Law of Contract

Law of Contract with Robert Mackay
Course Notes
200
8
LAW
Of
CONTRACT
with Robert Mackay
2008
TABLE OF CONTENTS
UNIT ONE
1
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Robert Mackay
for the online teaching resources by

Course Notes
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OFFER AND ACCEPTANCE - 3

WITHDRAWL - 6
ACCEPTANCE - 9
COUNTER OFFERS - 12
CONSIDERATION - 15
PRIVITY - 21
INTENTION TO CREATE LEGAL RELATIONS - 24
THE NEED FOR CERTAINTY - 28
UNIT TWO
FORM - 30
EXPRESS AND IMPLIED TERMS - 31
TERMS IMPLIED BY STATUTE - 34
TERMS IMPLIED BY COMMON LAW - 38
CONDITIONS AND WARRANTIES - 39
EXCLUSION AND LIMITATION CLAUSES - 42
STATUTORY RESTRICTIONS - 47
UNIT THREE
VITIATING FACTORS IN CONTRACT - 53

VOID AND ILLEGAL CONTRACTS - 53
RESTRAINT OF TRADE - 55
CONSEQUENCES OF ILLEGALITY - 57
UNENFORCEABLE CONTRACTS - 59
CONTRACTS BY MINORS - 60
MISREPRESENTATION - 63
MISTAKE - 68
DURESS AND UNDUE INFLUENCE - 75
UNIT FOUR
DISCHARGE - 78
PERFORMANCE - 78
FRUSTRATION - 84
BREACH OF CONTRACT - 89
UNIT FIVE
REMEDIES FOR BREACH OF CONTRACT

DAMAGES - 94
EQUITABLE REMEDIES - 103
RIGHT TO REJECT - 109
EXTINCTION OF REMEDIES -111
COPYRIGHT NOTICE
Robert Mackay has prepared these course materials incorporating the

information provided on their website by St Brendans College, Bristol. For information on restrictions imposed
on further copying or use of the copyrighted part of the materials please see their website.
UNIT ONE
FORMATION OF A CONTRACT
OFFER AND ACCEPTANCE
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A simple contract (that is, a contract made not under seal) requires an offer
made by one party and accepted by the other, valuable consideration given by
either side, or a common intention that the agreement should be legally binding.
An offer is made when one party makes it clear, by words or actions,that he is
prepared to be bound as soon as the offer is accepted by the person to whom it
is made. An offer is thus quite different from an invitation to treat, though it is
not always easy to distinguish the two.
Grainger v Gough [1896] AC 325, HL
AA were London agents for a French wine merchant X; they distributed

catalogues and accepted orders which they passed on to X, X reserving
the right to refuse any order. The case turned on whether X was liable for
tax on contracts made by his agents in England. The House of Lords held
that the distribution of catalogues was an invitation to treat and that the
offer was made by the intending purchaser. This offer was transmitted by
AA to X, and the contract was not made until X accepted the offer in
France.
Gibson v Manchester CC [1979] 1 All ER 972, HL
A local council write to tenants inviting them to apply to purchase their

homes. One such tenant P did apply, and a price was agreed. Following a
change of party control, the new council DD refused to go ahead with the
sale. The House of Lords said there was no binding contract: P had made
an offer which DD had not yet accepted. Phrases in the correspondence
such as "may be prepared to sell" and "please complete the enclosed
application form" were indicative of an invitation to treat.
A display of goods in a shop window, or on the shelves of a self-service shop, is

generally regarded as an invitation to treat rather than as an offer to sell.
Pharmaceutical Society v Boots [1953] 1 All ER 482, CA
Certain products that were to be sold only under the supervision of a

registered pharmacist were displayed on shelves in a self-service shop.
The Pharmaceutical Society of Great Britain (who are responsible for
enforcing this legislation) brought a prosecution against the shop for
allowing customers to buy these products by helping themselves, but the
Court of Appeal said they had no case. The customer having selected the
goods made an offer to purchase when he took them to the cash desk,
and there was a registered pharmacist supervising that point at which the
sale took place.
Fisher v Bell [1960] 3 All ER 731, DC
It was a statutory offence under the Restriction of Offensive Weapons

Act 1959 to offer for sale any of various items, including flick-knives. A
Bristol shopkeeper R displayed such a knife in his window, with a ticket
reading "Ejector knife - 4s." [4 shillings = 20p], and was prosecuted for an
offence under the Act. The Divisional Court took a literal interpretation of
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the statute and said he had committed no offence: the display was an
invitation to treat, not an offer to sell.
This analysis of the transaction leaves both parties free to change their minds.
The shopkeeper can refuse to sell to a customer whom he does not like (for
example, one who is under age or drunk), and the customer having taken goods
from a supermarket shelf can return them if he changes his mind before going to
the till.
An advertisement is usually an invitation to treat but can be an offer, depending
on its wording and on the circumstances.
Partridge v Crittenden [1968] 2 All ER 421, HC QBD
The appellant placed an advertisement in a magazine: "Bramblefinch

cocks and hens, 25s. [25 shillings = 1.25] each". He was charged with
offering for sale a wild bird, contrary to statute, but the High Court said he
must be acquitted. The advertisement was an invitation to treat, not an
offer to sell; with limited stock the advertiser could not reasonably intend
to be bound to sell to all those who might accept. (If the advertiser
indicated that he was willing to sell only to the first person accepting,
there would be no such problem.)
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA
The makers DD of a health product published newspaper advertisements

promising to pay 100 to anyone who contracted flu after buying one of
their smoke balls and using it as directed. The advertisement also said DD
had deposited 1000 in a named bank to show their sincerity in this
matter. P bought a smoke ball, used it as directed, and still caught flu; she
sued for the 100 promised. The Court of Appeal said the advertisement in
this case was an offer; the wording of the advertisement clearly showed
an intention to be bound to anyone accepting.
Thornton v Shoe Lane Parking [1971] 1 All ER 686, CA
P parked his car in DD's car park, paying his money and taking a ticket
from the automatic machine at the entrance. When P returned later to
collect his car, there was an accident in which he was seriously injured; his
action for demages turned on the validity of an exclusion clause printed on
the ticket. Lord Denning MR said a motorist buying a ticket [or presumably
any other goods] from a machine is irretrievably committed when he puts
the money in the machine, and that the contract must be completed at
that time. The car park owners made an offer when they held out the
machine as ready to receive money, and the motorist accepted the offer
when he put the necessary coins in the slot.
Wilkie v London Passenger Transport Board [1947] 1 All ER 258, CA
P was an employee of DD and was injured through the negligence of the

driver when travelling on one of DD's buses. He was travelling on a free
pass subject to wide exclusions of liability, and so was unable to claim. But
Lord Greene MR said obiter that when a public bus plies for hire it is
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making an offer accepted by the passenger on boarding. [This analysis has

been doubted by some writers, and it would certainly make it difficult
(unless the offer is regarded as conditional) for the bus driver to refuse to
allow a drunk or abusive passenger to board.]
At an auction sale, s.57(2) of the Sale of Goods Act 1979 confirms the
common law rule that a prospective buyer makes an offer by bidding, which the
auctioneer accepts when he drops his hammer. Thus a buyer may withdraw his
bid until the hammer falls, or an item may be withdrawn from the sale even after
bidding has begun. The special rules for auctions, however, mean that the lot
cannot legally be sold at the auction to anyone other than the highest bidder.
Barry v Davies (2000) Times 31/8/00, CA
A sale of machinery by auction was advertised as being "without reserve".

Two machines were put up, whose list price would have been 14000
each, but the only bid (of 200 each) was made by C. The auctioneer D
refused to accept the bid and withdrew the machines from sale. C sued,
and the judge's award of 27600 damages was affirmed on appeal.
Although there had been no contract between vendor and purchaser,
there was a collateral contract between auctioneer and bidder.
The growth of internet shopping has led to further developments in this area of
law. Where a company advertises goods or services on its web site this is
normally (depending on the wording used) an invitation to treat, and the
customer makes an offer by sending in an order. So far, so good. If the company
sets up an automatic e-mail reply system, this (again depending on its wording)
may amount to an acceptance of the offer, and this may have unfortunate
consequences for the company if there is any error (e.g. 100 as a misprint for
1000) in the published details.
Public authorities are required by law to invite tenders for many services, and
some other bodies do so even when not so required. The offer in such cases is
clearly made by the tender or and accepted by the authority, but the situation is
more complex than it might seem.
Harvela Investments v Royal Trust [1985] 2 All ER 966, HL
Two parties were invited to bid secretly for a block of shares, on the
understanding that the shares would be sold to whoever bid higher. PP bid
$2 175 000, while the other party bid "$2 100 000, or $10 000 more than
any other cash bid, whichever is higher". The House of Lords said the
referential bid was ineffective and that PP's cash bid should have been
accepted. The use of referential bids, they said, defeated the whole
purpose of confidential competitive tendering and was not to be
encouraged.
Blackpool & Fylde Aero Club v Blackpool BC [1990] 3 All ER 25, CA
PP and six other parties were invited to submit tenders for the concession
to run pleasure flights from Blackpool Airport. PP submitted a tender in
due form, but this was not considered owing to a clerical error. DD argued
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that PP had merely made an offer which they (for whatever reasons) had
not accepted, but the Court of Appeal said there was an implied collateral
warranty. The Council had selected the parties invited to tender and thus
knew them all, and had set out in detail the procedure to be followed; this
implied that any invitee conforming with that procedure would be entitled
to have his tender properly considered.
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WITHDRAWL
As a general rule, an offer can be withdrawn at any time before it has been
accepted; any purported acceptance after withdrawal is ineffective.
Routledge v Grant (1828) 130 ER 920, Best CJ

D offered to take a lease of P's premises, a definite answer to be given (by
P) within six weeks. After three weeks D withdrew his offer, and just within
the six weeks P purported to accept it. The judge said the acceptance was
too late; if one party has six weeks to accept an offer, the other has six
weeks to put an end to it. One party cannot be bound without the other.
Mountford v Scott [1975] 1 All ER 198, CA

D offered to sell P his house for 10 000, and P paid him 1 for an option
to purchase at that price, exercisable within six months. Before the end of
that time, and before the option was exercised, D purported to withdraw
his offer. P then exercised the option, and the Court of Appeal said he was
entitled to specific performance. The token payment was valuable
consideration, however small, and made the offer irrevocable until the
option expired.
Withdrawal must normally be communicated to the offeree, and does not take
effect until such communication is received: the special rule for postal
acceptances (below) does not apply to withdrawals.
Byrne v Van Tienhoven (1880) LR 5 CPD 344, Lindley J

DD posted a letter on 1 October offering to sell PP a quantity of tinplate,
then posted another letter on 8 October withdrawing the offer. The first
letter reached PP on 11 October and they accepted the offer at once by
telegram, following with a confirmatory letter four days later. The second
letter purporting to withdraw the offer arrived on 20 October, by which
time the offer had been accepted and it was too late for DD to withdraw.
Dickinson v Dodds (1876) LR 2 ChD 463, CA

D offered to sell P his house, leaving the offer open until Friday. On
Thursday P decided to buy the house, but then heard from another person
that D had contracted to sell to a third party. On Friday P accepted the
offer, and subsequently sought specific performance. The Court of Appeal
said the news (conveyed by a reliable third party) that the house had been
sold was sufficient notice of the withdrawal of the offer for sale, and the
purported acceptance was therefore ineffective.
Shuey v United States (1875) 92 US 73, Supreme Court (USA)

An advertisement was published in several newspapers advertising a
reward to be paid for information leading to the arrest of any of several
named criminals. Six months later the President issued a proclamation
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cancelling the reward, and this was published in a similar manner. Five
months after that, P (who was aware of the original advertisement but not
that the reward had been cancelled) identified one of the wanted men and
claimed the reward. The Supreme Court said that since the offer had been
made by general advertisement rather than to him personally, he should
have realised that it might be withdrawn in the same way.
Financings Ltd v Stimson [1962] 3 All ER 386, CA
D decided to buy a car on hire purchase and signed a form supplied by the
dealer which declared that the HP agreement became binding only when
signed by the finance company PP. D paid a first instalment and took the
car away, but returned it two days later saying he had changed his mind.
The court said this was an effective withdrawal, and that PP's purported
acceptance five days after the car was returned was too late. (In fact, the
car was stolen from the dealer's forecourt during the five days and was
recovered in a damaged state; PP were thus unable to fulfil their part of
the bargain to supply the car as originally seen, giving another reason for
their purported acceptance to be ineffective.)
Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Exch 109,
Exchequer
D made an offer in June to buy shares in PP's company, but heard nothing.
PP made an allocation of shares in November, and purported to accept D's
offer, but D refused to go ahead. The court said that although the offer
had not been formally withdrawn, it would expire after "a reasonable
time", and given the fluctuating nature of the subject matter the
time interval had gone beyond what was reasonable.
Luxor (Eastbourne) v Cooper [1941] 1 All ER 33, HL
Vendors AA promised an estate agent R 10 000 as a fee for selling a

cinema; R found a buyer and a sale was agreed "subject to contract", but
AA then decided not to complete the deal and disposed of the cinemas
elsewhere. R sued for his commission but lost: the House of Lords found
for AA on the basis that there was no reason to infer an undertaking by not
to revoke their offer. R was being offered a substantial sum for
comparatively little effort, and should therefore have realised that AA
might wish to withdraw.
Where an offer is to be accepted by conduct, then it is not clear what rules

govern its withdrawal. This is particularly important to rewards and "challenges"
(e.g. 10 000 to the first person to swim the Atlantic): although such offers can
certainly be withdrawn - that is only reasonable - it is unfair if the offeror can
withdraw his offer moments before the other party "accepts" by completing the
task.
Errington v Errington & Woods [1952] 1 All ER 149, CA

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A father bought a house for his son and daughter-in-law DD to live in,
paying 250 in cash and borrowing the other 500 from a building society.
The house was put into the father's name, but he said that as long as DD
paid the instalments he would transfer it to them as soon as the mortgage
was discharged. After some fifteen years the father died, and his widow P
sued for possession of the house. The Court of Appeal said there was a
unilateral contract: DD were not bound to go on paying, but if they did so
that father was bound to transfer the house to them in accordance with
his promise. Denning LJ said (perhaps obiter) that a unilateral contract
cannot be revoked once the potential acceptor has embarked upon
performance.
Daulia v Four Millbank Nominees [1978] 2 All ER 557, CA
PP sought to buy various properties from DD, and draft contracts were
prepared. DD undertook that if PP produced the draft contract and a
bankers' draft by a certain time they would enter into a full contract. PP
obtained the bankers' draft and attended at DD's offices before the
deadline, but DD refused to go ahead. PP's claim for damages was
dismissed by Brightman J and the Court of Appeal because the collateral
contract (relating to an interest in land) did not conform with the Law of
Property Act 1925 s.40, but Goff LJ said obiter that while the offeror of a
unilateral contract is entitled to require full performance of his condition
and short of that is not bound, there must be an implied obligation on his
part not to prevent the condition becoming satisfied, and that obligation
arises as soon as the offeree starts to perform. Until then the offeror can
revoke the whole thing, but once the offeree has embarked on
performance it is too late for the offeror to revoke his offer.
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ACCEPTANCE
No contract comes into existence until an offer is accepted and, in most cases,
that acceptance is communicated to the offeror.
Felthouse v Bindley (1863) 142 ER 1037, Exch Ch
P discussed the purchase of a horse from his nephew J, and prices were
discussed. On 2 January P wrote to J saying "If I hear no more about him, I
consider the horse is mine at 30-15-0" [30.75]. J did not reply, no money
was paid, and the horse remained in J's possession. J decided to sell the
horse to P and told an auctioneer D to withdraw it from a sale, but D forgot
this instruction and sold the horse elsewhere. P now sued D in conversion,
claiming the horse was his property. The Court of Common Pleas (whose
judgment was affirmed on appeal) said there was no contract: P's letter
was an open offer that had not been accepted.
Although the offeror cannot stipulate that the offeree's silence is to be taken as a
sign of his acceptance of the offer, he can generally specify the method by which
acceptance is to be communicated.
Compagnie de Commerce v Parkinson Stove [1953] 2 Lloyds Rep
487, CA
AA negotiated to buy some steel from RR, and RR made an offer with a
stipulation that acceptance be notified only on a pre-printed form. AA
accepted by letter and then sought to cancel their acceptance. The Court
of Appeal said there was no valid acceptance and hence no binding
contract, but added obiter that it might be possible to say in some cases
that those in RR's position had waived the condition as to the mode of
acceptance, expressly or
by their conduct.
Eliason v Henshaw (1819) 4 Wheaton 225, Supreme Court (USA)
D offered to buy a quantity of flour from P, and wrote asking for a reply
"by return of wagon". P replied by post to D's other address, which took
considerably longer, by the time the letter arrived D had already bought
from other sources all the flour he needed. D refused to accept the
purported contract as binding, and the court supported his view. The court
said that the actual mode of reply was unimportant, and that any means
might be used as long as the reply was received no later than would be
expected by the method specified, but a different address and a
substantial delay were enough to invalidate the acceptance.
Tinn v Hoffman (1873) 29 LT 271, Exch.Ch.
P wrote to D asking for a price on 800 tons of iron. D offered the iron at
69s [69 shillings, or 3.45] per ton and asked for a reply "by return". It was
conceded that since the offer was not in fact accepted by return of post
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there was no contract, but Honeyman J said obiter that a telegram or

verbal message or any other means at least as fast as a letter written by
return of post would have been sufficient.
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Manchester Diocesan Council v Commercial & General

Investments [1969] 3 All ER 1593, Buckley J
PP were the owners of property to be sold by tender; the tender form
included a statement that the successful tenderer would be notified by a
letter sent by post to the address given in the tender document. DD
submitted a tender which PP decided to accept, and in September they
notified DD's surveyor of this acceptance subject to the formal approval of
the Secretary of State. That approval was given in November, and in
January PP wrote to DD at the given address to confirm the agreement.
The question arose as to when a contract had been concluded, and the
judge said it was in September: the means of acceptance specified in the
tender document was not stated to be the only means of acceptance, and
so (although the postal rule below would not apply) any other means by
which PP's acceptance was actually communicated would be sufficient.
Brogden v Metropolitan Railway (1877) LR 2 AC 666, HL
A regularly supplied RR with coal, and suggested after some years that
they should enter into a formal contract. A contract was drafted by RR and
sent to A, who returned it with comments, but it was never formally
executed. However, A supplied coal and RR paid for it for some time
thereafter as if the draft contract had come into force. The House of Lords
said that mere mental assent to the contract would not have been
enough, but the fact that both parties acted upon it was enough to show
acceptance of its terms as from the completion of the first delivery (or
possibly, from the placing of the first order after the return of the draft).
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA
The makers DD of a health product published newspaper advertisements

promising to pay 100 to anyone who contracted flu after buying one of
their smoke balls and using it as directed. The advertisement also said DD
had deposited 1000 in a named bank to show their sincerity in this
matter. P bought a smoke ball, used it as directed, and still caught flu; she
sued for the 100 promised. The Court of Appeal said P had accepted DD's
offer by buying the smoke ball and using it in accordance with the
instructions given. It was not even necessary for P to notify DD of her
acceptance, because the advertisement had made no mention of
notification and had implied that all the customer need do was to buy and
use the smoke ball.
Bowerman v ABTA [1995] NLJ 1815, CA
PP booked a ski trip with a company that subsequently went out of

business. ABTA reimbursed their payments subject to a deduction of 10
insurance, and PP sued for that balance. The Court of Appeal said the
notice displayed in the company's office, describing the ABTA protection
scheme, was sufficient to create a binding contract when PP accepted its
unilateral offer by booking with an ABTA member. The words "... ABTA
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arranges for you to be reimbursed ..." would be understood by the

ordinary reader as clearly promising a legally enforceable agreement, no
matter what might have been ABTA's private intention. [The reasoning
adopted in this case would probably make a manufacturer's guarantee
legally enforceable, even though the buyer's contract is with the retailer.]
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Confetti Records v Warner Music (2003) Times 12/6/03, Lewison J
CC owned the copyright in a particular piece of music, but agreed "subject

to contract" that it might be included on an album to be produced by DD.
CC sent DD the track with an invoice, DD began to process the track, and
CC then changed their minds and e-mailed DD purporting to withdraw
their consent. The judge said that in the light of the earlier agreement, CC
by sending the track and invoice had made an offer which DD had
accepted by conduct; the contract was complete at that point and the
purported withdrawal came too late.
Acceptance by conduct can raise questions as to the acceptor's motives, since a

person cannot be said to have accepted an offer of which he was not aware.
Williams v Cawardine (1833) 172 ER 1101, KB
D offered a reward to anyone giving information leading to the arrest of a

murderer M. P was severely beaten by M, and subsequently gave
information that led to M's arrest and conviction of the murder. The jury
found as a fact that she had been motivated by revenge and public duty,
and not by the thought of the reward, but the court said she was entitled
to the reward nevertheless. She was aware of the offer, which had been
widely advertised, and her actual motive was immaterial. If the person
knows of the reward and does the thing, said Littledale J, that is quite
enough. It does not say, "whoever will come forward in consequence of
this notice ...".
R v Clarke (1927) 40 CLR 227, High Court (Australia)
The Government of Western Australia offered a reward (and a pardon,

where appropriate) to anyone giving information leading to the arrest and
conviction of certain murderers. C, an accomplice, saw the advertisement
and subsequently gave evidence leading to the conviction of the others.
He admitted that his only motive was to clear himself of a charge of
murder and that he had no thought of claiming the reward at the time.
The High Court reversed a decision of the Full Court of Western Australia
allowing his subsequent claim against the Crown, distinguishing Williams v
Cawardine on the basis that Mrs Williams had at least had the offer in
mind, even if it was not her primary motive. There cannot be assent
without knowledge of an offer, said Higgins J, and ignorance is the same
thing whether it comes from never having heard of the offer or having
forgotten about it. Isaacs ACJ said there were many instances in which an
act done with reference to an offer would be acceptance of the offer by
performance, but the same act done with reference to a different object
would not. An offer of 100 to the first person to swim 100 yards in the
harbour on New Year's Day would not be satisfied by a person who fell
overboard and swam the distance merely to save his life.
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COUNTER OFFERS
A counter-offer is not an acceptance, and actually kills the original offer. The
majority of the court in Tinn v Hoffman above thought this would be true even
where the counter-offer contains exactly the same terms as the original offer,
though a minority dictum of Honeyman J suggests the contrary.
Hyde v Wrench (1840) 49 ER 132, Lord Langdale MR
D wrote to P offering to sell his farm for 1000. P immediately responded

with an offer of 950, which D took time to consider. After a fortnight, D
said he was not prepared to accept the lower offer, whereupon P
purported to accept D's original offer and brought an action for specific
performance. In the Rolls Court, the judge said there was no contract: by
making his own offer P impliedly rejected the offer made by D and could
not subsequently revive and accept it.
Stevenson v McLean (1880) LR 5 QBD 346, Lush J
D wrote to P offering a quantity of iron at 40s [40 shillings] a ton, net cash.
P telegraphed back asking whether D would accept 40s. for delivery over
two months, or if not, what time they would give. Four hours later, having
had no reply, P telegraphed accepting the original offer, to find D had
already sold the iron elsewhere. P sued for breach of contract, and the
judge said there was no counter-offer, merely an enquiry that should have
been answered.
Butler Machine Tool v Ex-Cell-O [1979] 1 All ER 965, CA
PP offered to sell a machine to DD on certain fixed terms including a price

variation clause, which were said to prevail over any other terms in the
buyers' order. DD replied by placing an order on their standard order form,
in which some of the terms were significantly different and there was no
price variation clause. The order form incorporated a tear-off slip which
read "We accept your order on the terms and conditions stated thereon",
and this was signed and returned by PP. The Court of Appeal said DD's
order on different terms constituted a counter-offer, which was accepted
by PP when they returned the tear-off slip without further amendment.
When there is a "battle of forms", said Lord Denning MR, it will be found in
most cases that the contract is complete as soon as the last form is sent
and received without objection being taken to it.
Acceptance is normally effective and the contract complete when it is received

by the offeror, but special rules have been devised to cover acceptance by post.
Because of the time a letter spends in the postal system, there must inevitably
be a period of uncertainty for one party or the other, and since the offeror can
always protect himself by stipulating a different mode of acceptance the rule of
default is one that protects the acceptor.
Adams v Lindsell (1818) 106 ER 250, Lord Ellenborough

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D wrote to P offering to sell some wool, and asked for a reply "in course of
post". This offer was delayed two days in the post, and consequently P's
acceptance was late in coming back. On the day before it arrived (but
after it had been expected), D sold the wool elsewhere. The court said P
was entitled to damages: his acceptance was complete when his letter
was posted, before the wool was sold to the third party.
This "postal rule" applies only to acceptances, not to withdrawals or other
communications, but applies even if the letter is lost or delayed in the post
unless the loss or delay is caused by the acceptor's error. It is a special principle
limited to letters sent by ordinary post, however, and is restricted to situations in
which the parties would reasonably have expected acceptance to be signified in
that way.
Entores v Miles Far East [1955] 2 All ER 493, CA
PP in London sent an offer by Telex to DD in Amsterdam, and the offer was

accepted by Telex. For technical reasons it became important to know
where the contract had been made. The Court of Appeal said it had been
made in London: the postal rule applies only to ordinary letters. The
sender of a Telex message knows almost immediately whether or not it
has been received, so there is no period of uncertainty requiring a special
rule. [By analogy, it would seem that the same should apply to fax
messages, but the status of telephone answering machines has yet to be
determined. Entores suggests that acceptance should take place only on
receipt of the message, but it seems wrong that the acceptor should bear
the risk of a faulty receiving machine or negligence on the offeror's part.
Can it be, as some writers suggest, that a telephone answering machine is
to be regarded as the subscriber's agent for the receipt of messages?]
Tenax Steamship v The Brimnes (The Brimnes) [1974] 3 All ER 88,

CA
An offeror sent by Telex a notice of withdrawal; it was sent at around 5.45

one afternoon but not read until the next day even though the receiving
office had been staffed until 6.30. The Court of Appeal agreed on the facts
that the withdrawal was effective from its arrival, but differed as to the
legal rule to be applied. Megaw LJ said that if a notice arrives at the
address of the person to be notified, at such a time and by such a means
that it would in the normal course of business come to his attention on its
arrival, he cannot rely on his own or his servants' failure to act in a
businesslike manner to postpone the effective time of the notice. Cairns LJ,
however, felt that the sender should not rely on the recipients' reading
every communication at once, and that in some circumstances a notice
arriving late in the working day might quite legitimately not be "received"
until the following morning.
Brinkibon v Stahag Stahl [1982] 1 All ER 293, HL
AA in London sent a telex to RR in Vienna accepting RR's offer and terms

of sale, and subsequently had occasion to sue for breach of contract. The
Court of Appeal said the claim must be set aside because the contract had
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been made outside the jurisdiction (i.e. in Vienna), and the House of Lords
agreed. Lord Wilberforce said there was no general rule that could cover
all the possible situations that might arise with the use of Telex machines:
each case must be resolved by reference to the intention of the parties, to
sound business practice, and in some cases to a judgment as to where the
risks should lie.
Holwell Securities v Hughes [1974] 1 All ER 161, CA
D gave PP an option to purchase certain property, exercisable by notice in

writing to D within six months. Within the required time, PP wrote to D
exercising their option but their letter, although properly addressed, never
arrived. Templeman J dismissed PP's claim for specific performance or
damages, and the Court of Appeal agreed. The wording of the offer was
enough to make it clear that acceptance without actual notification would
not be enough.
The growth of electronic communication has raised new (and as yet unanswered)
questions about the applicability of the postal rule to communications by e-mail
and via the world-wide web. On the one hand, there are those who argue that email is virtually simultaneous and that the postal rule should not apply, but this
takes no account of the fact that e-mail messages are sometimes rejected by the
server and that the recipient may not read the message immediately it arrives.
The majority of academic commentators have therefore tended to the view that
e-mail should be treated as a form of mail to which the postal rule should
normally apply (subject to its exclusion by the parties' clear intention).
Where the offeror sets up a web site that includes a reply form, this comes closer
to instantaneous communication because the offeree can tell at once whether
his acceptance has been received. There is a substantial body of opinion to the
effect that the postal rule should not apply here (and a quite sustainable view
that a web page, like a shop window, normally constitutes an invitation to treat
rather than an offer). But given the speed at which electronic communication is
still developing, there are strong policy reasons for ensuring that the rules for
electronic acceptance are the same no matter which particular form of software
is being used.
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CONSIDERATION
A contract not made under seal must be supported by valuable consideration. In
Currie v Misa (1875) LR 10 Exch 153 Lush J defined this as "some right, interest,
profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other". Consideration must be
of some value, but the courts have consistently refused to look at its adequacy.
Thomas v Thomas (1842) 114 ER 330, QB
P was the widow of J, who before his death had instructed his executors to
convey to her a cottage for the rest of her life in return for a payment of
1 a year towards the ground-rent. This was a very small sum even in
those days, and the executors' motive in agreeing was no doubt respect
for J, but the court found there was an enforceable contract. The 1 a year
was valuable consideration, and that was enough to complete the
contract.
Chappell v Nestl [1959] 2 All ER 701, HL
PP were the owners of a musical copyright, and DD as part of a promotion

offered records featuring this tune in exchange for 1s 6d [7p] and three
chocolate wrappers. In an action to recover royalties, the question was
whether the wrappers were part of the sale price. The House of Lords said
they were; a contracting party (said Lord Somervell) can stipulate for what
consideration he chooses, and a peppercorn does not cease to be valuable
consideration just because the promisee intends to throw it away.
Midland Bank v Green [1981] AC 513, HL
A farmer granted his son an option to purchase the farm at a low price,
but then sold the farm worth at least 40000) to his wife for 500. The son
sought to recover the farm from the wife, but the House of Lords said the
wife took free of the option because it was void (for the purposes of the
Law of Property Act 1925) against the purchaser of a legal estate for
money or money's worth. The 500 was valuable consideration, even
though it was manifestly inadequate.
Consideration must be clearly associated with the promise, and past

consideration is generally unacceptable.
Roscorla v Thomas (1842) 114 ER 496, QB
P bought a horse from D, and after the sale D promised that the horse
would be "sound and free from vice". In fact the horse proved to be vicious
and very hard to control, and P sued for breach of contract. The court said
he had no case; the only consideration he had given (the sale price of the
horse) was past by the time the promise was made, and the contract was
merely that D would deliver the horse on request.
Re McArdle [1951] 1 All ER 905, CA
The occupants of a house carried out various repairs and improvements,

and after the work was completed the beneficial owners of the house
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promised to pay for this work. When they did not do so the occupants
sued, but without success: the consideration for that promise was past
and there was no contract.
Lampleigh v Braithwait (1615) 80 ER 255, Common Bench
D, who had killed a man, asked P to try to get him a royal pardon. P went
to the King and was successful in obtaining the pardon, whereupon D
promised to pay him 100. When he did not pay, P sued in assumpsit and
won. The majority of the bench said that where the promisor makes a
request that the other do him some service, and (after the service is
performed) promises to pay for it, the promise and the request go
together and the contract is binding.
Stewart v Casey, Re Casey's Patents [1892] 1 Ch 104, CA
P1 and P2 wrote to D, "In consideration of your services as the practical

manager in working our patents ... we hereby agree to give you one-third
share of the patents, to take effect from this date." They later transferred
the patents to D during some fruitless negotiations, and after the death of
P1 his executors sought the return of the patents. D refused, claiming his
one-third share, and the executors sued. Bowen LJ in the Court of Appeal
said the fact of a past service raises an implication that at the time it was
rendered it was to be paid for, and if it was a service that was to be paid
for, when you get in the subsequent document a promise to pay that
promise may be treated ... as a positive bargain which fixes the amount of
the reasonable remuneration on the faith of which the service was
originally rendered.
Similarly, the performance of an existing public or contractual duty cannot

normally be offered as consideration.
Collins v Godefroy (1831) 109 ER 1040, KB
An expert witness P attended court for six days under D's subpoena, but
was not in fact called to give evidence. D subsequently promised to pay
him a fee of six guineas [6.30] for his time, but did not do so, and P sued.
Lord Tenterden CJ said that since the subpoena imposed a legal duty on P
to appear at court, his doing so was not consideration that could support
D's promise.
Glasbrook v Glamorgan CC [1925] AC 270, HL
AA were the owners of a colliery affected by a strike, and feared that the
strikers would bring out the safety men, which would result in flooding.
They asked the police to provide them with extra protection; the local
inspector said he thought the existing mobile force was sufficient, but
eventually agreed to provide 70 men in exchange for a written promise to
pay for the services provided. The extra police were sent to the mine, and
remained until the end of the strike. AA then refused to pay, and
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counterclaimed for the cost of feeding and housing the police at the
colliery. Affirming the decision of Bailhache J and the Court of Appeal, the
House of Lords said the police undoubtedly have a general duty to do
what they think necessary to keep the peace and prevent crime, and no
one can be made to pay extra for that. But when individuals desire special
services which although not within the obligations of the police can most
effectively be rendered by them, the police authorities may "lend" the
services of constables for that purpose in consideration of payment. If the
inspector believed in good faith that the garrison at the colliery was
unnecessary and agreed to provide it only to meet AA's request, they were
entitled to treat that as a special duty and charge for it.
Harris v Sheffield United [1987] 2 All ER 838, CA
A police authority claimed for the expense of providing officers to

supervise football matches; the club contended that the police were
merely fulfilling their existing duty to enforce the law. The Court of Appeal
upheld the judge's decision in favour of the police, and said that in
deciding whether police services are "special" and chargeable the court
should consider whether the officers are required to be in a private place
(making it something "extra"), whether violence has already occurred or is
thought to be imminent (making it a public duty), the nature of the event
(elections are clearly public, weddings clearly "extra", and football
matches in between) and whether officers must be brought in who would
otherwise be off duty or engaged elsewhere.
Ward v Byham [1956] 2 All ER 318, CA
The unmarried parents of a child separated; the mother P took the child,
and the father D offered to pay her 1 a week provided the child was well
looked after and happy. After some time D stopped paying, and when P
tried to enforce the payments he claimed there was no consideration for
his promise: P had undertaken to do only what she was already legally
bound to do. The Court of Appeal disagreed: by promising to "keep it
happy" she had gone beyond her statutory duty to maintain the child, and
that was consideration enough. An alternative explanation was offered by
Denning LJ, who said P had provided consideration inasmuch as D had
obtained what he wanted without the trouble of enforcing it in court, and
thereby derived a factual if not a legal benefit. Such an explanation
certainly avoids the rather forced ratio of the majority, and finds an echo
in the more recent decision in Williams v Roffey below.
Stilk v Myrick (1809) 170 ER 1168, KB
Following the desertion of two seamen and great difficulty in finding

replacements, the remaining members of a ship's crew were promised
extra wages if they would work the ship home. When the ship reached
London the seamen sought to enforce this promise, but the court found
against them. By staying at their work they did no more than their existing
duty, and so had given no new consideration for the new promise. They
were entitled to their wages originally agreed at the start of the voyage,
but occasional desertions were among the normal hazards of the sea and
they could not demand any extra payment.
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Hartley v Ponsonby (1857) 119 ER 1471, QB
A ship left England with a crew of 36, but as a result of desertions these
were reduced to only 19, including just five able seamen, who were
promised extra pay if they would help to sail the ship back to England. The
court said this promise was enforceable: the crew was so reduced that it
was dangerous to sail on and the captain would have had no right to
demand it. The original contract had come to an end, and the seamen
were free to make a new contract on whatever terms might be agreed.
Scotson v Pegg (1861) 158 ER 121, Exch
PP contracted with X to deliver a cargo of coal to X's order; X sold the

cargo and directed PP to deliver it to D. D then made an agreement with
PP that in consideration of their delivering the coal he would undertake to
unload it at 49 tons per day, but failed to do so. P sued, and D alleged that
the agreement was unsupported by any consideration. The court said that
although PP were already contractually bound to X, the new agreement
with D was potentially disadvantageous to them (since D as well as A
could now sue if they failed to deliver) and advantageous to D for the
same reason, and that was consideration for D's promise.
Williams v Roffey Bros [1990] 1 All ER 512, CA
Having agreed to refurbish a block of flats, the main contractors DD,

fearing that a sub-contractor P would fail to meet deadlines and so cause
penalties to be incurred on the main contract, offered him extra payments
for prompt completion. When P sought to enforce this promise, a
unanimous Court of Appeal said that if DD doubted whether P would
perform his contractual obligation, then a further promise by P to perform
that contract might be consideration for DD's offer of extra money so long
as the offer was not obtained by P's fraud or economic duress. There may
have been no legal benefit to DD, but they secured the practical benefit of
getting the work completed on time without the trouble of hiring a new
sub-contractor and risking P's bankruptcy if they sought to recover the
costs and penalties.
Special problems arise when a debtor (with his creditor's agreement) seeks to
settle a debt by part payment. He has given no consideration for the creditor's
promise to cancel the balance of the debt, and so cannot enforce this promise if
the creditor subsequently changes his mind.
Pinnell's Case (1602) 77 ER 237, CP
D owed a debt to P and was due to pay 8-10-0 [8.50]in November; at P's
request he paid 5-2-2 [5.11] in October and P accepted this in full
settlement. P then sued for the balance and succeeded on a technicality of
pleading, but the whole court made some further points of importance.
Payment of a lesser sum on the day of satisfaction of a greater, cannot
satisfy the debt as a whole; but where payment is made in a different form
(e.g. goods instead of cash) or at an earlier time or a different place from
that previously specified, with the creditor's agreement, the court will
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generally assume without enquiring too deeply that the creditor derived
some benefit from the change sufficient to provide consideration for his
agreement to forgive the balance of the debt.
Sibree v Tripp (1846) 153 ER 745, Exch
D owed P 1000, but an action for debt was settled when P agreed to
accept promissory notes for 300 in full satisfaction. After one of the notes
had been met, P sued again for the original debt, but the court said he
must fail. It is undoubtedly true, said Alderson B, that payment of a portion
of a liquidated demand, in the same manner as the whole ought to be
paid, is payment only in part. But if you substitute a piece of paper or a
stick of sealing-wax it is different, and the bargain may be carried out. A
man may give in satisfaction of a debt of 100, a horse worth 5 but not
5 itself. In the present case, if for money you give a negotiable security,
you pay in a different way. The security may be worth more or less: it is of
uncertain value.
Foakes v Beer (1884) LR 9 AC 605, HL
D obtained a judgment debt against P, but agreed to accept payment by

instalments over five years and not to take any further proceedings to
enforce the judgment. When all the instalments had been paid, D claimed
the interest added automatically to a judgment debt not paid promptly,
and the House of Lords reluctantly upheld her claim. P had given no
consideration for D's promise not to make such a claim, and D could not
be held to that promise.
Collier v Wright [2007] EWCA Civ 1329
The respondents W obtained a judgment for some 50 000 against three

partners, including the appellant C. Each of the partners was jointly and
severally liable for the whole debt, but W allegedly agreed to accept
instalments totalling one-third of the sum from each of them. C paid his
agreed instalments, but the other two partners went bankrupt and W
sought to enforce the whole judgment against C. In preliminary
proceedings, the Court of Appeal said C might have an arguable case in
promissory estoppel (below), but reaffirmed the rule in Pinnel's Case that
part-payment of a debt, unsupported by any further consideration, cannot
discharge the debt.
The equitable principle of promissory estoppel provides a limited exception to

the rule requiring consideration to be given in exchange for an undertaking not
to enforce a debt.
Hughes v Metropolitan Railway (1877) LR 2 AC 439, HL
In October the landlord A of a house gave the tenants RR six months'

notice to carry out certain repairs, the lease being forfeit if they failed to
do so. RR replied, suggesting that A might like to buy back the lease and
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indicating that no repairs would be done while negotiations took place.

Negotiations were opened in November but broken off in December, and
in April, at the expiry of the original six months, A purported to forfeit the
lease and sought to take possession. The House of Lords held as a
fundamental principle of equity that the landlord's entry into negotiations
amounted to a waiver of his right to insist on repairs according to the
lease; this right was resumed and the six months recommenced when the
negotiations broke down.
Central London Property v High Trees House [1947] KB 130,
Denning J
In 1937 the owners PP leased a block of flats in London to DD at an agreed
rent. When war broke out, many flats were left empty as people moved
out to escape the bombing, and PP agreed to reduce the rent by half. DD
paid the reduced rent until the end of the war, and PP then claimed for the
"arrears". Denning J said that although PP were once again entitled to the
rent originally agreed after the war ended, they could not go back on their
promise to accept a reduced rent for the earlier years. When a party to a
contract makes a promise to the other, which he knows will be acted on,
that he will not enforce his strict legal rights, the equitable principle of
promissory estoppel makes that promise binding on him until such time as
he gives reasonable notice of his intention to resume those rights.
Combe v Combe [1951] 1 All ER 767, CA
W was granted a divorce nisi from her husband H. H promised to allow her
100 per annum after tax by way of maintenance, and so W did not apply
to the court for a formal maintenance order. After the divorce was final, H
made no payments and W sued. Byrne J gave judgment in her favour, but
the Court of Appeal said this was not a case in which promissory estoppel
could be used. Denning LJ said the principle stated in High Trees does not
create new causes of action where none existed before; it only prevents a
party from insisting on his strict legal rights when it would be unjust to
allow him to enforce them. Birkett and Asquith LJJ were equally clear that
promissory estoppel must be used as "a shield and not a sword", though
that is not to say that it can only ever be used by a defendant.
Tool Metal v Tungsten Electric [1955] 2 All ER 657, HL
PP were the owners of certain patents, who licensed DD to deal in the

protected products subject to the payment of certain royalties. When war
broke out, PP agreed to accept reduced royalties because of the
importance of the products to the war effort. After the war, PP sought to
recover the full royalties from 1945 onwards, but DD said no new
agreement restoring the original royalties had been reached. Allowing PP's
claim, the House of Lords said forbearance by one party to insist on his
rights does not amount to a new contract. Although equity required that
the other party be made aware that a temporary concession was to be
terminated, no particular form of notice was required. So long as
reasonable notice was given that the first party intended to insist on his
full legal rights again (for the future, not for the past), this could be formal
or informal or even the occurrence of a particular event.
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D & C Builders v Rees [1965] 3 All ER 837, CA
PP were a small firm in some financial difficulties, who were owed nearly
500 by D for work they had done. Eventually D's wife offered to pay 300
in full settlement, saying that if this was not accepted nothing would be
paid. PP reluctantly agreed, but subsequently sued for the balance. The
Court of Appeal upheld their claim, distinguishing Sibree v Tripp and
disapproving some later decisions, and saying that a cheque was no
different from cash. Where a genuine agreement was reached that the
creditor would accept a lesser sum in settlement of a debt, said Lord
Denning MR, equity might then intervene to prevent his insisting on his full
legal rights if it would be unjust and unreasonable for him to do so, but
this was not such a case.
In Alan v El Nasr [1972] 2 All ER 127, a rather complicated commercial case, Lord
Denning MR said the principle of waiver (that is, promissory estoppel under
another name) is that if one party by his conduct leads another to believe that
the strict rights arising under the contract will not be insisted upon, intending
that the other should act on that belief, and he does act upon it, then the first
party will not afterwards be allowed to insist on the strict legal rights when it
would be inequitable for him to do so. Stephenson LJ, concurring in the decision
on the facts, left open the question whether the other party's action could be any
alteration of his position or must be to his detriment.
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PRIVITY
It is a fundamental principle of English law that no one can derive rights or
obligations from a contract to which he has given no consideration and is hence
not a party. This doctrine, known as privity of contract, is still substantially valid
but has been modified in various ways.
Tweddle v Atkinson (1861) 121 ER 762, QB
A man P married a woman G. P's father and G's father agreed between
themselves that they would give 100 and 200 respectively to P as a
marriage portion and dowry, but both fathers died before G's father had
paid up. P sued G's father's executor for the promised money, but the
court said he was not privy to the contract and his action must therefore
fail.
Dunlop v Selfridge [1915] AC 847, HL
Dunlop and Dew made a contract for the sale and purchase of motor tyres,
with a condition that they should not be resold below a certain price. Dew
and Selfridge then made a contract containing a similar terms. When
Selfridge broke their agreement and sold the tyres to the public at less
than the agreed price, Dunlop were unable to enforce the agreement: they
had not been party to the contract with Selfridge.
It is not always obvious, of course, who should be regarded as the parties to a

contract particularly where the contract itself is implied from conduct. If several
people go to a restaurant and each orders a meal, then it is arguable that each
of them individually has made a contract and undertaken to pay for the meal,
even though at the end the bill is settled by just one of the party.
Certain statutes create exceptions to the doctrine. The Road Traffic Act 1972
allows an injured third party in certain circumstances to claim directly on the
contract between a negligent driver and his insurance company. Similarly, the
Married Women's Property Act 1882 allows a widow or orphan to enforce
against the company a life assurance contract taken out for her benefit by her
husband or father.
A third party may also be able to pursue a concurrent action in tort.
Donoghue v Stevenson [1932] AC 562, HL
P went to a caf with a friend, who bought her a bottle of ginger beer.
After drinking most of it, P found a decomposed snail in the bottle and
became ill. P had no contract with the caf, so she sued the manufacturers
in delict (the Scottish equivalent of tort). The House of Lords said the
manufacturers had a duty of care to the consumer of their product.
Alternatively, an action may be based on a collateral contract, which may be

implied rather than explicit.
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Shanklin Pier v Detel Products [1951] 2 All ER 471, McNair J
The owners PP engaged contractors CC to paint the pier and specified

DD's paint; the paint (bought by CC) did not wear as well as DD had
promised, and the court found a collateral contract under which PP could
recover damages. PP had given consideration by instructing the
contractors to use DD's paint, and that was sufficient consideration.
A party to a contract may assign to a third party his right to enforce the contract
and so obtain the benefits there under: the right thereby transferred is known as
a "chose in action". Assignment takes place automatically when a person dies the contracts to which he is party can (with a few exceptions) be enforced by or
against his personal representatives - or when he becomes bankrupt and most of
his contractual rights devolve upon his trustee in bankruptcy.
Linden Gardens v Lenesta Sludge [1993] 3 All ER 417, HL
MH removed the asbestos from a building under a contract with SC, who
then sold the building to PP. The work was defective and PP suffered
financial loss as a result. The House of Lords held that where the original
contractor was aware that the building was to be sold on, so that defective
work could lead a third party to suffer loss of essentially the same nature
as the original buyer would suffer if the building were not sold, such loss
was damage for which the original buyer (if he had not assigned his rights
to the purchaser) could sue on the purchaser's behalf.
Darlington BC v Wiltshier Northern [1995] 3 All ER 895, CA
PP arranged for a finance company to arrange for the contruction of a

building for PP's use. The work was badly done, and in preliminary
proceedings the Court of Appeal overruled the Official Referee and held
that a third party to a building contract, where it was the parties' intention
that the contract should be for the benefit of the third party, and where
the contracting party's rights against the builder were assigned to the
third party, can sue the builder for substantial damages for defects in the
building work.
Covenants over land may operate in favour of (or against) future owners of the
land involved, and s.56 of the Law of Property Act 1925 provides that a
person may take an ... interest in land or other property ... although he may not
be named as a party to the conveyance or other interest. This consolidates some
of the earlier common law rules relating to real property, which clearly saw
certain rights and obligations as belonging to the land rather than to any
individual.
Smith & Snipes Hall v River Douglas Catchment Board [1949] 2 All
ER 179, CA
D had contracted with the former owners of a piece of land to keep the
river banks in good repair; the Court of Appeal allowed the new owner and
lessee of the land to enforce this agreement, since it was clearly intended
to attach to the land rather than to the individual who originally made it.
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Tulk v Moxhay (1848) 41 ER 1143, Lord Cottenham LC
P sold to X a piece of land in Leicester Square, taking covenants that (inter

alia) the land would not be built upon. After several conveyances the land
was conveyed to D, who knew of the original covenants even though they
were not included in his conveyance. P brought an action to restrain D
from building on the land, and the Lord Chancellor upheld the Master of
the Rolls' order to this effect. A purchaser of land, he said, can be bound
by a restrictive covenant to which he was not an original party, so long as
he has notice of the covenant and the original promisee still has some
interest to be protected.
Several cases have turned on the question of the validity or otherwise of a third
party exclusion clause.
Scruttons v Midland Silicones [1962] 1 All ER 1, HL
A contract between the owner of goods and a carrier purported to limit the
liability of the carrier's subcontractor. Lord Reid said that there might be a
contract between owner and subcontractor, making this limitation
effective, if four conditions were satisfied. The clause must clearly extend
to the subcontractor, the carrier must clearly be acting as agent for the
subcontractor (in making the contract) as well as on his own account, such
agency must be authorised or ratified by the subcontractor, and the
subcontractor must have provided some consideration for a contract
between himself and the owner. In the instant case the fourth condition
was not satisfied and the contract could not be shown to exist, so the
clause was ineffective.
New Zealand Shipping v Satterthwaite [1974] 1 All ER 1015, PC
The facts were similar to those in Scruttons, but in this case the
subcontractors had performed their part of the agreement and unloaded
the ship. Although they were already under a contractual obligation, this
obligation was to the carrier and not to the owner, and so could form new
consideration in respect of a "third party".
Norwich CC v Harvey [1989] 1 All ER 1180, CA
A contract for a major shopping development provided that the owner (not
the contractor) was to bear all fire risks, and a sub-contractor had dealt
with the main contractor on that basis. When fire damage was caused
through the sub-contractor's negligence and the owner sued in tort, the
court said it would not be just and reasonable to exclude the subcontractor from the protection of the clause, even though he was not party
to the contract in which it was contained.
The Contracts (Rights of Third Parties) Act 1999 now provides that a third
party has the right to enforce a contract if the contract expressly states that it is
to be enforceable by that third party or if it purports to confer a benefit on him,
and that the third party's right to enforce cannot be taken away without his
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consent once he has informed the contracting parties of his acceptance of the
contract or has acted in reliance on the contract. The third party's rights are
subject to the same defences as the parties have against one another, but
otherwise are additional to, and not in substitution for, existing third-party rights.
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INTENTION TO CREATE LEGAL RELATIONS

The courts will not enforce any contract unless it is clear that the parties
intended to be legally bound by their agreement. It is presumed that this is the
intention in normal commercial contracts, and that it is not the intention in
respect of domestic and social agreements, but each of these presumptions is
rebuttable.
Balfour v Balfour [1919] 2 KB 571, CA
A civil servant D was about to return to his work in Ceylon, leaving his wife
P in England. D promised to pay P 30 a month until he returned, in
exchange for her agreement to support herself without calling on him for
any other maintenance. They subsequently divorced, and P sought to
enforce D's promise. The Court of Appeal said that although there was
consideration in P's promise, there was no contract. There are many
agreements, said Atkin LJ, including most agreements between husband
and wife, which the parties never intended they might be sued upon.
Agreements such as these are outside the realm of contracts altogether.
Jones v Padavatton [1969] 2 All ER 616, CA
A woman P made an offer to her daughter D, then in a well-paid job in the

USA, that P would maintain D if D came to England to read for the Bar. D
agreed and moved to England, and began her studies. Two years later P
offered to buy a house in England, to be occupied partly by D and partly
by tenants whose rent would go to D in lieu of the maintenance payments,
and again D agreed. The house was in P's name, and three years later P
claimed possession. The Court of Appeal said she should succeed; the
agreement between mother and daughter was a family arrangement not
intended to be legally enforceable.
Buckpitt v Oates [1968] 1 All ER 1145, Stephenson J
P and D were 17, and each commonly rode in the other's car. On one
occasion, P was injured through D's careless driving, and claimed against
D's insurance. P had paid 10s [50p] towards the cost of petrol, and it was
necessary to decide whether there was a contract of carriage. The judge
said there was not: there was merely a friendly agreement to go on this
particular trip, giving rise to no legal obligations or rights except those
which the general law of the land imposes.
Merritt v Merritt [1970] 2 All ER 760, CA
A husband H left his wife W and went to live with another woman. H
promised to pay D 40 a month, and they made a written agreement that
in consideration of W's paying off the mortgage on their jointly-owned
house, H would transfer it to her sole ownership. The Court of Appeal
upheld Stamp J's ruling that this was a legally enforceable contract. In
these cases, said Lord Denning MR, the court looks at the situation in
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which they were placed and asks whether reasonable people would regard
this agreement as one intended to be binding.
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Simpkins v Pays [1955] 3 All ER 10, Sellers J
A football pool syndicate consisting of D, D's granddaughter G and D's

paying lodger P won 750 in a fashion competition in a Sunday
newspaper. Each had filled in one line; the entry had been sent in D's
name, and it was G's selection that had won, but it was understood that
whichever line won they should share the prize equally. The judge said
this was a binding contract, and P was entitled to one-third of the
winnings.
Rose & Frank v Crompton [1925] AC 445, HL
DD, who manufactured paper tissues, entered into an agreement making

PP their sole agents in the USA for a period of three years, subsequently
extended to seven years. The agreement contained a clause stating that it
was not entered into as a legal agreement but was a definite expression of
the intention of the parties to which they honourably pledged themselves.
Five years later, DD refused to supply goods ordered by PP. The Court of
Appeal said there was no contract. The House of Lords said there is a
strong presumption that commercial agreements are intended to be
legally binding, but the wording of this agreement made it quite clear that
it was not so intended. The agreement was therefore unenforceable, but
orders placed and accepted under the agreement were separate contracts
legally enforceable in their own right.
Jones v Vernon's Pools [1938] 2 All ER 626, Atkinson J
The conditions of entry of a football pool competition stated that the

sending in of the coupon should not give rise to any legal relationship and
that the arrangements of the pool were binding in honour only. P claimed
to have sent in an entry but DD denied having received it; it was conceded
that had it been received it would have won a prize. The judge said the
agreed conditions prevented P from succeeding in his claim; there was
clearly no intention to create legal relations, and it was consequently
unnecessary to decide the issue of fact.
Edwards v Skyways [1964] 1 All ER 494, Megaw J
An airline DD found it necessary to make some pilots redundant, and P

was among those given notice in accordance with his contract. After
discussions with the relevant trade union, DD agreed that pilots made
redundant would each receive a certain ex gratia payment. P
subsequently sued for this payment (for which it was conceded he had
given consideration) but DD claimed the agreement was not intended to
be binding. The judge said that since it related to business matters DD had
the burden of showing that it was not, and they had not discharged that
burden. The use of the words "ex gratia" he took to mean simply that DD
did not admit any pre-existing liability, not that their promise once
accepted should have no effect in law.
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Esso Petroleum v Customs & Excise [1976] 1 All ER 117, HL
A petrol company AA offered a free "world cup coin" to any motorist

buying four gallons of petrol, and millions of such coins were distributed;
the Excise claimed that these coins were being sold and so were liable to
tax. The Court of Appeal held (as a matter of common sense, per Lord
Denning MR) that the coins were not sold but were distributed as free
gifts, and the House of Lords dismissed RR's appeal. Viscount Dilhorne and
Lord Russell said AA had not intended to enter into legal relations and
there was no contract; Lords Simon and Wilberforce said there was a
contract, but not a contract of sale: the motorist's consideration was his
offer to buy four gallons of petrol. Lord Fraser, dissenting, said the
motorist had contracted to buy four gallons and a coin, and the coin was
no more a free gift than a baker's offer of a thirteenth "free" bun to
anyone who bought twelve.
Kleinwort Benson v Malaysia Mining Corporation [1989] 1 All ER
785, CA
A company DD issued "letters of comfort" asserting that their policy was
to ensure that a subsidiary company had at all times sufficient resources
to meet its obligations. Hirst J said the ambiguous language of the letters
was not sufficient to rebut the presumption that commercial agreements
(in this case, an implied guarantee) are legally binding, but the Court of
Appeal disagreed. The letters contained a statement of present intention,
they said, not an undertaking as to future conduct, and in the absence of
misrepresentation could not be interpreted as giving rise to any binding
obligation.
Pitt v PHH Asset Management [1993] 4 All ER 961, CA
An intending house buyer P was the victim of "gazumping", but produced

correspondence showing that DD had agreed not to consider any other
offers on the understanding that P would exchange contracts within two
weeks of receiving the draft contract. The Court of Appeal said this
agreement was enforceable even though the sale had been agreed
"subject to contract". Each side had given and received consideration, said
Peter Gibson LJ, and this was not itself a contract for the sale of land
subject to the Law of Property (Miscellaneous Provisions) Act 1989.
It was an enforceable collateral contract, and P was entitled to damages in
respect of the breach.
Taylor v Dickens (1997) Times 24/11/97, Judge Weeks QC
A woman X told her part-time gardener P that she intended to leave him
her house in her will; P said he would not accept any payment for the
gardening he did or other help he gave. X subsequently made three wills
in which P was her residuary legatee, but in a fourth will she left the
residue to someone else. X died, and P sought a declaration that he was
entitled to X's residuary estate. Refusing the declaration, the judge said
there had been a statement by either side, but no offer and acceptance,
and hence no agreement capable of amounting to a binding contract.
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Even if there were an agreement, X's obligation was merely to make a will
in P's favour, not to refrain from revoking it. And in any case, there was no
intention to create a legal relationship.
R (Wheeler) v Prime Minister [2008] EWHC 1409 (Admin)
In 2004 the then Prime Minister promised both inside and outside
Parliament that the government would not ratify the EU Constitutional
Treaty unless and until it was approved by a referendum. That treaty was
abandoned following its rejection by France and the Netherlands, but a
new Treaty of Lisbon (containing many similar provisions) was agreed in
2007 and put forward for ratification in 2008. The applicant sought to
challenge the government's decision to ratify this new treaty without a
referendum. Rejecting the challenge on several grounds, the
Administrative Court said the subject-matter, nature and context of a
promise of this kind place it in the realm of politics, not of the courts, and
the question whether the government should be held to such a promise is
a political rather than a legal matter.
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THE NEED FOR CERTAINTY

In addition to the above elements: offer, acceptance, consideration, and an
intention to be legally bound, there must be certainty: the courts will not enforce
any contract unless it is sufficiently clear and complete.
Guthing v Lynn (1831) 109 ER 1130, KB
P bought a horse for 63 and promised D an extra 5 "if the horse is

lucky". Lord Tenterden CJ said the promise was too vague to be a legally
enforceable contract.
Hillas v Arcos (1932) 38 Com Cas 23, HL
A detailed agreement for the supply of timber by RR to AA during 1930

also contained an option clause, allowing AA to buy more timber during
1931 but omitting details such as the type of wood, the sizes required, and
the ports to which it was to be shipped. The House of Lords said there was
still a binding contract in respect of the later year; it showed a clear
intention to be bound, and the details not resolved in the document could
be supplied by reference to the previous dealings between the parties and
the normal practices of the timber trade.
May & Butcher v R [1934] 2 KB 17n, HL (speeches 1929)
PP brought a petition of right (an old form of legal action against the
Crown) claiming it had been agreed they should be permitted to purchase
all the surplus tentage to be disposed of up to March 1923. The alleged
contract stipulated that the prices and dates should be agreed upon from
time to time between the parties, subject to arbitration if no agreement
could be reached. The House of Lords said that there was no concluded
contract between the parties: an agreement in which some critical part of
the contract matter is left undetermined is no contract at all. A contract
may leave something still to be determined, but that determination must
not depend on the further agreement of the parties.
Edwards v Skyways [1964] 1 All ER 494, Megaw J
An airline DD found it necessary to make some pilots redundant, and P

was among those given notice in accordance with his contract. It was
agreed in negotiations that if P withdrew his own contributions from the
company pension scheme, as he was entitled to do, and gave up his
pension rights, DD would pay him an amount approximately equal to the
amount of their contributions. The judge said this did not make the
agreement too vague: on the evidence, he took it to mean at most a
reduction of a few pounds to give a round figure, and on that basis P
should succeed.
Malcolm v Oxford University (1990) Times 19/12/90, CA
P brought an action against publishers DD claiming they had failed to

publish a book of his as had agreed in a telephone conversation. Lightman
QC at first instance said even a firm undertaking to publish P's work could
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not be construed as a contract because of the absence of any agreement

as to its format, price, number of copies and so on. Had just one detail
been missing the court might have used its discretion to infer a reasonable
term, but here the omissions were simply too great. The Court of Appeal
disagreed: there was a common practice even in formal contracts that
such matters were left to the publisher's discretion, and it was enough
that "a fair royalty" had been promised.
Walford v Miles [1992] 1 All ER 453, HL
Two groups negotiating over the sale of a business agreed that so long as
AA provided a bankers' letter by a certain date RR would not negotiate
with any third party, and would continue to negotiate with AA in good
faith. The House of Lords said the agreement was unenforceable for lack
of certainty. AA claimed the obligation to negotiate only with them
continued until such time as RR had "a good reason" to break off, giving
the necessary certainty, but Lord Ackner said this was inherently
repugnant to the essentially adversarial position of parties in negotiation.
Each side had the right to pursue its own best interests, and the right to
withdraw from further negotiation was an essential bargaining tool. An
agreement to "use best endeavours" to negotiate might be enforceable
since it set an objective standard, but "good faith" was too subjective a
concept for the courts to enforce. Similarly, an agreement not to negotiate
with any other party during a fixed period was prima facie enforceable,
but an agreement to negotiate only with AA "for a reasonable period" was
too vague, and could not in any case impose a positive duty to negotiate.
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UNIT TWO
FORM OF CONTRACT
FORM
Although there are some exceptions (e.g. contracts relating to interests in land,
of beneficial interests under a trust) the terms of a contract may be written, or
oral, or a mixture. A written contract was traditionally regarded as complete in
itself, but the modern tendency is to admit evidence of other oral terms where
this is appropriate.
Couchman v Hill [1947] 1 All ER 103, CA

The catalogue at an auction described a heifer as unserved (i.e. virgin),
but the conditions of sale excluded any warranty as to the condition of any
of the lots. While the heifer was in the ring, the owner D confirmed orally
that it was unserved, and P bought it. Eight weeks later the heifer died as
a result of an early pregnancy, and P sued. The Court of Appeal said the
verbal warranties were a part of the contract and P was entitled to
damages.
O'Brien v Mirror Group [2001] EWCA Civ 1279, Times 8/8/01, CA

A scratch-card game in the Daily Mirror offered a top prize of 50 000, and
the game was designed to produce one or two winners each week. On one
particular day, through a printing error, over a thousand winning cards
were printed and 1473 people claimed the prize. In accordance with the
competition rules, which had not been printed in that day's paper but
which had appeared previously and were referred to on the card, the
paper chose one claimant at random to receive 50 000 and provided an
extra 50 000 to be shared between the other claimants (about 35 each).
C, who had had a "winning card" but who received only 35, claimed he
was entitled to receive the full amount. Dismissing his claim, the Court of
Appeal said the rules had been properly incorporated into the contract.
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EXPRESS AND IMPLIED TERMS

In addition to the express terms of any contract, whether verbal or written, other
terms may be implied by the court in various ways.,
Ashmore v Lloyds [1992] 2 All ER 486Gatehouse J
said a term might be implied if it was necessary for business efficiency, and the
contract could not work without it; or if it was obvious that the parties would
have included it had their minds been directed to the point; or if the contract
were one of a common type, obvious gaps in which could be filled by the terms
normally expected in such contracts. Other writers say terms may be implied
according to the presumed intention of the parties, by custom, by statute, or by
common law. As a general rule, the parties may by agreement (explicit or
implicit) exclude any such implied terms, though there are certain statutory
limitations on this.
The Moorcock (1889) LR 14 PD 64, CA
AA were the owners of a wharf, and agreed that it should be used by R's
ship for loading cargo. The ship grounded and was damaged because of
the condition of the river bed, which was not under AA's control. The court
said AA were liable for this damage; it was an implied term that they had
taken reasonable steps to ensure the river bed adjacent to their wharf was
safe.
Shirlaw v Southern Foundries [1939] 2 All ER 113, CA; [1940] AC 701,

HL
P was appointed as managing director of DD's company for a period of ten

years. Majorities in the Court of Appeal and the House of Lords said there
was an implied term that DD would not remove P from his directorship
during that period, since any such removal would automatically terminate
his appointment as managing director. In the Court of Appeal, McKinnon LJ
said a clause to be implied in a contract should be such that had an
officious bystander asked while the contract was being made "But what
about so-and-so?", the parties would testily suppress him with "Oh, of
course".
Spring v National Amalgamated Society of Stevedores & Dockers
[1956] 2 All ER 221, Sachs

A trade union DD admitted P to membership in breach of the inter-union
"Bridlington agreement". When their attention was drawn to the breach
they sought to expel P, claiming an implied term in the membership
contract that the Bridlington agreement should be complied with. The
claim failed: the judge said that had an officious bystander asked P "What
about the Bridlington agreement?", the member's reply would not have
been "Oh, of course" but rather "What's that?".
Stubbes v Trower Still & Keeling [1987] IRLR 321, CA

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A final year law student P was offered employment with a firm of solicitors
DD, to begin when he completed his studies. He failed his final exams and
DD refused to take him on. The Court of Appeal declined to imply a term in
the agreement that the offer was conditional on his passing the
examinations, even though such a clause was reasonable and quite usual,
because it could have been that the parties had they considered the point
would have made some other equally reasonable arrangement.
Ashmore v Lloyds [1992] 2 All ER 486, Gatehouse J
A Lloyds "name" P claimed the Committee of Lloyds were at fault in

allowing him to entrust his entire fortune to an underwriter, and alleged an
implied term in the contract that they would warn him of the dangers of so
doing. The judge refused to imply such a term: Lloyds' response to the
officious bystander, he felt, would not have been "oh, of course" but (after
reference to their lawyers) most likely an uncompromising "no".
Terms may also be implied by the custom of a particular trade, and a series of
contracts between the same two parties, always on the same terms, will usually
lead the court to imply the same terms (insofar as they are not inconsistent with
the express terms) in the present contract.
Hutton v Warren (1836) 150 ER 517, Exch
The landlord D of a farm gave his tenant P notice at Michaelmas to quit

the farm at Lady Day following. In October D insisted that P was bound by
custom to continue to cultivate the farm, and gave him notice to that
effect. When P left the farm in the spring, he claimed an allowance (again
according to custom) for the seeds and labour he had put into the land.
The Court of Exchequer said both these customs had been incorporated
into the lease. In commercial transactions, said Parke B, extrinsic evidence
of custom and usage is admissible to annex incidents to written contracts
in matters with respect to which they are silent.
Affrteurs Runis v Walford [1919] AC 801, HL
A charterparty negotiated by R provided that the broker's commission was

payable on signing the charter, but the ship was requisitioned by the
French government and never entered into service under the charterparty.
The owners AA showed a custom of the sea that commission was payable
only on hire duly earned, but the House of Lords said the express terms of
the charterparty were enough to override this implied term.
Gubertini v Waller [1947] 1 All ER 746, Cassels J
P was a musician engaged to perform for the run of a play produced by D.

After 11 weeks' run in the provinces D gave P 14 days' notice that the run
was to end, and sold the play to another producer who produced it in
London with different musicians. P sued for breach of contract, but the
judge said the provincial run had come to an end and the custom of the
theatrical profession was that 14 days' notice was what was normally
given; P therefore lost his case.
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Spurling v Bradshaw [1956] 2 All ER 121, CA
PP were warehousemen, and D had dealt with them on many occasions.

He delivered to them eight barrels of orange juice, and was sent a receipt
which he did not read. When he came to collect the barrels he found them
empty, but PP pointed to an exemption clause on the receipt. D argued
that this clause could not be part of the contract because he had not been
sent it until after the contract had been concluded, but admitted that he
had often received similar documents from PP in the past. The Court of
Appeal said there had been a consistent course of dealing, and terms from
the previous contracts could be implied in the present case as long as they
were not inconsistent with express provisions.
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Mount v Oldham Corporation [1973] 1 All ER 26, CA
P was the proprietor and headmaster of a small independent school for

maladjusted children, to which DD sent four pupils. When P was accused
of sexual abuse the other staff continued to run the school, but DD
withdrew their pupils until P was completely exonerated some five months
later. P now claimed the fees due for the term the pupils had missed, and
the Court of Appeal (reversing the judge) held he was so entitled. It is a
well-known custom in the educational world, said Lord Denning MR, that a
parent wishing to withdraw his child from school must give a term's notice
or pay a term's fees in lieu.
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TERMS IMPLIED BY STATUTE

Most of these implied terms are much older than they seem, having been
derived from common law and then contained in earlier statutes consolidated
and replaced by later Acts.
Sale of Goods Act 1979 (as amended)
8(2) Where the price is not determined [by the contract or by the course
of dealing between the parties] the buyer must pay a reasonable price.
12(1) In a contract of sale there is an implied condition that the seller has
a right to sell the goods.
13(1) Where there is a contract for the sale of goods by description, there
is an implied term that the goods will correspond with the description.
14(2) Where the seller sells goods in the course of a business, there is an
implied term that the goods supplied under the contract are of a
satisfactory quality.
14(2A) Goods are of satisfactory quality if they meet the standard that a
reasonable person would regard as satisfactory, taking account of any
description of the goods, the price (if relevant) and all the other relevant
circumstances.
14(2B) The quality of goods includes their state and condition and the
following (among others) are in appropriate cases aspects of the quality of
the goods: (a) fitness for all the purposes for which goods of the kind in
question are commonly supplied; (b) appearance and finish; (c) freedom
from minor defects; (d) safety; and (e) durability.
14(2C) The term implied by subsection (2) above does not extend to any
matter making the quality of goods unsatisfactory (a) which is specifically drawn to the buyer's attention before the contract
is made, or
(b) where the buyer examines the goods before the contract, which that
examination ought to reveal, or
(c) in the case of a sale by sample, which would have been apparent on a
reasonable examination of the sample.
14(2D) If the buyer deals as consumer ... the relevant circumstances
mentioned in subsection (2A) above include any public statements on the
specific characteristics of the goods made about them by the seller, the
producer or his representative, particularly in advertising or on labelling.
14(3) Where the buyer sells goods in the course of a business and the
buyer, expressly or by implication, makes known any particular purpose
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for which the goods are being bought, there is an implied condition that
the goods are reasonably fit for that purpose.
15(2) In the case of a contract for sale by sample there is an implied
condition ... that the bulk will correspond with the sample in quality.
Sections 8-11 of the Supply of Goods (Implied Terms) Act 1973 apply
ss.12-15 of the 1979 Act above mutatis mutandis to hire purchase contracts.
Part I of the Supply of Goods and Services Act 1982 applies ss.12-15 of the
1979 Act above mutatis mutandis to hire contracts and to other contracts under
which goods are to be transferred. Part II includes three further implied terms in
contracts for services.
Supply of Goods and Services Act 1982

13 In a contract for the supply of a service where the supplier is acting in
the course of a business, there is an implied term that the supplier will
carry out the service with reasonable care and skill.
14(1) Where the time for the service to be carried out is not fixed by the
contract, there is an implied term that the supplier will carry out the
service within a reasonable time.
15(1) Where the consideration for the service is not determined by the
contract or by the course of dealing there is an implied term that the party
will pay a reasonable charge.
Satisfactory quality and fitness for purpose
The concept of satisfactory quality was introduced by the Sale and Supply of
Goods Act 1994, and replaces the older notion of "merchantable quality".
Goods were considered to be of merchantable quality ... if they were as fit for the
purpose or purposes for which goods of that kind are commonly bought as it is
reasonable to expect having regard to any description applied to them, the price
(if relevant) and all the other relevant circumstances. One disadvantage of this
definition was that if it became known that goods of a certain type were
commonly shoddy, it would arguably be unreasonable to expect otherwise. A
new case law on "satisfactory quality" will no doubt develop in due course; until
it does, some of the older cases on merchantable quality may still be relevant if
treated with some caution.
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Wren v Holt [1903] 1 KB 610, CA
A pub run by D was tied to a particular brewery; a customer P became ill

after drinking large amounts of the beer, and tests showed that the beer
contained a quantity of arsenic. The Court of Appeal upheld a decision of
Wills J and a jury that D was liable in contract for supplying beer not of
merchantable quality.
Grant v Australian Knitting Mills [1936] AC 85, PC (Australia)
P contracted dermatitis from chemicals still in a pair of underpants

manufactured and sold by DD. The Privy Council said that where an article
sold is clearly meant for just one purpose, it is not of merchantable quality
unless it is fit for that purpose. Simple washing would have removed the
chemicals, but it was not reasonable to expect P to wash the pants before
wearing them.
Heil v Hedges [1951] 1 TLR 512, McNair J
P suffered trichinosis as a result of a parasite in a pork chop. The judge

found the chop was of merchantable quality: there would have been no
danger if P had cooked the chop properly before eating it, and the
importance of cooking pork properly was well known. Unlike the situation
in Grant, here a customer was expected to cook raw meat before eating it.
Wilson v Rickett Cockerell [1954] 1 All ER 868, CA
A housewife P was injured by the explosion of a detonator delivered in a

sack of Coalite. The Court of Appeal said that although the contract
specified a ton of Coalite (which P had received) and said nothing about
detonators, it was part of the consignment delivered in purported
fulfilment of the contract and so was covered by the Act. The consignment
as a whole was not of merchantable quality, and P was entitled to
damages.
Shine v General Guarantee [1988] 1 All ER 911, CA
P obtained an "enthusiasts' car" from a finance company DD on a hire

purchase agreement, the car having been described as being in good
condition. In fact it had been immersed in water for some time, and had
been written off by an insurance company, and although it had been
repaired and restored a fair price to anyone knowing its history would
have been much lower. There was no misrepresentation, but the Court of
Appeal said the car was not of merchantable quality and allowed P's claim
for damages equivalent to the difference between the true value and the
price paid.
Slater v Finning [1996] 3 All ER 398, HL(S)
Camshafts supplied by DD for use in PP's fishing boat failed because of

excessive torsional resistance caused by some unknown external factor,
and PP sued under s.14(3). They argued that since they had specified that
the camshafts were to be installed in that particular vessel, DD were
obliged to supply goods fit for use in that vessel with all its peculiarities.
The House of Lords agreed with the Court of Session in dismissing the
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claim: since DD had not been made aware of the vessel's peculiarities,
they could not exercise care and skill to deal with them. There was no
breach of the implied condition of fitness for purpose.
Jewson v Kelly (2002) Times 3/10/02, Foskett QC
CC sold twelve electric boilers to D, who subsequently refused to pay for

them, claiming they were not of satisfactory quality. In preliminary
proceedings, the deputy judge said the test is whether a hypothetical
"reasonable person" would consider them satisfactory, taking into account
inter alia the circumstances in which they were bought. The fact that they
worked satisfactorily was not enough: a reasonable person would have
said that a new form of boiler claiming to provide efficient low-cost home
heating should demonstrably meet that claim.
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Egan v Motor Services Bath [2007] EWCA Civ 1002
The claimant bought a car from the defendants. He found it had a

tendency to veer to the left and purported to reject the car as being of
unsatisfactory quality. The defendants denied that there was any such
fault, and the judge (after hearing expert evidence) found in their favour.
Dismissing the claimant's appeal, Ward LJ said it was not enough that the
vehicle was unsatisfactory to the purchaser: for the purposes of s.14(2A)
of the Sale of Goods Act 1979, goods are unsatisfactory only if they do not
meet the standard that a reasonable person would regard as satisfactory.
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TERMS IMPLIED BY COMMON LAW

Other terms may be implied by common law in certain types of contract where
such terms are likely to make those contracts efficacious. In a contract of
employment, for example, it is implied that the employee has undertaken to
perform his duties with reasonable skill and care, and that the employer on the
other hand will not require the performance of any illegal act.
Liverpool CC v Irwin [1976] 2 All ER 39, HL
When the landlords PP of a block of flats sought possession for nonpayment of rent, a tenant D alleged that PP were in breach of an implied
term that they would keep the common areas in good repair. The House of
Lords said since the contract contained no covenants by the landlord, the
court could imply the necessary terms taking into account all the
circumstances. There was an implied term that the landlord would
maintain the stairs, lifts and rubbish chutes in good repair; but there was
also an implied term that the tenants would behave reasonably, and since
on the facts the problems were at least partly the fault of the tenants or of
outside vandals, there was no breach of the landlord's obligations.
Scally v Southern Health Board [1991] 4 All ER 563, HL
An employer DD in Northern Ireland agreed with the BMA (representing

the employed doctors) a new pension scheme under which the doctors
had the right to buy in added years during its first twelve months of
operation. The Board failed to publicise this right, and as a result a
number of doctors lost the opportunity of buying in. The House of Lords
said an implied term of the new pension contract that the Board would
publicise the right was not essential to its efficacy, but was nevertheless
to be implied in the class of contracts based on collective bargaining,
where employees were given a valuable right that they could not
otherwise be expected to know.
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CONDITIONS AND WARRANTIES

Not all statements made by the parties are necessarily part of the contract, even
if they are relevant: some are representations rather than terms (and some are
both).
Schawel v Reade [1913] 2 IR 81, HL
The owner D of a horse told a prospective purchaser P that it was perfectly

sound, and P stopped examining it. Three weeks later P bought the horse,
and subsequently found it was unfit. The House of Lords said this was a
warranty and part of the contract: the essence of a warranty is that it is
made plain by words and/or deeds that the vendor takes upon himself
responsibility for the truth of the statement made.
Routledge v McKay [1954] 1 All ER 855, CA
A motor cycle was first registered in 1930, but through an error its
documents gave the date of registration as 1941. D told P that it was a
1941 model and pointed to the logbook, and a week later P bought the
motor cycle in a written contract making no reference to its age. P
subsequently discovered the error and sued for breach of contract; the
Court of Appeal said there was no warranty but only a misrepresentation,
and this not being fraudulent (before the 1967 Act) P had no remedy.
Birch v Paramount Estates (1956) 16 Est Gaz 396, CA
DD were the developers of an estate, and offered an uncompleted house

to P with the verbal promise that it would be as good as the show house. P
later agreed to buy the house, and the written contract made no reference
to this promise. The Court of Appeal had no trouble in regarding the earlier
verbal promise as part of the contract; the house was not as good as the
show house, and P was entitled to damages.
Oscar Chess v Williams [1957] 1 All ER 325, CA
A private seller D innocently misstated the age of a car to a dealer P,

relying on a previously altered date in the logbook, and on this basis PP
took the car in part exchange. Allowing D's appeal from the decision of the
trial judge, the Court of Appeal said that in spite of its importance this was
not a term of the contract but a mere misrepresentation. The seller had
relied upon the logbook and (having no special expertise) had not taken
on himself the responsibility for the truth of the statement.
Dick Bentley v Harold Smith Motors [1965] 2 All ER 65, CA
A private purchaser P asked a dealer D to find him a "well-vetted" Bentley

car. D found a car and told P it had done 20 000 miles on its current
engine, and P bought the car. In fact the car had done more than 100 000
miles and proved unsatisfactory, and P sued for damages. The Court of
Appeal said this statement was a warranty and hence a term of the
contract, since the dealer D was clearly in a better position than P to
know, or at least to find out, the truth of the statement. In Oscar Chess,
said Lord Denning MR, the seller had been able to show that his
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misrepresentation was innocent of any fault, but here the dealer should
have known better.
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Conditions and warranties

The terms of a contract may be conditions or warranties. The Sale of Goods
Act 1893 defined a condition as a term (in a contract of sale) that would, if
broken, entitle the other party to repudiate the contract, whereas breach of a
warranty could lead only to damages. Since the distinction is important primarily
in determining the available remedies, however, this is a circular definition! The
creation of a third category of so-called "innominate terms", in which the remedy
depends on the seriousness of the actual consequences, complicates matters
further.
Bettini v Gye (1876) LR 1 QBD 183, Blackburn J
A singer P agreed to perform for D, and the contract stipulated that he

should arrive six days before the first performance for rehearsals. Due to
illness P missed the first three rehearsals, and D refused to proceed. The
judge said this was not a fundamental condition and D could not terminate
the contract, although he was entitled to damages.
Poussard v Spiers & Pond (1876) LR 1 QBD 410, DC
An actress P agreed to play the leading role in an opera to be produced by

DD. Owing to illness she could not attend the last rehearsal or the first
four performances, and when she offered to take her part in the fifth
performance DD refused. P sued for wrongful dismissal, but the court said
her participation in the first four performances was a condition
fundamental to the contract, and its breach by P entitled DD to treat the
contract as terminated.
Hong Kong Fir v Kawasaki [1962] 1 All ER 474, CA
DD chartered a ship which was to be "in every way fitted for ordinary
cargo service", but which in fact was in a poor state of repair and
incompetently crewed. DD sought to terminate the contract, but the Court
of Appeal said this was a warranty rather than a condition, and the proper
remedy was an award of damages. Diplock LJ said in such cases the
seriousness of the consequences of a breach of contract - whether the
other party is deprived of substantially the whole benefit which it was
intended he should obtain - should determine whether repudiation or
damages was the more appropriate remedy, and that this rather than any
prior classification should decide whether the term was to be treated as a
condition or a warranty.
Maredelanto v Berghau-Handel (The Mihailis Angelos) [1970] 3 All

ER 125, CA
A shipowner P undertook to provide a ship "expected ready to load on or
about 1 July", and the contract said the charterer D should have the right
to cancel if the ship was not ready by 20 July. On 17 July, being unable to
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get a cargo, D cancelled the charter, and P sued. It was acknowledged in

court that this reason for cancelling was not sufficient, but D argued a
second reason, that P had no reasonable grounds for believing the ship
would be ready on 1 July. Mocatta J found as a fact that P was indeed in
breach of this implied term, and the Court of Appeal said this term was a
condition. Without expressly disapproving Hong Kong Fir, Megaw LJ said it
would tend towards certainty in the law if terms such as these were
treated as conditions regardless of their consequences, and in commercial
agreements it is best if both parties can say with assurance when they
draw up their contract which breaches will give a right to terminate and
which will not.
Bunge v Tradax [1981] 2 All ER 513, HL
A contract for the sale of soya bean meal provided for a delivery to be
made in June, the buyers giving fifteen days' notice of their readiness to
collect it. They gave such notice on 17 June, and the sellers claimed the
right to repudiate for breach of an essential term. Section 41 of the Law of
Property Act 1925 says a stipulation as to the time of performance is not
to be regarded as being of the essence of the contract, but the House of
Lords said there were exceptions to this. Here the contract itself expressly
stipulated that time conditions must be strictly complied with, and since it
was the parties' intention that a breach of these conditions should give a
right to terminate, that right would be upheld.
Lombard North Central v Butterworth [1987] 1 All ER 267, CA
D obtained a computer on a hire purchase contract; under which he was to

pay a deposit and nineteen quarterly instalments. The contract expressly
made prompt payment "of the essence" and entitled the finance company
PP to terminate and recover their loss of profit if payments were not made
punctually. D was late with a number of payments, and PP exercised their
right to terminate. The Court of Appeal upheld their claim, saying that
there was a clear breach of a term expressly declared to be a condition,
and there might well have been a good commercial reason for a clause
which at first sight seemed unreasonable.
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EXCLUSION AND LIMITATION CLAUSES

An exclusion clause is one that seeks to exclude from a contract some term
(such as one imposing a duty of care) that would otherwise be implied; a
limitation clause similarly seeks to limit liability for any breach of such a term.
The general rule is that the parties are free to determine the terms of their own
contract, but the courts and Parliament do not look favourably on exclusion
clauses and have found various ways of limiting their effect.
Incorporation and notice
Clearly no exclusion clause is valid if it is not part of the contract, and it is not
part of the contract unless both parties agreed to it at the time.
Parker v South Eastern Railway (1877) LR 2 CPD 416, CA
P left his bag in a railway cloakroom, paid 2d (twopence), and was given a
ticket on which were the words "See back"; on the back of the ticket was a
notice excluding liability for any package worth over 10. There was also a
notice to the same effect visible in the cloakroom. The bag was lost, P
sued, and DD relied on the exclusion clause. The court said it was a matter
of fact whether or not DD had done all that was reasonably necessary to
give notice of the clause, and in this case they had.
Thompson v LMS [1930] 1 KB 41, CA
P went on a railway excursion, and was given a ticket with the words
"Excursion: for conditions see back". On the back was a notice referring
customers to the conditions printed in the company's timetables (which
cost 6d each); these conditions excluded liability for any injury. P was
injured on the journey, but lost her claim. The Court of Appeal said the
ticket was a contractual document, and the fact that P could not read did
not alter the legal position. She should have realised that the special
excursion price might imply special conditions.
L'Estrange v Graucob [1934] 2 KB 394, CA
P ordered a slot machine from DD, and signed a standard printed order
form including (in very small print) a clause excluding any kind of
warranty. The machine did not work, and P claimed not to be bound by the
exclusion clause which she had not read. The court found against her: in
the absence of misrepresentation, a party who signs a document is
normally bound by its contents whether or not he has read them.
Chapelton v Barry UDC [1940] 1 All ER 356, CA
P hired a deckchair belonging to DD, paid the hire fee, and took a ticket
without reading it. The chair collapsed and P was injured; DD relied on a
clause printed on the ticket excluding liability for any injury. The Court of
Appeal said the ticket was not a contractual document - no reasonable
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person in the circumstances would have thought it anything more than a

receipt - so the clause had not been incorporated in the contract.
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Olley v Marlborough Court Hotel [1949] 1 All ER 127, CA
P was a guest at DD's hotel, and her fur coat was stolen from her
bedroom. In the bedroom was a notice excluding liability for theft of
articles not handed to the manageress for safe keeping, and DD relied on
this. The Court of Appeal said this notice could not have been part of the
contract, which was concluded at the reception desk before P entered the
bedroom.
Curtis v Chemical Cleaning & Dyeing [1951] 1 All ER 631, CA
P took a satin wedding dress to DD to be cleaned. She was asked to sign a

document containing a clause excluding DD's liability for damage of any
kind; before signing, she asked what the document was and was told that
it excluded liability for damage to beads or sequins. P signed without
reading the document; the dress was stained during cleaning, and P sued.
The Court of Appeal found in her favour: the assistant's innocent
misrepresentation of the effects of the document had the effect of
excluding the clause from the contract.
Thornton v Shoe Lane Parking [1971] 1 All ER 686, CA
P parked his car in DD's car park, paying his money and taking a ticket
from the automatic machine at the entrance. On the ticket, in small print,
was a notice referring to conditions displayed in the car park; these were
not visible from outside, and were quite lengthy, including one excluding
liability for any injury to a customer. When P returned later to collect his
car, there was an accident in which he was seriously injured, and he sued.
The Court of Appeal struck out this exclusion clause, holding (i) that so
wide-ranging and unusual an exclusion called for exceptionally clear and
explicit notice, and (ii) that in any case, the contract was complete when
the money was put into the machine at the entrance, before there could
be any possibility of reading the conditions.
Interfoto v Stiletto [1988] 1 All ER 348, CA
DD were an advertising agency who hired nearly fifty photographs from

PP; the photographs were supplied with a delivery note stating that they
were to be returned within 14 days and setting out a number of
conditions, including a "holding fee" of 5 per photograph per day for
lateness. DD kept the photographs for nearly a month, and PP claimed the
holding fee. The Court of Appeal applied Thornton and said that where a
contract includes any unusually onerous condition the party seeking to
rely on it must show that it was fairly and reasonably brought to the notice
of the other. The term should have been printed in bold type, for example,
or a separate covering note sent drawing attention to it.
Spurling v Bradshaw [1956] 2 All ER 121, CA
PP were warehousemen, and D had dealt with them on many occasions.

He delivered to them eight barrels of orange juice, and was sent a receipt
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which he did not read. When he came to collect the barrels he found them
empty, but PP pointed to an exemption clause on the receipt. D argued
that this clause could not be part of the contract because he had not been
sent it until. The Court of Appeal said there had been a consistent course
of dealing, and terms from the previous contracts could be implied in the
present case as long as they were not inconsistent with express
provisions.
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McCutcheon v McBrayne [1964] 1 All ER 430, HL
A asked his brother-in-law McSporran to send A's car via RR's ferry. McS
took the car to the ferry terminal, paid the freight charge and was given a
receipt. The ferry sank during the voyage and the car was lost. A sued for
its value, and RR sought to rely on an exclusion in their printed conditions
of carriage. These conditions were printed on the receipt and displayed in
the office, but neither A nor his agent McS had read these conditions (the
receipt in any case having been given only after the oral contract had
been concluded) and McS had not been asked to sign the "risk note" on
which the conditions were repeated. RR alleged that McS knew of the
conditions from a previous course of dealings, but the course was not
consistent: sometimes McS had been asked to sign a risk note and
sometimes he had not. Where conduct is not consistent, said Lord Pearce,
there is no reason why it should still produce an invariable contractual
result. Previous contracts had been written, but this one was oral; there
was no implication that the conditions would necessarily be the same.
O'Brien v Mirror Group (2001) Times 8/8/01, CA
A scratch-card game in the Daily Mirror offered a top prize of 50 000, and
the game was designed to produce one or two winners each week. On one
particular day, through a printing error, over a thousand winning cards
were printed and 1473 people claimed the prize. In accordance with the
competition rules, which had not been printed in that day's paper but
which had appeared previously and were referred to on the card, the
paper chose one claimant at random to receive 50 000 and provided an
extra 50 000 to be shared between the other claimants (about 35 each).
C, who had had a "winning card" but who received only 35, claimed he
was entitled to receive the full amount. Dismissing his claim, the Court of
Appeal said the rule had been properly incorporated into the contract. The
term was not particularly onerous or outlandish - C had done very little to
win his prize - and DD had done enough to bring it to his attention.
Contra proferentem
Any ambiguity or uncertainty in the interpretation of an exclusion clause,
however contrived the ambiguity might be, is normally construed contra
proferentem - against the party seeking to rely on it.
White v Warwick [1953] 2 All ER 1021, CA
P hired a bicycle from DD under a written agreement which included a

provision that "nothing in this agreement shall render the owners liable for
any personal injuries". P was injured when the saddle tilted forward, and
the Court of Appeal found DD liable in negligence. The exclusion clause
was construed so as to exclude only the concurrent liability that would
otherwise have arisen under the contract.
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Houghton v Trafalgar Insurance [1953] 2 All ER 1409, CA
P's five-seater car was damaged in a collision and he claimed on his

insurance policy. The policy excluded liability for anything that might
occur while the car was "conveying any load in excess of that for which it
was constructed"; at the relevant time, the car was carrying six people,
with one sitting on another's knee in the back. The Court of Appeal said
this clause was to be construed as applying only to vehicles such as lorries
for which a maximum loading weight was specified; it did not apply here
and P should succeed.
Ailsa Craig v Malvern [1983] 1 All ER 101, HL
Securicor agreed to provide a security service for AA's boats in Aberdeen

harbour. Because of their negligence one of the boats sank and took with
it another boat belonging to RR. The main issue at the trial was the third
party liability of Securicor, whose contract with AA included a clause
limiting their liability "for any loss or damage of whatever nature arising
out of ... failure in the provision of the services contracted for" to 1000.
The House of Lords unanimously upheld the validity of this limitation; Lord
Fraser said the strict principles applied when construing exclusion clauses
are not applicable in their full rigour when considering clauses merely
limiting liability. The contra proferentem rule still applies, but so long as
the clause is clear and unambiguous there is no reason to doubt that the
other party assented to it.
Morley v United Friendly Insurance [1993] 3 All ER 47, CA
A young man P had a personal accident policy that covered death or

serious injury, but excluded the consequences of "wilful exposure to
needless peril". In a momentary act of stupidity P was standing on the rear
bumper of a car while his girl friend drove away at no more than 20 mph;
he was thrown off and suffered injuries from which he died. P's parents as
PRs sought payment under the policy, and the Court of Appeal said they
should succeed. The policy was intended to cover against serious injury,
and he had not wilfully exposed himself to serious injury.
Micklefield v SAC Technology [1991] 1 All ER 275, Mowbray QC
P's contract of employment with DD included a share option which was to

lapse with no compensation payable if for any reason the employee
ceased to be employed with the company. Following his wrongful
dismissal P sought damages for the loss of this option. The judge said the
express contractual term was clear enough to exclude P's claim.
Lancashire CC v Municipal Mutual Insurance [1996] 3 All ER 545, CA
In separate cases, damages (including exemplary damages) were awarded

against the County Council for abuse suffered by a number of children in
care and against the Chief Constable for wrongful arrest and assault by
police officers. PP claimed all these damages against their indemnity
insurance, but the insurers DD refused to pay the exemplary damages
element. The Court of Appeal affirmed the trial judge's decision in favour
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of PP. The policy covered all sums awarded "as compensation", and this
was open to more than one interpretation. In cases of ambiguity where
other rules of construction fail, an instrument should be construed more
strongly against its maker.
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Fundamental breach
No exclusion clause can protect a party who is "in fundamental breach" of the
contract. In consumer contracts this common-law rule has been strengthened by
s.3(2) of the Unfair Contract Terms Act 1977 (below), but in purely
commercial contracts the courts are inclined to take a broader view if they are
satisfied that the clause represents the parties' true intentions.
Karsales v Wallis [1956] 2 All ER 866, CA
D examined a second-hand car at a showroom and decided to buy it on

hire purchase. The car was then in excellent condition, but when it was
delivered two weeks later it was in very poor condition and incapable of
being driven under its own power. The finance company PP sued for
payment and relied on a term in the contract that no warranty was given
as to the condition or fitness of the vehicle, The Court of Appeal found in
D's favour; the vehicle supplied was not a useable car at all, and the
exclusion clause could not cover a fundamental breach of this nature.
Photo Production v Securicor [1980] 1 All ER 556, HL
DD were engaged to provide security guards at PP's factory, with a

provision that DD should not under any circumstances be responsible for
any unforeseen act of an employee. A security guard M on night duty
started a small fire, which got out of control and destroyed the factory.
There was no evidence that DD had been negligent in employing M, and
they relied on the exclusion clause. The House of Lords said they were
entitled to do so; where the parties are of approximately equal bargaining
power, said Lord Wilberforce, and when risks are normally borne by
insurance, there is everything to be said for leaving the parties free to
apportion the risks as they think fit and respecting their decisions.
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STATUTORY RESTRICTIONS
Various statutory provisions invalidate or limit purported exclusion clauses. The
most important parts of the Unfair Contract Terms Act 1977 (which in spite of
its name applies to tort as well as contract), apply only to business liability. This
includes government departments and other public authorities, but international
contracts, marine contracts, contracts for insurance, land, patents and
copyrights, or for the formation of companies, is largely excluded. It deals with
both exclusion and limitation clauses, including those which impose restrictive
conditions such as clauses which deny liability unless notice of any complaint is
given within a specified time.
Much of the Act is concerned with the protection of consumers, and a consumer
is defined in s.12 as amended as a legal person who does not make the contract
in the course of business, nor purport to do so, while the other party does. In the
case of an individual that is enough; where the buyer is a corporate body the
goods must be of a type normally supplied for private consumption. The
definition excludes a person (even an individual) buying second-hand goods at
public auction, as well as a person who obtains goods (even for private use) by
using a cash-and-carry card at a wholesale warehouse.
R & B Customs Brokers v UDT [1988] 1 All ER 847, CA

PP bought a car from a finance company DD, and the contract excluded
any implied conditions as to the car's fitness in relation to any business
transaction. The car proved to be faulty, and PP sued. The Court of Appeal
said that where a transaction is only incidental to a business activity, a
degree of regularity is needed before the transaction can be said to be "in
the course of business". PP were buying a car for only the second or third
time were entitled to be regarded as consumers.
Some terms of contracts are wholly ineffective.
Unfair Contract Terms Act 1977
2(1) A person cannot by reference to any contract term exclude or restrict
his liability for death or personal injury resulting from negligence.
5(1) Where loss or damage arises from goods proving defective while in
consumer use, liability cannot be excluded or restricted by reference to a
guarantee of the goods.
6(1) Liability for breach of the obligations arising from s.12 of the Sale of
Goods Act 1979 [or the corresponding term in relation to hire purchase]
cannot be excluded by reference to any contract term.
6(2) As against a person dealing as consumer, liability for breach of the
obligations arising from s.13, s.14 or s.15 of the 1979 Act [or the
corresponding terms in relation to hire purchase] cannot be excluded or
restricted by reference to any contract term.
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Consumer Protection Act 1987

7 Liability to a person who has suffered loss or damage caused wholly or
partly by a defect in a product shall not be limited or excluded by any
contract term.
Road Traffic Act 1988
149(2) If any other person [other than the driver] is carried in or upon the
vehicle any agreement (whether intended to be legally binding or not)
shall be of no effect so far as it purports to negative or restrict any liability
of the user [for death or bodily injury to the passenger].
Other terms may be ineffective unless the party seeking to rely on them can
satisfy the court that in the circumstances they are reasonable.

2(2) In the case of other loss or damage [other than death or personal
injury] a person cannot exclude or restrict his liability for negligence
except in so far as the term satisfies the requirements of reasonableness.
3(2) As against [a person dealing as consumer, or on the other's written
standard terms of business] the other cannot by reference to any contract
term exclude or restrict any liability of his [in respect of his own breach of
contract], or claim to be entitled to render a contractual performance
substantially different from that which was reasonably expected of him,
except in so far as the contract term satisfies the requirements of
reasonableness.
4(1) A person dealing as consumer cannot be made to indemnify another
person except in so far as the contract term satisfies the requirement of
reasonableness.
6(3) As against a person dealing otherwise than as consumer, [liability for
breach of the obligations arising from s.13, s.14 or s.15 of the 1979 Act or
the corresponding terms in relation to hire purchase] can be excluded or
restricted by reference to a contract term, but only in so far as the term
satisfies the requirement of reasonableness.
Misrepresentation Act 1967 (as amended)
3 A term which would exclude or restrict any liability to which a party to a
contract may be subject by reason of any misrepresentation made by him
or any remedy available to another party shall be of no effect except in so
far as it satisfies the requirement of reasonableness.
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11(2) In determining whether a contract term satisfies the requirement of
reasonableness, regard shall be had to the strength of the bargaining
positions of the parties relative to each other, whether the customer
received an inducement to agree to the term, whether the customer knew
or ought to have known of the existence of the term, whether it was
reasonable to expect that compliance with any special condition would be
practicable, [and] whether the goods were manufactured to the special
order of the customer.
11(4) Where a person seeks to restrict liability to a specified sum of
money regard shall be had to the resources which he could expect to be
available to him and how far it was open to him to cover himself by
insurance.
Woodman v Photo Trade Processing (1981) 131 NLJ 933, Judge
Clarke
P took photographs at a friend's wedding, and took the film to DD for
processing. A sign on the counter limited DD's liability for lost or damaged
films to the cost of replacement. The films were lost through DD's
negligence, and P sued for the distress caused by the loss, these being the
only photographs taken at the wedding in question. The judge said the
limitation was unreasonable; it allowed DD to provide a cheap service for
the majority of photographers whose films were not valuable, but there
was no alternative service available for the minority who might be
prepared to pay more for greater protection.
Smith v Eric Bush [1989] 2 All ER 514, HL
In an action brought by first-time house buyers against a surveyor who

had negligently overvalued the property, the House of Lords said an
exclusion notice in the agreement was void under the Unfair Contract
Terms Act 1977. It was not fair and reasonable in the circumstances to
allow the valuer to disclaim liability to the purchaser for negligence where
he was dealing with property at the lower end of the market and knew
that the purchaser was unlikely to instruct another independent surveyor.
Lord Griffiths drew attention to the evident inequality in bargaining power,
the cost and trouble to first-time buyers of obtaining independent advice,
the comparative simplicity (by professional standards) of the job to be
done, and the ease with which the surveyor (but not the buyers) could
have insured against the consequences of negligence.
Phillips v Hyland [1987] 2 All ER 620, CA
PP hired an excavator and driver from DD under a contract providing that

the hirer was to be responsible for all damage arising from the driver's
work. The driver caused damage and PP sued, and Kenneth Jones J said he
was not satisfied that the term was fair and reasonable. The Court of
Appeal upheld this decision on the basis that the trial judge's decision was
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not clearly wrong, and added that in deciding whether a clause was
reasonable the courts would look at its effect rather than its form.
Thompson v Lohan [1987] 2 All ER 631, CA
The contract was essentially the same as in Phillips v Hyland, and P's
husband was killed through the driver's negligence. P sued both the
owners and the hirers of the excavator, and succeeded against the hirer.
The Court of Appeal said s.2(1) of UCTA did not apply to arrangements
made to share liability with a third party, and the indemnity clause as
between two businesses was not unreasonable.
St Alban's DC v ICL [1996] 4 All ER 481, CA
PP sued for damages in respect of faulty software, which had led to losses
of 1.3 million in poll tax collection. The Court of Appeal agreed with Scott
Baker J that a limitation clause limiting DD's liability to 100k was not
shown to be fair and reasonable. They had insurance cover up to 50
million, and the loss would otherwise be borne by a surcharge on the local
taxpayers.
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EUROPEAN LAW
The Directive on Unfair Terms in Consumer Contracts (Directive 93/13)
came into effect on 1 January 1995, and the relevant UK regulations took effect
six months later. However, it subsequently appeared that the original regulations
had not properly implemented the Directive, and revised regulations (the Unfair
Terms in Consumer Contracts Regulations 1999, SI 1999/2083) were
made to replace them.
The Directive and the domestic Regulations are limited to consumer contracts
(including oral contracts) for the supply of goods and services, including financial
services (subject to some limitations), insurance and real property. They are
wider than UCTA in that they apply to all types of clause, not only exclusion and
limitation clauses, but narrower inasmuch as they apply only to consumer
contracts - a consumer is defined as a natural person acting for purposes outside
his trade, business or profession - and only to terms that have not been
individually negotiated.
A term is regarded as not having been individually negotiated when it has been
drafted (by the non-consumer) in advance and the consumer has therefore not
been able to influence its content, particularly in the context of a standard form
contract. The fact that some terms of a contract may have been individually
negotiated will not protect the rest if an overall assessment shows that the
contract as a whole is a standard form contract. A term that has not been
individually negotiated is automatically regarded as unfair if contrary to the
requirement of good faith, it causes a significant imbalance in the parties' rights
and obligations arising under the contract, to the detriment of the consumer.
Terms that define the main subject matter of the contract, and the adequacy of
the price in relation to the goods or services supplied, are outside the scope of
the regulations so long as they are expressed in plain intelligible language: value
for money is not the law's concern. But the definition and value for money can be
taken into account in determining whether other terms may be unfair: if secondhand or slightly damaged goods are sold cheaply, a limited warranty may well be
regarded as fair. A term identified as unfair is not binding on the consumer, but if
the rest of the contract is capable of operating without the unfair term it will
continue to bind both parties.
Schedule 2 of the Regulations sets out an indicative and non-exhaustive list of
terms which may be regarded as unfair. These include terms which have the
object or effect of (a) excluding or limiting legal liability for the death of or personal injury to the
consumer;
(b) inappropriately excluding the consumer's rights in the event of total or partial
non-performance by the other (the supplier);
(c) making the agreement binding on the consumer while leaving the provision
of services by the supplier dependent on his own decision;
(d) allowing the supplier to retain a deposit paid by the consumer in the event of
cancellation, without providing similar compensation for the consumer if the
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supplier cancels the contract;

(e) imposing any disproportiately high penalty on the consumer;
(f) allowing the supplier to cancel the contract at will, if no such right is given to
the consumer;
(g) allowing the supplier to terminate a long-term contract without giving
reasonable notice;
(h) automatically extending a fixed-term contract unless the consumer gives
very early notice;
(i) binding the consumer by terms that he could not readily have known when
the contract was made;
(j/k) allowing the supplier to alter the terms of the contract, except for some
good (pre-specified) reason;
(l) allowing the price to be determined at some future date, unless the consumer
has the right to cancel if the price is too high;
(m) giving the supplier the exclusive right to interpret any term or terms;
(n) limiting the extent to which the supplier is bound by his agents' actions, or
imposing particular formalities;
(o) requiring the consumer to fulfil all his obligations even if the supplier does not
fulfil his;
(p) allowing the supplier unilaterally to transfer his rights and obligations to a
third party, to the consumer's detriment; or
(q) excluding or restricting the consumer's right to take legal action to enforce
the contract (e.g. by requiring him to accept non-legal arbitration or by imposing
on him a non-standard burden of proof).
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UNIT THREE
VITIATING FACTORS
Even when a contract has apparently been properly made, and its terms are
clear, it may for various reasons be void or voidable or unenforceable. On this
page we consider the reasons why such a thing might happen, and the
consequences of any such occurrence.
VOID AND ILLEGAL CONTRACTS

The distinction between illegal and simply void contracts was formerly thought
important not because of any criminal penalty attached to the illegality - in many
cases there was none - but because of their different consequences. An illegal
contract, it was said, is wholly void while a simply void contract is void only in
respect of the offending clause. Recent cases cast doubt on the validity of such a
distinction, however, and it is probably better to regard all void contracts as
forming a spectrum with illegal contracts falling towards one end.
A contract may be illegal either by statute or at common law. The Gaming Act
1845 makes all gaming and wagering contracts void, and illegal too unless the
chances are fair. The Restrictive Trade Practices Act 1976 extends the commonlaw limitation on contracts in restraint of trade, making restrictive trading
contracts void unless they are approved by the Director General of Fair Trading.
Contracts said to be illegal at common law include any contract to commit a
crime, a tort, or a fraud on a third party, to defraud the Revenue, or to allow a
party to benefit from any such act; any contract likely to encourage sexual
immorality; any contract likely to encourage corruption in public life, such as the
buying and selling of honours; any contract prejudicial to the interests of the
state, including a contract with an enemy aliens in time of war or one likely to
impair relations with a friendly state; and any contract prejudicial to the interests
of justice, such as an agreement not to prosecute.
Gray v Barr [1971] 2 All ER 949, CA
D made a violent attack on X and accidentally killed him; following his

acquittal on charges of murder and manslaughter the victim's widow sued
for damages, and D was ordered to pay some 7000. He claimed an
indemnity under a personal insurance policy covering all sums he might
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be required to pay in respect of bodily injury caused by an accident, but

his claim failed. The Court said it would be contrary to public policy to
enforce a contract releasing him from the consequences of his crime. The
insurers had proved (to the civil standard) that X's death was not the
result of an "accident" as that word is normally understood, and that
released them from any obligation to pay.
Hardy v Motor Insurers' Bureau [1964] 2 QB 745, CA
A security guard P was injured while trying to stop a van carrying stolen
property. The driver X was convicted (inter alia) of causing grievous bodily
harm, and when he failed to pay the compensation ordered by the
magistrates P sought payment from the MIB. The Court of Appeal said
those injured by motor vehicles are covered by motorists' insurance even
where "ordinary" crimes are involved, and if the driver is not insured (as
was the case here) the MIB must pay.
Armhouse Lee v Chappell (1996) Times 7/8/96, CA
DD were pornographers who operated a number of telephone sex
chatlines; their advertising agents PP sued for m in unpaid advertising
charges. DD argued that since the contract was for the promotion of
immorality they should not be required to pay, but the courts disagreed.
However shocking some ordinary decent people might find the
advertisements, said Simon Brown LJ, they could hardly be said to be
"destructive of the very fabric of society", and to call the defence
unmeritorious would seriously understate the unattractiveness of DD's
case!
Any contract prejudicial to the status of marriage, such as an agreement never
to marry, is traditionally regarded as "simply void" at common law. A contract
that purports to oust the jurisdiction of the courts is also generally regarded as
void, although "arbitration-first" clauses have been upheld and "honour-only"
agreements are treated as unenforceable.
Scott v Avery (1856) 10 ER 1121, HL
A marine insurance policy contained a provision that the amount payable

in the event of loss was to be determined first by a certain committee and
then (if necessary) by arbitration; the insurer undertook not to bring a civil
action until the arbitrators had given their decision. The House of Lords
said the undertaking was binding and the contract lawful.
Jones v Vernon's Pools [1938] 2 All ER 626, Atkinson J
The conditions of entry of a football pool competition stated that the

sending in of the coupon should not give rise to any legal relationship, and
that the arrangements of the pool were binding in honour only. P claimed
to have sent in an entry but DD denied having received it; it was conceded
that had it been received it would have won a prize. The judge said the
agreed conditions prevented P from succeeding in his claim; there was
clearly no intention to create legal relations, and it was consequently
unnecessary to decide the issue of fact.
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RESTRAINT OF TRADE
A contract is "in restraint of trade" if one party restricts his future liberty to carry
on his trade, business or profession in such manner or with such persons as he
may choose, and such a contract may be void under some circumstances. The
most common examples of such contracts occur where a skilled employee
undertakes not to set up his own business in competition with his former
employers, and where the seller of a business undertakes not to compete with
the buyer.
Nordenfeldt v Maxim Nordenfeldt [1894] AC 535, HL
A gunmaker A sold his business to DD, and agreed not to carry on any
competing business for the next 25 years. When RR sought to enforce that
agreement the House of Lords said any restraint of trade clause is prima
facie void, and the party seeking to enforce it must show its validity. To do
this, he must show that the restraint is reasonable, both as between the
parties and as regards the public interest; the test of what is reasonable
will vary from one case to another. Any restraint will be upheld only
insofar as it protects a legitimate
interest of the other party.
Leng & Co v Andrews [1909] 1 Ch 763, CA
A reporter D agreed never in the rest of his life to work for any other paper
within 20 miles. This contract was held to be unreasonable and therefore
void.
White v Francis [1972] 3 All ER 857, CA
A hairdresser agreed not to work within mile for 12 months: the aim
was to ensure that the employee did not unfairly steal his former
employer's business, and this clause was upheld as valid.
Clarke v Newland [1991] 1 All ER 397, CA
A doctor agreed not to practise within the defined practice area within
three years of terminating the partnership, and the clause was held to be
reasonable on the basis that it meant "practise as a GP" (i.e. in direct
competition with the former partnership).
Lansing Linde v Kerr [1991] 1 All ER 418, CA
A regional director left a firm making fork-lift trucks and went to a

competitor. The former employer sought to enforce a clause in his
contract prohibiting him from working for any directly competing firm
worldwide for the next twelve months, and the Court of Appeal said
customers' names could be a trade secret as well as chemical formulae.
However, they refused an interim injunction pending the full trial; given
the courts' timetable this supposedly interim measure would in fact give
PP nearly all they asked for, and there was quite a strong case for thinking
that the prohibition was too wide.
Watson v Prager [1991] 3 All ER 487, Scott J

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A boxer made a contract giving his manager exclusive control over the
selection of his fights. This was held to be an unreasonable restraint on his
right to work, particularly with a potential conflict of interest between the
manager's role as such and his role as a fight promoter.
In determining whether a restraint is reasonable, the courts take into account
the nature of the restriction, the interest to be protected, the extent of time and
distance, and any special inducement given to the employee to accept the
restriction.
Allied Dunbar v Weisinger [1988] IRLR 60, Millett J
The judge upheld an agreement that W would not deal in insurance for
two years,
since he had received an extra two years' salary in compensation.
Rock Refrigeration v Jones [1997] 1 All ER 1, CA
The plaintiff entered a contract of service with the defendant, under which
the plaintiff's future conduct was purportedly restricted after the
termination of the contract "howsoever occasioned". After the plaintiff left
that employment, the defendant sought an injunction to enforce the
restrictive term. The Court of Appeal, reversing the trial judge and
overruling a decision of Laws J in D v M 1996, said such a clause was not
necessarily unreasonable. If an employee was wrongfully dismissed, this
might amount to a repudiation of the contract on the employer's part,
justifying the employee in treating the contract as being at an end so that
he was no longer bound by it. This did not make the clause generally
unreasonable.
A wider test of reasonableness is applied when A sells a business to B as a going

concern and undertakes not to set up nor work in any directly competing
business. The restraint must still be no more than is needed to protect B's
legitimate business interests, however, and the factors listed above are again
relevant. Moreover, the sale must be genuine: if the purported "business" in fact
has no substantial goodwill then B has no legitimate interest to protect and the
restraint is void.
In contrast to restraints imposed in employment contracts, restraints voluntarily
accepted by members of trade associations will normally be upheld unless
manifestly unreasonable, though the Restrictive Trade Practices Act 1976
requires all such agreements to be registered with the Director General of Fair
Trading. They are initially presumed to be void, but become legitimate if they
pass through one of eight public interest "gateways" specified in the Act and
cause no undue detriment to third parties.
Tied-house and "solus" agreements, in which (for example) a garage agrees to
sell only one brand of petrol, are a common feature of modern business. They
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are generally regarded as legitimate in principle, but their validity depends on

circumstances.
Esso Petroleum v Harper's Garage [1967] 1 All ER 699, HL
The House of Lords upheld a "solus" agreement lasting 4 years, but

declared void another (for different premises) lasting 21 years, saying that
the latter was unreasonable. [EEC legislation now suggests that 10 years
for such agreements may be the point of division.]
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CONSEQUENCES OF ILLEGALITY
Where a contract is illegal from the beginning, because it requires one party to
do an illegal act, or where both parties intend that it shall be performed in an
illegal way or for an illegal purpose, then it is wholly illegal and void. Neither
party can generally assert any right or remedy under such a contract - money
paid cannot be recovered, for example, and the court will veto any attempt at
enforcement even though the defendant may be just as guilty as the plaintiff.
Where a contract is prima facie lawful, however, and one party (unknown to the
other) executes it for an illegal purpose or in an illegal way, the remedies of the
innocent party are preserved. The guilty party loses any legal rights and
remedies he might have sought under the contract, but the innocent party is
protected in respect of anything he does before learning of the illegality. Even a
guilty party may not always be wholly without remedies.
Marles v Philip Trant [1953] 1 All ER 651, CA
DD were seed merchants who had bought seed from a third party T and
sold it to P without complying with certain legal formalities. The contract
was thus illegal, but the Court of Appeal allowed P to sue when the seed
was found to be defective, and DD in turn were allowed to refer to this suit
when claiming an indemnity under their (entirely legal) contract with T.
Archbolds (Freightage) v Spanglett [1961] 1 All ER 417, CA
PP contracted with D for the transport of a load of whisky; in fact D was

not licensed to carry such a load and the contract was therefore illegal,
but since PP had no knowledge of the illegality, nor reason to know of it,
they were able to sue on the contract. The contract was prima facie legal
when it was made, and only the manner of its performance was illegal.
Shaw v Groom [1970] 2 QB 504, CA
A landlord who failed to provide a rent book as required by law was still
allowed to sue for the rent. The Court said that although the criminal law
imposed penalties for non-compliance, the rent book was not an essential
feature of the contract of letting and there was no reason why the landlord
should not be entitled to claim his rent.
Even where a contract is illegal, recovery of money or goods transferred may be

possible in any of four situations. First, where a party to an illegal executory
contract repents before performance, he may recover what he has paid as long
as he acts to repudiate the contract in good time. Second, where the illegality is
only minor and can be severed from the rest of the contract as above, the party
in whose favour the illegal clause would have operated may be allowed to
enforce the rest of the contract. Third, where the two parties are not in pari
delicto (e.g. because one was subject to duress, or because the illegality derives
from a statute designed to protect him rather than the other) the less
blameworthy may be allowed to recover anything he has transferred to the
other. Finally, where a case can be made out for recovery without reference to
the contract (e.g. through an action in tort), it will be considered on its merits.
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Re Cavalier Insurance [1989] 2 Lloyds Rep 430, Knox J

An insurer made an insurance contract that he was not authorised to
make. The judge said the innocent policyholder could not enforce a claim,
but could obtain the return of his premiums.
Saunders v Edwards [1987] 2 All ER 651, CA
D fraudulently misrepresented the size of a flat, and P and D together then

agreed prices for the flat and its contents in such a way as to avoid stamp
duty. This made the contract illegal (as a fraud on the revenue), but the
Court allowed P to sue on the misrepresentation because his cause of
action was independent of the fraudulent contract.
Tinsley v Milligan [1993] 3 All ER 65, HL
Two women together had bought a house, but legal title had been vested
in the appellant alone to assist in a fraud on the Department of Social
Security. The House of Lords said the respondent could still assert her
equitable rights because her claim was based on a resulting trust and not
on the illegal contract per se. Lord Browne-Wilkinson said property in
chattels and land can still pass under a contract which is illegal and
therefore unenforceable as a contract, and a plaintiff can enforce property
rights so acquired provided that he does not need to rely on the illegal
contract for any purpose other than providing the basis of his claim to a
property right. It is irrelevant whether the illegality of the underlying
agreement is pleaded or emerges in evidence: if the plaintiff has acquired
legal title under the illegal contract, that is enough. The maxim that equity
would assist only those with clean hands was no longer applicable: equity
and law had been fused for more than a hundred years, and English law
now had a single law of property made up of legal and equitable interests.
Miss Milligan claimed under a resulting trust: she had provided part of the
purchase money, and claimed a common intention that the property
should belong to both of them. That was enough to establish her case: the
reason for this common intention was irrelevant.
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UNENFORCEABLE CONTRACTS
There are certain types of contract - principally third party guarantees, consumer
credit agreements and contracts for the sale of land - which, even though they
are quite valid and theoretically binding, will not be enforced by the courts
unless in the proper form. All contracts for the sale of land (or interests in land)
must be made in writing and signed by both parties, and following the Statute
of Frauds 1677 as amended, a special promise to answer for the debt or
default of another person - a "guarantee" in modern terms - must be supported
by evidence in writing. A promise not thus supported is unenforceable rather
than void, however, and even though it is itself unenforceable its validity may be
important in some other case. Moreover, the contract itself need not normally be
set down in writing as long as there is a written note or memorandum
incorporating the essential details.
The Consumer Credit Act 1974 makes hire purchase and credit sale
agreements generally unenforceable unless they are "properly executed", the
consumer having signed and having received a copy together with notice of his
rights to cancel. Once again the agreement not in due form is unenforceable
rather than void - it can be enforced by a court order, but such is unlikely to be
given unless the formal defect is trivial - but this time the agreement itself must
be in writing and a mere memorandum is insufficient.
All credit agreements must be in writing using approved forms; if not, the
agreement is unenforceable. Where the agreement is signed outside trade
premises (e.g. at the consumer's home), the consumer has a five-day "coolingoff period" within which he may change his mind and cancel the agreement. If
the terms of a credit agreement are "grossly extortionate", the court has a
discretionary power to amend the terms to what it considers fair.
If the consumer does not keep up the repayments, the lender must warn him and
allow him seven days to make good the default before taking steps to repossess
the goods; where one-third or more of the total amount has already been paid,
the lender cannot repossess without a court order. If the consumer voluntarily
returns the goods, he need not pay more than half the agreed total price.
Under the Law of Property (Miscellaneous Provisions) Act 1989, a contract
for the sale or other disposition of an interest in land can only be made in writing
and only by incorporating all the terms (expressly or by reference) in a single
document, to be signed by or on behalf of each party. This clearly requires more
than just evidence of a verbal contract: it seems that the written contract will be
conclusive and any verbal agreement wholly void rather than just unenforceable,
but as yet there has not been time for any substantial body of case law to be
developed.
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CONTRACTS BY MINORS
A minor in law is a young person under the age of 18, but earlier case law dating
from the time when legal infancy ended at 21 is still relevant. A contract made
by a minor may be valid and enforceable, if it is for the supply of "necessary"
goods or services or is a "beneficial contract of service", or may alternatively be
voidable at the minor's option in any other case. The Infants' Relief Act 1874
made certain classes of contract "absolutely void", but this was repealed by the
Minors' Contracts Act 1987 and such contracts are now merely voidable.
A contract made by a minor for the supply of necessary goods or services is
binding on both parties, but under the Sale of Goods Act 1893 the minor need
pay only a reasonable price and not necessarily the contracted price.
"Necessary" is taken broadly; the Sale of Goods Act 1979 refers to "things
which are suitable to the station in life of the infant and to his actual needs at
the time of sale and delivery".
Peters v Fleming (1840) 151 ER 314, Exchequer
A jeweller P sued an undergraduate D for an unpaid bill (incurred while

under 21) for a gold watch-chain and other items. The trial judge left it to
the jury to decide whether or not these were necessaries, and the jury said
they were. The Court of Exchequer said it was a matter of fact properly left
to the jury, and upheld the finding that the contract was enforceable.
Ryder v Wombwell (1869) LR 4 Exch 32, Exchequer Chamber
A minor D bought various items of jewellery, including an antique silver

goblet as a gift for a friend. The jeweller P sued for payment, but the Court
of Exchequer Chamber said there was no evidence on which the jury could
properly have found that the goblet was a necessary.
The contract was therefore voidable.
Nash v Inman [1908] 2 KB 1, CA
An undergraduate D ordered various clothes from a tailor P, including

eleven fancy waistcoats; when he did not pay P sued. At trial, Ridley J
directed the jury to find in D's favour, and P's appeal was dismissed. The
evidence showed that D was already well supplied with clothes suitable to
his position in life, and consequently the contract could not be said to be
for necessaries.
The decision as to whether particular goods are "necessary" is a mixture of law

and fact, and depends on the particular circumstances. Even a contract for
necessaries is void, however, if it contains terms which are unduly harsh and
onerous to the minor.
Fawcett v Smethurst (1914) 84 LJKB 473, Atkin J
A minor D hired a car from P, under a verbal contract allegedly containing

a term making D liable for all damage however caused. During the journey
the car caught fire through no fault of D, and P sued for the damage. His
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claim failed: although it might have been necessary for P to hire a car to
collect his luggage, it was not necessary for him to enter a contract
containing such an onerous clause as this, and accordingly the contract
was voidable. (Note that it is the entire contract which is voidable, and not
merely the offending clause.)
A minor may bind himself by a contract of apprenticeship or service which is for
his benefit on the whole, even though some terms of the contract may be to his
disadvantage.
De Francesco v Barnum (1890) LR 45 ChD 430, Fry J
A contract for dancing training was set aside because of its overall
unreasonableness - it required that B should not marry nor accept outside
engagements for 7 years, but made no guarantee of any engagements
arranged by D.
Roberts v Gray [1913] 1 KB 520, CA
The Court of Appeal upheld a contract under which a minor D, a talented

billiard player, agreed to play a series of exhibition matches with a more
experienced player P. The contract was in effect for D's education and
training, and its terms were reasonable, so D's repudiation of the contract
(following a dispute over the type of ball to be used) was a breach of
contract.
Doyle v White City Stadium [1935] 1 KB 110, CA
A young boxer P obtained a licence from the British Boxing Board of

Control, one of its terms being that his prize money might be withheld if
he were disqualified. P competed for the British heavyweight title but was
disqualified; he claimed his prize money nevertheless and argued that he
was not bound by the contract. The Court said the licence agreement was
closely analogous to a contract of employment, and was (on the whole) for
his benefit, and was thus valid and enforceable.
Chaplin v Leslie Frewin [1966] Ch 71, CA

Charlie Chaplin's son C, a minor, contracted with publishers DD for the
publication of C's life story, to be written by ghost writers. Having initially
passed the proofs, C subsequently repudiated the contract, claiming that
the book contained libellous matter, and sought an injunction to restrain
DD from going ahead with publication. The Court said the contract had
been for C's benefit at the time it was made - he would have benefited
financially - and could thus be enforced against him.
All other contracts entered into by a minor are valid initially (and can be enforced
by either party), but may be repudiated by the minor (not by the other party) at
any time during minority or "within a reasonable time" after attaining the age of
18. However, the minor may be ordered (if the court thinks it just and equitable)
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to restore any property acquired under the contract, or property representing it,
and cannot recover any money he has paid over unless there has been a total
failure of consideration by the other party.
Valentini v Canali (1889) LR 24 QBD 166, HC
A minor P entered a contract for the lease of a flat, and agreed to buy the
furniture in it. He subsequently avoided the contract, and sought to
recover the money he had already paid towards the purchase of the
furniture. His claim failed in the County Court, and his appeal was
dismissed. Coleridge CJ said P had had the use of the furniture for several
months, and since he could not return this benefit he was not entitled to
the return of his own consideration.
Pearce v Brain [1929] 2 KB 310, DC
A minor P traded in his motor-cycle in part-exchange for a car, but later
repudiated the contract. Affirming the decision of the County Court judge,
Swift J said P could not recover his motor-cycle because he had had the
use of the car and that was consideration enough.
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MISREPRESENTATION
Statutes such as the Trade Descriptions Act 1968 and the Property
Misdescriptions Act 1991 create offences relating to certain types of
misrepresentation in the course of business, but our concern here is with the civil
rather than the criminal consequences. A misrepresentation is a untrue
statement of fact which induces a party to enter a contract, but which is not
itself part of the contract. There must therefore be a statement of some kind,
although a representation need not always be verbal: payment by cheque
implies a representation that the bank will honour the cheque. Mere silence
cannot constitute misrepresentation even when it is obvious that the other party
is mistaken as to the facts, subject to three qualifications.
First, where the contract requires uberrima fides (utmost good faith) the party is
bound to disclose all material facts. The best-known uberrima fides contracts are
those of insurance, where the insured party is required to disclose all material
facts whether or not he is asked about them. A company is in a similar position in
respect of the sale of shares, and in potential "undue influence" cases (see
below) similar good faith is required of the party supposed to be in the stronger
position.
Second, if a party makes any representation on a particular matter, it must be
full and frank, and silence may not be used to distort a positive representation.
Curtis v Chemical Cleaning [1951] 1 All ER 631, CA
An assistant in a dry-cleaners' shop told a customer that a certain

exclusion clause limited liability for damage to beads and sequins. In fact
it excluded all forms of damage, and the assistant's statement was held to
be a misrepresentation.
With v O'Flanagan [1936] 1 All ER 727, CA
A doctor D sought to sell his medical practice, and told P that the annual
income for the past three years had been about 2000 and that there
were 1480 patients on the "panel". These statements were true when they
were made, but D then fell ill and was unable to work. By the time the
contract was signed, the number of "panel" patients had fallen to 1260
and four months had passed during which there had been almost no
income. When P discovered these facts (which D had not disclosed) he
sought to rescind the contract. The Court said a party who makes a
representation and then discovers that the situation has changed is under
a duty to disclose that fact, since the representation is deemed to
continue up to the time that the contract is made.
A representation must be a statement of fact and not of opinion. Where a

statement of opinion is made by a supposed expert, however, or by a person
supposed to have special knowledge of the facts, the courts have tended to bend
the rule, saying that a statement made in such circumstances carries an
implication of fact that there are reasonable grounds for holding that opinion.
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Bisset v Wilkinson [1927] AC 177, PC
The vendor R of a farm that had never run sheep gave it as his opinion
that it would support about 2000 of them. This turned out not to be the
case, and the purchaser A sought the return of his purchase money.
Rejecting his appeal, the Privy Council said the statement had not been a
representation of fact but merely an expression of R's honestly held
opinion.
Smith v Land & House Property (1884) LR 38 ChD 7, CA
A vendor P described his property as "let to F, a most desirable tenant ...

thus offering a first class investment". In fact F was in arrears and close to
bankruptcy, and the Court of Appeal held that since P was in a position to
know the true facts, his statement was a statement of fact rather than of
opinion.
Edgington v Fitzmaurice (1885) LR 29 ChD 459, CA
D produced a company prospectus, knowing that it was false as to the

purpose for which money was sought. P took debentures in the company,
partly in reliance on the prospectus, but was subsequently able to rescind
the contract for misrepresentation. Bowen LJ said the state of a man's
mind is as much a fact as the state of his digestion, and a false statement
about the maker's intentions is thus a misrepresentation of fact.
Esso Petroleum v Mardon [1976] 2 All ER 5, CA
PP sold a new garage, forecasting that sales of petrol would be roughly

200 000 gallons per year. Actual sales turned out to be less than half of
this, but PP claimed their forecast was mere opinion as in Bisset v
Wilkinson. The Court rejected their claim, saying that while the vendor in
Bisset had no special knowledge and the parties were equally able to form
their own views, the experience and skill of PP's market analysts created a
different position. Their expert forecast was to be treated as a statement
of fact, and since they had not exercised reasonable care it was a
negligent misrepresentation.
Third, there must have been reliance by the representee: misrepresentation

does not affect the validity of a contract unless it induced the other party to
enter the contract. A misrepresentation is quite irrelevant if the supposed
representee did not know of it, did not believe it, or for any other reason was not
influenced by it. The question of reliance is particularly important where the
party to whom the statement is made is in a position to check its truth for
himself
Attwood v Small (1838) 7 ER 684, HL
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A prospective purchaser sent his own agents to check the owner's

statements about a mine, and was held to have relied on their report
rather than on the original (false) representation.
JEB Fasteners v Marks Bloom [1983] 1 All ER 583, CA
PP decided to take over another company in order to gain the services of

two of its directors. The company accounts which they looked at, were
substantially inaccurate owing to the accountants DD's negligence, but
the Court of Appeal denied misrepresentation because PP would have
made the contract in any event.
Atlantic Estates v Ezekiel (1991) 33 Est Gaz 118, CA
PP sold at auction a property described as a wine bar, supported by

pictures to the same effect. In fact the pictures were old ones: the tenant
had lost his liquor licence and was in arrear with the rent, and the
premises were no longer used as a wine bar. Mustill LJ said the question
whether one party has made a representation in the course of
negotiations depends on what he has actually conveyed by writing, words
or conduct such as a nod or a wink. If one party has made a
representation, it is no answer to a claim founded on it that had the other
taken the trouble to enquire he could have discovered that it was untrue,
but except where the nature of the contract is such as to require certain
facts to be disclosed, a party has no ground for complaint simply because
the other has not disclosed a fact that would influence him. There may,
however, be circumstances in which the true import of what was said or
written is distorted by what is left unsaid, so that even if the
representation is literally true, it is nevertheless misleading. In the instant
case D was entitled to rescind the contract for misrepresentation: the
description did not apply simply to the bricks and mortar, as PP claimed,
and the particulars viewed as a whole clearly conveyed that the tenant
was running a wine bar in the premises. PP's silence as to some relevant
facts amounted in these circumstances to a misrepresentation, and their
claim for specific performance was denied.
Under s.3 of the Misrepresentation Act 1967 as amended, a contract term

purporting to exclude or limit liability for misrepresentation is void except insofar
as it satisfies the reasonableness test in the Unfair Contract Terms Act 1977.
St Marylebone Property v Payne (1994) 45 Est Gaz 156, Boggis QC

At a sale of land by auction, the photograph in the brochure showed far
more land than was actually for sale. The successful bidders claimed
misrepresentation and the return of their deposit, and the judge found in
their favour: a clause excluding liability for errors was not reasonable in
the circumstances.
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Types of misrepresentation
Fraudulent misrepresentation occurs when a party makes a false statement
without honestly believing it to be true: it may be a deliberate lie, or it may be a
statement made recklessly. In such a case the innocent party may affirm the
contract and claim damages for consequential loss, suing for the tort of deceit;
or repudiate the contract and claim damages and/or rescission.
Derry v Peek (1889) LR 14 AC 337, HL
A tramway company obtained a private Act of Parliament authorising them

to use animals or (with the consent of the Board of Trade) steam as the
source of motive power. They issued a prospectus drawing particular
attention to their right to use steam power, and P bought shares in
reliance on this prospectus. The Board subsequently refused consent to
the use of steam, but P's action in deceit failed: DD had honestly believed
that the necessary consent would be forthcoming.
Negligent misrepresentation may occur when a false statement is made by a

person having a duty of care. It was thought at one time that the last phrase was
redundant, and that everyone owed everyone else such a duty, but it is now
clear that some proximity or relationship is needed. Such proximity is clearly
present between the parties to a contract, so giving the aggrieved party two
possible lines of action, but may exist in other cases too.
Hedley Byrne v Heller [1963] 2 All ER 575, HL
PP were advertising agents who booked TV time on behalf of E Ltd. They

asked their bankers to obtain a reference from E's bankers DD, and the
latter replied favourably. E went into liquidation; PP lost money and
(having no contractual relationship with DD) sued them in tort. The House
of Lords said DD owed PP a duty of care and could in principle have been
liable for the consequences of their negligent misstatement, but they
escaped liability
because of a disclaimer in their letter.
Esso v Mardon [1976] 2 All ER 5, CA
D was induced to lease a new filling station on the basis of PP's estimate
of its likely turnover. This estimate turned out to be substantially too high,
and D was unable to make a profit or even to pay for the petrol that had
been supplied to him. He counterclaimed for his own losses, alleging
negligent misrepresentation, and succeeded on tortious as well as on
contractual arguments.
Caparo v Dickman [1990] 1 All ER 568, HL
PP bought shares in F plc with a view to taking it over, and bought more
after seeing F's auditors' report. The shares then fell in value, and PP sued
the auditors for their negligence in preparing their report. The House of
Lords said the auditors did not owe a duty of care to investors thinking of
buying shares: the damage suffered by PP was foreseeable, but there was
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no sufficient proximity to give rise to a duty of care where the loss was
purely economic.
Henderson v Merrett Syndicates [1994] 3 All ER 506, HL
P and other Lloyds "names" sued their underwriting agents for negligent
mismanagement of their affairs, and the House of Lords held in
interlocutory proceedings that their claims in tort should go for trial. A
claimant who has parallel remedies available in tort and in contract, said
Lord Goff, is free to choose whichever appears to him to be the most
advantageous so long as the contract does not expressly preclude this.
Innocent misrepresentation occurs when neither of the other two applies and the
misrepresentation was made without any fault.
In general, a misrepresentation makes a contract voidable rather than void. On
discovering the misrepresentation, no matter whether fraudulent, negligent or
innocent, the other party may affirm or rescind the contract, explicitly or by his
conduct, but this decision once made is irrevocable. A decision to rescind must
be communicated to the other party within a reasonable time, and takes effect
from that moment.
Car & Universal Finance v Caldwell [1964] 1 All ER 290, CA
D sold a car to a fraudulent purchaser F and accepted F's payment by

cheque. The cheque bounced, and D immediately notified the police and
the AA. By the time the car was eventually found, F had sold it to M (who
knew of its history) and M had sold it on to PP, who had bought it in good
faith. D was allowed to rescind his contract with F and recover the car: M
had never had good title and so could not transfer ownership to PP. Where
it is impracticable to notify the other party of an intention to rescind,
notice to the relevant authorities may be sufficient. [This decision has
subsequently been doubted but not overruled.]
Inntreprenneur v Sweeney (2002) Times 26/6/02, Park J
CC, who owned a pub, sought an injunction to compel the tenant D to

comply with a "tie" clause in the lease; D contended that the effect of the
clause had been misrepresented to him at the time of signing and that he
should be released from it. The judge said the remedy for negligent
misstatement, whether at common law or under s.2(1) of the
Misrepresentation Act 1967, is limited to damages, and rescission for
innocent misrepresentation would not allow C to rescind one term but
keep the rest of the lease. In any event, C's case for misrepresentation
had not been made out on the facts.
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MISTAKE
Various mistakes may occur in the negotiations leading to the formation of a
contract, and they are not all treated the same. We distinguish three kinds of
mistake, though different writers use different names and different
classifications. A common mistake, we shall say, occurs when both parties make
the same mistake (eg as to the existence, ownership or nature of the subjectmatter of the contract). A mutual mistake occurs when each party is mistaken as
to the intentions of the other in respect of the contract, and a unilateral mistake
occurs when just one party is mistaken as to the identity or intention of the
other, or as to the nature of a document being signed.
Common mistake
Two kinds of common mistake render the contract void. If the contract concerns
res extincta - that is, subject matter which at the time of the contract no longer
exists, or which never existed at all - the contract is void.
Couturier v Hastie (1856) 10 ER 1065, HL
A contract was made for the sale of a cargo of corn which (unknown to
either party) had already been sold. The House of Lords did not declare
the contract void directly - it is common commercial practice to buy "a
risk" rather than a cargo as such - but denied the seller's claim for
payment.
Scott v Coulson [1903] 2 Ch 249, CA
A person took out an insurance policy on the life of a person who

(unknown to either party) was already dead, and the Court of Appeal held
the contract was void.
A contract involving a common mistake as to res sua, where the subject matter
already belongs to the supposed buyer, is also void. The "seller" is giving no
value for the consideration given by the "buyer".
Cooper v Phibbs (1867) LR 2 HL 149, HL
P leased from D a salmon farm which, it later emerged, was P's property
all the time. The House of Lords held the contract void for common
mistake, but made an order in its equitable jurisdiction that D should have
a charge on the property based on the value of the improvements he had
made.
In general, any other common mistake - as to the quality of goods sold, for
example - will not invalidate a contract even if it relates to a matter of
fundamental importance.
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Bell v Lever Brothers [1932] AC 161, HL
A manager was made redundant and compensation was agreed; it then

emerged that he could have been dismissed for misconduct. The House of
Lords said the contract was valid in spite of the common mistake as to the
security of his employment: there was no deliberate deception and the
common mistake as to quality was not enough.
Leaf v International Galleries [1950] 1 All ER 693, CA
P bought a painting which both parties believed to be by Constable but

turned out not to be; the Court of Appeal upheld the validity of the
contract, saying that there was no mistake as to the subject matter - a
particular painting - but only as to its authorship.
Harlington & Leinster v Christopher Hull [1990] 1 All ER 737, CA
A dealer making no claim to any special expertise sold a painting which

both he and the purchaser (on expert advice) believed to be by Mnter,
and which was described as such in the invoice. The Court of Appeal said
that the contract was still binding when the picture was found to be a
fake: the purchaser had seen the picture and bought it as seen. There was
no "sale by description", nor was the picture of "unmerchantable quality",
because it could still be appreciated as a painting no matter who had
painted it. The common mistake was as to its value, not its essential
nature, and that was not enough to make the contract void.
Sindall v Cambridgeshire CC [1994] 3 All ER 932, CA
A developer P bought a site from DD and then found an unsuspected

sewer running under the land. This caused considerable disruption to P's
development plan, and he sought rescission for common mistake.
Refusing his application, Hoffmann LJ said the first question was whether
the contract expressly or impliedly allocated the risk of such a discovery.
Since the property was sold "subject to all easements", the risk was clearly
on the buyer and there was no room for the doctrine of mistake.
It was formerly thought that the courts' equitable discretion might be called into
play to relieve the hardship of the common law in cases where a common
mistake is not enough to invalidate the contract. Specific performance might be
refused, for example, or rescission ordered on such terms as the court considers
just. However, a recent decision of the Court of Appeal casts grave doubt on this.
Solle v Butcher [1949] 2 All ER 1107, CA
The parties negotiated the lease of a flat they believed was not rentcontrolled; when they discovered the mistake, P sought repayment of the
excess rent and succeeded. D's claim to avoid the contract for common
mistake failed in the Court of Appeal even though the mistake was clearly
fundamental to the negotiations, but the Court agreed that it might be set
aside in equity on such terms as the court considered just and reasonable.
The tenant should be given the choice of surrendering the lease or of
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continuing it at the agreed rent as soon as this had been legitimated. [But
see now Great Peace below.]
Magee v Pennine Insurance [1969] 2 All ER 891, CA
P's motor insurance policy was in fact void for innocent misrepresentation.
When this was discovered, the parties settled a claim for 600 by a
payment of 385, and D then claimed common mistake as to the validity
of the former policy. The Court of Appeal held that the contract for 385
was valid at common law, but ordered its rescission in equity.
Great Peace v Tsavliris Salvage [2002] 4 All ER 689, CA
DD made a contract to hire CC's vessel to assist a damaged ship, DD and

CC both believing at the time that it was close by. This turned out not to
be the case, and DD sought to repudiate the contract. The Court of Appeal
rejected DD's claim both in common law and in equity. It was impossible
to reconcile Solle v Butcher (CA) with Bell v Lever Brothers (HL), said Lord
Phillips MR, and Solle v Butcher could not stand.
Mutual mistake
Where each party is mistaken as to the intentions of the other, there is no
consensus ad idem and hence no contract: a mutual mistake of this kind may be
distinguished from a unilateral mistake (below) by the absence of any objective
right answer.
Raffles v Wichelhaus (1864) 159 ER 375, Exchequer
PP sought to enforce a contract for a cargo of cotton "ex Peerless out of

Bombay". In fact there were two ships of that name, sailing from Bombay
some months apart, and the parties had understood things differently. The
court held the contract was void for mutual mistake, and gave judgment
for DD.
Unilateral mistake
A unilateral mistake occurs when just one party is mistaken as to some aspect of
the contract, and the other is or is presumed to be aware of this mistake. Such a
mistake may be the result of misrepresentation or may be a mere error by the
mistaken party. At common law, in the absence of any misrepresentation, a
unilateral mistake does not generally invalidate a contract, but the courts have
increasing used equity to set aside a contract where the other party took unfair
advantage.
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Smith v Hughes (1871) LR 6 QB 597, QB
P offered some oats for sale, and D agreed to buy them: P knew they were
new oats and thought that was what D wanted; D wanted old oats and
thought that was what he was getting. The Court of Queen's Bench said
the contract was valid, since the two minds were ad idem on the purchase
and sale of oats, and at variance only as to their quality. The contract was
quite clear - it was for a quantity of oats, a sample of which D had
inspected - and there had been no misrepresentation, so P could not rely
on a mistake induced by his own carelessness. Where a specific article is
offered for sale without any express or implied warranty, said Cockburn CJ,
and the buyer has every opportunity of inspecting the goods for himself,
the principle caveat emptor applies.
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Scriven Bros v Hindley [1913] 3 KB 564, Lawrence J
PP offered various amounts of hemp and tow at auction, and put up two
lots with identical markings. D inspected one, found it to be hemp, and bid
for the other on the assumption that it was hemp too. Since the price of
hemp is considerably higher than that of tow, the auctioneer realised the
mistake but said nothing. Although at first this appears to be a unilateral
mistake, in that the second bale did objectively contain tow, the judge
found a mutual mistake in that one could not state with certainty which
commodity formed the basis of the contract. The catalogue description of
the lots was not clear and a reasonable person could easily have believed
that two bales of hemp were being offered; the contract was therefore
void.
Hartog v Colin & Shields [1939] 3 All ER 566, Singleton J
DD offered to sell P 30000 hare skins, and quoted a certain price "per
pound", and PP accepted. This was an error: the price should have been
"per piece", and since all the preliminary negotiations had been on a "per
piece" basis (as was the custom of the trade). The judge dismissed P's
claim for delivery at the quoted price: he could not reasonably have
supposed that the offer expressed DD's real intention, and must have
known it to be a mistake.
Bates v Wyndham's Lingerie [1981] 1 All ER 1077, CA
DD held a lease from PP, whose terms included an option to renew at a

rent agreed between the parties or determined by arbitration. Through a
clerical error on PP's part, the second renewal omitted the reference to
arbitration: DD were aware of this omission but said nothing. When the
time came for the next rent review, DD refused either to agree to PP's
proposed rent or to submit to arbitration. PP therefore sought rectification
of the contract, and DD counterclaimed for a declaration that they were
entitled to occupy the premises rent free until the lease expired. The Court
of Appeal upheld Wheeler QC in ordering rectification. Where one party
knew the document did not give effect to the parties' intention, he was
estopped from resisting rectification in order to take advantage of the
other's error.
New Towns Commission v Cooper [1995] 2 All ER 929, CA
A company DD who had acquired a lease of property owned by PP induced

PP to enter a new contract granting them additional rights, on the
pretence (falling short of misrepresentation) that those additional rights
were trivial. Dismissing DD's appeal, the Court of Appeal said that where
one party intends the other to be mistaken as to the terms of their
agreement, and makes false and misleading statements to divert the
other's attention from that mistake, he may be bound by the agreement
which the other party thought was being made, and the other may be
entitled to rectification.
OT Africa v Vickers [1996] 1 Lloyds Rep 700, Mance J

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A ship owned by PP, carrying arms exported by DD, was delayed in port
while it was searched by Nigerian officials. DD accepted liability for the
delay and offered $155k in compensation, but PP refused. DD's solicitors
then sent a letter offering 150k, which PP accepted; this was a double
error, as the letter should have repeated the original offer of $155k. PP
sued for the agreed payment, and the judge said equitable relief was
available in principle in cases such as this, particularly where the results
were grave. But in the instant case, the error was not so obvious as to
make the contract void.
Mistaken identity
A special situation arises where one party makes a unilateral mistake as to the
identity of the other because of a deliberate deception. Although remedies for
misrepresentation may then be available, the law has imposed a fairly stringent
test in order to protect an innocent third party to whom the goods in question
may have been resold. A party seeking to avoid a contract on grounds of
mistaken identity, even as a misrepresentation, must therefore show that he
intended to contract with some particular person other than the one with whom
he contracted in fact - a mere false name is not sufficient; that the other was
aware of this intention, although in cases of deception this is usually fairly
obvious; that at the time of the contract he regarded this matter of identity as
being of crucial importance; and that he took reasonable steps to verify the
other's identity.
It is in respect of the third requirement that avoidance most often fails. Where
the contract is one involving some particular skill (eg ability as a painter) then it
is fairly easy to show that it was considered important to contract with Picasso
and no one else, but in most contracts for the sale of goods the seller will sell
happily to anyone who is prepared to pay the price. Five cases show the
difficulties the courts have encountered in this area.
Cundy v Lindsay (1878) LR 3 AC 459, HL
A rogue Blenkarn, writing from 37 Wood Street, purported to represent the

highly respectable firm of Blenkiron & Co (123 Wood Street) and so
obtained goods from RR without paying for them, selling them on to AA
who bought in good faith. When RR sought to recover the goods (which
had never been paid for) the House said they were entitled to do so: they
had no contract with Blenkarn, because they thought they were dealing
with Blenkiron & Co.
Phillips v Brooks [1919] 2 KB 243, Horridge J
A man X went into a jeweller's shop and asked to see some jewellery. He
selected about 3000 worth and wrote out a cheque, pretending to be Sir
George Bullough. The jeweller P checked the address X gave in a directory
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and then allowed X to take the jewellery. X (a rogue) then vanished and
the cheque bounced: P sought to recover the jewellery from D, who had
bought it from X in good faith, but failed. The judge distinguished Cundy v
Lindsay as dealing with contracts made by post; in the instant case P had
intended to sell to X face-to-face, even though he was mistaken as to X's
identity, and property had therefore passed.
Ingram v Little [1960] 3 All ER 332, CA
A man X called on two sisters PP advertising a car for sale and agreed to
buy it, persuading PP to accept a cheque by claiming to be a Mr
Hutchinson of a certain address. Having checked the address in the
telephone directory, PP reluctantly took the cheque and allowed X to take
the car. X disappeared, the cheque bounced, and PP sought to recover the
car from an innocent third party D to whom X had sold it. The Court of
Appeal distinguished Phillips v Brooks (without actually overruling it in
view of its age) and said the offer to sell by cheque had been made only to
Mr Hutchinson; the contract of sale was therefore void and PP were
entitled to the car.
Lewis v Averay [1971] 3 All ER 907, CA
A Bristol postgraduate student P advertised a car for sale, and a man X

came to see it. X said he would like to buy it and introduced himself as
Richard Green (a well-known actor), showing a studio pass as evidence of
his identity. P agreed to accept a cheque and let X take the car away. X
disappeared, the cheque bounced, and P sought to recover the car from D,
who had bought it in good faith. The Court of Appeal rejected P's claim,
following Phillips v Brooks and distinguishing and doubting Ingram v Little.
Shogun Finance v Hudson [2004] 1 All ER 215, HL
A rogue bought a car on hire purchase from a dealer, producing a driving

licence (probably stolen) that showed a false name. The finance company
CC carried out the normal credit checks against the name on the licence,
and subsequently approved the loan. The rogue sold the car to an
innocent purchaser D and subsequently defaulted on the loan. [Note: the
Hire Purchase Act 1964 provides that a person who buys in good faith
from a "hire purchaser", believing him to be an outright owner, acquires a
good title.] The Court of Appeal (by 2-1) and the House of Lords (by 3-2)
decided that CC were entitled to repossess the car: they clearly intended
to hire the car only to the person whose credit they had checked, and the
rogue had not acquired any title that could be transmitted to the
purchaser D.
As Lord Denning MR pointed out in Lewis v Averay, frauds of this sort almost
always result in a conflict between two quite innocent parties, and there will
always be hard cases. Sedley LJ (dissenting in Shogun v Hudson) said the law is
still unclear: this is evidently true, and it is wrong that the courts should resort to
very technical distinctions to decide essentially similar cases in different ways.
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The law should be clear one way or the other, and that cannot happen unless the
doctrine of stare decisis is properly applied.
Non est factum

A special situation arises when a person signs a document (often because of
deception) believing it to be other than what it is. In general such a mistake has
no effect on the validity of the contract: in L'Estrange v Graucob [1934] 2 KB 394
the Court of Appeal confirmed the general rule that any person who signs a
document is taken to have agreed to its terms whether or not he has actually
read it. In order to invalidate a contract unwittingly entered in this way, the
signer must therefore show non est factum - "not my deed" - which in turn
requires that the document should have been radically different in nature from
the one the signer believed he was signing, and that his mistake was not due to
his own carelessness.
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Lewis v Clay (1897) 67 LJQB 224, Russell CJ

D signed a document partly covered with blotting paper, under the belief
that he was witnessing to a deed executed by someone else. In fact he
had signed four promissory notes, which P now sought to enforce. The
court said the notes were void: D had believed (without negligence on his
part) that the document he was signing was wholly other than what it
really was.
Saunders v Anglia Building Society (Gallie v Lee) [1970] 3 All ER 961,

HL
A woman A signed a transfer of lease in the belief that it was a deed of gift
of the same property, and sought to avoid the document. The House of
Lords said she was bound by her signature: the difference between the
two documents was not sufficiently radical for non est factum to apply.
Barclays Bank v Schwartz (1995) Times 2/8/95, CA
A man D signed a number of personal guarantees to secure loans to a

group of companies of which he was the principal director. When the
companies failed the bank PP sought to invoke the guarantees, but D
claimed his knowledge of English was so poor that he did not know what
he was signing. The Court of Appeal upheld the judge's order in PP's
favour: even assuming the truth of D's claim (about which their Lordships
had grave doubts) he had no defence in law. Mental incapacity or
drunkenness might deprive a party not only of his understanding of the
contract, said Millett LJ, but also of the awareness that he did not
understand it. But a person who knowingly signed a document in a
language which he could not read or could not understand had only
himself to blame, even if the other party was aware of his disability.
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DURESS AND UNDUE INFLUENCE

Duress is an illegal threat applied to induce a party to enter a contract, and
makes the contract voidable: the threatened illegality may be either criminal or
tortious, and although physical violence is the most obvious form of duress a
threat to property or profits is in principle also sufficient.
North Ocean Shipping v Hyundai (The Atlantic Baron) [1978] 3 All
ER 1170, Mocatta J
DD had agreed to build a tanker at a price to be paid in five instalments in
dollars. When the international value of the dollar dropped, DD demanded
an increase in the agreed payments and threatened not to complete the
ship unless such an increase was given; PP made the extra payments
under protest and then took delivery. Eight months later they sought to
recover the excess, but failed: the judge said PP had a good argument
based on duress, but had delayed before taking action and so affirmed the
later contract by their conduct.
Alec Lobb v Total Oil [1985] 1 All ER 303, CA
The owners PP of a garage made a lease-leaseback agreement with an oil

company on terms which placed them at a disadvantage, and sought to
have the agreement set aside. The Court of Appeal said the test to be
applied in such a case was whether the conduct of the stronger party was
oppressive or unconscionable, not whether the bargain was fair, and
declined to intervene.
Atlas Express v Kafco [1989] 1 All ER 641, Tucker J
The judge was careful to distinguish between economic duress and

legitimate commercial pressure, but held that economic duress was
established where a producer D had reluctantly signed a contract with
revised terms of carriage, knowing that had he not done so his carrier P
would have refused to fulfil his existing contract and so lost D a major
customer. In cases where an existing contract is to be varied, however,
the courts have often been able to apply the strict rules of consideration
and so avoid the new contract in cases where there was no real
agreement.
Dimskal Shipping v ITWF (The Evia Luck) (No.2) [1990] 1 Lloyds Rep
319, HL
A ship in a Swedish dock was visited by representatives of the ITWF, who
threatened to "black" the ship and its cargo unless the captain and owners
agreed to certain conditions including new contracts for the crew and
payments to the ITWF. The owners reluctantly agreed, but once at sea
sought a declaration that the contracts were void and orders for
repayment and additional damages. Having established that English law
applied to the situation (because of the terms of the disputed
"agreement"), the House of Lords said that although industrial action of
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this kind was lawful in Sweden, it was still capable of amounting to

unlawful duress so far as the English courts were concerned.
CTN Cash & Carry v Gallaher [1994] 4 All ER 714, CA
A threat to withdraw credit facilities if PP did not pay for a consignment of

goods stolen from a warehouse was unattractive and questionable
business practice, but was not enough to constitute duress making the
agreement to pay void. To extend the law to cover "lawful act duress"
would be going too far, said Steyn LJ, and there were policy reasons for
not doing so.
The equitable counterpart of duress is undue influence, allowing the weaker

party to avoid the contract as long as he does so without prior affirmation or
undue delay. Undue influence is not precisely defined - like most equitable
doctrines, it leaves a broad discretion to the court to do what is just and
reasonable in the circumstances - but is best described as improper pressure
short of duress.
Williams v Bayley (1866) LR 1 HL 200, HL
A son forged his father's signature on several promissory notes, and the
bank threatened to prosecute the son (the possible penalty being
transportation for life) unless the father gave them a mortgage covering
the value of the notes. The House of Lords held this was improper
pressure, though not duress, and that the mortgage contract was
consequently invalid. (A second reason for the decision was the illegality
of a contract to suppress a prosecution.)
Barclays Bank v O'Brien [1993] 4 All ER 417, HL
A wife who was joint owner of the family home signed documents agreeing
to its being put up as collateral for a loan made to the husband's failing
business. When the loan was not repaid and the bank sought possession
of the house, she alleged undue influence by her husband acting as the
bank's agent. The House of Lords said the informality of business dealings
between spouses raises a substantial risk that the husband has
(negligently or otherwise) not accurately stated to his wife the nature of
the liability she is undertaking, and this risk (coupled with the fact that the
wife's guarantee is not on its face to her financial advantage) should put
the lender on enquiry. Each case would turn on its own facts, said Lord
Browne-Wilkinson, but it would generally be sufficient for the creditor to
insist that the wife attend a meeting in the absence of her husband, at
which she should be warned of the risk she was taking and urged to take
independent legal advice. The same principles, he said, should apply to
other cohabitees tied by an emotional relationship.
Even given a manifestly disadvantageous contract, the weaker party must show
that the other did in fact exert undue influence upon him. The burden of proof is
generally on him, but he is powerfully assisted by a rebuttable presumption of
undue influence in cases where a confidential relationship exists in which the
other party is clearly dominant. Once given the manifest disadvantage, for
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example, it may be presumed subject to contrary evidence that a religious

leader has exercised undue influence over his disciple (Allcard v Skinner (1887)
LR 36 ChD 145, CA), a parent over his child (Powell v Powell [1900] 1 Ch 243), a
solicitor over his client (Wright v Carter [1903] 1 Ch 27, CA), and perhaps also a
husband over his wife (Barclays Bank v O'Brien [1993] 4 All ER 417, HL) or a
banker over his customer (Lloyds Bank v Bundy [1974] 3 All ER 757, CA).
The rule therefore appears to be that a contract will be set aside for undue
influence where actual undue influence can be proved, or where undue influence
is rebuttably presumed because of a relationship such as solicitor/client or
doctor/patient, or because of a demonstrable relationship of actual trust and
confidence.
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Credit Lyonnais v Burch [1997] 1 All ER 144, CA

E's travel company was in financial difficulties, and an employee D, with
whom he was on friendly terms, agreed to put up her flat as collateral
security for an overdraft. The bank advised her in writing to take
independent legal advice, but she did not do so. The overdraft was
granted but the company went into liquidation shortly afterwards, and the
bank sought possession of D's flat. Affirming the decision of Mr Recorder
Harrod in the County Court, Millett LJ said the transaction was not merely
to the manifest disadvantage to the defendant, but was one which (in the
traditional phrase) "shocks the conscience of the court". D had committed
herself to an unlimited guarantee of the company's debts and obtained
next to nothing in exchange. In the absence of any explanation, given the
manifest disadvantage to D, PP could not be said to have taken
reasonable steps to avoid being fixed with constructive notice of E's undue
influence over her.
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UNIT FOUR
DISCHARGE OF A CONTRACT
A contract may provide or imply that performance is due from each party at a
certain time. In the case of an executed contract, of course, one party has
already performed his obligations and it only remains for the other to
reciprocate, but with an executory contract there may be room for manoeuvre.
In a contract of employment, for example, the employer's obligation to provide
safe working conditions comes before the employee's duty to do the work, which
in turn precedes the employer's duty to pay wages.
Where a party fails to perform his obligations, he may offer one of a number of
excuses which will prevent his being in breach of contract. He may claim, for
example, that the contract has been discharged or varied by agreement between
the parties, or that it has been frustrated, or has become impossible to perform
in circumstances falling short of frustration (e.g. when an employee is
temporarily too sick to attend work), or that there is an express contractual
provision allowing non-performance, or that he has exercised his right to
terminate the contract in view of the other party's prior or anticipated breach.
PERFORMANCE
The old common-law rule is that one party to a contract is entitled to insist on
the other's performing his obligations to the letter.
Arcos v Ronaasen [1933] AC 470, HL

A contract was made for the supply of barrel staves half an inch thick. The
staves were about 9/16 inch thick when delivered, and the House of Lords
held the purchaser (who could by then have got the staves more cheaply
elsewhere) was entitled to reject the consignment even though the extra
sixteenth would make no difference to the staves' usefulness. Lord Atkin
said that while the law might ignore microscopic deviations, "half an inch"
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did not mean "about half an inch", and if a seller wanted a margin he
should stipulate for it.
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Reardon Smith v Hansen-Tangen [1976] 3 All ER 570, HL

A shipping line chartered a ship described in the charterparty as having
been built by a particular company and having a particular hull number.
The ship delivered had in fact been built by subcontractors and its hull
number was different, and PP claimed the right to reject. The House of
Lords said the rule of strict compliance applied to sale of goods cases but
not to cases like the present one: the words in the charterparty were
meant to identify the ship, not to provide essential conditions to be
complied with. Obiter, Lord Wilberforce suggested that the decision in
Arcos is excessively technical and is due for re-examination.
Bunge v Tradax [1981] 2 All ER 513, HL

A contract for the sale of soya bean meal provided for a delivery to be
made in June, the buyers giving fifteen days' notice of their readiness to
collect it. They gave such notice on 17 June, and the sellers claimed the
right to repudiate for breach of an essential term. The House of Lords said
that although s.41 of the Law of Property Act 1925 says a stipulation as to
the time of performance is not to be regarded as being of the essence of
the contract, there are exceptions where the contract itself expressly
stipulates that time conditions must be strictly complied with, this being
the parties' intention, or where the nature of the subject matter or the
surrounding circumstances show clearly that time should be of the
essence (which will commonly be the case in mercantile contracts), or
where a party who has been subjected to unreasonable delay gives notice
to the party in default, making time of the essence from that point on.
Ruxley Electronics v Forsyth [1995] 3 All ER 268, HL

A houseowner D agreed with PP that they would build a covered swimming
pool in his garden, to specifications including a depth of 7 ft 6 in. The pool
was duly built, but was shallower than specified, and only 6 ft deep at the
point where the depth was required for diving; D refused to pay the
balance of the price, and counter-claimed in damages. The judge (later
upheld by the House of Lords) awarded 2500 general damages for D's
loss of pleasure and amenity, but declined to award any other damages
because there was no significant difference in value between a 7 ft 6 in
pool and a 6 ft pool.
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If the promisee prevents the promisor from completing performance, the

situation changes and the promisor can generally sue for breach of contract if
the court is ready to imply a term that he would not be so prevented. [Note the
distinction between this and the "offer of reward" cases: here there is a
completed contract, not an open offer that can be withdrawn prior to its full
acceptance.]
Startup v Macdonald (1843) 134 ER 1029, Rolfe B

PP agreed to deliver a consignment of oil to DD before the end of March,
and attempted to do so at 8.30 pm on 31 March, but DD refused to accept
delivery at that late hour. The judge awarded PP the agreed price of the oil
on the basis that "tender is equivalent to performance" so long as the
tender is made under circumstances allowing the recipient a reasonable
opportunity to examine the goods or money tendered. PP had fulfilled
their part of the bargain by tendering the oil before the end of March, and
were entitled to be paid.
Note, however, that s.29(5) of the Sale of Goods Act 1979 provides that tender
of delivery, to be effective, must be made at "a reasonable hour", what is
reasonable being a matter of fact.
Partial performance
It may be, of course, that a party performs part of his obligation but fails to
complete it. Once again, the common-law rule in such cases is that he cannot
claim any payment or performance from the other party.
Cutter v Powell (1795) 101 ER 573, Kenyon CJ

A seaman Cutter signed on a second mate on a voyage from Jamaica to
Liverpool, for an agreed wage of 30 guineas. He died en route and his
widow sued for a proportion of his wages. Her claim failed: the terms of
the contract were clear, and although C's failure to complete his part of
the bargain was clearly not due to any fault on his part, he had not
performed his obligations and that defeated his estate's claim.
Two overlapping equitable principles have been developed to mitigate the
effects of the common law rule. First, a party who has substantially performed
his contractual obligations is permitted to sue on the contract while remaining
liable in damages to the extent of his non-performance. Second, if performance
is partial (that is, less than substantial) but is impliedly accepted by the promisee
(e.g. by acceptance of a short delivery of goods), the promisor may generally
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claim proportionate remuneration quantum meruit. This latter doctrine,

however, applies only where the promisee is in a position to accept or reject the
partial performance.
Planch v Colburn (1831) 172 ER 876, Tindal CJ

A historian P was engaged to write a volume for a series of children's
books to be published by DD, a fee of 100 being payable on completion.
D undertook a substantial amount of research and began writing, but then
DD abandoned the entire project. The judge found that by declining to go
ahead with separate publication (perhaps because the style of the work if
published separately would injure his reputation as a serious historian) P
had accepted this abandonment as discharging the contract; however, he
was entitled to a quantum meruit payment of 50 for the work he had
already done.
Bolton v Mahadeva [1972] 2 All ER 1322, CA

A builder P contracted to install central heating in D's house, but the work
when completed was seriously defective. The Court of Appeal set aside
the trial judge's order for payment subject to a deduction for the cost of
putting right the defects: a plaintiff's right to recover subject to set-off,
they said, was limited to cases where the contract had been substantially
performed. Here the system simply did not heat the house adequately,
and the estimated cost of repairs being about a quarter of the total price,
it was impossible to describe the contract as having been substantially
performed, and D had not had a realistic opportunity of accepting or
rejecting the incomplete performance offered.
Discharge and waiver

An agreement between the parties can extinguish an existing contract as long as
this agreement is made under seal or is supported by new consideration. In the
case of an executory contract there is no difficulty, since each party gives
consideration by releasing the other from future obligations, but where the
contract is executed then other consideration must be found. Where the law
requires a contract to be in writing, or supported by written evidence, the same
applies to any discharge. If a contract is discharged, all further obligations arising
thereunder are annulled, but the contract does not itself become void. It remains
alive, said Lord Sumner in Hirji Mulji v Cheong Yue [1916] AC 497, PC, for the
purpose of vindicating rights already acquired under it by either side.
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Hickman v Haynes (1875) LR 10 CP 598, Common Pleas

P agreed to supply D with a quantity of iron, to be delivered during June.
At the beginning of that month, and again two weeks later, D asked P to
delay the delivery and P agreed. In August P pressed D to accept delivery,
and in October P sued for breach. D claimed that since P had not tendered
delivery in June the contract could no longer stand. The court found for P;
Lindley J said that where a term of a contract is waived by one party at the
request of the other, the party for whose benefit the waiver was granted
cannot subsequently repudiate the waiver even if he gave no
consideration.
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Rickards v Oppenheim [1950] 1 All ER 429, CA

D placed an order with PP for a new car, to be built specially and
completed within seven months. By the agreed date the work had not
been completed, but D agreed to wait another three months. The work
was still not done after that time, and D gave notice that he would not
now accept the car unless it was delivered within the next four weeks.
Three months after that, the car was delivered and D refused to accept it.
The Court of Appeal upheld his right so to refuse; although he had waived
his rights to insist on compliance with the original date, he could resume
his rights on giving reasonable notice. But having granted the extension,
he could not have refused delivery merely on the grounds that the original
date had not been met. Denning LJ said that whether it be called waiver or
forbearance or agreed variation or substituted performance does not
matter: it is a kind of estoppel, and having made a promise intending it to
be relied upon he could not have gone back on it.
The rules governing the finality of part-payment in satisfaction of a debt are
discussed elsewhere in the context of consideration, but a few cases are
repeated here.
Pinnell's Case (1602) 77 ER 237, CP

D owed a debt to P and was due to pay 8-10-0 [8.50]in November; at P's
request he paid 5-2-2 [5.11] in October and P accepted this in full
settlement. P then sued for the balance and succeeded on a technicality of
pleading, but the whole court made some further points of importance.
Payment of a lesser sum on the day of satisfaction of a greater, cannot
satisfy the debt as a whole; but where payment is made in a different form
(e.g. goods instead of cash) or at an earlier time or a different place from
that previously specified, with the creditor's agreement, the court will
generally assume without enquiring too deeply that the creditor derived
some benefit from the change sufficient to provide consideration for his
agreement to forgive the balance of the debt.
Foakes v Beer (1884) LR 9 AC 605, HL

D obtained a judgment debt against P, but agreed to accept payment by
instalments over five years and not to take any further proceedings to
enforce the judgment. When all the instalments had been paid, D claimed
the interest added automatically to a judgment debt not paid promptly,
and the House of Lords reluctantly upheld her claim. P had given no
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consideration for D's promise not to make such a claim, and D could not
be held to that promise.
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Central London Property v High Trees House [1947] KB 130,

Denning J
In 1937 the owners PP leased a block of flats in London to DD at an agreed
rent. When war broke out, many flats were left empty as people moved
out to escape the bombing, and PP agreed to reduce the rent by half. DD
paid the reduced rent until the end of the war, and PP then claimed for the
"arrears". Denning J said that although PP were once again entitled to the
rent originally agreed after the war ended, they could not go back on their
promise to accept a reduced rent for the earlier years. When a party to a
contract makes a promise to the other, which he knows will be acted on,
that he will not enforce his strict legal rights, the equitable principle of
promissory estoppel makes that promise binding on him until such time as
he gives reasonable notice of his intention to resume those rights.
D & C Builders v Rees [1965] 3 All ER 837, CA

PP were a small firm in some financial difficulties, who were owed nearly
500 by D for work they had done. Eventually D's wife offered to pay 300
in full settlement, saying that if this was not accepted nothing would be
paid. PP reluctantly agreed, but subsequently sued for the balance. The
Court of Appeal upheld their claim, distinguishing Sibree v Tripp and
disapproving some later decisions, and saying that a cheque was no
different from cash. Where a genuine agreement was reached that the
creditor would accept a lesser sum in settlement of a debt, said Lord
Denning MR, equity might then intervene to prevent his insisting on his full
legal rights if it would be unjust and unreasonable for him to do so, but
this was not such a case.
Stour Valley Builders v Stuart (1993) Times 9/2/93, CA

A building firm PP sent D an invoice for work done; D considered the bill
too high and sent a cheque for a lower amount "in full and final
settlement". PP cashed the cheque but then informed D that they would
not accept it as a full and final settlement, and the Court of Appeal upheld
their right to claim the balance. Although a contract can be discharged by
accord and satisfaction, it must be shown that the creditor undertook (for
valuable consideration) to accept less than the full amount due; the test
was what the creditor had led the debtor as a reasonable person to
believe.
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FRUSTRATION
The old common law, as illustrated in Paradine v Jane (1647) 82 ER 897, had a
doctrine of absolute contract under which contractual obligations were binding
no matter what might occur. The fact that land was occupied by a foreign army
during the English Civil War did not excuse the tenant from his obligation to pay
rent for the land. The doctrine of frustration was developed as a way of easing
the hardship this rule might cause in cases where the contract could not be
properly fulfilled through no fault of either party. The original theory was that
frustration discharged the contract through an implied term to that effect, but
the modern view is that the parties' actual intentions are irrelevant and that it is
up to the courts to impose a just and reasonable solution.
Taylor v Caldwell (1863) 122 ER 309, Blackburn J

PP agreed to hire DD's music hall for a series of concerts on certain dates,
but before those dates arrived the hall was destroyed by fire. The judge
said there was an implied term of the contract that it would be discharged
by the destruction of the hall, and PP could not recover damages for noncompletion.
Jackson v Union Marine Insurance (1874) LR 10 CP 125, Exch Ch

A ship was chartered to proceed with all dispatch, dangers and accidents
of navigation excepted, from Liverpool to Newport and thence to San
Francisco with cargo. The day after sailing the ship ran aground, and six
weeks later (with the ship still aground) the charterers repudiated the
contract. The court held that while the express words of the exception
might cover the interruption, the length of the delay (which in fact
continued for another six months) was beyond what the parties would
have contemplated and frustrated the contract. A voyage made after the
ship had been repaired would have been a quite different enterprise from
that originally contracted for.
Herne Bay Steamboat v Hutton [1903] 2 KB 683, CA

An agreement was made that PP's ship would be at DD's disposal on a
certain date "for the purpose of viewing the naval review and for a day's
cruise around the fleet". On the day in question, the fleet was assembled
but the royal review was cancelled because of the King's illness. The Court
of Appeal said the contract had not been frustrated, because the review
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was not the sole foundation of the agreement and the cruise around the
fleet could still have taken place.
Krell v Henry [1903] 3 KB 740, CA

D agreed to hire briefly from P a flat in Pall Mall, intending to use it with
friends to watch the coronation procession as it passed. The coronation
was postponed at short notice owing to the King's illness, but P sought to
recover the agreed hiring fee. The Court of Appeal turned down the claim
and said the contract had been frustrated; although the purpose of the
hire had not been stipulated in the contract, the circumstances were such
that both parties clearly knew it, and the sole foundation of the contract
had been destroyed.
Metropolitan Water Board v Dick Kerr & Co [1918] AC 119, HL

The parties agreed in 1914 that DD would construct a reservoir for PP
within six years, and made provision for this period to be extended if there
were difficulties or delays. In 1916 the Minister of Munitions ordered DD to
stop work and to disperse and sell the plant, and this order was still in
effect eighteen months later. The House of Lords agreed that government
action had frustrated the contract; the interruption was so serious that any
resumption of the contract when it became possible would be
fundamentally different from performance as originally envisaged.
Cricklewood Property v Leightons [1945] 1 All ER 252, HL

In 1936 DD had taken a 99-year lease on property belonging to PP with
the intention of building a shopping centre. With the outbreak of war such
building was prohibited by wartime regulations, and when PP claimed for
the ground rent DD refused to pay and claimed the contract had been
frustrated. The House of Lords were divided as to whether the doctrine of
frustration could be applied to a long-term lease, but agreed that even if it
could in principle, there was no frustration in this case because the likely
delay (ten years or so) in DD's being able to carry out their plans was
small in comparison with the period of the lease.
Condor v Barron Knights [1966] 1 WLR 87, Thompson J

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A member P of a pop group DD had a contract requiring him to be

available for work seven nights a week if required. He fell ill and was
advised to reduce his workload, but decided to ignore his doctor's advice
and carried on working. The group replaced him with another performer,
and P sued. The judge said the contract had been frustrated; P's illness
meant he could have broken down at any time, and the group had had to
take in a replacement.
Hare v Murphy Bros [1974] 3 All ER 940, CA

P was a man of formerly good character, sentenced to twelve months'
imprisonment for an assault unrelated to his employment. The Court of
Appeal said since it had become impossible for P to fulfil his contractual
obligations the contract had been terminated, and both parties were
discharged from further obligations from the beginning of the sentence. [It
is arguable that this should have been treated as self-induced frustration,
as below, so that P would be in breach, but the consequences would have
been much the same.]
Pioneer Shipping v BTP Tioxide (The Nema) [1981] 2 All ER 1030, HL

A ship was chartered for six or seven voyages between Canada and
Europe during a nine-month period, but a lengthy strike at the loading port
in Canada reduced the maximum number of voyages to two. The House of
Lords upheld the arbitrator's decision that the contract had been
frustrated; the extent to which it was capable of being performed was
inordinately small compared with that contracted for.
National Carriers v Panalpina [1981] 1 All ER 161, HL

PP leased a warehouse from DD for a term of ten years, but the street
forming the only access to the warehouse was closed for almost two years
of that period because of the dangerous condition and subsequently the
demolition of another building. The House of Lords said this did not
constitute frustration; although there could in some circumstances be
frustration when it was impossible to use premises for the specific purpose
originally envisaged, a loss of use for two years out of ten was not serious
enough to amount to a frustrating event.
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There is no frustration (and the contract remains in force) where supervening

events do not render the contract impossible but merely cause extra expense or
inconvenience.
Blackburn Bobbin v Allen [1918] 2 KB 467, CA

Under a contract made early in 1914, timber merchants DD agreed to
supply PP with a quantity of Finnish timber during the autumn of that year.
When war broke out, the direct sea route from Finland was no longer
available and such timber became very difficult to obtain. Allowing PP's
claim for breach of contract and denying DD's defence of frustration, the
Court of Appeal said PP had no reason to know that war would interfere
with delivery; for all they knew, DD might have had the timber in stock at
their depot in Hull. The means of DDs' obtaining the timber was not
something that was at the basis of the contract in the minds of the parties
when it was made.
Maritime National Fish v Ocean Trawlers [1935] AC 524, PC

PP chartered a trawler from DD to use for otter fishing, knowing that they
would need to obtain a licence for this use. They applied for five licences
and were granted three, which they allocated to three other vessels. The
Privy Council said PP's claim that the contract had been frustrated could
not succeed; the lack of a licence for the chartered boat was a matter of
PP's own choice, and a party cannot rely on frustration that is wholly or
partly self-induced.
Davis Contractors v Fareham UDC [1956] 2 All ER 145, HL

PP agreed to build some houses for the Council, within eight months and
at a pre-determined price. Through no fault of PP, an unexpected national
shortage of skilled labour meant that the contract took 22 months to
complete and cost considerably more than had been envisaged. PP
claimed the original contract had been frustrated and sought a quantum
meruit payment over and above the contract price. The House of Lords
said there had been no frustration; the contract had not become
impossible to perform, and the rise in costs was a risk that PP must have
accepted when making the contract.
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Tsakiroglou v Noblee & Thorl [1961] 2 All ER 179, HL

In 1956 PP agreed to supply DD with 300 tons of Sudanese groundnuts, to
be shipped to Hamburg. A few weeks later the Suez Canal was closed by
Israel's invasion of Egypt, and PP claimed this frustrated the contract. The
House of Lords disagreed: the route around the Cape of Good Hope was
still open, and the fact that this route was considerably longer and more
expensive was irrelevant - this was a commercial risk taken by the
shippers.
A contract which is frustrated comes to an end as soon as the frustrating event
occurs, automatically and without further action by either party. All further
obligations are then annulled, but the contract is not avoided ab initio and past
obligations generally remain in force. The common-law rule was that any losses
lay where they fell, and that payments in advance were not recoverable except
(partially) through the equitable doctrine of quasi-contract. Substantial and long
overdue changes were made by the Law Reform (Frustrated Contracts)
Act 1943, which applies only to frustrated contracts and not to those
terminated in other ways. Section 1(2) gives a right to recover money already
paid under such a contract and to withhold anything still payable, but allows the
court (if it considers it just) to permit the payee to retain (or claim) an amount
not exceeding any expenses he has incurred before termination in pursuance of
his obligations. Section 1(3) then provides that where a party has received some
valuable benefit under the contract before its discharge, the court may order him
to make an appropriate payment to the other party.
Gamerco v ICM/Fair Warning [1995] 1 WLR 1226, Garland J

A performance contract between promoters PP and agents DD for the pop
group "Guns n Roses" required an advance payment by PP of $412k (on a
total fee of $1.1m). The public authorities at short notice withdrew
permission for the use of the stadium, and it was agreed the contract had
been frustrated. PP sought an order for the return of their advance
payment. The expenses already incurred were disputed, but may have
been of the order of $450k by PP and $50k by DD; DD sought to retain the
full $50k, while PP claimed a complete refund. The court said the Act gave
a broad discretion, and ordered DD to repay the whole of the advance.
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BREACH OF CONTRACT
An innocent party has the right to terminate a contract if the other is in
fundamental breach - that is, either a breach of a condition or a breach of an
innominate term causing very serious consequences. The innocent party can
choose to treat the contract as still in force (in which case its terms remain
binding on both sides) and sue for damages, or can treat the contract as
terminated from the moment he communicates that fact to the other. In the
latter case, all future obligations are then annulled, but past obligations remain
in force and past transactions are not reversed.
In contracts for the sale or supply of goods, the buyer has the right to reject the
goods and terminate the contract if the goods supplied are not up to standard. If
he accepts the goods, however, the right to reject is lost and the buyer is limited
to damages. Acceptance is deemed to take place when the buyer intimates to
the seller that he has accepted the goods, or when the goods have been
delivered to him and he does any act in relation to them which is inconsistent
with the ownership of the seller, or when after the lapse of a reasonable time the
buyer retains the goods without intimating to the seller that he has rejected
them. Deemed acceptance does not occur, however, unless the buyer has had a
reasonable opportunity to examine the goods or (if the contract is for sale by
sample) to compare the bulk with the sample.
Bernstein v Pamsons Motors [1987] 2 All ER 220, Rougier J

P bought a new car, and over the next three weeks made two or three
short trips totalling 140 miles to try it out. The engine then seized up
because of a drop of sealant that had got into the lubrication system when
the car was being assembled. The judge said P had accepted the vehicle
by keeping it for three weeks without sending it back; a reasonable time
for inspection and trying out the vehicle had passed. What was reasonable
timewise, he added, depended on the nature of the goods: longer would
be needed for a nuclear submarine than for a bicycle.
Rogers v Parish [1987] 2 All ER 232, CA

PP bought a new Range Rover; after a few weeks it proved unsatisfactory
and was replaced. The replacement was equally unsatisfactory, and
attempts to repair various faults were unsuccessful. After five months PP
purported to reject the car on the grounds that it was not of merchantable
quality and the court of Appeal said they were entitled to do so: the
expectations of the purchaser of a Range Rover were higher than those of
the purchaser of an ordinary car.
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Clegg v Olle Anderson [2003] 2 Lloyds Rep 32, CA

CC bought a yacht from DD, but found it was not of satisfactory quality.
They complained to DD, and after some inconclusive discussions as to the
work that would be needed to rectify the faults, CC rejected the yacht
three weeks later and sought return of their money. The Court of Appeal
said that if goods are not of satisfactory quality, the buyer's rejection does
not have to be reasonable: he can reject for any reason at all, and the only
question is whether he has lost that right by accepting the goods. As to
that, the time taken in ascertaining what repairs would be needed is to be
taken into account in determining "a reasonable time". Bernstein v
Pamsons has been much criticised and was decided before the Act was
amended in 1994: it no longer represents the law.
Acceptance is not deemed merely because the buyer has asked for or agreed to
the repairing of the goods by or under an arrangement with the seller. Moreover,
since 1995 the buyer can reject just part of a consignment and accept the rest:
specifically, he can reject all the goods, or accept those which conform with the
contract and reject the rest, or accept those which conform and some of those
which do not, and reject the rest, or accept all the goods.
Ritchie v Lloyd [2007] UKHL 9

C bought an agricultural seed drill and harrow from DD. It soon became
apparent that it was faulty, and C took it back to DD for repair. DD
repaired it by replacing two missing bearings; they told C it was now of
"factory gate standard", but would not give any further details. C (who was
concerned that he would not be able to test it properly until the same time
next year) now sought to reject it even though in fact it was now in good
working order. The House of Lords implied a term entitling C to know what
the fault had been - without that information he could not make a properly
informed choice - and said that in these circumstances C was entitled to
reject the goods.
Where one party repudiates the contract before full performance, indicating by
his words or deeds that he has no intention of honouring his future obligations,
the other has the same choice as before and (if choosing termination) need not
wait for an actual breach but can act at once.
Federal Commerce v Molena Alpha [1979] 1 All ER 307, HL

The charterers of a ship deducted certain disputed sums from their hire
payments, and the owners retaliated by instructing the ship's master not
to issue pre-paid bills of lading, thus making the ship practically useless to
the charterers. They mistakenly thought they were entitled to do this, but
the House said the owners' action was a wrongful repudiation of the
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contract for which the charterers were entitled to damages. The owners'
subjective desire to maintain the contract was irrelevant: it was the overt
act amounting to repudiation that counted.
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Woodar v Wimpey [1980] 1 All ER 571, HL

The terms of a land contract gave Wimpey the right to rescind the
contract under certain circumstances; they honestly but mistakenly
believed those circumstances had arisen and purported to exercise their
right. Woodar sought damages, but a bare majority in the House of Lords
distinguished Molena Alpha and said there was no repudiation. If Wimpey
honestly believed they were exercising a contractual right, said their
Lordships, they were not disregarding the requirements of the contract
and could not be said to have repudiated it.
Most commentators have found it hard to explain these two contrasting

decisions. One possibility is that in Woodar the other party relied on an express
term of the contract while in Molena Alpha the claim was that there was nothing
to prevent their action; another is that in Woodar (and not in Molena Alpha)
there was time for the disputed legal question to be settled in court before the
contract was due to be completed.
White & Carter v McGregor [1961] 3 All ER 1178, HL

PP were a company who made litter bins and contracted to advertise DD
on these bins. DD attempted to cancel the contract before any part of it
had been performed, but PP ignored the cancellation and went ahead,
displaying DDs' now unwanted advertisements and making no attempt to
seek other advertisers. The House of Lords held by a bare majority that PP
were entitled to affirm the contract and claim damages, but even the
majority were unhappy with the decision they felt compelled to reach.
Lord Reid suggested that a plaintiff should not be allowed to affirm unless
he could show that he had a legitimate interest (financial or otherwise) in
performing the contract going beyond the mere claiming of damages.
Clea Shipping v Bulk Oil International (The Alaskan Trader) [1984]

1 All ER 129, Lloyd J
PP repairing and crewing a ship contracted to DD, knowing it was no
longer required and that DD had repudiated the contract. The judge
applied Lord Reid's dictum above and said this went beyond what was
recoverable; he awarded not the full contract price but only damages for
the loss of profit. Although an innocent party has in general an unfettered
right to decide whether or not to accept repudiation, he said, the court in
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the exercise of its equitable discretion might exceptionally refuse to allow

the enforcement of that party's full contractual rights where that party had
no legitimate interest in seeking performance rather than damages.
Fercometal v MSC Mediterranean (The Simona) [1988] 2 All ER 742,

HL
A charterparty allowed the charterers to cancel should the ship not be
ready to load by 9 July. On 2 July the owners asked for an extension to 13
July in order to load another cargo, whereupon the charterers promptly
cancelled the charterparty and chartered another ship elsewhere. The
owners refused to accept this repudiation and affirmed the contract,
giving notice that the ship would be available by 9 July as required. In fact
the ship was not ready to load by 9 July, and the charterers went ahead
with their alternative. The House of Lords held that the owners having
affirmed the contract were in breach by not having the ship ready to load
at the proper time, and that the charterers' first wrongful repudiation did
not prevent their exercising their right to cancel as originally provided by
the contract.
The innocent party's decision to terminate for anticipatory breach must be clear,
and must be communicated to the other party, though this communication may
be by conduct.
Vitol v Norelf (The Santa Clara) [1996] 3 All ER 193, HL

AA agreed to buy from RR a cargo of propane, for delivery within certain
dates. On hearing from another source that delivery would be late, AA
sent a telex to RR saying that because of that breach of condition they
would reject the cargo and repudiate the contract. RR took no further
action on the contract, but later sold the cargo elsewhere at a lower price,
because of a falling market, and claimed the difference. The arbitrator
allowed their claim, finding AA in breach of contract, and AA appealed.
Reversing the Court of Appeal and restoring the decision of the arbitrator
and Phillips J in the Commercial Court, Lord Steyn said that as a matter of
law, mere failure to perform a contractual obligation can constitute
acceptance of an anticipatory repudiation, depending on the
circumstances of the case. In the instant case, the arbitrator had found as
a fact that RR's conduct showed an intention to treat the contract as
ended, and that was a matter of fact within his exclusive jurisdiction.
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Where a contract is terminated for fundamental breach or repudiation, neither

side need perform any further obligations, but the contract remains effective as
regards past transactions and, in particular, the party in default cannot generally
recover any money he may have paid to the other.
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Dies v British & International Mining [1939] 1 KB 724, Stable J

P ordered goods worth 270k and paid 100k in advance. P then refused
delivery, and DD elected to terminate the contract and claimed to keep
the advance. P sued for the return of his advance, and the judge said he
should succeed, subject to an appropriate deduction to represent the
damages to which DD were entitled. No executed consideration had been
given for this payment, so DD were not entitled to keep it.
Hyundai v Papadopoulos [1980] 2 All ER 29, HL

PP ordered a ship from builders DD, and paid a substantial sum on a
partly-built hull. Market conditions then changed and PP cancelled their
order; DD elected to terminate the contract, and PP sued for the return of
their first payment. The House of Lords distinguished Dies and said PP's
payment was an unconditional payment for work already completed, not
conditional on any subsequent performance, so PP were not entitled to its
return.
Equity may intervene where prompt payment of instalments is made a condition

of the contract: if most of the instalments are paid on time before one is late, it
would often be inequitable for the seller to be allowed to keep all the earlier
instalments and the goods as well.
Stockloser v Johnson [1954] 1 All ER 630, CA

D agreed to sell P certain machinery, with payment being made by
instalments. The agreement said that if P was in default by more than 28
days on any payment, D could retake possession of the machinery and
retain the payments already made. After two years, P defaulted on a
payment and D purported to exercise his rights under the contract. The
Court of Appeal said he was entitled to do this, since the term in question
was not so severe as to be a penalty clause (see below). Romer LJ said
there was no sufficient ground for interfering with the contractual rights of
a vendor under forfeiture clauses while the contract was still subsisting,
beyond giving a purchaser who is in default but able and willing to
proceed a further opportunity of doing so. But obiter, a majority of the
Court said more general relief might be given if the forfeiture clause were
construed as penal.
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UNIT FIVE
REMEDIES FOR BREACH OF CONTRACT
Where one party is in breach of his contractual obligations, the remedies open to
the other depend in part on the seriousness of the breach. An action for
damages is possible in almost every case, and in some cases an order for
specific performance, but where the breach is serious the innocent party may
prefer to abandon the contract altogether. There is also the possibility of
rescission in some cases of mistake or misrepresentation.
DAMAGES
Where an innocent party has suffered financial loss following another's breach of
contract, the court must decide whether the breach actually caused the loss,
whether the party at fault is legally liable for it (which is not the same thing), and
how much compensation is payable. Causation is largely a matter of fact, and
the rules in contract are similar (but not identical) to those in tort.
C & P Haulage v Middleton [1983] 3 All ER 94, CA
P hired a garage for six months and equipped it to meet his own particular
needs: D terminated the contract ten weeks early, and P sued for the
expense of equipping the garage. This part of his claim was rejected: he
would have incurred that expense in any event, and the early termination
had merely accelerated (not caused) the loss.
Quinn v Burch Bros [1966] 2 All ER 283, CA
D failed to supply a ladder to a sub-contractor who used an unsuitable

trestle as a substitute and was injured when it slipped. Paull J said P's own
act broke the chain, but (obiter) had the claim been in tort, he would have
found the chain unbroken but reduced the damages for contributory
negligence. The Court of Appeal upheld his judgment without commenting
on the reference to tort. [The Law Commission have criticised this
argument as lacking principle: in contract, it seems, judges apply the old
all-or-nothing contributory negligence test.]
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Even with causation, a party in breach of contract is not always legally liable for
the entire loss.
Hadley v Baxendale (1854) 156 ER 145, Alderson B
PP were a firm of millers who contracted with carriers DD to take a broken

mill-shaft to a foundry for repair. The shaft was delayed in transit through
DD's negligence and the mill lost five days' production. PP claimed
damages for their lost profits. Alderson B said in the Court of Exchequer
that the damages allowable were such as may fairly and reasonably be
considered to arise naturally (i.e. in the ordinary course of things) from the
breach of contract, or such as might reasonably be supposed to have been
in the contemplation of both parties at the time of the contract as a
probable result of the breach. In this case, the total stoppage of
production was not a natural consequence of delay - the mill might well
have had a spare shaft in stock - and the carriers had not been aware of
the special circumstances, so that in this respect the claim failed.
Victoria Laundry v Newman Industries [1949] 1 All ER 997, CA/dt>
A laundry PP ordered a large boiler from DD, on whose premises it was

currently installed. It was damaged by DD's contractors while being
dismantled, and delivery was delayed about five months while the boiler
was repaired. PP claimed for their lost profits, arising from the expected
increase in business following their increased capacity (the demand for
laundry services at that time being particularly heavy), and from a
lucrative dyeing contract they would have been able to bid for. Streatfield
J said those claims must fail because they had not drawn the special
purpose of acquiring the boiler (i.e. to expand their business) to DD's
attention, but the Court of Appeal said it was enough that DD knew PP
were in the laundry business and knew in general terms the state of the
market. PP were entitled to recover the lost profits from the expected
general increase in trade, but not those from the dyeing contract which
would not have been in the reasonable contemplation of the other party.
Koufos v Czarnikow ( The Heron II) [1967] 3 All ER 686, HL
RR chartered a ship from AA to carry a cargo of sugar to Basrah. The ship

made various unauthorised deviations during the voyage, and
consequently arrived about nine days later than it should have done.
During those nine days the price of sugar had dropped significantly, and
RR sued for the difference. The House of Lords dismissed AA's appeal from
the Court of Appeal and upheld judgment in favour of RR. It is not enough,
said Lord Reid, that a consequence may have been foreseeable as "a
serious possibility" or "liable to result" (which is the rule in tort); the
consequence must have been "quite likely" or at least "not unlikely". But
the Court of Appeal had been wrong to suggest in The Parana (1877) LR 2
PD 118 that the consequence must have been "reasonably certain" - that
would be too strict a test.
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If the kind of damage is within reasonable contemplation, however, then it is

immaterial that the resulting damage is far more serious than was anticipated.
Parsons v Uttley Ingham [1978] 1 All ER 525, CA
DD supplied a pigs' feeding hopper in a condition which caused the food to

go mouldy; this led to internal illnesses from which more than 250 pigs
died. The Court of Appeal held unanimously that since the parties could
reasonably be supposed to have contemplated illness as a serious
possibility resulting from such a breach, DD's liability extended to liability
for the pigs' death even though the quantum of damage was greater than
the parties might have contemplated. Orr and Scarman LJJ applied this
principle to both physical loss and loss of profit, but Lord Denning MR felt
that in cases of physical loss the courts should apply the more generous
tort standard and award damages for any loss whose type could
reasonably have been foreseen even as a slight possibility. Moreover,
Denning and Scarman agreed that where all parties had the same actual
or imputed knowledge, and there was no limitation clause in the contract,
the remoteness test should be the same in contract as in tort.
Once D's liability for P's losses has been established, the court must then
consider an appropriate measure of damages. Three possible measures are
applicable: expectation damages putting P in the position he would have been
had the contract been completed, reliance damages restoring P to the position
he would have been in had the contract never been made, or restitution
damages compelling D to restore any benefits he may have received from P.
Contract law generally awards damages for P's loss of expectation. If P pays
100 for a painting worth 200, and D fails to deliver it, he is liable in damages
for the value of the painting rather than for the amount paid; the same is true if
the painting is found to be worth only 50. In cases such as this, the valuation
normally applied is the open market price at the time of the breach, or a
previously agreed resale price if there is no open market. But where an expected
profit is incalculable, or in any case where it seems just and reasonable, the
judge may award reliance damages instead. Restitution damages are not
generally awarded in contract.
Hayes v Dodd [1990] 2 All ER 815, CA
PP planned to buy new premises for a garage business, but satisfactory

rear access was essential to the its success. The vendors VV said the right
of way was secure, although in fact the owner of the adjoining land
disputed the supposed right of way. PP made the purchase, and a few
days later the owner quite lawfully blocked off the access road. PP sued
their own solicitors for breaching an implied contractual term promising
reasonable care and skill by not having made adequate enquiries, and
won. The Court of Appeal said that had PP been properly advised they
would not have gone ahead with the purchase at all, the damages were
assessed on a reliance basis to restore PP to the position they would have
been in had there been no transaction.
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East v Maurer [1991] 2 All ER 733, CA
The owner of two hairdressing salons sold one of them on the fraudulent
misrepresentation that the sale included all the goodwill of the business,
but then lured many customers away to the other salon. The Court of
Appeal said damages for loss of profit should be calculated not "as if the
representation had been true", but rather "as if the contract had never
been made" and the plaintiffs had opened a similar business elsewhere in
the area.
Lloyd v Stanbury [1971] 2 All ER 267, Brightman J
D agreed to sell P a piece of land including D's farmhouse; the contract

said that P would build a bungalow to be occupied by D, and would
provide a caravan for D's use until the bungalow was completed. P
obtained a caravan and had it parked on the land; contracts were then
exchanged, but D subsequently refused to complete. The judge said P
could recover the expenses of having the caravan installed and removed
(as well as the legal costs of preparing the contract &c), even though it
had been obtained in anticipation of the contract.
Anglia TV v Reed [1971] 3 All ER 690, CA
A television company PP incurred various expenses in preparing a TV play,

and contracted with Oliver Reed to play the leading role. D then
repudiated the contract, and PP were unable to find a suitable substitute
and so cancelled the play. The Court of Appeal said PP could recover all
their prior wasted costs, because it must have been within D's
contemplation that there would have been such costs and that repudiation
might lead to abandonment. These were reliance damages; any
calculation of expectation damages would of course have been highly
speculative. Lord Denning MR made it clear, however, that an injured
party cannot have both expectation and reliance damages - that would
compensate him twice for the same loss.
Surrey CC v Bredero Homes [1993] 3 All ER 705, CA
A local authority sold land to a building firm and took covenants that no
more than a certain number of homes would be built on the site. The
builders broke the covenants and built more than the agreed number of
homes, increasing their profits substantially. Ferris J and the Court of
Appeal said the Council were entitled to nominal damages for the breach
of covenant but no more: their remaining land had not lost value because
of the breach, and they had suffered no other loss. Their claim for a share
in the excess profits was wholly unfounded.
White Arrow v Lamey's Distribution [1995] NLJ 1504, CA
A mail order firm PP2 contracted with DD for the distribution of their
goods, and paid extra for an enhanced level of service. PP2 then alleged
that DD had in fact provided only the basic service, and claimed damages
equivalent to the difference in price between the two services. In
interlocutory proceedings, the Court of Appeal upheld the judge's ruling
that such a claim was unfounded and that only nominal damages could be
awarded. Bingham MR said it is elementary that a breach of contract
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without actual loss does not entitle the innocent party to more than
nominal damages. An equitable claim in quasi-contract might be possible,
but PP2's claim in contract could not stand.

Attorney-General v Blake [1998] 1 All ER 833, CA
George Blake, who escaped after being imprisoned as a Soviet spy and
now lived in Moscow, wrote an autobiography (in breach of his contract of
employment and in clear violation of the Official Secrets Act), describing
inter alia his work as a member of the British intelligence services. The
Court of Appeal granted an injunction restraining B from receiving or
authorising anyone to receive on his behalf any profits resulting from the
sale of the book, and ordered that formal notice of this be given to B's
publishers. Lord Woolf MR said obiter that although in general damages for
breach of contract are compensatory, the law is now sufficiently mature to
recognise in exceptional cases a restitutionary claim for loss of profits
where compensatory damage would be inadequate. The fact that D's
breach of contract is deliberate and cynical, or has enabled him to make a
more profitable contract with someone else, is not in itself a good reason
for departing from the normal basis in which contract damages are
awarded. But where there is "skimped performance", or where (as here) D
has obtained his profit by doing the very thing he contracted not to do, his
profit flows directly from the breach and restitutionary damages may be
needed to defend P's legitimate interest in having the contract properly
performed.
If P agrees to sell his car for 500 to a buyer who then refuses to go through with
the deal, P's damages are usually limited to the difference between 500 and the
market price of the car (if that is lower), since he is presumed to be able to sell
to another buyer and has a duty to try to do so. If the market price is 500 or
above, P has lost nothing except perhaps his out-of-pocket expenses and will be
awarded very little. If P is a dealer who relies on trade for his living, the situation
may be a little different.
Thompson v Robinson [1955] 1 All ER 154, Upjohn J
D agreed to buy from a dealer P a certain model of Vanguard car, but then
refused to go through with the deal. P claimed damages for his lost profit
and succeeded: the supply of Vanguard cars at that time exceeded the
demand, so D's repudiation represented a lost sale.
Charter v Sullivan [1957] 1 All ER 809, CA
The facts were almost identical except that the car was a Hillman, the
demand for which was well in excess of the supply. Since P would have
had no difficulty in selling the car to another customer and had not in fact
lost a sale, the Court of Appeal said he was entitled to nominal damages
only.
Naughton v O'Callahan [1990] 3 All ER 191, Waller J
PP bought a colt for 27300 and entered it in a number of races; it did

poorly and its value fell to 1500. They found its pedigree had been
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misrepresented at the time of the sale, and the judge decided that had the
colt been correctly described its value at that time would have been
24700. PP claimed rescission of the contract together with all expenses
incurred in the care and training of the horse; DD offered only the
difference between the actual and proper sale prices. The judge said the
animal sold was "altogether different" from that contracted for, and
awarded damages equal to the difference between the original price and
the horse's present value.
Ruxley Electronics v Forsyth [1995] 3 All ER 268, HL
A houseowner D agreed with PP that they would build a covered swimming

pool in his garden, to specifications including a depth of 7 ft 6 in. The pool
was duly built, but was shallower than specified, and only 6 ft deep at the
point where the depth was required for diving; D refused to pay the
balance of the price, and counter-claimed in damages. In the County
Court, Judge Diamond QC awarded general damages of 2500 for D's loss
of pleasure and amenity, but declined to award any other damages
because there was no significant difference in value between a 7'6" pool
and a 6' pool. The Court of Appeal reversed this decision and awarded the
cost of having the pool deepened, but the House of Lords restored the trial
judge's award. Although the cost of reinstatement is the usual measure of
damages for non-performance of a building contract, said Lord Lloyd, it is
not the appropriate award where reinstatement is on the facts
unreasonable. The basic rule of damages, particularly in contract, is that
they are compensatory and not punitive.
In matters other than direct financial loss, a valuation must often be little more
than a shot in the dark, though now contract claims are no longer tried by juries
there is greater chance of consistency.
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Chaplin v Hicks [1911] 2 KB 786, CA

A newspaper advertisement promised three-year acting engagements to
twelve women, to be chosen by the promoters D from the fifty winners of
regional competitions. P won her regional competition, but was not then
given a reasonable chance to audition for a place in the last twelve. The
jury estimated the value of P's loss at 100 and the Court of Appeal
refused to interfere with this award. The right to be one of a limited group
of competitors, they said, was something of value that had been taken
away, and since its value could not be determined exactly the jury had
arrived at a reasonable figure.
The general rule is that contract damages cannot be awarded for any mental
distress associated with the breach of contract, and the exceptions to this rule
are limited.
Addis v Gramophone Co [1909] AC 488, HL
P was employed by DD as a manager on salary and commission, and was

dismissed in circumstances making clear DD's lack of confidence in him. In
the High Court he was awarded damages for his lost salary, together with
340 estimated to be the value of his lost commission and 600 for the
humiliation and distress of his wrongful dismissal. The House of Lords
allowed an appeal against the final element of this award: Lord Atkinson
said damages in contract are meant to compensate, not to punish, and
could not be given merely for mental distress in circumstances such as
these.
Cook v Swinfen [1967] 1 All ER 299, CA
A woman P was sued for divorce by her husband; her solicitor D

negligently failed to enter a defence or cross-petition, or to ask for
maintenance. P consequently suffered an anxiety neurosis and was unable
to work. Upholding the judge's award of damages without a "nervous
shock" element, Lord Denning MR said damages for reasonably
foreseeable psychiatric illness could be recovered just as in tort for breach
of a contractual duty to use due care, but on the facts of this case the
damage was too remote.
Jarvis v Swans Tours [1973] 1 All ER 71, CA
P booked a holiday from DD's brochure promising an enjoyable time,

congenial company, &c; in fact the holiday fell well short of the promise,
and P sued for (inter alia) his disappointment. Reversing the trial judge,
the Court of Appeal said damages for P's disappointment and distress
could be awarded in circumstances such as these. The prohibition in Addis
was out of date, said Lord Denning MR, and there should be exceptions for
holiday contracts and other contracts promising entertainment and
enjoyment. P had not contracted only for travel and accommodation; he
had contracted for an enjoyable holiday, and that had been denied him.
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Heywood v Wellers [1976] 1 All ER 300, CA
A young woman P who was being persistently harassed by a man asked

her solicitors DD to obtain an injunction against him. The solicitors were
negligent in not obtaining and enforcing such an injunction, and P suffered
further harassment. The trial judge said P's remedy against DD was limited
to the return of her costs, but the Court of Appeal said she was also
entitled to 150 for mental distress. The whole point of her contract was
that she should be free of such distress, and it was right that she should
be compensated for DD's failure to deliver.
Bliss v South East Thames HA [1987] ICR 700, CA
Relationships between a surgeon P and his colleagues deteriorated

seriously, and his employers DD required him to undergo psychiatric
examination. P refused and was suspended, and since DD had no right to
make such a demand they were in breach of contract. The trial judge
awarded damages including a sum for the humiliation and distress of the
suspension, but the Court of Appeal struck out this part of the award.
Reaffirming the decision in Addis, Dillon LJ said damages for distress
arising from a breach of contract were limited to those cases in which the
contract broken was itself a contract to provide freedom from distress or
peace of mind, or at least some comfort or pleasure over and above that
which might incidentally arise from a commercial transaction.
Watts v Morrow [1991] 4 All ER 937, CA
P bought a house on the strength of a negligent survey, and subsequently

had to undergo some inconvenience while defects were remedied. The
Court of Appeal said he was not entitled to damages (claimed at 4000)
for inconvenience as such, nor anything for mental distress other than that
caused directly by the physical discomfort, but allowed 750 (in addition
to other quantifiable damages) for the discomfort he had suffered.
Alexander v Rolls Royce [1996] RTR 95, CA
DD were in breach of their contract to repair P's Rolls Royce car within a
certain time, and P was awarded some 10000 in damages. P's appeal
against the judge's refusal to allow further damages for loss of enjoyment
(deriving from the display of ownership of such a prestigious car) was
dismissed; Beldam LJ said a contract such as this was not within the
narrow class of contracts in which damages for distress might be awarded.
Malik v BCCI [1997] 3 All ER 1, HL
A former employee P of a bank DD which had gone into liquidation in

suspicious circumstances claimed damages for inter alia the stigma
attached to his having worked there, which had made it hard for him to
find other employment commensurate with his ability and experience. In
preliminary proceedings the judge struck out this claim as disclosing no
reasonable cause of action, but the House of Lords (reversing the Court of
Appeal) distinguished Addis and restored it. Employers had an implied
duty not to conduct their business in such a manner as to seriously
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damage the relationship of confidence and trust between employer and

employee, said Lord Nicholls, and an employee who learns that his
employer is fundamentally corrupt is entitled to treat that as a repudiation
of his contract. Addis was decided before this implied term was recognised
as such, and while it is still authority on injury to feelings and damage to
reputation per se, it does not exclude damages for financial loss where
these flow directly from the breach.
Dunnachie v Hull CC [2004] 3 All ER 1011, HL
The House of Lords, reversing the Court of Appeal and restoring the
decision of the Employment Appeal Tribunal, held that in cases of unfair
dismissal an Employment Tribunal has no jurisdiction to award damages
for non-pecuniary losses such as hurt feelings. In Norton Tool Co v Tewson
[1973] 1 All ER 183 the National Industrial Relations Court had applied the
common-law rule in Addis to the new statutory framework, and this
decision had been followed for the past thirty years. Lord Hoffmann's
comments in Johnson v Unisys, where he doubted the correctness of this
rule, were obiter and should not be followed.
Wiseman v Virgin Atlantic [2006] EWHC 1566 (QB)
A man W was prevented from boarding his plane at a Nigerian airport

when he refused to pay a bribe to an airline employee who accused him of
having a false passport; the airline admitted liability but disputed the
damages claimed. Eady J allowed the man's claim for twelve days' hotel,
restaurant, taxi and telephone bills while he was trying to arrange an
alternative flight, but denied his claims for expenses incurred by his
fiance who had arranged to meet him at Stansted (but who had no
contract with the airline), for the breakdown of their relationship (which is
not a recoverable type of damage even if it were caused by the breach of
contract), for the additional expenses of W's Nigerian friends who had
come to see him off (which were too remote), for W's hurt feelings and the
alleged damage to his reputation (which are not recoverable under the
Addis rule), and for a robbery he suffered during the time he was delayed
in Nigeria (which was a supervening event not caused by the delay).
Where D is in breach of contract, the law expects P to take reasonable steps to

mitigate any loss resulting from the breach, and although this is not a positive
duty he is unlikely to be awarded damages in respect of additional loss resulting
from his failure to mitigate. In particular, if a seller fails to deliver goods as
promised the purchaser should try to obtain similar goods at a reasonable price
elsewhere, and if a purchaser refuses to accept delivery the vendor should try to
sell it to someone else at the market price. This is the basis on which damages
are normally calculated, as already discussed.
British Westinghouse v London Underground [1912] AC 673, HL
The appellants agreed to supply turbines to certain specifications, but the

turbines when supplied were not up to the required standard. The
respondents therefore had to replace them sooner than expected, and the
new turbines they obtained were so good they rapidly paid for themselves.
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Lord Haldane LC said the fundamental principle, that P should be

compensated for all monetary loss naturally flowing from the breach of
contract, is qualified by P's duty to take all reasonable steps to mitigate
his loss. This RR had done, so although they could have compensation for
the losses incurred while the inefficient turbines for in use, they could
have nothing for the already-recovered costs of the replacement.
Contributory negligence is not a defence in contract. In Forsikringsaktieselskapet
Vesta v Butcher [1989] AC 852, Hobhouse J suggested that D's liability might
arise from a strict contractual provision, from a contractual duty of care not
corresponding to any tortious duty of care, or from a duty of care which would
exist in tort independently of the contract, and said there could be
apportionment under the Law Reform (Contributory Negligence) Act 1945 only in
the third of these situations.
Barclays Bank v Fairclough [1995] 1 All ER 289, CA
DD were builders who failed to carry out certain terms of their contract.
The Official Referee reduced the assessed damages by 40% because PP
had failed to exercise adequate supervision to ensure the work was
carried out, but the Court of Appeal said unanimously that such a
reduction was inappropriate. Where the breach is of a strict term (rather
than one requiring the exercise of reasonable care and skill), they said,
contributory negligence is wholly irrelevant.
The Law Commission have proposed extending the rules of contributory

negligence to all contractual duties to take reasonable care or exercise
reasonable skill, with an option to exclude any such provision by an express term
to that effect, subject to the usual limits on exclusion clauses.
A contract may provide for payments in the event of a breach, and such a
provision is prima facie a valid and enforceable term of the contract. Insofar as
such payments represent a genuine estimate at the date of the contract of the
loss likely to be suffered by the innocent party, they are treated as liquidated
damages and will be enforced irrespective of the actual loss suffered. Where
they are clearly in excess of the actual loss, however, they are treated as a
penalty and the court has an equitable jurisdiction to reduce them if it thinks it
desirable.
Dunlop Pneumatic v New Garage [1915] AC 79, HL
Motor parts manufacturers AA supplied various goods to RR under an

agreement that RR would (inter alia) not sell below list price. The
agreement also specified that RR would pay 5 "by way of liquidated
damages and not as penalty" for each item sold in breach of the
agreement. Reversing the Court of Appeal (who had reversed the Master),
the House of Lords said the clause was enforceable. The use or non-use of
the words "liquidated damages" and "penalty clause" were not conclusive
either way, but the sum specified in the contract was a genuine estimate
of the approximate damages likely to be suffered, and that was good
enough.
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EQUITABLE REMEDIES
Specific performance
There are a limited number of cases in which a breach of contract cannot
adequately be compensated by purely monetary damages. It is in such cases
that the equitable decree of specific performance comes into play, whereby the
offending party is ordered (on pain of imprisonment) to fulfil his part of the
bargain.
Beswick v Beswick [1967] 2 All ER 1197, HL

The elderly owner of a small business agreed to transfer the business to
his nephew, in return for which the nephew promised to pay an annuity to
the man's widow after his death. The man died and the nephew refused to
pay. The widow could not sue in her own right, because she was not privy
to the contract, so she sued as the executrix of her husband's estate.
Damages would not have been a satisfactory remedy, because the loss to
the estate was negligible, so she was granted an order directing the
nephew to perform his part of the contract.
Sky Petroleum v VIP Petroleum [1974] 1 All ER 954, Goulding J

Under a ten-year contract, PP were to buy their petrol only from DD, who
were to supply all that PP might require. DD terminated the contract for an
alleged breach, and PP sought an interim order for specific performance
pending determination of the action. The judge said that although the
petrol was not a unique item he would make the order: because of the
international situation PP had no hope of finding supplies elsewhere, and
damages would not be an adequate remedy.
Verrall v Great Yarmouth BC [1980] 1 All ER 839, CA

The Council DD (at that time under Conservative control) agreed to allow
the National Front to hold their Annual Conference in a hall owned by the
Council, and accepted a payment of 6000. After a local election, the
Council (now Labour-controlled) purported to cancel the contract. The
Court of Appeal upheld an order for specific performance; the judge
(Tasker Watkins J) had considered all the relevant factors, including the
risk of disorder and the importance of free speech, and had exercised his
discretion properly.
Specific performance is discretionary, like all equitable remedies, and the
exercise of discretion is governed by a principle of mutuality which operates in
several ways. For example, since the buyer of land can claim specific
performance, the courts have held it to be equitable to give the same relief to
the seller, even though he could have been awarded damages instead. And
again, a decree of specific performance will not be granted to a minor, since
such a decree could not be enforced against him if the roles were reversed.
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Flight v Bolland (1828) 38 ER 817, Leach MR
An infant P (i.e. a person under 21) sought specific performance of a

contract. Dismissing his application, the Master of the Rolls said it is a
general principle of courts of equity to interpose only where the remedy is
mutual. Since specific performance cannot be granted against an infant, it
follows that it cannot be granted in favour of an infant against another.
Patel v Ali [1984] 1 All ER 978, CA
D and her husband were co-owners of a house which they agreed to sell to
P. D's husband became bankrupt, and D herself contracted bone cancer
and had to have a leg amputated; these events coincided with the births
of two more children. D spoke little English and relied heavily on the
support of her friends and relatives. The Court of Appeal set aside an order
for specific performance and awarded damages instead, saying that in all
the circumstances such a decree would cause undue hardship, even
though this did not relate directly to the subject matter of the contract.
Co-Operative Insurance v Argyll Stores [1997] 3 All ER 297, HL
PP were the owners of a major shopping development, and leased some

30% of it to DD as a "Safeway" store. The 35-year lease contained a
covenant by DD that they would keep the premises open for retail trade
during normal trading hours, and display windows properly dressed in
suitable manner. After some 15 years DD found the store unprofitable and
closed it; PP sought specific performance because of the effect DD's
closure would have on the general tone of the area. The House of Lords
reversed the majority judgment of the Court of Appeal and restored the
trial judge's order for damages alone. Lord Hoffmann said it is the courts'
settled practice of not granting specific performance to require someone
to operate a husiness. This is based on sound reasons: the need for
constant supervision and the impossibility of enforcing the order except by
threats of imprisonment, the risk of repeated arguments as to whether the
defendant is trying hard enough, and the injustice of allowing the plaintiff
to enrich himself at the defendant's expense, when the defendant may
suffer far greater losses from compliance than the plaintiff would suffer
from the breach. Only in exceptional circumstances should this practice be
departed from.
An alternative to specific performance in some cases may be an ordinary

injunction, also an equitable remedy and therefore discretionary. It may be
prohibitory (to enforce a contract not to sell beer brewed by any other firm, for
example) or mandatory (to knock down a wall built in breach of a restrictive
covenant), but the court will consider what is reasonable in the circumstances.
Charrington v Simons & Co [1970] 2 All ER 257, Buckley J

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A farmer P sold part of his land to DD, but retained for himself a right of
way over a track on the land sold giving access to his retained land. DD
covenanted that they would not raise the level of the track above the level
of the surrounding land, but when they surfaced the track they actually
raised it by several inches and thus interfered with the use of P's farm
machinery. P sued for an injunction requiring DD to remove the surfacing,
and DD (admitting liability) offered damages in lieu. The judge said that
although P should not be denied a legitimate remedy merely because it
would be disadvantageous to D, he should not be entitled to insist on a
form of relief that would be materially detrimental to D while conferring no
appreciable benefit on himself. In this case he took the unusual step of
granting an injunction suspended it for three years, during which time DD
might undertake other remedial work to resolve the problem.
Neither an order for specific performance nor an injunction will normally be
granted where damages would be an adequate remedy; nor in employment
contracts or other contracts for personal services (though an injunction may be
granted forbidding similar performance for a competitor); nor for the delivery of
goods bought, unless they are unique objects of special value; nor where P gave
no consideration for a contract under seal, since "equity will not assist a
volunteer".
Rectification
Where it can be shown clearly that a document such as a will or a contract does
not reflect the true intentions of the parties (or where one party to a contract
took unfair advantage of a mistake made by the other) the court has power to
rectify the document to make it show the true position.
Re Posner [1953] 1 All ER 1123, Karminski J
A testator T left most of his property to "my wife Rose Posner", though in
fact the woman concerned, with whom T lived, was married to someone
else and was not T's legal wife. In interlocutory proceedings the judge said
that unless fraud could be proved the words "my wife" could be deleted so
that T's intentions could be carried out.
Bates v Wyndham's Lingerie [1981] 1 All ER 1077, CA
DD held a lease from PP, whose terms included an option to renew at a

rent to be agreed or determined by arbitration. Through a clerical error on
PP's part, the renewal lease omitted the reference to arbitration: DD saw
this but said nothing. At the next review, DD refused to agree to PP's
proposed rent or to submit to arbitration, and when PP sought possession
of the premises, DD claimed the right to remain in occupation rent free for
the duration of the lease. Wheeler QC ordered rectification to restore the
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reference to arbitration, and the Court of Appeal agreed: where one party
knows the document does not reflect both parties' intention, he is
estopped from resisting rectification to take advantage of the other's
error.
Peffer v Rigg [1978] 3 All ER 745, Graham J
D1 was the registered owner of a house subject to an unregistered trust in

favour of D1 and P. D1 sold the house for 1 to his wife D2, who knew of
the trust but who (since the trust was not registered) claimed to take free
of P's interest. The court rejected this claim and ordered that the register
be rectified to show the house held on trust for P and D2.
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Rescission
If a contract is rescinded, then it is as if it had never existed, and the parties are
restored to their original positions. A party discovering a relevant mistake, or the
victim of a misrepresentation, may affirm or rescind the contract, explicitly or by
his conduct, but this decision once made is irrevocable.
Redgrave v Hurd (1881) LR 20 ChD 1, CA
A solicitor P advertised for a partner, giving an exaggerated account of the

firm's profitability. D answered the advertisement and (after negotiations)
agreed to join the firm, but retracted when he discovered the true
position. P sued for specific performance; D defended and counterclaimed
for rescission and damages. The court refused damages but said D was
entitled to rescission of the contract, which had been entered into because
of P's misrepresentations.
Magee v Pennine Insurance [1969] 2 All ER 891, CA
P's motor insurance policy was actually invalid but neither P nor his
insurers DD knew this. DD agreed to pay a claim, but then refused to pay
up when they discovered the invalidity. The court said the agreement to
pay was binding in common law, but ordered its rescission in equity.
A decision to rescind must generally be communicated to the other party within

a reasonable time, and takes effect from that moment.
Car & Universal Finance v Caldwell [1964] 1 All ER 290, CA
Caldwell sold a car to Norris in exchange for a cheque, which bounced

when presented. Norris could no longer be traced, so Caldwell informed
the police and the AA. Norris sold on the car to a dealer who knew of the
fraud, who in turn sold it on to an innocent third party. Caldwell sought to
repossess his car from the third party, and the Court of Appeal said he
should succeed. He was entitled to rescind for misrepresentation - there
was no doubt about that - and since Norris was taking good care not to be
found he had done all he reasonably could by notifying the police.
Rescission had therefore taken place before the sale to the third party,
and the car was still Caldwell's property. [This decision has been much
criticised: not only is it an exception to the general rule of notification, but
it shifts the loss from Caldwell (who was innocent but foolish) to a third
party who was entirely blameless. It has never been directly overruled, but
it may well be limited to its particular facts.]
Since the effect of rescission is to nullify the contract, it is available only where
restitutio in integrum is possible and the parties can be restored to their original
positions. The courts interpret this fairly widely, however, as is appropriate in
matters of equity, and are prepared to make consequential orders as necessary.
The right to rescind for misrepresentation is lost if the representee has affirmed
the contract, if restitutio in integrum is impossible, if too much time has elapsed
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(though what is "too much" will depend on the circumstances), or if rescission

would unfairly damage an innocent third party.
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Long v Lloyd [1958] 2 All ER 402, CA

D innocently advertised a lorry as being in good condition, and sold it to P
on that basis. Two days later various defects appeared; D offered to pay
half the cost of replacing the dynamo, and P accepted. The next day,
further defects appeared and the lorry broke down completely. The Court
of Appeal said it was too late for P to rescind the contract: he had affirmed
it by his acceptance of D's offer of payment after he had become aware of
the misrepresentation. [Before the 1967 Act, there was no alternative
award of damages for innocent misrepresentation.]
Clarke v Dickson (1858) 120 ER 463, Crompton J
P bought a share in a partnership on the strength of D's

misrepresentations. By the time P discovered the misrepresentation, the
partnership had been turned into a limited company. The judge said P's
shares in a limited company were quite different in their nature and status
from a share in a partnership; it was impossible to put the parties back
into the position they had been in before the contract, so P's claim to
rescind was denied.
Leaf v International Galleries [1950] 1 All ER 693, CA
P bought a picture from a gallery DD, both parties believing it to be by

Constable. Five years later, expert examination showed that it was not by
Constable at all, and was worth considerably less than had been thought.
P sought to rescind the contract either for misrepresentation or for
common mistake, but the Court of Appeal said he could not do so. A party
wishing to rescind must take action within a reasonable time, they said,
and although this was not precisely defined, five years was too long a gap.
Lewis v Averay [1971] 3 All ER 907, CA
P advertised a car and sold it to X in exchange for a cheque. X sold the car
to D, who bought it in good faith, but when X's cheque bounced P sought
to rescind the first sale and recover the car. The Court of Appeal said a
contract based on misrepresentation is voidable rather than void ab initio;
X had acquired a voidable title and D's title was thus established before
the purported rescission. It would be unfair to disturb D's title now, and P's
claim against D must be denied. (P would, of course, have a good claim for
damages against X, always supposing that X could be traced and had
assets worth suing for.)
Whittington v Seale-Hayne (1900) 82 LT 49, Farwell J
PP took a lease on premises to be used for poultry-breeding, relying on

DD's representation that the premises were sanitary and in a good state of
repair. This turned out not to be so, and PP sought an indemnity for the
loss of valuable stock and the medical expenses of the manager and his
family, resulting from the state of the premises. The judge said their claim
must fail: it was really a claim for damages, which were not then available
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except in cases of fraud. However, PP could claim expenses such as rent,

rates and repairs incurred as a requirement of the contract.
Section 2(1) of the Misrepresentation Act 1967 now provides for an award of
damages for loss resulting from a misrepresentation made not fraudulently but
without reasonable grounds for belief in its truth. The burden of proving the
existence of "reasonable grounds" is on the representor. A plaintiff party to the
relevant contract is therefore usually well advised to follow this line rather than
seek damages in tort, where he would have the burden of showing negligence.
Howard Marine v Ogden [1978] 2 All ER 1134, CA
A rare error in Lloyd's Register of Shipping led the owners of several

barges to overstate their capacity in pre-contract negotiations with a
prospective hirer. The true figures were given in the barges' own
documents, which the owners did not consult. On discovering the
misrepresentation, the hirers sought damages under the 1967 Act, and
the Court of Appeal said they should succeed. On the evidence, the
owners had shown no reasonable grounds for their having consulted
Lloyd's Register rather than the original document, and under the wording
of the Act that was enough to establish PP's case.
Royscot Trust v Rogerson [1991] 3 All ER 294, CA
A dealer sold a car to a customer and gave false information to the finance
company as to its price and the deposit paid. The customer subsequently
sold the car and disappeared without completing his payments and the
finance company, having discovered the misrepresentation, sued the
dealer for their losses. The Court of Appeal considered the wording of
s.2(1) and said damages were to be assessed as in tort rather than as in
contract. The statute says that if the representor would be liable to
damages ... had the misrepresentation be made fraudulently, he shall be
so liable notwithstanding that it was not, and the Court said this meant
that damages were to be assessed as if in the tort of deceit. Not only does
this open up the possibility of exemplary damages (though these are
unlikely where mere negligence is involved) but it means tortious rather
than contractual tests of remoteness are to be applied. D was liable for all
the losses flowing from his misrepresentation whether foreseeable or not,
and the dishonest sale of the car by the customer was not novus actus
interveniens breaking the chain of causation.
Under s.2(2) of the Misrepresentation Act 1967 the courts have a further
power in cases of non-fraudulent misrepresentation to award damages in lieu of
rescission if it would be equitable to do so, and may refuse rescission unless it
can be shown to be fair and equitable. This may include even cases of innocent
misrepresentation, where damages would not otherwise be available.
It is not absolutely clear whether damages can be awarded where rescission
would be impossible: a dictum of Mustill J in Atlantic Lines v Hallam, The Lucy
[1983] 1 Lloyds Rep 188 suggests not, but there are some writers who disagree.
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Thomas Witter v TBP Industries [1996] 2 All ER 573, Jacob J
A company PP took over DD's carpet business and later alleged negligent
misrepresentation in various statements made to them before the
takeover concerning the profitability of the business. The judge found the
allegations proved on the facts, but acknowledged rescission was
impossible because the business had been restructured since the
takeover. However, he said, the power to award damages "in lieu of
rescission" in s.2(2) does not depend on the right to rescission still being
extant, but only on the plaintiff's having had such a right in the past.
Moreover, s.2(2) is independent of s.2(1), so that damages can be
awarded in lieu of rescission even where the defendant can rely on the
"innocence" defence in s.2(1), though their amount is in the discretion of
the court and in the absence of negligence would probably be lower.
In any event, damages are strictly an alternative in respect of innocent

misrepresentation, and can be claimed as well as rescission only in tort, where
fraud or negligence can be shown.
RIGHT TO REJECT
In contracts for the sale or supply of goods, the buyer has the right to reject the
goods and terminate the contract if the goods supplied are not up to standard. If
he accepts the goods, however, the right to reject is lost and the buyer is limited
to damages. Acceptance is deemed to take place when the buyer intimates to
the seller that he has accepted the goods, or when the goods have been
delivered to him and he does any act in relation to them which is inconsistent
with the ownership of the seller, or when, after the lapse of a reasonable time,
the buyer retains the goods without intimating to the seller that he has rejected
them. Deemed acceptance does not occur, however, unless the buyer has had a
reasonable opportunity to examine the goods or (if the contract is for sale by
sample) to compare the bulk with the sample.
Bernstein v Pamsons Motors [1987] 2 All ER 220, Rougier J
P bought a new car, and over the next three weeks made two or three
short trips totalling 140 miles to try it out. The engine then seized up
because of a drop of sealant that had got into the lubrication system when
the car was being assembled. The judge said P had accepted the vehicle
by keeping it for three weeks without sending it back; a reasonable time
for inspection and trying out the vehicle had passed. What was reasonable
timewise, he added, depended on the nature of the goods: longer would
be needed for a nuclear
submarine than for a bicycle.
Rogers v Parish [1987] 2 All ER 232, CA
PP bought a new Range Rover; after a few weeks it proved unsatisfactory

and was replaced. The replacement was equally unsatisfactory, and
attempts to repair various faults were unsuccessful. After five months PP
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purported to reject the car on the grounds that it was not of merchantable
quality and the court of Appeal said they were entitled to do so: the
expectations of the purchaser of a Range Rover were higher than those of
the purchaser of an ordinary car.
Clegg v Olle Anderson [2003] 2 Lloyds Rep 32, CA
CC bought a yacht from DD, but found it was not of satisfactory quality.
They complained to DD, and after some inconclusive discussions as to the
work that would be needed to rectify the faults, CC rejected the yacht
three weeks later and sought return of their money. The Court of Appeal
said that if goods are not of satisfactory quality, the buyer's rejection does
not have to be reasonable: he can reject for any reason at all, and the only
question is whether he has lost that right by accepting the goods. As to
that, the time taken in ascertaining what repairs would be needed is to be
taken into account in determining "a reasonable time". Bernstein v
Pamsons has been much criticised and was decided before the Act was
amended in 1994: it no longer represents the law.
Acceptance is not deemed merely because the buyer has asked for or agreed to
the repairing of the goods by or under an arrangement with the seller. Moreover,
since 1995 the buyer can reject just part of a consignment and accept the rest:
specifically, he can reject all the goods, or accept those which conform with the
contract and reject the rest, or accept those which conform and some of those
which do not, and reject the rest, or accept all the goods. But the buyer must still
reject within "a reasonable time", the duration of which is a matter of fact in
each case.
Jones v Gallagher [2004] EWCA Civ 10
The claimant had a kitchen supplied and installed by the defendant. A

week after completion of the work, the claimant wrote complaining that
the colour of the cupboard doors did not match that of the existing
furniture, as had been promised. The defendants replied a week later, and
there was some further correspondence about other matters, but nothing
more was said about the colour until the claimants began legal
proceedings some five months after installation, rejecting the kitchen for
this reason and claiming repayment and other expenses. The trial judge
found that there had been a breach of contract in respect of the colour,
but decided on the facts that more than "a reasonable time" had elapsed
and dismissed the claim to reject. This finding was upheld on appeal.
Regulations made in 2002 add significantly to the buyer's remedies in consumer

contracts by inserting a new section 48A into the Sale of Goods Act 1979.
Where the buyer deals as consumer, and the goods do not conform to the
contract of sale (particularly, but not only, in relation to the terms implied by the
Act), the buyer generally has the right to require the seller to repair or replace
(at the buyer's choice) the goods within a reasonable time. If this would be
impossible or disproportionately difficult or expensive, or if the seller fails to
repair or replace within a reasonable time as required, the buyer may require the
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seller to reduce the purchase price by an appropriate amount, or may rescind

the contract and claim repayment of the purchase price subject to an
appropriate deduction for the use he may have had of the goods in the mean
time. These remedies are additional to the right of rejection already discussed
(and, of course, to the ordinary right to seek damages), but a buyer who asks for
repair or replacement must give the seller a reasonable time to comply before
exercising his right to reject.
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EXTINCTION OF REMEDIES
The remedies for breach of contract are extinguished by accord and satisfaction,
where one party agrees (for valuable consideration) not to enforce his rights
against the other; or by a release under seal; or by lapse of time.
Limitation Act 1980 s.5
An action founded on simple contract shall not be brought after the
expiration of six years from the date on which the cause of action accrued.
Limitation Act 1980 s.11
(1) This section applies to any action for damages for negligence, nuisance
or breach of duty (whether the duty exists by virtue of a contract or of
provision made by or under a statute or independently) where the
damages claimed by the plaintiff include damages in respect of personal
injuries to the plaintiff or any other person.
(2) None of the time limits given in the preceding provisions of this Act
shall apply to an action to which this section applies.
(3) An action to which this section applies shall not be brought after the
expiration of [three years].
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Law of Contract

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Law of Contract with Robert Mackay

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Law of Contract with Robert Mackay

OFFER AND ACCEPTANCE - 3

VITIATING FACTORS IN CONTRACT - 53

REMEDIES FOR BREACH OF CONTRACT

Robert Mackay has prepared these course materials incorporating the

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Law of Contract with Robert Mackay

Grainger v Gough [1896] AC 325, HL

AA were London agents for a French wine merchant X; they distributed

Gibson v Manchester CC [1979] 1 All ER 972, HL

A local council write to tenants inviting them to apply to purchase their

A display of goods in a shop window, or on the shelves of a self-service shop, is

Pharmaceutical Society v Boots [1953] 1 All ER 482, CA

Certain products that were to be sold only under the supervision of a

Fisher v Bell [1960] 3 All ER 731, DC

It was a statutory offence under the Restriction of Offensive Weapons

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Law of Contract with Robert Mackay

Partridge v Crittenden [1968] 2 All ER 421, HC QBD

The appellant placed an advertisement in a magazine: "Bramblefinch

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA

The makers DD of a health product published newspaper advertisements

Thornton v Shoe Lane Parking [1971] 1 All ER 686, CA

Wilkie v London Passenger Transport Board [1947] 1 All ER 258, CA

P was an employee of DD and was injured through the negligence of the

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Law of Contract with Robert Mackay

making an offer accepted by the passenger on boarding. [This analysis has

Barry v Davies (2000) Times 31/8/00, CA

A sale of machinery by auction was advertised as being "without reserve".

Harvela Investments v Royal Trust [1985] 2 All ER 966, HL

Blackpool & Fylde Aero Club v Blackpool BC [1990] 3 All ER 25, CA

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Law of Contract with Robert Mackay

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Law of Contract with Robert Mackay

Routledge v Grant (1828) 130 ER 920, Best CJ

Mountford v Scott [1975] 1 All ER 198, CA

Byrne v Van Tienhoven (1880) LR 5 CPD 344, Lindley J

Dickinson v Dodds (1876) LR 2 ChD 463, CA

Shuey v United States (1875) 92 US 73, Supreme Court (USA)

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Law of Contract with Robert Mackay

Financings Ltd v Stimson [1962] 3 All ER 386, CA

Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Exch 109,

Luxor (Eastbourne) v Cooper [1941] 1 All ER 33, HL

Vendors AA promised an estate agent R 10 000 as a fee for selling a

Where an offer is to be accepted by conduct, then it is not clear what rules

Errington v Errington & Woods [1952] 1 All ER 149, CA

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Law of Contract with Robert Mackay

Daulia v Four Millbank Nominees [1978] 2 All ER 557, CA

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Law of Contract with Robert Mackay

Felthouse v Bindley (1863) 142 ER 1037, Exch Ch

Compagnie de Commerce v Parkinson Stove [1953] 2 Lloyds Rep

Eliason v Henshaw (1819) 4 Wheaton 225, Supreme Court (USA)

Tinn v Hoffman (1873) 29 LT 271, Exch.Ch.

Law of Contract with Robert Mackay

there was no contract, but Honeyman J said obiter that a telegram or

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Law of Contract with Robert Mackay