law of contracts dari internet

8/8/2019 Law of COntracts Dari Internet

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CONTRACT 1 - FORMATION

A contract is a legally binding agreement containing:

1. an offer;

2. an acceptance;3. a consideration;

4. an intention to create legal relations.

Offer

Definition

- An offer must be made to someone - it may be made to any number of people, even the whole world:

Carlill v Carbolic Smoke Ball Co (1893).

Principle: A contract is a legally binding agreement containing:

1. an offer;

2. an acceptance;

3. a consideration;

4. an intention to create legal relations.

Facts: The makers of the Carbolic smoke Ball advertised a 100 reward for any person who having used thecarbolic smoke ball nevertheless suffered form influenza. The had deposited a 1,000 with their bankers onthe strength of the offer. Mrs Carlill used the product and caught influenza and claimed the 100.

Held: She was successful. The advertisement was an offer even though it was to the whole world. The offer was unilateral which meant that the acceptance of the offer was by the performance and Mrs Carlill did nothave to inform the Co in advance. The consideration was the use of the product and the catching of influenza. The intention was shown in the deposit.

- The person who makes the offer (the offeror) must be ready to undertake certain identifiable obligations.

- The person who receives the offer (the offeree) must be able to accept of reject it.

Invitation to treat

Offers must be distinguished from invitations to treat which are merely preliminary negotiation. An offer

begins a process which if accepted could be legally binding. Invitations to treat are never binding even if the are "accepted".

Offers and invitations to treat cannot adequately be distinguished by definitions alone and therefore casesare used to illustrate the difference between them.

Tenders

- An advertisement for a tender is an invitation to treat.


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- A tender for specific goods or services is an offer and when the person requesting the tender accepts, it is a biding acceptance.

- If the tender for a request is not specific but requests a price for the supply of goods over a period of timeto be delivered as and when ordered then the tender is known as a standing offer and the initial acceptanceof the tender is not a legally binding one. The legally biding acceptance is not made until the first order.

The supplier is then obliged to honour the obligations under the contract and supply the goods under theterms of the tender. Each order is an acceptance of the standing offer and is a mini contract. However astanding offer may be withdrawn at any time either before the first order or after any subsequent order and

before the next order is received. The standing offer stands until it is withdrawn.

Display of Goods

- A display of goods in a shop window is an invitation to treat not an offer.

- The customer makes an offer to the shopkeeper who may accept of reject:

Fisher v Bell (1961).

Facts: An ejector knife was displayed in shop window. The shop keeper was charged with the crime of offering for sale.

Held: he was acquitted since the display was an invitation to treat and the charge had to be specific.

- A display of goods in a self service shelf is an invitation to treat not an offer.

- The customer makes the offer to the cashier who may accept of reject:

The Pharmaceutical Society of Great Britain v Boots (1952).

Facts: Certain drugs could only be sold under the supervision of a pharmacist who in the self service storewas at the cash desk. The question was whether the sale took place at the shelf with the display being anoffer and the customer accepting by taking the product off the shelf or at the cash desk with the customer making the offer which the pharmacist could accept or reject.

Held: the sale was at the cash desk and therefore there was no contravention of the drugs law.

Advertisements

- These are usually invitations to treat.

- The offer is made by answering the advertisement and is accepted or rejected by the advertiser:

Partridge v Crittenden (1968).

Facts: It is an offence to offer for sale wild birds. T saw an advertisement put in by P for a wild bird in

"Cage and Aviary Birds". T sent for the bird and was sent one. P was charged with the offence of offeringfor sale a wild bird.

Held: He was acquitted as the advertisement was only an invitation to treat and the charge has to be precise.

- An advertisement may be an offer if it is very clear as in Carlill v Carbolic Smoke Ball Co (1893)

Auctions

- An auctioneer's request for bids is an invitation to treat - Payne v Cave.


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- The offer is made in the form of a bid which the auctioneer may accept or reject - British Car Auctions vWright.

- An advertisement for an auction is an invitation to treat - Harris v Nickerson. However it has been heldthat if the auction is advertised as being without reserve i.e. top the highest bidder whatever the bid then

this will make the auctioneer's request for bids similar to an offer in that the auctioneer will be bound toaccept the highest bid if the auction is held. Although it appears that there is no compulsion to hold theauction and no legal obligations will be broken if it is not held - Warlow v Harrison (1859).

Negotiations for the Sale of Land

- Offers for the sale of land must be very clear before they will be treated as such as must the acceptance.Land is treated in quite a different manner than goods and the buying and selling of land is treated as aspecial area of law known as "Conveyancing". Contracts for the sale of land must be in writing under theLaw of Property Miscellaneous Provisions Act 1989 see "Formalities". Case law requires clear evidence of intentions:

Harvey v Facey (1893).

Facts: "Will you sell us bumper Hall Pen? Telegraph lowest cash price". "Lowest cash price ...900." "Weagree to buy..."

Held: This was not a contract merely an inquiry as to price.

Clifton v Palumbo (1944).

Facts: "I am prepared to offer you my Lytham estate for 600,000 ... and a reasonable and sufficient timeshall be granted for the examination of all the data and details for the preparatio of the Schedule of Completion".

Held: this was not sufficiently clear to be an offer.

- The binding effect of an offer in relation to land may be suspended by the use of the words "subject tocontract". This means that the agreement will have no legal effect until there is a formal contract in writing- Chillingworth v Esche (1924). The words "provisional Agreement" do not appear to have the same effect -Branco v Cabarro (1947). Although the phrase subject to contract is applied mainly to contracts for land itwould have the same effect in relation to other types of contract as well.

Termination of an Offer

Revocation

- An offer may be revoked at any time before acceptance even if a time limit is specified - Routledge vGrant

- The revocation must be communicated:

Byrne v Van Tienhoven (1880).

Principle: The revocation must be communicated - The communication of a revocation is effective from thetime it is received (not from the time it is sent compare acceptance by post).

Facts: On Oct 1st D posted letter to P in New York offering to sell tinplate for 1,000. On Oct 8th they posted a letter revoking the offer. On Oct 11th P received offer letter and telegraphed acceptance which wasreceived the same day (11th). The letter of revocation was not received until Oct 20th.


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Held: The letter of revocation was ineffective.

If the offeree knows of the revocation before he or she accepts then it is effective provided it wascommunicated by a reliable source:

Dickinson v Dodds (1876).Facts: Dodds offered to sell his house to Dickinson for 800 with offer open until June 12th. On ThursdayJune 11th Dodds sold the house to Allan. That same evening Berry told Dickinson the house was sold. On12th Dickinson accepted.

Held: the offer had been revoked by the sle to Allan and Dickinson had heard about the revocation beforehe communicated acceptance.

The communication of a revocation is effective from the time it is received (not from the time it is sentcompare acceptance by post) by the offeree.

- Where an offer is to be accepted by performance of the contract i.e. a unilateral contract, it cannot berevoked if the offeree has already begun to perform but the offeror need not perform his or her part of thecontract until the performance is complete.

Counter Offer/Refusal

- An offer must be accepted as it stands. Any alteration by the offeree when he or she purports to accept will be treated as a counter offer. A counter offer acts as a refusal of the original offer and creates a new offer which the original offeror may accept or reject:

Hyde v Wrench (1840).

Facts: W offered to sell his farm for 1,000. H counter offered 950. W refused the counter offer. H thensaid he would buy the farm for 1,000. W refused.

Held: W was entitled to refuse as the offer of 950 was a rejection of the original offer and the statementthat H would buy the farm for 1,000 was a fresh offer. Which W could then reject.

Jones v Daniel (1894).

Facts: D offered to buy J's property for 1,450. J wrote accepting but adding terms to the contract not previously discussed.

Held: The addition of the terms amounted to a counter offer.

Stevenson v Maclean (1880).

Principle: Asking for further information prior to acceptance is not treated as a counter offer.

Facts: D offered to sell iron to P for cash. P asked if they could have 4 months credit.

Held: The request for credit was not a counter offer.

Lapse of Time

- If an offer is open for a fixed time then it cannot be accepted after that time.

- If not time is stated then the offer lapses after a reasonable time. What is a reasonable time depends on the


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circumstances e.g. the subject matter:

Ramsgate Vicotria Hotel v Montefiore (1866).

Facts: An offer for shares was made and was accepted 6 months later.

Held: The offer had lapsed during the period of 6 months.Failure of a Condition Subject to Which the Offer was Made

- When goods are purchased it is an implied condition that they will remain in the same condition or state.If the goods do not remain in the same state then the condition is broken and the buyer may refuse thegoods (see also terms of a contract and misrepresentation):

Financings v Stimpson (1962)

Facts: C offered to buy a car on hire purchase from P but before the offer was accepted the car was stolenand found later badly damaged. P not knowing this purported to accept.

Held: P could not be held to the acceptance of the offer as the goods were not in substantially the samecondition as when the offer was made.

- An offer may be made on condition the goods reach a certain standard, if the goods do not reach thatstandard then the offer will be automatically withdrawn.

Death

Death of the offeror before acceptance:

- If the performance of the contract is independent of the offeror then the acceptance is effective unlessrevoked before hand:

Bradbury v Morgan (1862).

Facts: A said he would guarantee certain debts of B. A died and later the creditors required the guarantee to be honoured as B had failed to pay the debts.

Held: A's estate was liable as the offer to honour the debts had not been withdrawn and was independent of A.

- If the performance is personal to the offeror then the offer is automatically terminated.

Death of the offeree before acceptance:

- Presumably the offer would cease to be effective since there would be no one to accept.

- For death of the offeror or offeree after acceptance see "Frustration".

Acceptance

Certainty

A vague term of a contract may spoil it because it is not certain what the acceptor is actually accepting:

Scammell v Ouston (1941).


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Facts: O agreed to buy a van from S on hire purchase. However the terms of the agreement were notsettled.

Held: the agreement was not binding until the terms were agreed also as hire purchase terms are very wide.

An acceptor must know about the offer to be able t accept. A person who accepts an offer by chance such as

returning a lost dog without realising that there was a reward will not be able to enforce it.Offers may be accepted in writing, orally or by conduct:

Brogden v Metropolitan Rly Co (1877).

Facts: B had sold coal to M for many years. Wicshing to regularise the arrangement M sent B a contractupon which he wrote approved and filed it. Two years later a dispute arose and M wanted it settled byarbitration in accordance with the agreement.

Held: The agreement had been accepted by B by conduct.

Unilateral Contracts

These are where an offeror dos not require to be notified that the acceptor is accepting the offer. Theacceptor accepts by performing the contract such as with a reward - Carlill v Carbolic Smoke Ball Co(1893);

R v Clarke (1927).

Principle: An acceptor must have the offer in mind when accepting.

Facts: A financial reward was given for information leading to the arrest and conviction of a murderer. Cgave the information but did not have the reward in mind but merely wanted to clear his own name.

Held: He could not claim the financial reward.

Williams v Carwardine

Principle: The reasons for accepting the offer are irrelevant as long as the acceptor has it in mind.

Facts: P gave information leading to the arrest and conviction of a murderer out of remorse for the victim but knew about the reward when she gave the information.

Held: She could claim the reward because she had it in mind.

Communication of Acceptance

Silence

To specify that silence is acceptance will not in fact be construed as acceptance unless the offeree wishes itto be. The reason for this is that the offeror is in the commanding position and may specify how acceptanceis to be communicated in response to his or her offer. If he or she could effectively specify that the offeree'ssilence would be acceptance then the offeree may found him or her bound by an offer because he or she didnot have time or opportunity to reject it. Note the Unsolicited Goods and Services Act 1971 as amended in1975) states that a person may treat goods he or she receives without having requested them as a gift if thesender fails to reclaim them within 6 months. See also Felthouse v Bindley (1862).

Facts: P offered to buy the horse of his nephew, John, for 30.15s saying if he heard no more he wouldassume th horse was his. John said no more to P. Later he employed B to sell his farm stock and B


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inadvertently sold the horse as well although John had told him not to.

Held: There was no acceptance by John.

Waiver

The offeror may waive the need to inform him or her of acceptance. The most common examples areunilateral contracts.

Where the offeror Stipulates the Method of Acceptance

The offeror may, when it is made, state that a particular method of communication must be used to acceptthe offer, in which case that method must be used. The general rule is that acceptance is not complete untilit is received by the offeror. The exception to this is waiver and acceptance by post. Note that whereacceptance in writing is specified this does not necessarily mean acceptance by post. The courts will look atthe intentions of the parties in the event of a dispute.

Where no method of Acceptance is Stipulated

If no method of communication of acceptance is mentioned then any reasonable method may be used. Thiswill usually depend on the method of communication the offer e.g. oral offers will be accepted orally. If theoffer indicates some urgency it may be that telephone acceptance may e considered the most reasonable andletter unreasonable.

Acceptance by Post

The general rule that acceptance is not effective until it is communicated to the offeror does not apply toacceptance by post. When acceptance by post is stipulated or reasonable it is effectively communicatedwhen a correctly addressed letter is put into the post box or handed to a person who is authorised to collectmail, even if the letter is never received by the offeror.

- Acceptance by post must be stipulated or reasonable, acceptance in writing does not necessarily mean by post - Henthorn v Fraser (1892); Holwell Securities v Hughes (1974).

Facts: an offer stated that the acceptance must be made in writing. A letter was posted but did not arrive.

Held: There was no acceptance.

- The letter must be correctly addressed.

- The letter must be put into the post box or the hands of someone authorised to collect not deliver mail - ReLondon and Northern Bank ex Parte Jones (1900).

- The rule applies even if the letter is lost - Household Fire Insurance v Grant (1879).

Reasons for the rule are said to be:

- reliability of the post when the rule was first made:

Adams v Lindsell (1818).

Facts: D offered to buy shares. The Co accepted but the letter of acceptance never reached D.

Held: D was liable to pay for the shares as the offer was accepted as soon as the letter was put in the post.

- the ease of proving posting but the difficulty of proving delivery (recorded delivery now);


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- the point of acceptance had to be somewhere and the point of posting seemed as good as anywhere.

Telegrams are similar to letters and an acceptance is effective form the time the message is handed to the post office official authorised to deal with telegrams - Cowan v O'Connor (1888).

Telex and Facsimile (Fax) are seen as being printed telephone messages. Therefore the general rule applesand an acceptance is made when received and read by the offeror - Entores v Miles Far East Corporation(1955).

Consideration

Definition

A valuable consideration may consist either in some right interest profit or benefit accruing to one party or some observance detriment loss of responsibility given suffered or undertaken by the other - Curries vMisa.

Consideration is in two lots with each party suffering both a benefit and a detriment each giving andreceiving and thereby creating the agreement.

Most consideration begins as a promise for a promise. At that stage the consideration is said to beexecutory. As each party performs his or her part of the consideration it is said to be executed. Sometimesthere may be a considerable time between the promise and the performance as in the sale of land in other cases the promise and performance may for both parties be simultaneous as in the sale and purchase of goods in a supermarket.

Unilateral contracts are unusual in that instead of both the offer and the acceptance being promises andexecutory, the promise of the offer is executory consideration but the performance of the acceptance isexecuted.

Consideration Must Move From the Promisee

This means that only a party to the contract who has given consideration can enforce the contract.

Rules of Consideration

Provided consideration is real and genuine then it need not be adequate. i.e. as long as there is someconsideration then the courts will not inquire as to whether the bargain is "fair". However althoughconsideration may be small it must not be a sham ( 1 for a Rolls Royce is a valid bargain if the partiesagree):

White v Bluett (1853).

A son's promise not to bore his father was not consideration.

Bainbridge v Firmstone (1838).

Facts: A agreed to reassemble some boilers in return for the right to weigh them.

Held: The reassembly was good consideration.

Chappel v Nestle (1960).

Facts: Chocolate manufacturers sold records for 1s 6d and 3 chocolate wrappers.


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Held: The wrappers were part of the consideration.

There are two examples in particular where what appears to be consideration is considered not to amount toconsideration and is said to be insufficient.

Acts which a party is already under a duty to carry out

If a person is bound to perform a legal duty then on the grounds of public policy he or she cannot use thatduty as consideration. However if a person exceeds his or her public duty then the activity that is in excessmay be used as consideration:

Glasbrook Bros v Glamorgan County Council (1925).

Facts: During a miner's strike the police considered a mobile patrol of the mine was satisfactory. Theowner's agreed to pay the Police an additional sum for a static guard. When asked to pay they refusedsaying the police were obliged to protect the mine in any event.

Held: The owner's had to pay. The Police were going beyond their duty.

If a person is under a contractual duty to carry out certain consideration for another person thatconsideration cannot be used again as consideration for another contract with that other person:

Stilk v Myrick (1809).

Facts: A sailor claimed additional wages which he had been promised for working a ship when two crewhad deserted.

Held: He was unsuccessful. He was only fulfilling his existing contract the loss of two crew did not amountto additional work outside the original contract.

Hartley v Ponsonby (1857).

Facts: A sailor claimed additional wages which he had been promised for working a ship when half thecrew had deserted or died.

Held: He could claim because he was working beyond his original contract.

Part Payment of a Debt

Consideration for a debt is unusual in that unlike the consideration in relation to other contracts it has aspecific value since it is currency (i.e. 5 = 5 but one pen may or may not = another pen unless the partiesagree even though they may appear identical). This gives rise to the principle in Pinnel's Case (1602) that

party payment of a debt on the due date will not discharge the whole debt. The principle was approved inFoakes v Beer (1884) where it was held that even if a creditor accepted party payment he or she could stillsue for the outstanding amount. However if a debtor with the creditor's agreement part pays the debt butalso gives something else to make up the short fall or pays the debt entirely by a different mode then thedebt will be satisfied.

An exception to the principle that part payment of a debt was developed in the case of Central LondonProperty Trust v High Trees House Ltd (1947). In this case a landlord made a representation to a tenant

promising that he would not charge the tenant the whole rent even though it was due. The tenant acted uponthis representation. Later the landlord tried to claim the unpaid rent and claimed the principle in Pinnel's


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Case. The court held that usually the principle would be effective but in the particular circumstances it wasfelt that it would not be fair. Therefore the court applied equity and stopped the landlord from going back on his promise. This was called the doctrine of equitable promissory estoppel.

The doctrine has been used not only to stop a party to a contract for a loan going back on a promise not todemand the full amount of debt but it has also been used to prevent a party to a contract suing another party

to the contract when that other party has failed to comply with the contract having been promised that he or she would not be sued:

Brikom Investments v Carr (1979).

Facts: A lease contained a clause that tenants had to contribute to the repair of the roof. To encouragetenants to sign a new lease at a time when the roof needed repairing the landlord's promised they would notenforce this term when the roof was next repaired.

Held: the landlord's could be kept to this promise.

However to claim the protection of the doctrine a party to the contract has to show:

1. that he or she was promised by the other party to the contract that he or she would not be sued if certain parts of the contract were not complied with even though he or she was obliged to perform the contract andhad not given any consideration in return for the promise;

2. the party who made the promise will only be prevented from going back on the promise if:

- it would be inequitable (unfair) to allow him or her to do so;

- the party to whom the promise was made relied upon the promise.

3. the party to whom the promise was made can only use the promise as a defence when he or she is beingsued;

4. the party who made the promise will only be prevented form suing for as long as is equitable (fair). Thismay be forever or in some cases it may just be for a particular part of the contractual period see the HighTrees Case and Brikom Investments v Carr.

Past Consideration

An agreement must be one transaction. Consideration is performed after agreement is reached and as aresult of that agreement. If some act is performed before an agreement that cannot form the subject matter of a contract since it is in the past in relation to the agreement. Such actions are seen as being gratuitous:

Re McArdle (1951).

Facts: M had made a number of improvements to his mother's home and the other children said after thework was completed that they would pay a contribution. This was never received. M tried to enforce their

promise.

Held: He was unsuccessful the work had already been carried out when the promise was made and thework was therefore past consideration.

An exception to this principle is where an agreement is reached although only the consideration by one party is referred to with no mention of the other giving consideration. If after the one party has executed hisconsideration the other promises consideration then such promise may be enforced:

Lampleigh v Braithwait (1615).


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Facts: B asked L to obtain a pardon for him. L did so and B promised to pay L 100.

Held: The promise could be enforced because B had asked L to do the work.

Now since the case of Re Casey's Patents (1892) it would appear that there must be some assumption that

both parties will give consideration although the consideration to be given by one party has not beenmentioned, note professional fees.

Re Casey's Patents (1892)

Facts: S was employed as a patent manager. C offered to pay S by giving him a third share in the patent.

Held: This was good consideration. S was to be paid and if he agreed this was enforceable.

Intention to Create Legal Intentions

Agreements are either domestic and social or commercial and business.

Domestic and Social Agreements

These are not usually contractual:

Balfour v Balfour (1919).

Facts: A husband promised to pay a wife an allowance of 30 per month while he was away but failed to doso.

Held: Wife's claim unsuccessful.

Jones v Padavattan (1969).

Facts: Daughter was allowed to stay in a house owned by her mother. After a dispute Mother evicted her.

Held: Mother could do so there was no legally binding arrangement.

However there are exceptions when the circumstances indicate that there was an intention to be bound:

Simpkins v Payes (1955).

Facts: P, a lodger, D the landlady and G, the landlady's grand daughter lived in a house together andundertook a competition each week. One week they were successful but D and G refused to share thewinnings with P saying the arrangement was not legally binding.

Held: It was a contract.

Parker v Clark (1960).

Facts: C invited P to share the house and P sold their house to do so. However C acted unreasonably and Pclaimed that C was in breach of contract.

Held: the agreement to share the house was legally binding so that compensation was payable to P when Pwas forced to leave.

Merritt v Merritt (1970).


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Facts: Husband left the matrimonial home for another woman and promised to pay 40 per month fromwhich wife would pay the mortgage and have the house transferred into her name when it was paid off.When the mortgage was repaid the husband refused to transfer the house saying the agreement was not

binding.

Held: It was contractual.

Commercial and Business Agreements

There is a rebuttable presumption that these are legally binding - Carlill v Carbolic Smoke Ball Co (1893).An agreement which contains a clause that the contract is binding in honour only will rebut the

presumption - Jones v Vernon's Pools (1938); Rose & Frank v Crompton (1923).

Privity of Contract

Only a party to the contract can enforce the contract. Note the principle that only a party who has givenconsideration can sue upon the contract.

Formalities

Apart from a few important exceptions Contracts can be in any form i.e. oral or written.

The exceptions are:

1. Contracts which must be in writing such as bills of exchange (cheques), Marine Insurance, Articles of Association, and contracts under the Consumer Credit Act 1974 (loan agreements) and contracts for thesale or other disposition of land. This last one is particularly important and is dealt with in more detail later.

2. Contracts by deed such as conveyances and enforceable gifts. Usually when only one party has agreed togive consideration, i.e. a gift, the other party cannot enforce the agreement, but if the agreement is by deedthe person who is due to receive the gift can enforce it. A contract by deed merely states in the documentthat it is by deed.

Contracts for the Sale or Other Disposition of Land

An important practical feature which distinguishes Land from other things is the way a land transaction can be put into effect. Dispositions of land include the purchase of the freehold of leasehold estate mortgagesas well as the granting of easements etc. Usually dispositions of land are made by a deed known as aconveyance. However since land is probably the most valuable commodity and therefore particular care istaken to ensure that the purchaser and the vendor are confident that the conveyance that they execute iscorrect they enter a contract beforehand.

Once the contract has been entered into the parties are legally bound to complete the transaction. Failure todo so will leave the one in breach liable for an action for damages or an equitable remedy such as specific

performance or rescission as appropriate. To ensure that negotiations are not construed as being a legally binding contract the words "subject to contract" are used throughout correspondence in the course of

negotiations. This means that the document headed in this way will not be a part of the contract unless boththe parties agree when the contract is entered.

The contract to enter a conveyance at a future date will set out the terms negotiated for the transaction andalso include any additional requirements which must be fulfilled before the conveyance is entered such as

providing proof of the seller's title to the property. The contract will also contain cluases that enable the parties to rescind the contract i.e. end it should the additional requirements not be carried out.

In the same way that conveyances must comply with certain formalities by being by deed so also mustcontracts for the sale or other disposition of land comply with certain formalities.


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Contracts for leases before 27th September 1989

All contracts made before the 27th September 1989 must comply with the Law of Property Act 1925 s 40which states that "no action may be brought upon a contract for the sale or other disposition of land or anyinterest in land unless the agreement upon which such action is brought or some memorandum or note

thereof is in writing and signed by the party to be charged or by some other person thereunto by himlawfully authorised". Therefore a contract not in writing would be binding but unenforceable in the courtsin the absence of some note or memorandum or act of part performance.

Although the note or memorandum does not have be in a any special form it must contain all material termssuch as:

a) the names of the parties

b) a description of the property;

c) an agreed date for completion;

and in relation to a lease:

d) the term of the lease and its commencement date;

e) the rent and any premium or fine;

f) together with any other particular covenant agreed upon by the parties.

Both parties do not have to sign only the party claiming the existence of the agreement.

Several documents may be put together (joined) to form a sufficient note or memorandum. For this to bedone the following must be proved:

- there must be in existence a document signed by the person claiming the agreement;

- there must be sufficient reference, express or implied, in that document to a second document;

- the documents when read together must be able to form sufficient note or memorandum. An envelope anda letter were together accepted in Pearce v Gardner (1897); a signed receipt was joined with an unsignedagreement in Long v Millar (1879) but a cheque and a receipt were not an acceptable joinder of documentsin Timmins v Moreland Street Property Trust Ltd (1958) as there was insufficient reference one to another.

Under the doctrine of part performance it is possible for a party to a contract that is either completely oralor has limited written evidence to enforce the contract although in normal circumstances there would beinsufficient note or memorandum.

For the prospective landlord or tenant claiming the contract to prove a sufficient act of part performance he

or she must show:

- that he or she acted to his or her detriment; and

- that the other party knew of this act; and

- that the act of part performance is referable to the lease claimed; and

- that there is sufficient oral or other evidence if there is insufficient evidence in writing; and


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- that the contract is one in which the court would order specific performance.

It should be noted that this is an equitable doctrine affording specific performance and therefore isdiscretionary and the equitable maxims apply.

For examples of the operation of the doctrine of part performance see Maddison v Alderson (1883),

Wakeham v Mackenzie (1968) and Steadman v Steadman (1974).Contracts for leases after 27th September 1989

All contracts made after 27th September 1989 must comply with the Law of Property (MiscellaneousProvisions) Act 1989 s 2 which states that: "A contract for the sale or other disposition of an interest in landcan only be made in writing incorporating all the terms which the parties have expressly agreed in onedocument or where contracts are exchanged in each" and the document or documents "must be signed by or on behalf of each party to the contract".

Under this rule:

- Under the Act the whole agreement must be in writing and signed by both the parties, not just a note or memorandum. The contract must contain all the terms and it would appear that if one were omitted thewhole contract would be void. However clauses in other documents may be incorporated into the contract

provided there is sufficient reference in the contract to those clauses and documents, s 2 (2).

- Both parties must sign the contract or if there are two copies, one held by each party, with a view to anexchange of copies then each party must sign his or her respective copies.

- The requirement that the whole agreement must be in writing means that the doctrine of part performanceno longer applies to this situation.

- Failure to comply with the Act will mean the contract is void not merely unenforceable.

It should be noted that where a lease exceeding 3 years is granted by a document other than a deed then the purported lease must correspond to the provisions of s 2 of the Law of Property (Miscellaneous Provisions)Act 1989 if it is to qualify as a contract for a lease in order that the tenant may claim an equitable lease.

However contracts for lease of less than 3 years made after the 27th September 1989 do not have to complywith the formalities laid down in the 1989 Act. This overcomes an anomaly under the provision of s.40whereby a lease for less than 3 years that commenced immediately (in possession - see below) did not haveto comply with s.40 but a contract for a lease for less than 3 years did.

CONTRACT 2 - CONTENTS

Express Terms

Terms and Mere Representations

Terms of a contract may be expressed in writing or orally or may be implied form the transaction. In anyevent it is possible for all the terms of a contract to be set down in a list stating such matters as who the

parties are, the consideration (subject matter), and any special matters such as dates and times of delivery,forms of payment etc..

When a contract is made not all the matters stated are terms of the contract; some statements remain part of the negotiations or are just "sales talk" and do not become a "term" of the contract itself. They are known as"mere representations" and are made by one party to induce the other party to enter the contract.

The distinction was very important because there has always been a remedy for a term of the contract that


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turns out to be untrue or is broken but before 1964 there was only a remedy for a mere representation if itwas a fraudulent statement, which was very difficult to prove. Now there are remedies for both terms andmere representations although the distinction is still of some importance because the cause of action andremedies are different for each. If a term is broken then the injured party will sue for breach of a term of thecontract. If a representation is found to be untrue then the injured party will sue for misrepresentation.

To distinguish between terms and representations the courts will look at what the parties intended - did areasonable person consider the statement to be a term or a representation. The courts have set out threeguidelines for the test:

1. Strength of the statement - if the person making the statement advises the other party to check it then itwill not be a term:

Schawel v Read (1913).

Facts: Pl was inspecting a horse and was told by the defendant to "look no further the horse is sound". Thehorse was later found not to be sound.

Held: The defendant's statement was a term of the contract and so was liable.

2. Strength of the representee's view - if the person to whom the statement is made makes it known that theinformation in the statement is very important to him or her then if the person who makes the statementconfirms that the statement is true then the statement will be treated as a term of the contract:

Bannerman v White (1861).

Facts: The pl asked the def whether certain hops had been treated with sulphur because if they had hewould not even bother to ask the price. The defendant wrongly said they had not been treated with sulphur.

Held: The defendant's statement was a term of the contract and so was liable.

3. Relative degrees of knowledge - if the maker of the statement has some special skill or knowledge whichthe other party does not have then the statement will be treated as a term of the contract. However if the

parties have equal knowledge then the statement will be treated as a mere representation:

Oscar Chess v Williams (1957).

Facts: Defendant traded in to the pl, a car dealer, a Morris car which he honestly believed to be a 1948model. It was later found to be a 1939 model.

Held: The defendant's statement could not be held to be a term of the contract as it was being made by a person who was unversed in these matters to one who was well versed. It was therefore treated as a genuinemistake by the defendant and he was not liable.

Dick Bentley Productions v Harold Smith (Motors) Ltd (1965).

Facts: The defendant who was a dealer sold a Bentley car to another dealer stating that it had done 20,000miles whereas in fact it had done 100,000 miles.

Held: Normally where the parties are equal this would be a representation but in this case the defendantwas liable because only he was in a position to know its true mileage, he had special knowledge.

Implied Terms

Terms Implied by Custom


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Terms that are well established in an industry or business will be implied into a contract although they maynot be expressly mentioned.

Terms Implied by the Courts

Terms that are implied by the Courts are of two kinds:

1. Some terms are implied into every contract of a particular kind whether the parties intended those termsto be there or not. Once a case has recognised that a term should be implied into a particular type of contract because it is necessarily incident to it then it will be implied into a ll contracts of the at typewhether the parties in tended it or not unless the parties expressly exclude it:

Liverpool CC v Irwin (1977).

Held: If the landlord retains control of the means of access - such as stairs and lifts to multi story blocks of flats - then a landlord has an obligation to maintain these parts so far as is reasonable.

2. Some terms are implied into a contract because the parties intended them to be there but did notspecifically state them. The Moorcock (1889).

Principle: The parties' intention may be seen from the facts of the individual case:

The test for deciding whether the parties intended a term to be implied was expressed by Mackinnon LJ inShirlaw v Southern Foundaries (1926) Ltd (1939) as "...that which in any contract is left to be implied andneed not be expressed is something that is so obvious that it goes without saying; so that if, while the

parties were making their bargain, an officious by stander were to suggest some express provision for it intheir agreement, they would testily suppress him with a common "Oh, of course!"". This has becomeknown as 'the officious by stander test'.

Terms Implied by Statute

Terms are implied by the Sale of Goods Act 1979 as amended see "Sale of Goods".

Relative Importance of Terms

The terms of a contract are of varying importance. It is important to know the relative importance of terms because if a term is broken the effect of the breach and the remedy available for the breach will differ depending on the importance of the term within the contract.

Conditions Warranties and Innominate Terms

Terms of a contract are referred to in a variety of ways such as "terms", "clauses", "sections", "conditions","warranties" and so on. In the past these words have been used with little thought for the terminologyreflecting the relative importance of the term within the contract. It has been left to the parties themselvesto indicate to one another which is important and which is less important. Although this is still true thecourts have now established a terminology which indicates the relative importance by using the words

"condition", "warranty" and "innominate" terms.

Deciding Whether a Term is a Condition or a Warranty or an Innominate Term

Initially the courts will presume that a term in a contract that is described as a condition has been given thatdescription because it is important and likewise a term that is described as a warranty will be presumed to

be less important.

However such a presumption may be rebutted either:


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- by an indication in the contract, or

- by evidence of the intentions of the parties given to the court in the event of a dispute,

that a term described as a "condition" is actually less important and should be treated as a warranty or thatterm described as a "warranty" is important and should therefore be treated as a condition.

Where terminology other than condition or warranty have been used then again either:

- the clause will be interpreted in accordance with any indication in the contract, or

- by evidence of the intentions of the parties given to the court in the event of a dispute,

that a particular term should be treated as a condition or as a warranty.

If a term is too wide to be classified as a condition or a warranty just by looking at the contract or from theevidence of the intentions of the parties then the term will be identified as an innominate term and in theevent of a dispute the court will go beyond the term of the contract and look at the seriousness of any

breach. If the breach is serious then the court will treat the term in relation to that breach as a condition, if the breach is less serious then the term will be treated as a warranty in relation to that breach.

Effect of a Condition, Warranty or Innominate Term

A term that is either a condition or an innominate term where there has been a serious breach will be treatedas an important term of the contract and the injured party may repudiate the contract i.e. end it and claimrescission which means the party would be put into the same position as he or she would have been in hadthe contract never existed. Alternatively the injured party affirm the contract and claim damages.

A term that is either a warranty or an innominate term where there has been a less serious breach will betreated as an less important term of the contract and the injured party may only claim damages and mustcontinue with the contract i.e. affirm the contract. This means the party would be put into the same positionas if the contract had been properly performed. Unlike with conditions the injured party does not have achoice.

Examples of Conditions, Warranties and Innominate Terms

Where a term is a single obligation it will either be a condition or a warranty. A term will only be aninnominate term if is a bundle of obligations or if there are a range of possible results from its breach.However the parties to a contract can avoid any discussion or dispute as to whether a term is a condition,warranty or innominate term by specifically stating in the contract what the importance of the term is andwhat the effect of its breach will be.

Conditions:

Bettini v Gye (1876)

Facts: A singer failed to turn up for the first night.

Held: This amounted to a breach of condition.

The Mihalis Angelos (1971).

Principle: Time in the contract was made to be of the essence i.e. a condition and therefore its breachentitled the pl to end (repudiate) the contract.

Warranties:


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Poussard Spiers v Pond (1876).

Facts: A singer agreed to arrive 6 days before the concert. In fact he arrived only 3 days before.

Held: To fail to turn up for rehearsals was not a condition of the contract only a warranty.

Innominate Terms:

Hong Kong Fir Shipping Co Ltd v Kawasaki Kaisen Kaisha Ltd (1962)

Facts: A ship hired from the defendants by the pl for a period of 2 years had engine trouble and was laid upfor 20 weeks. The pl claimed that this was a breach of a condition and entitled them to end the contract.

Held: It was only a breach of warranty and so they were only entitled to damages.

Cehave v Bremer Handelsgesellschaft m.b.h. (The Hansa Nord) (1976).

Facts: Part of a shipment of pulp pellets bought by the pl was found to be damaged by the defendant byover heating on delivery. The pl sued the defendant claiming they were in breach of a condition entitlingthen to end the whole contract as the pellets were to arrive in "good condition".

Held: Since most of the pellets were in good condition and even the damaged ones could be used it wassaid to be a breach of warranty only and the pl could only claim damages.

Exclusion Clauses

Exclusion clauses are where a party puts a term in a contract which seeks to limit or exclude a liabilitywhich would otherwise be his or hers. Both the courts and parliament have sought to control the use of these clauses and have laid down certain rules and conditions for their use.

Judicial Controls

It is for the party relying on the exemption clause to show that he or she is within its protection.

The exemption clause must be a part of the contract not a mere receipt:

Chapleton v Barry UDC (1940).

Facts: C bought a ticket for a deck chair. He sat on the deck chair, fell through the canvas, which wasunsafe due to B's negligence, and was injured. When he claimed for the injury B claimed an exclusionclause on the back of the receipt/ticket.

Held: The exclusion clause was in effective as it was not part of the contract.

It will be almost impossible for a party who has signed a document which contains an exemption clause to

deny its contractual character unless there has been fraud or misrepresentation by the party inserting theclause:

L'Estrange v Graucob (1934).

Facts: Pl bought a cigarette machine which was defective. She claimed for the defect but the defendantclaimed an exclusion clause in the written contract.

Held: The exclusion clause was effective as it was part of the contract which had been signed by the pl.


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Curtis v Chemical Cleaning and Dyeing Co (1951).

Facts: C took a dress to be cleaned and was asked to sign an exclusion clause (risk note) which she was toldexcluded the cleaner's liability for sequins zips and other accessories. She signed. The dress material wasdamaged. C claimed and the cleaner's claimed the exclusion clause which in fact included the dressmaterial.

Held: C had not been told the true effect of the clause and so it was ineffective as far as the part that had been misrepresented to her.

If the party against whom the exemption clause is pleaded has not signed a document containing it, thenreasonable notice of the clause must be given and such notice must be given before the contract has beenentered into - Parker v SE Rly (1877).

Olley v Marlborough Court (1949).

Facts: O left her furs in her hotel room. The furs were stolen due to the hotel's negligence. The Hotelclaimed they were not liable due to an exclusion clause in the Hotel room.

Held: The exclusion clause was ineffective as O did not receive notice of the clause until after she hadentered the contract at the Hotel reception.

Thornton v Shoe Lane Car Parks (1971)

Facts: T was injured in a car park due to the negligence of the car park proprietors. T claimed and the car park proprietors claimed an exclusion clause displayed on a notice in side the car park.

Held: the exclusion clause was ineffective since T did not receive notice of it until he had already enteredthe contract with car park company by taking a ticket at the barrier on entry.(Would also now be ineffectiveunder the Unfair Contract Terms Act 1977).

If there has been a consistent course of dealing between two parties to a contract and an exclusion clausehas been part of those dealings then the parties will be assumed to have knowledge of that clause eventhough notice of the clause was not given in every transaction (including the one in relation to which the

protection of the clause is being claimed):

Spurling v Bradshaw (1956).

Facts: Pl stored orange juice in barrels at the defendant's warehouse as he had done on previous occasions.On returning to collect the barrels they were empty. Pl claimed for the loss of orange juice. Defendantclaimed an exclusion clause which Pl knew about from previous occasions but had not received notice of the clause on this particular occasion

Held: Where there has been a consistent course of dealing as long as the party knew of the clause then itwill be effective.

British Crane Hire Corp. v Ipswich Plant Hire (1975).

Facts: The pl had hired out a crane to the defendant. The crane became stuck in must when being put into position by the plaintiff's employees and so the final hire period was longer and therefore more costly thatthe defendant had anticipated. The pl claimed the full hire charge and pointed out an exclusion clausewhich stated that the amount was payable in spite of such instances as had occurred. The defendant claimedthat they did not know of the exclusion clause.

Held: The defendant were in the same line of business as the pl and the exclusion clause was common. Thedefendant had not seen the exclusion clause because the crane had been required at very short notice and


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there had been no time to deal with the usual administrative matter before hand. The defendant wastherefore liable.

McCutcheon v Mac Brayne (1964).

Facts: The pl employed an agent to take his car on the defendant's ferry. The ferry sank and the pl claimed

for his car but the defendant claimed an exclusion clause which plaintiff's agent knew about from previousoccasions but had not received notice of the clause on this particular occasion.

Held: Where there has been a consistent course of dealing as long as the party knew of the clause then itwill be effective.

Exemption Clauses will be construed strictly. Any ambiguity will be construed against the party insertingthe term:

Andrews v Singer (1934).

Facts: The exclusion clause in a contract for the sale of a number of singer cars stated that it related to newsinger cars. One of the cars, which was a used car, was defective and the purchasers claimed for the defect.The sellers claimed the protection of the exclusion clause.

Held: the exclusion clause would be read strictly and so did not apply to used cars only new ones.

An exemption clause will not protect a third party who is not a party to the contract containing the clause:

Adler v Dickson.

Facts: The pl was injured when going up the walk way to the SS Himalaya. The pl could not claim againstthe P&O Shipping Co as they were protected by an exclusion clause (effective at that time - see Unfair Contract Terms Act 1977). She therefore sued the employees of the company namely the bosun and themaster.

Held: She was successful as they were not covered by the clause even though it purported to cover them.

See also New Zealand Shipping Co v Satterthwaite (1975).

A party to a contract can exclude liability for anything provided the parties are in true agreement i.e.:

- the parties must be in equal bargaining position;

- the parties must have full knowledge of all the terms;

- the exclusion clause must be fair and reasonable:

Photo Productions v Securicor (1980)(see Unfair Contract Terms Act 1977).

Facts: The defendants were employed to look after the plaintiffs' factory. One of the defendants set fire tothe factory by negligent activity. The plaintiffs sued the defendants and the defendants claimed an exclusionclause which stated that the defendants would not be liable for the negligent acts of their employees.

Held: The exclusion clause protected the defendants from negligent acts of their employees.

Parliamentary Controls

The main statutory provisions are contained in the Unfair Contract Terms Act 1977. Consideration is givenhere to he provisions which have general application. In addition the Act contains provisions restricting the


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use of exclusion clauses relating specifically to Sale of Goods, Misrepresentation and Occupier's Liabilitywhich are considered in the relevant sections of the notes.

The Act only applies to business liability which is defined in the act as meaning liability for breach of duties arising from things done in the course of business, i.e. contracts between businesses and between a

business and a consumer. It does not apply to contracts between two private individuals other than in the

course of business.Where the Act applies an exclusion clause will either be:

- ineffective; or

- effective

depending on whether it satisfies the test or reasonableness set out in the Act.

The Act applies to exclusion clauses in the course of business in three circumstances:

1. negligence,

2. consumer,

3. standard terms.

Negligence

This is defined under s 1 as:

a) breach of a contractual obligation to take reasonable care or exercise reasonable skill in the performanceof the contract;

b) breach of a common law duty to take reasonable care or exercise reasonable skill;,or

c) breach of the common duty of care imposed by the Occupier's Liability Act 1957.

Neither a notice nor a term of a contract can exclude a persons liability for death or personal injury. Such anotice or term is ineffective.

Negligence in other circumstances may be excluded if it is fair and reasonable to do so s 2 i.e. satisfies thetest of reasonableness under the Act.

Consumer

This is where a contract is made between one party who is not acting in the course of business and so is aconsumer and the other party is acting in the course of business. The party acting in the course of businesscannot exclude liability for any breach of contract unless the exclusion clause satisfies the test of

reasonableness under the Act.

Standard Terms

This is where a contract is made between one party who is acting in the course of business and requires theother party, who may either be acting in the course of business as well or may be a consumer instead, tocontract under "written standard terms of business". If the written standard terms of business contain anexclusion clause then it will only be effective if it satisfies the test of reasonableness under the Act.

Test of Reasonableness


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The Act lays down guidelines to assist the court in assessing whether a clause is reasonable or not. Thecourt must consider:

1. the relative bargaining position of the parties, e.g. is one of the parties a consumer or a business, can thegoods be obtained elsewhere;

2. the circumstances of the transaction, e.g. did the party receive an inducement to enter the contract, docontracts of this kind usually contain such exclusion clauses;

3. the degree of knowledge of the parties, e.g. did the party know or ought he or she reasonably haveknown about the existence and extent of the exclusion clause (presumably therefore a term may be validlyincorporated within the contract under the common law rules and the party may have signed the agreement

but it still may be ineffective because it does not correspond to this part of the test of reasonableness under the Act;

4. whether, if liability is only excluded if a particular term is broken, it was reasonable to assume, at thetime the contract was made, that the particular term could be practicably performed;

5. whether, under a contract for the sale of good, the goods have been specially manufactured, processed or adapted to the buyer's requirements i.e. custom made;

6. whether the parties could obtain adequate insurance cover for the liability that was being excluded, s 11.

CONTRACT 3 - VITIATING FACTORS

Misrepresentation

An action for misrepresentation makes a contract voidable which means the contract is valid until it isavoided by the party who has suffered as a result of the misrepresentation (the investor).

Such a party has a choice either to repudiate the contract and claim rescission and or damages or damagesmay be awarded in lieu of rescission. Rescission is the restoration of the parties to their original position.

A misrepresentation is a false statement of fact which is made by one party to a contract to the other whichdoes not form a term of the contract but is one of the reasons which persuades the other to enter into thecontract.

For an investor to prove an action for misrepresentation he or she must show:

The listing particulars or prospectus contained a false statement of fact which induced him or her tosubscribe for share in the company.

It must be a false statement of fact:-

- A statement of intention may be misrepresentation: Edgington v Fitzmaurice (1885).

- A statement of opinion may be a misrepresentation if there are no grounds for holding that opinion:Aaron's Reefs Ltd v Twiss (1896).

- Silence may amount to a misrepresentation if it causes a positive statement to be misleading: R v Kylsant(1932) Coles v White City (Manchester) Greyhound Association Ltd (1928).

- A company will be liable for a misrepresentation found in an expert's report that it has adopted: Re Pacaya


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Rubber Co (1914)

The statement must have influenced the plaintiff:-

- The misrepresentation must be material i.e. likely to influence a reasonable person: City of EdinburghBrewery Co v Gibson's Trustee (1869).

- It must have been a reason for the plaintiff to enter the contract: Smith v Chadwick (1884).

- The plaintiff is not obliged to make inquiries: Central Railway Company of Venezuela v Kisch (1867);Redgrave v Hurd (1881)

Types of Misrepresentation

Fraudulent

This is where a false statement of fact is made by a person who knows the statement to be false to another who acts upon the statement to his or her detriment. This is an action in the tort of deceit for damages. Thetest is subjective the particular person who made the statement must know it to be false: Derry v Peek (1889); Akerheim v De Mare (1959); Peek v Gurney (1873); Andrews v Mockford (1896).

Negligence

This is where a false statement of fact is made by a person who has a special relationship with another causing that other to act to his or her detriment. A duty of care is owed by the person who makes of thestatement to the other by virtue of the relationship of trust. This is an action in the tort of negligentmisstatement for damages. Hedley Byrne and Co v Heller and Partners Ltd (1964)

A duty of care is owed to persons who subscribe for shares relying on a prospectus but not to those whosubsequently deal on the Stock Exchange: Al Nakib Investments (Jersey) Ltd v Longcroft (1991). Now astatutory duty is owed under the Financial Services Act 1985.

Misrepresentation Act 1967

This is where a false statement of fact is made by a party to a contract to another causing that other to enter the contract and thereby suffering loss. This is an action in contract for rescission. The person making thestatement may reduce his or her liability by paying damages in lieu of rescission if he or she can show thathe or she honestly believed the statement to be true i.e. an innocent misrepresentation.

CONTRACT 4 - DISCHARGE OF CONTRACT AND REMEDIES FOR BREACH

Discharge by Performance

Usually parties discharge their obligations under a contract by performing it. If a party fails to do so then he

or she will be in breach and liable for a court action to be taken against him or her for compensation(damages).

Each party must completely and precisely perform his or her part of the contract. This rule is very strict.

Re Moore & Co Ltd v Landauer & Co (1921) A agreed to sell fruit in cases of 30 tins. The correct number of tins were delivered but in cases of 24 tins.

Held: the party was in breach and the whole consignment could be rejected.


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There are exceptions to the rule that performance must be complete and precise:

1. Where the contract is severable or divisible.

The strict rule of complete and precise performance only applies if the contract is entire i.e. cannot bedivided up. If a contract can be divided up and a party has completed a complete part of the contract then

he or she will be entitled to payment for that part.Roberts v Havelock (1832)

Facts: P was employed to repair a ship. After he had undertaken certain repairs he claimed payment.

Held: P was entitled to payment as each complete repair was a separate part of the contract.

2. Where the performance by one party is prevented by the other.

If a party to a contract is prevented form completing the contract by the other he or she may either sue for compensation for the breach of contract or claim payment for the amount of work that he or she has alreadydone.

Planche v Colburn (1831)

Facts: P agreed to write a book to be published in a series by D. After P had done his research and written part of the book D decided not to publish the series. P sued for payment for the work he had done.

Held: P was successful.

3. Where partial performance by one party has been accepted by the other.

Where one party has performed a part of the contract the other party may either expressly or impliedly statethat he or she will pay for the work that is done and that no further work need be carried out. However theremust be a genuine choice available to the party to accept or reject part performance.

Christy v Roe (1808)

Facts: P was carrying coal for D from England to Germany but due to war it was not possible to deliver tothe port stated in the contract. D therefore asked P to deliver to another port which he did. D later refused to

pay and P sued.

Held: P was successful D had by his request accepted partial performance.

Sumpter v Hedges (1898)

Facts: P agreed to build a house for D for 565. P did 333 worth of work and gave up. D finished the work and refused to pay P the 333 who sued.

Held: P was not entitled to anything since D had not accepted the part performance or prevented performance and the contract was not divisible.

4. Where one party substantially performs his or her part of the contract(Conditions/warranties)

If the contract is nearly completely performed but there is a minor breach then the contract is said to besubstantially performed and the party who has made the minor breach may claim payment for the work thathe or she has done. In other words if the party in breach has only committed a breach of a warranty then heor she can claim payment for the work that has been done and that the total contract price will be reduced

by the amount that he or she was in breach. However if the breach is not minor then there will be a breach


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of condition and the strict rule applies and the party in breach will not be entitled to payment at all.

Hoenig v Isaacs (1952)

Facts: D was employed to redecorate P's flat for 750. When D had finished P would only pay D 400saying that the work was defective.P sued.

Held: The defects were minor and only amounted to 55 therefore D had to pay a further 295.

Bolton v Mahadeva (1972)

Facts: P agreed to install central heating in D's house for 560. D refused to pay anything arguing that thesystem was fundamentally defective. The cost of rectifying the defect would be 174.

Held: P could not rely on substantial performance.

Offer of Performance

If one party offers to perform the contract but the other unreasonably refuses then the person who offers isdischarge form all obligations under the contract and will not be liable for breach of contract.

Startup v Macdonald (1843)

Facts: P agreed to sell oil to D and to deliver it within the last 14 days of March. P attempted to deliver at8.30 on the 31st March but D refused to accept because it was late at night.

Held: The offer was as good as performance and so P was entitled to damages for breach by D.

The rule is not quite the same for money. Where a party's offer to pay is refused the party must still pay buthe or she need not offer again.

Time of Performance

A contract must be performed on time if the parties make it clear that the time of performance is importanti.e. Time is of the essence.

Discharge by Agreement

What is made by agreement can be extinguished by agreement. If the parties decide that they no longer wish to continue with their contract then they can agree to discharge one another from their respectiveobligations.

Where the parties agree to discharge the contract before either has performed his or her part then there is nodifficulty.

However where one of the parties has performed his or her part but the other has done little of nothing the

party the party who has performed may require the other to pay a sum of do an act as consideration for thedischarge. Such sum of act is known as an accord and satisfaction.

A complete discharge of a contract does not need to be in writing but if the other party is not completelydischarged but instead the contract is merely varied then written evidence is needed.

Frustration

If after a contract is made something happens which makes its performance illegal impossible or commercially unrealistic then it is said to be frustrated and the parties are discharged from their obligations


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under the contract.

1. Illegal

Denny, Mott & Dickson v Fraser (1944)

Facts: D agreed to buy wood from P but due to the outbreak of war all wood supplies were restricted.Held: The contract was frustrated.

2. Impossible

Taylor v Caldwell (1863)

Facts: D agreed to let P use his music hall for concerts. A week before P was to use it the hall was destroyed by fire. P sued for breach.

Held: The contract had been frustrated.

Poussard v Spiers and Pond (1876)

Facts: P contracted to sing in D's opera. P was ill for the first night and D got a substitute. When Precovered D refused to let her return. P sued.

Held: D was successful. The contract had been frustrated.

Condor v Barron Knights (1966)

Facts: P was a drummer with D. P suffered a nervous breakdown and could only work for 4 nights at atime. D got a substitute because needed a drummer for 7 nights a week. P sued.

Held: D was successful. The contract was frustrated.

3. Commercially Unrealistic

If a contract becomes wholly different in performance from that which was contemplated when it was madethen it may be frustrated. It is not enough that the contract is merely more difficult to perform that wasexpected it must be wholly different.

Krell v Henry (1903)

Facts: P agreed to allow D to use his flat to watch the coronation procession of Edward VII. The king wasill and the coronation was postponed.

Held: The contract was frustrated and D did not have to pay the balance of the hire fee.

Herne Bay Steamboat Co v Hutton (1903)

Facts: D wished to take fee paying passengers around the fleet and see the Review so he hired a boat fromP. The Review was cancelled and D claimed that the contract was frustrated and so refused to complete thecontract for hire.

Held: The contract was not frustrated since there were still plenty of sightseers to be taken around the fleet.

Davis Contractors Ltd v Fareham UDC (1956)


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Facts: P agreed to build 76 houses for a set price in 8 months. In fact it took 22 months and cost much moredue to events beyond P's control. P therefore claimed the contract had been frustrated and tried to claim theactual cost of the work.

Held: The contract was merely more difficult to perform. The contract was not different in performancefrom that what had been contracted for. Therefore it was not frustrated.

Parties sometimes make provision in a contract for a frustrating event in which case the provision will takeeffect. (force majeure).

Effects for Frustration

Until 1943 the rule was that the loss lay where it fell in the case of frustration. Therefore if a party had paida deposit and the contract was frustrated then although that party did not have to apy the balancenevertheless he or she could not get the deposit back either.

The Law Reform (Frustrated Contracts) Act 1943 amended this situation as follows:

If a contract is frustrated :

1. any money paid under the contract before frustration can be recovered;

2. any money which should have been paid before frustration ceases to be payable;

3. a party who has incurred expenses from which the other party benefited may recover those expensesfrom the benefiting party;

4. a party who has received a benefit under the contract may be required to pay a fair sum for such benefitirrespective of the frustration.

Discharge by Breach

This is where one party:

fails to perform the contract; or

fails to perform it properly; or

has made a statement in the contract which is a term of the contract and is untrue.

Where a party is in breach then the other party may sue for compensation (damages). If the breach is of awarranty (less serious/ less important term) then the innocent party may only claim damages for any lossand must still complete the contract. However if the breach is of a condition (very serious/important term)then the innocent party has a choice he or she may complete the contract and claim damages for any loss or end the contract and claim compensation for any loss as well.

Remedies for Breach of Contract

Damages

This is the only common law remedy. Its aim is to compensate the party who has suffered loss. It seeks to put the party into the financial position he or she would have been in had the contract been performed properly.

Damages can only be claimed for losses that were foreseeable by the parties when they made the contract.


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Hadley v Baxendale (1854)

Facts: C agreed to carry a broken mill crank shaft to be repaired. They were lat in carrying out their obligations and the millers sued for loss of profit. C claimed miller usually had a spare mill crank shaft andtherefore they could not have expected that the millers would lose profit due to C's lateness.

Held: C was successful.Victoria Laundry v Newman (1949)

Facts: V contracted to buy a boiler from N. The boiler was damaged on delivery as a result they had to waitfor another boiler and lost an exceptionally valuable dying contract. V sued not only for the usual loss of

profit due to waiting for another boiler but also for the exceptionally lucrative contract.

Held: the loss of profit due to having to wait for another boiler was foreseeable but not the loss form theexceptional contract because N did not know about this contract when the contract was made.

If they had known about the exceptionally lucrative contract then the exceptional loss of profit could have been claimed for.

Heron (1967)

Facts: A shipowner arrived late with a cargo of sugar and the owner of the sugar claimed for exceptionalloss of profit since the high point in the market was missed.

Held: the Owner of the sugar was successful since the shipowner in this case knew or should have knownabout the fluctuations in the market and that it was therefore very important to arrive on time.

Rescission

This is an equitable remedy and allows an innocent party to end the contract if there has a been a veryserious breach or breach of a very important term i.e. a condition.

The purpose of rescission is to put the parties into the position they would have been in had the contractnever existed.

The innocent party must claim rescission it does not happen automatically. The parties may agree to rescindor there may be court order.

The effect of rescission is that:

- any goods are returned (restitution);

- any money is paid back (indemnity);

- any compensation for loss is paid by the party in breach to the innocent party if restitution and indemnity

do not put the parties in the same position as if the contract had never existed.

Specific Performance

This is a court order which compels a party in breach of contract to perform the contract if damages are aninadequate remedy. It will normally only be ordered where the subject matter is unique such as where a

person refuses to complete a contract for the sale of land. Land is unique (no two pieces of land are thesame) and therefore the court may order the party in breach to complete the sale.

Specific performance will not be ordered to make a person carry out a personal contract such as a contract


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of employment. Only damages will be ordered. The court also will not order specific performance when acontract needs constant supervision e.g. in Ryan v Mutual Tontine Association a contract to ensure theresidence of a porter in a block of flats was refused as it would require constant supervision.

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