over
financial responsibility for the children in the future.
The breakdown of a relationship between parents created righ
and obligations and also brought into effect statutory rights an
obligations. Moreover, the defendant's contention that there
was no consideration for the May 1998 agreement was
manifestly hopeless, as the agreement had constituted a
compromise of the claimant's statutory rights to both housing
provision and continuing maintenance for the children.7. Soulsbury v Soulsbury [2007]: The issue in this appeal is
whether the personal representative of the estate of the
deceased former husband of the claimant is liable to pay her
the sum of 100,000 which the deceased had promised he
would ensure she would receive on his death if she did not
enforce an order for periodical payments in her favour or seek
any other order for ancillary relief against him.
CA finds that there was an intention to create legal relations
between two former spouses when one agreed to forego
maintenance payments in return for a bequest in the other's
will .
8. domestic cases where balfour v balfour presumption of not
legally binding is rebutted.
Soulsbury v Soulsbury [2007]
Darke v Strout [2003] EWCA
Merritt v Merrit
Simpkins v Pays (1955)
contract law 4-5: LLBStudy online at quizlet.com/_6fgl5
-
7/30/2019 Contract Law 4-5 LLB (1)
2/14
9. Simpkins v Pays (1955) :
A Grandmother, granddaughter and a lodger entered into a weekly
competition run by the Sunday Empire News. The coupon was sent in
the Grandmothers name each week and all three made forecasts and
they took it in turns to pay. They had agreed that if any of them won
they would share the winnings between them. The grandmother
received 250 in prize money and refused to share it with the other
two. The lodger brought the action to claim one third of the prize
money.
There was a binding contract despite the family
connection as the lodger was also party to the contrac
This rebutted the presumption of no intention to creat
legal relations.
10. Coward v MIB
Coward was killed whilst riding pillion on a motorcycle driven by a
friend and work colleague. collision due to the negligence of the
friend. Coward's widow sought to claim damages from the Motor
Insurance Bureau since the rider's insurance did not cover pillion
passengers. The Motor Insurance Bureau would only be obliged to
pay if insurance for the pillion was compulsory. Insurance was only
compulsory for pillions if they were carried for hire or reward.
Coward paid the friend a small weekly sum to take him to and from
work each day. The widow therefore argued that this was a contract
for hire or reward. .
Coward v MIB
There was no contract of hire or reward as it was a
social and domestic agreement and therefore no
intention to create legal relations. The widow was
therefore not entitled to compensation.
11. How does Simpkins v Pays differ from Coward v MIB? In Simpkins v Pays, the judge finds that there was a
'mutuality in the agreement' between the parties. The
women entered the contest together in the expectation
that, should they win, the winnings would be shared
amongst them. This seems to be sufficient to establish
an intention to create legal relations. In contrast, in
Coward v MIB, the Court of Appeal regards the lift to
work as a much more irregular occurrence:
it might happen or it might not. Consequently, the
agreement was regarded as too informal to demonstra
an intention to create legal relations.
12. Esso Petroleum Ltd v Commissioners of Customs : Esso produced
"World Cup Coins" which they offered as "free gifts" to purchasers of
their petrol. The issue was whether these coins were "produced ... for
sale" under the Purchase Tax Act 1963 (UK), in which case Esso
would be liable to 100,000s in tax
HL:Esso are engaged in business, and are supplying
these coins in order to promote the sale of their petrol
But it does not necessarily follow that there was any
intention on their part they should enter legally bindin
contracts with respect to the coins. Nor is there any
reason to impute to the motorist an intention to enter
into a legally binding contract for the supply of a coin
If it were found that Esso, the dealer, and the custome
intended to create a contract, it would seem to preclud
the possibility of any dealer ever offering a free gift,
however negligible the value. A common intention to
enter legal relations would be found more easily if the
item were something of value to the purchaser. But herthe coins were of little intrinsic value. If there were an
contract relating to the coins, the consideration for it
would be not the payment of money, but the entry into
contract to buy petrol.
minority view: , Esso clearly anticipated that they wou
have value to their customers, otherwise the promotio
would not be worthwhile. What sort of transaction wa
entered? It appears to be a collateral contract, the
consideration for which was entering the contract for
the purchase of the petrol. Also, offers for free gifts
should be enforceable
-
7/30/2019 Contract Law 4-5 LLB (1)
3/14
13. examples where commercial contracts are not
enforceable:Kleinwort Benson Ltd v Malaysia
Mining Corporation Berhad (1989)
The bank approached MMC BHD asking if they
would act as guarantor for the loan. MMC refused
to act as guarantor but stated they it was their
company policy to ensure that their subsidiaries
are always in a position to meet their debts.
Kleinwort Benson Ltd v MMC
The comfort letter had no legal effect. The fact that MMC BHD had refused
act as guarantor demonstrated they did not intend to be legally bound. The
comfort letter referred to company policy at that time. There was nothing to
stop the company changing its policy.
14. examples where commercial contracts are not
enforceable an honour clause - Rose and Frank
Company v J.R. Crompton and Brothers Ltd
(1925).
an honour clause
Rose and Frank Company v J.R.:
15. Certainty of terms and vagueness:
Scammell v Ouston (1941)
The claimants wished to trade in their old van for
a new van with the defendants. They agreed a price
for the old van's trade in, but only that they would
pay for the new van 'on hire purchase terms' for
two years. The defendants subsequently pulled out
of the agreement, and when the claimants
attempted to sue, the defendants argued that the
agreement could not be enforced because it was too
uncertain.
Scammell v Ouston (1941)
the court found that the agreement was not enforceable
because the terms were uncertain and required further agreement between t
parties. Viscount Maugham explained that because the terms were uncertai
there
was no real agreement (a consensus ad idem)
16. consensus ad idem: agreement on identical terms
17. Hillas v Arcos (1932)
"22,000 standards of softwood of fair
specification". In the contract there was an option
to purchase additional "100,000 standards" of
lumber. The only terms of the option stated,
"whatever the conditions are, buyers shall obtainthe goods on conditions and at prices which show
to them a reduction of 5 per cent on the f.o.b. value
of the official price list at any time ruling during
1931."
Hillas tried to exercise the option but Arcos
claimed the contract was cancelled. At trial the
jury found that the contract had not been cancelled
but Arcos put forward the claim that the option
"was an agreement to make an agreement, the
terms of which were not defined, and so was
unenforceable."
court first began to move away from a strict, literal interpretation of the term
of a contract, and instead interpreted it with a view to preserve the bargain.
The Court ruled that judges may imply terms into a contract based on the pa
dealings of the parties rather than void the agreement.
Lord Wright stated in this case that people who give good consideration can
bind themselves to a duty to negotiate in good faith, Here, the agreement habeen relied upon and the court was able to infer the intention of the parties
based upon the terms in their agreement and the usage in the trade.
18. Nicolene Ltd v Simmonds (1953) (Nicolene v Simmonds [1953] 1 QB 543) demonstrates how a court may
choose to allow a Contract to stand, even if parts of it are meaningless, if th
alternative would be to set a precedent that is contrary to public policy. Here
contract contained the words subject to the usual conditions of acceptance.
The parties had not done business before, so it was impossible to tell what
the usual conditions were. However, the court ruled that this phrase should
simply be ignored, and the rest of the contract left to stand. Otherwise, it wa
argued, anyone who wanted to renege on a contract could have it voided on
technicality.
-
7/30/2019 Contract Law 4-5 LLB (1)
4/14
19.A complete agreement:
Courtney & Fairbairn Ltd v Tolani
Brothers (Hotels) Ltd (1975)
One party wrote to the other that he
would be happy to contract if the
other would get a third party to
"negotiate fair and reasonable
contract sums".
it was held that there was no contract where the parties had simply agreed to negotiate.
Their agreement was not enforceable as a contract.
20. legislation or case law will enable the
court to add the necessary term to the
agreement.
also common law:
Foley v Classique Coaches Ltd (1934)
and British Bank for Foreign Trade
Ltd v Novinex Ltd (1949)
Sale of Goods Act 1979 which provides that where the price in a contract for the sale of
goods has not been determined the buyer must pay a reasonable price. Where this occurs,
the agreement can be completed and an enforceable contract exists.
common law:
The first is that courts are protecting the parties' reasonable reliance upon an agreement
The second is that, because the parties have relied upon the agreement, it is easier to imply
with certainty what the parties would originally have agreed upon as the essential terms.
21. Foley v Classique Coaches Ltd (1934)
Claimant owned a petrol station and
land adjacent to it. The defendants
ran a coach company and the
claimant sold them the adjacent land,
on condition they entered into an
agreement to buy petrol "at a price to
be agreed by the parties in writing
and from time to time." The
agreement was acted upon for some
time before the defendant argued that
the contract was void for uncertainty
as to price.
Foley v Classique Coaches Ltd (1934)
Another factor in that case was that the "agreement" had been acted on by the parties for
three years - court was more willing to enforce it. It was also linked to a contract for the sa
of land, ie it formed part of a larger transaction.
22. British Bank for Foreign Trade Ltd v
Novinex Ltd (1949):
whether the Plaintiffs were entitled to
commission on two transactions
relating to the sale of oilskins by
company A to the Defendants in
advance of which the Defendants had
promised to pay commission to the
Plaintiffs for an introduction to
company A.
The Plaintiffs introduced company A
to the Defendants who purchased two
parcels of oilskins. The Defendants
refused to pay commission as an
amount had not been agreed.
CA: The principle to be deduced from the cases is that if there is an essential term which h
yet to be agreed and there is no express or implied provision for its solution, the result in
point of law is that there is no binding contract. In seeing whether there is an implied
provision for its solution, however, there is a difference between an arrangement which is
wholly executory on both sides, and one which has been executed on one side or the other
In the ordinary way, if there is an arrangement to supply goods at a price "to be agreed" or
perform services on terms "to be agreed" then although while the matter is still executory,
there may be no binding contract, nevertheless, if it is executed on one side, that is if the on
does his part without having come to an agreement as to the price or the terms then the law
will say that there is necessarily implied from the conduct of the parties, a contract that, in
default of agreement, a reasonable sum is to be paid.'
-
7/30/2019 Contract Law 4-5 LLB (1)
5/14
23. misrepresenation and fraud: Hedley Byrne & Co Ltd v Heller & Partners Ltd
(1964),
Byrne wanted to check their financial position, and creditworthiness, and
subsequently asked their bank, National Provincial Bank, to get a report from
Easipower's bank, Heller & Partners Ltd., who replied in a letter that was headed,
"without responsibility on the part of this bank"
It said that Easipower was,
"considered good for its ordinary business engagements".
The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost17,000 on contracts.
The House of Lords overruled the
previous position, in recognising
liability for pure economic loss not
arising from a contractual
relationship, introducing the idea o
"assumption of responsibility", but
the case no damages were awarded
since the Disclaimer was sufficient
clear to void.
24. Esso Petroleum Co Ltd v Mardon (1976)
Esso told him they had estimated that the throughput of a petrol station in Eastbank
Street, Southport, would be 200,000 gallons a year. local council made a decision on
planning permission so no direct access from the main street. That meant fewer
customers. But Esso still told Mr Mardon the estimated throughput was 200,000. Mr
Mardon bought the petrol station and business did not go well. From 1964, Mr
Mardon negotiated a lower rent with Esso. He still put money in but lost a lot. Esso
then brought an action for possession against Mr Mardon. He counterclaimed for
damages of Esso's breach of warranty or negligence under Hedley Byrne.
HL on appeal it was not a warranty
in this sense - that it did not
guarantee that the throughput woul
be 200,000 gallons. But,
nevertheless, it was a forecast made
by a party - Esso - who had special
knowledge and skill. It was the
yardstick... by which they measured
the worth of a filling station. T:
distinguished Bisset v Wilkinson
because each party was 'equally ablto form an opinion.'
25. the statement is a term of the contract or a 'mere' representation which
is not a part of the contract.?
basic criterion is the intention of th
parties
Heilbut, Symons & Co v Buckleton
(1913). In this case, Lord Moulton
stated that for the statement to be a
term of the contract, it must
be made with the intention that it b
a term of a contract.
26.whether intention is exhibited by their words and conduct: not objective or
subjective.
Oscar Chess Ltd v Williams [1957]
a person selling a car to a second-hand car dealer stated that it was a 1948 Morris,
when in fact it was a 1939 model car.
Oscar Chess Ltd v Williams
If an intelligent bystander would
reasonably infer that a warranty wa
intended that will
suffice'
It was held that the statement did n
become a term because a reasonabl
person in the position of the car
dealer would not have thought that
an inexperienced person would hav
guaranteed the truth of the statemen
-
7/30/2019 Contract Law 4-5 LLB (1)
6/14
27. Heilbut, Symons & Co v Buckleton (1913), Lord Moulton set out
various criteria that helped to ascertain whether or not this
intention was present.
Buckleton called up a manager at Heilbut to inquire about the
shares. In response to the questions, the manager stated that they
were "bringing out a rubber company". Based on this statement,
Buckleton purchased a large number of shares. The shares turned
out not to be for a rubber company at all. The shares performed very
poorly. Buckleton sued for breach of warranty.
At trial the Court found that Heilbut made
misrepresentation but was not done fraudulently.
Nevertheless, at trial is was found that there was a
warranty in the statement regarding the rubber
company. The claimant, Buckleton, succeeded at trial.
Criteria:
the importance of the statement - the more important t
matter, the greater the
likelihood that the parties intended the statement to beterm
2. where one party is clearly relying upon the other, th
is indicative that the
statement is intended to be a term, and
3. the relative knowledge of the parties is significant
because if one party has a much
greater knowledge of the matter than the other, this is
again indicative that the
statement is intended to be a term of the contract.
28.Which cases show how the principles in Heilbut, Symons & Co v
Buckleton apply?
Oscar Chess Ltd v Williams (1957); Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd
(1965); Schawel v Reade (1913); Couchman v Hill (194
29. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd:
The defendant (Harold) sold the plaintiff (Dick) a car saying that it
only done 20,000 miles since major repair.
Harold bought the car but it transpired that the car had done much
more then 20,000 miles since the last major repair.
(1965)
Here, the representation was made for the purposes of
inducing the sale, thus this was grounds for inferring
that the representation was intended as a warranty.
The court went on to say that the defendant could rebu
this presumption by showing that his representation
was innocent, however the vendor made the statement
without checking them out and so the representations
were not innocent.
30. Schawel v Reade [1913]:
The defendant told the plaintiff, who required a horse for stud
purposes, that the animal was 'perfectly sound'. A few days later the
price was agreed and, three weeks later, the plaintiff bought the
horse.
The statement was held to be a term of the contract, bu
here the defendant, who was the owner of the horse,
would appear to have had special knowledge.
31. Couchman v Hill (1947).
plaintiff bought heifer at auction described in catalogue as
'unserved'
conditions of sale stated auctioneers didn't warrant condition or
description
before sale, auctioneer, on request of plaintiff, confirmed heifer
unserved
8 weeks later, heifer died from carrying calf too young
court held plaintiff could claim damages as 'unserved'
warranty which overrode conditions of sale
32. parole evidence rule it is said that they cannot later seek to establish that
there are terms of the contract which are outside thewritten agreement. They cannot, in other words, seek
show by evidence that there are other terms to the
contract. can lead to injustice - where, for example, a
critical term is omitted from the written agreement
-
7/30/2019 Contract Law 4-5 LLB (1)
7/14
33. Is it relevant to ask, as Lord
Denning does in cases such as
Dick Bentley Productions v
Harold Smith (Motors),
whether the defendant was
'innocent of fault' as an aid to
determining the existence of
contractual intention? Does
this shed any light on the wayjudges decide what is the
'proper' inference?
Lord Denning: it seems to me that if a representation is made in the course of dealings for a
contract for the very purpose of inducing the other party to act on it, and it actually induces him to
act on it by entering into the contract, that is prima facie ground for inferring that the
representation was intended as a warranty. It is not necessary to speak of it as being collateral.
Suffice it that the representation was intended to be acted on and was in fact acted on. But the
maker of the representation can rebut this inference if he can show that it really was an innocent
misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be
reasonable in the circumstances for him to be bound by it. In the Oscar Chess case the inference
was rebutted. in the present case it is very different. The inference is not rebutted. Here we have adealer, Mr Smith, who was in a position to know, or at least to find out, the history of the car. He
could get it. 'Fault', means something in the nature of negligence. The party who is
at 'fault' will bear the responsibility for the failure.
34.What is the 'parole evidence
rule'? Is it still important? If
not, why not?
amounts to no more than a rebuttable
presumption that the written contract is the whole contract. The exceptions to the rule are so
numerous that its status as a 'rule' is highly questionable. These exceptions
include evidence to establish that a contract is void or voidable on the grounds of mistake,
misrepresentation or fraud; to indicate an implied term or custom; or to
prove the existence of a collateral agreement. Because the rule can be circumvented so easily, it is
not really a rule. What is useful about the 'rule' is that it operates as a guide that the written terms
the contract are, at a minimum, the starting point for the determination of the contract's terms.
35. express v imply terms express: meaning clearly indicated or explicitly stated'.
imply means courts imply terms into the contract: were of satisfactory quality (because of s .14(2A)
of the Sale of Goods Act 1979).
generally reluctant to imply terms into a contract. The courts generally consider their role to be th
of an interpreter of contracts rather than a maker of them.
36. Crossley v Faithful & Gould
Holdings
Ltd [2004]
suffered a nervous breakdown.
Under the firm's disability
insurance scheme, so long as he
was an employee he was
entitled to benefits while totally
unable to work. He tendered his
resignation in terms suggested
by Faithful Ltd. Unfortunately
that terminated his right to
benefits. The scheme insurer
stopped payments after one
year.
Crossley v Faithful & Gould Holdings: CA declined to find that there was an implied term within t
contract of employment which provided that an employer ought to take reasonable care of an
employee's economic wellbeing. The introduction of such a term would be a major extension of th
existing law and would place an intolerable burden upon employers.
37.When will courts imply terms: Where there is an established trade usage.
Because of the relationship between the parties.
To give effect to an unexpressed intention of the parties.
By operation of statute.
38. courts implying terms: Trade
usage
common in commercial and mercantile contracts. Here, the standardised implied term functions
a kind of default rule. An example of such a situation would be that the vendors of a certain type o
good always paid the broker's commission with regard to the sale; absent a term to the contrary,
courts will imply such a term into this type of contract.
39. courss implying terms: The
nature of the relationship
landlord and tenant or employer and employee are two such instances.
Malik v BCCI (1997)
Liverpool City Council v Irwin (1976)
Equitable Life Assurance Society v Hyman (2002).
-
7/30/2019 Contract Law 4-5 LLB (1)
8/14
40. Malik v BCCI (1997): BCCI went insolvent due to massive fraud. They sued
the company for their loss of job prospects, alleging that their failure to
secure new jobs was due to the reputatational damage they had suffered
from working with BCCI. no express term in their contracts, Malik and
Mahmud argued there was an implied term in their employment contract
that nothing would be done calculated to undermine mutual trust and
confidence.
If conduct objectively considered is likely to caus
serious damage to the relationship between
employer and employee a breach of the implied
obligation may arise.
not limited by any rule that an employee had to
know of the breach while the employment
relationship subsisted,
41. Liverpool City Council v Irwin (1976)
The common parts were vandalised, the lifts did not work, the stair lights
failed, the chute was blocked, lavatory cisterns blocked and overflowed.
The tenants refused to pay rent. In an action by the council to eject them,
they counterclaimed that the council was in breach of a duty to keep the
common parts of the estates in decent repair.
HL: held that the nature of the agreement placed
responsibility with the landlords. They could ha
sought to make the tenants take responsibility, b
including terms to that effect in the contract, but
they did not. By implication, they retained
responsibility themselves.
42. Equitable Life Assurance
Society v Hyman (2002). could choose to have their annuity at a
"guaranteed annual rate" ("GAR") or a "current annuity rate" ("CAR").
From 1993 the current annuity fell below the guaranteed one. Article 65 of
the Society's articles said the directors could in their discretion vary the
premiums, which you would get on top.
decided they would change the level of bonuses, so as to equalise the
return so far as possible between the GAR and CAR policyholders. This
meant GAR policyholders received less than they believed they were
entitled to
Lord Steyn held there was an implied term that
the directors could not use their discretion in to
profits in this way. This implication was,[1]
strictly necessary... essential to give effect to the
reasonable expectations of the parties... The leg
test for the implication of such a term is a
standard of strict necessity. He called terms
implied in fact 'individualised terms' and law
'standardised implied terms'.
43. The unexpressed intention of the parties and the 'officious bystander' The courts may imply terms into the contract to
give effect to what appears to be the unexpressed
intention of the parties. In some circumstances,
the contract will not function unless the term is
implied. The implication is made as a matter of
necessity.Moorcock (1889).
44. Moorcock (1889): docked ship. tide went down to a point where the hull of
the ship hit a ridge causing damage to the ship. The plaintiff argued thatthe wharfingers were responsible to ensure that his vessel would remain
safe while docked. The wharf owners, in their defence, claimed that there
were no provisions in the contract to ensure the vessel's safety nor could
they have foreseen the damage caused to the vessel. The issue before the
Court was whether there can be any implied warranty in the
circumstances. The trial court found that there was an implied warranty.
Bowen LJ stated that any implied warranties mu
be based on the presumed intentions of theparties. An implied warranty may be read into a
contract for reasons of "business efficacy" and in
order to maintain the presumed intention of the
parties.
In business transactions such as this, what the
law desires to effect by the implication is to give
such business efficacy to the transaction as mus
have been intended at all events by both parties
who are business men; not to impose on one sid
all perils of the transaction, or to emancipate on
side from all the chances of failure.
The wharfingers were in such a position that the
must have known that there was a risk of damag
to the ship and would be in the best position to
judge the safety of the vessel.
45. Shirlaw v Southern
Foundries (1926) Ltd (1939):
that which in any contract is left to be implied a
need not be expressed
is something so obvious that it goes without
saying; so that, if, while the parties were
making their bargain, an officious bystander we
to suggest some express provision for it
in their agreement, they would testily suppress
him with a common 'Oh, of course'.
-
7/30/2019 Contract Law 4-5 LLB (1)
9/14
46. Liverpool City Council v Irwin 1977:
HL: Why did the House of Lords reject the 'variety of implication' that
the law implies a term on the basis that it is reasonable to do so,
favoured by Lord Denning MR? (The
rejection is made by Lord Wilberforce in Liverpool City Council v
Irwin (1977))
The main reason that this variety of implication is
rejected is undoubtedly because,
if terms were implied into contracts on the basis that
was reasonable to do so,
the contract would, inexorably, become what the
judges thought was a reasonable
contract. In these circumstances, the courts are not s
much interpreting the
contract as creating the contract.
47.A contracts with B to assemble bicycles to B's specifications. One of
these specifications is that the bicycles will be fitted with a unique gear
system. B manufactures these gear systems. Is there an implied term
that B will supply A with this gear system in sufficient quantities to
manufacture the requisite number of bicycles?
may be possible to establish that the commercial
practice in such a situation requires B to supply the
gear system. A court would require convincing
evidence of such an invariable practice and this may
not exist. A second argument rests upon necessity -
that the parties, by necessity, intended such a term to
be within their contract: see MacKinnon LJ's officio
bystander. A possible weakness in such an argumen
is that it may be that while B is the only manufacture
of such a gearing system, B may not be the only
supplier of such a system. If it can be obtained
elsewhere, there may be no necessity to imply theterm.
48. Terms implied by operation of statute:
Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods
Act 1994), that goods sold by a seller in the course of his business shall
be of satisfactory quality (not 'merchantable' quality).
note: limits to which the parties can defeat
terms implied by statute law. The limits are set,
principally, by the Unfair Contract
Terms Act 1977 and the Unfair Terms in Consumer
Contracts Regulations 1999. S
49. Slater v Finning [1996]:camshaft was fit for its purpose, although it
did not work properly in the buyer's vessel: the problem arose from an
abnormal feature of the vessel of which neither party was aware
the buyers of the camshafts were placing a high degree of reliance on
the skill and competence of the sellers. The sellers were not negligent
or in any sense careless, but that is no defence under the Sale of Goods
Act 1979. As a matter of strict law, then, it seems hard for the sellers to
escape liability.
HL: As the defendants were not aware nor were in a
position to exercise skil l and judgment they were not
liable.
50.Wilson v Best Travel:
The claimant was injured when he fell through some glass patio doors
whilst on holiday in Greece. The glass conformed to Greek safety
standards but did not conform to British safety standards. The
claimant 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
defendant should conform to British safety standards.
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 wi
British safety standards.
51. Hutton v Warren: implied terms and custom
A farm tenant claimed that it was the custom of the country that thelandlord would give a reasonable allowance for seeds and labour to
keep the land arable, and that he would leave manure should the
landlord wish to purchase it.
Parke B held in favour of the farm tenant, because as
he said, 'in commercial transactions, extrinsicevidence of custome and usage is admissible to anne
incidents to written contracts matters with respect to
which they are silent.'
-
7/30/2019 Contract Law 4-5 LLB (1)
10/14
52. 2 types of implied terms in common
Scally v Southern Health and Social Services Board 1992
doctors had not worked the requisite 40 years before
retirement to get full superannuation (or pension)
benefits. But by law[1] they could "top up" their
payments within twelve months of beginning their jobs
and get the full entitlements. Their employer did not tell
them this. So they failed to get better rates.
-argued a 'necessary' term of employment wasinformation about exercising rights under the
superannuation scheme.
implied in fact/ law:
fact:Lister v Romford Ice and Cold Storage Co Ltd [1957] search for a
implied term necessary to give business efficacy to a particular contra
LAW: incident of a definable category of contractual relationship.
Liverpool City Council v Irwin. terms in law are less likely to be linke
to unexpressed intentions of parties (employer/employee and landlor
53. Lord Hoffman Attorney General of Belize v Belize
Telecom LTd
cf Lord Simon BP Refinery v Shire of Hastings 1978
Hoffman indirectly confirms
Also the officious bystander test in Shirlaw v Southern
Foundries
not for court "to improve upon the instrument" it has to interpret: not
introducce terms to make it fairer.
statements, such as, (i) an 'implied term must "go without saying"',
and (ii) it has to 'be "necessary to give business efficacy to the contrac
etc, whilst "helpful" to "a court ... in providing an answer", should "n
... be treated as different or additional tests" to the sole "question" of:
"what [would] the instrument, read as a whole against the relevant
background .... reasonably be understood to mean?
54. Lord Simon BP Refinery v Shire of Hastings 1978 tests
for implied term
(i) "reasonable and equitable"; (ii) "necessary to give business efficac
to the contract, so that" a "term will [not] be implied if the contract is
effective without it"; (iii) "so obvious that 'it goes without saying '"; (iv
"capable of clear expression"; and (v) such that it does "not contradic
an "express" contractual provision.)
55. implied terms in law (relationships)
Crossley v Faithful and Gould Holdings (Was there an
'implied term of any contract of employment that the
employer will take reasonable care for the economic well
being of his employee.')
TERMS implied in law one should not 'focus on the
elusive concept of necessity' which is 'somewhat
protean' but should 'recognise that, to some extent at
least, the existence and scope of standardised implied
terms raise questions of reasonableness, fairness and
the balancing of competing policy considerations.
unreasonable for employers 'to have regard to the employee's financia
circumstances when he takes lawful business decisions which may
affect the employee's economic welfare.' The employer does not need
'act as his employee's financial adviser.'
'such an implied term would impose an unfair and unreasonable
burden on employers.
56. terms and breaches A contractual term is a 'primary' obligation. Every breach of a 'primar
obligation gives rise to a 'secondary' obligation to pay damages for th
loss caused. In some cases this is the only remedy, but in others there
is the further
remedy of 'terminating' (ending or rescinding) the contract or (b)
affirm the contract (accept the breach and insist on continued
performance of the contract) and claim damages
57. conditions/warranty/innominate terms and breach The classification of terms
is important because the injured party is only given this option
(terminate contract) when the term breached is a condition or there i
a sufficiently serious breach of an innominate term. The injured party
is not given the right to terminate the contract for breach of a term th
is a warranty
58. Rescinding for breach the injured party is entitled, if he so wishes, to treat the contract as
discharged (i.e. brought to an end) and to refuse to make further
performance of his own obligations or to receive further performance
the other party's obligations.
59. rescission (rescinding) for misrepresentation means that the contract is cancelled from the very beginning.
-
7/30/2019 Contract Law 4-5 LLB (1)
11/14
60. Note that a party rescinding for breach need not
show that the breach of condition has actually
caused any loss. Bowes v Shand (1877) and Re
Moore and Landauer (1921)
Bowes v Shand (1877) and Re Moore and Landauer (1921)
61. Bowes v Shand:
Bancks agreed to provide a drawing for a comic
strip, and Associated Newspapers agreed to
publish it on the front page of the comic section
of the paper. Associated Newspapers
subsequently sought an injunction to prevent
Bancks from breaching the employment
contract which had been made for a period of 10
years. On 3 occasions, the comic was printed on
page 3, and Bancks protested. After the third
occasion, he informed Associated Newspapers
that the contract was terminated
Bowes v Shand:
Bancks was justified in thinking that the breaches would continue, and was
therefore justified in rescinding the contract.
The court asked, was the "front page" term a condition or an essential term, a
breach of which would allow the party to rescind the contract and sue for
damages?
62. Re Moore and Landauer (1921)
There was an agreement for the sale of 3,000
tins of canned fruit packed in cases of 30 tins.
When delivered it was discovered that half the
cases contained only 24 tins although the total
number of tins was still 3,000. The market value
was not affected.
CA: held that notwithstanding that there was no loss to the buyer, he could
reject the whole consignment because of the breach of s13 of the Sale of Goods
Act (goods must correspond with the description).
63. conditions: if intention is clearly expressed, a
term will be a condition, however unimportant
it
is. However if the intention is not clearly
expressed, the court will again have to draw the
'proper inference'. Behn v Burness (1868);
Bettini v Gye (1876) and Poussard v
Spiers (1876).
Behn v Burness (1868); Bettini v Gye (1876) and Poussard v
Spiers (1876).
64. condition and intent: Behn v Burness :if he receives the thing sold, and has the
enjoyment of it, he cannot afterwards treat the
descriptive statement as a condition, but only as
an agreement, for a breach of which he may
bring an action to recover damages.7
Again there is the rationale that the benefit of
property precludes rejection.
Accordingly, if a specific thing has been sold, with a warranty of its quality,under such circumstances that the property passes by the sale, the vendee
having thus benefited by the partial execution of the contract, and become the
proprietor of the thing sold, cannot treat the failure of the warranty as a
condition broken (unless there is a special stipulation to that effect in the
contract; . . . ) but must have recourse to an action for damages in respect of th
breach of warranty. But in cases where the thing sold is not specific, and the
property has not passed by the sale, the vendee may refuse to receive the thing
proffered to him in performance of the contract, on the ground that it does not
correspond with the descriptive statement, or in other words, that the conditio
expressed in the contract has not been performed.
65. conditions and intent: Bettini v Gye
Bettini opera singer: Bettini was meant to be inLondon 'without fail' 6 days before rehearsals,
but did not arrive until 28 March, at which
point he was ready to perform. However, Gye
rejected Bettini's performance. (1876)
held the provision for arriving 6 days before was not a condition, and therefor
breach of it did not give rise to the right to terminate. If clear words hadstipulated that in the event Mr Bettini did not show up Gye could terminate, or
that Bettini would forfeit twice his salary, that would provide the answer. Here
Bettini had already performed his covenant to not sing in the UK in the month
running up to 30 March, and not showing for rehearsals could only affect
theatrical performances and singing in duets during the first week or fortnight
So the breach did not go to the root of the contract, and Gye was not entitled to
terminate.
-
7/30/2019 Contract Law 4-5 LLB (1)
12/14
66. intention and conditions: Poussard v
Spiers (1876)
Spiers and Pond engaged another performer, Miss Lewis to be ready to take
over if Poussard could not. Miss Lewis would receive a douceur if she was
not hired, and 15 a week if she was. Poussard continued to be ill for the
first three days. On Thursday 4 December she was well again, but Spiers and
Pond refused to have her back. Mr Poussard claimed for wrongful dismissal
on his wife's behalf.
held that failing to turn up for the first
performances entitled Spiers and Pond to
rescind the contract, for this went to the root o
the matter
67. innominate' or 'intermediate' terms: lead to uncertainty in law, but harder
to rescind on technicality.
Hong Kong Fir 1962
The charterparty said that the owners would maintain the ship in an
efficient state both as to hull and machinery. By Cl 1 the vessel was said to be
in every way fit for ordinary cargo service. From Liverpool to Osaka the ship
was off hire for some 5 weeks. At Osaka, 15 weeks were needed to get the ship
ready for sea. D purported to terminate the contract for breach of the
seaworthiness term. The owners said that the termination was wrongful
and therefore amounted to a repudiation of the contract. The shipowners
claimed damages for wrongful repudiation.
neither conditions nor warranties
Lord Diplock: What mattered was not whethe
you call a particular contract term a "warranty
or a "condition" but how serious the breach of
the term was
it was held that the charterer was wrong in
terminating. This illustrates what was sa id
earlier about the hazards of terminating. The
owner was undoubtedly in breach - and, one
would have thought, in a pretty substantial wa
- and yet it ended up winning the case because
its breach was not regarded as sufficiently
serious and it was the charterer who committethe serious breach by wrongfully terminating!
Diplock test: whether the breach deprived the
other party of substantially the whole of the
benefit of the contract.
68. innominate terms
Mihalis Angelos:
The owners of the ship, The Mihalis Angelos, chartered the ship to the
defendant to use for the carriage of some cargo. A clause in the agreement
stated the ship was expected ready to load on 1st July. owners had no
grounds for believing the ship would be ready to load on that date as it was
in Hong Kong at the time and would not be ready until at least the 14th of
July and in fact it was not ready at that date. D ended contract on 17th ofJuly. The cargo that they expected to be carrying had not arrived due to the
bombing of a railway in Vietnam. The ship owners brought an action against
the defendants for anticipatory breach. The defendants argued that the
claimant was in breach of condition of the contract by not be ready to load
on the specified date.
CA: The expected ready to load clause was a
condition despite the fact it had caused no los
to the defendant. The classification as a
condition was sa id to be because of the need f
commercial certainty in shipping contracts.
if a clause is a condition, in the sense that any
breach of it enables the buyer to reject the goowithout having to show that the dishonest or
unreasonable expectation of the seller has in
fact been prejudicial to the buyer
69. innominate terms
Cehave v Bremer HG 1976
judgment followed the decision of Hong Kong
Fir, asking whether, in Upjohn LJ's words, 't
breach went to the root of the contract'. In thi
case it was held that the breach was
insufficiently serious to give rise to the right to
terminate, given the fact that the 'damaged'
pellets were still usable in almost exactly thesame way to manufacture cattle food. This
echoes the essence of Hong Kong Fir's
decision, i .e. it does not deprive the innocent
party of substantially his whole intended
benefit.
-
7/30/2019 Contract Law 4-5 LLB (1)
13/14
70. Bunge Corporation v Tradax Export SA [1981] :T agreed to sell 15 long tons
of soya bean meal. Buyers to provide transport and to give 15 days notice
of probable readiness of vessel and approximate quantity required for
that shipment. Notice given 17 June, less than 15 days before the end of
June, therefore in breach of cl 7. Damages claimed for breach of
condition. More understandable if a rise in price and seller wanted to sell
elsewhere. As there was a fall in price during the 4 days late, why didn't
the seller waive the breach and supply?
HL: Argued that this was an innominate term as
per Diplock in Hong Kong, and breach did not
make performance impossible, but here the time
issue is essential in
court will require precise compliance with
stipulations as to time wherever the circumstanc
of the case indicate that this would fulfil the
intention of the parties, and (2) that broadly
speaking time will be considered of the essence i" mercantile" contracts
71. innominate terms cases
Hong Kong Fir
The Mihalis Angelos (1970);
Bunge v Tradax (1981); The Naxos (1990) and Barber v NWS Bank (1996).
contrastTorvald Klaveness v Arni Maritime Corp (The Gregos) (1994)
Hong Kong Fir
The Mihalis Angelos (1970);
Bunge v Tradax (1981); The Naxos (1990) and
Barber v NWS Bank (1996).
contrastTorvald Klaveness v Arni Maritime Corp
(The Gregos) (1994)
72. The Naxos (1990): similar to Bunge
v Tradax
sugar was not ready to load inaccordance with the time stipulation.
buyers repudiate the contract,the sugar was not forthcoming
Held: this being a mercantile contract, time was
the essence if that was the intentionof the partie
Time was essential to the buyers in this case,
since punctualperformance was required to enab
them to carry out their obligations totheir own
customers who had agreed to buy the cargo.
73. innominate terms actual ownership was bank?:
Barber v NWS Bank (1996).
car found to be subject to a prior finance agreement. P
asked the court to determine whether a term to the effect that the bank
was the actual owner of the vehicle at the date of the agreement was a
condition or a warranty, and if it was a condition, whether he was entitled
to rescind the agreement and demand repayment of the deposit and any
instalments paid.
That the term in question was undoubtedly a
condition as it was fundamental to the agreemen
that NWS retain property in the car until al l
moneys due were paid in full,
It therefore followed that B was entitled to rescin
the agreement and recover the deposit and
instalments.
74. innominate terms, mercantile industry, timelinesTorvald Klavenes v Arni Maritime Corp 1994
HL held that the obligation to re-deliver a time-chartered ship on due date was probably not a
condition.
Where the charter-party is for a period of time
rather than a voyage, and the remuneration is
calculated according to the time used rather than
the service performed, the risk of delay is primar
on the charterer. For the shipowner, so long as h
commits no breach and nothing puts the ship of
hire, his right to remuneration is unaffected by a
disturbance of the charterer's plans.
75. innominate terms: attempted rescission on technicality
Reardon Smith v Hansen-TangenOsaka was the name of the yard responsible for building the ship,
although the building was subcontracted to another yard, Oshima. The
Osaka yard could not handle a tankship of that size. Both parties knew
this. But the buyers, wanting to get out of the contract for another reason,
argued that the ship did not correspond with the description under s 13
of the Supply of Goods and Services Act 1982.
Lord Wilberforce stated that in construing a
contract, the Court must," place itself in thought in the same factual matr
as that in which the parties were. "
The hull number and yard had no particular
significance ("innominate terms"). The descrptio
needs to focus on the goods not excessively
technical arguments.
-
7/30/2019 Contract Law 4-5 LLB (1)
14/14
76. innominate terms: attempted rescission on technicality
L. Schuler v Wickman Machine Tool Sales (1974).
entered into a contract with Wickman in which Wickman
would have the sole right to distribute one of S's products in
the UK. The contract had a term 'it shall be a condition of this
agreement that' W visit six specified dealers one a weekly basis
to promote S's product.On a few occasions W failed to do this.
S repudiated the contract, claiming that W had breached a
condition.
The House of lords held that stating that something was a
condition was evidence that it was, but not irrebutable. In this
case, they reasoned that the parties could never have intended
breach of this nature to result in the destruction of the contrac
when they first entered into it.
77. Lombard North Central v Butterworth (1987):The defendant
leased a computer from the claimant. The claimant was to pay
584 by 20 instalments every 3 months. A term of the lease
agreement provided that punctual payment was required and
breach of this term would entitle the lessor to terminate the
agreement. The defendant got into arrears with the
instalments and the claimant took possession of the computer
and sold it on for 175. The claimant sued the defendant
claiming arrears and all future payments amounting to 6,869
in total.
punctual payment was made a
condition. Note that the hirer was also liable in damages for
the entire loss caused to the plaintiffs by the 'rescission' of the
contract
The term relating to prompt payment was a condition. The
parties by their agreement had demonstrated that prompt
payment was an essential term and the consequence of breach
was clearly set out. Nicholls LJ stated that even one late
payment would entitle the lessor to terminate irrespective of th
effect of the breach.
78. Union Eagle v Golden Achievement 1997 PC:
Union Eagle paid 10% of the HK$4.2m price for a Hong Kong
flat as a deposit. Time was said to be 'of the essence'.
Completion was meant to be 5pm 30 September 1991, and
clause 12 said failure to complete meant the deposit was forfeit
and the agreement rescinded. They were 10 minutes late.
Union Eagle sued for specific performance, arguing relying on
such a legal right was unconscionable.
Lord Hoffmann for the Privy Council advised that certainty wa
needed in the business world, particularly in a volatile marke
Accordingly the contract's terms should be strictly enforced,
and Union Eagle lost its deposit.
79.Why was the unseaworthiness of a chartered ship (in Hong
Kong Fir) considered less important than the owner's
estimate of when she would be ready to load the charterer's
cargo?
The unseaworthiness of the vessel was not considered a
sufficiently serious breach of
an innominate term in Hong Kong Fir Shipping Co Ltd v
Kawasaki Kisen Kaisha Ltd (1962) as to justify terminating th
contract because the delay caused by the breakdown and the
necessary repairs were not so great as to remove the
commercial purpose of the charterparty. The seaworthiness o
the vessel was thus not a condition of the contract The term d
not meet the test set out by Diplock LJ in that case: substantia
deprivation of of the whole benefit.
80.What more could Schuler (in L Schuler v Wickman Machine
Tool Sales) have done to achieve the effect of making the visits
genuinely a condition of the contract?
What Schuler could have done to ensure that the visits were
genuinely a 'condition' of the contract (breach of which entitle
Schuler to terminate the contract) was to clearly indicate in th
contract that a breach of this obligation entitled Schuler to
terminate the contract. See Lombard North Central plc v
Butterworth (1987) where Mustill LJ discusses the ability of a
party to establish as a condition a matter which, at common
law, would not be considered a condition in the sense of
allowing the injured party to terminate the contract because th
obligation stipulated
was of a minor nature.
81. Compare the decision in Schuler with that in Lombard. How
are they different?
The critical difference between the decision in Schuler AG v
Wickman Machine Tools Sales Ltd (1973) and Lombard Nort
Central plc v Butterworth (1987) is that in the latter case, the
contract clearly stipulated that the punctual payment was of th
essence of the agreement (clause 2(a)) and that failure to mak
punctual payments entitled the
plaintiffs to terminate the agreement (clause 5).