Contract law Revision Preview Definition Formation of a

Contract law Revision

Preview • • Definition Formation of a contract Capacity The contents of a contract Vitiating factors Discharge of a contract Remedies

Definition • Contract – a legally binding agreement between parties which courts will enforce

Formation of a contract: offer and acceptance • An offer must be communicated but can be made to the whole world or to an individual (Carlill v Carbolic Smoke Ball Co. Ltd)

Formation of a contract: offer and acceptance • An offer can be withdrawn any time up to acceptance and this can be through a reliable third party (Dickinson v Dodds)

Dickinson v Dodds 2 Ch. D. 463 (1876). • The defendant offered to sell his house to the claimant and promised to keep the offer open until Friday. On the Thursday the defendant accepted an offer from a third party to purchase the house. The defendant then asked a friend to tell the claimant that the offer was withdrawn. On hearing the news, the claimant went round to the claimant's house first thing Friday morning purporting to accept the offer. He then brought an action seeking specific performance of the contract. .

Dickinson v Dodds 2 Ch. D. 463 (1876) • Held: The offer had been effectively revoked. Therefore no contract existed between the parties. There was no obligation to keep the offer open until Friday since the claimant had provided no consideration in exchange for the promise. The offeror is free to withdraw the offer at any time before acceptance takes place unless a deposit has been paid.

Formation of a contract: offer and acceptance • In unilateral offers acceptance is done through performance and the offer cannot be withdrawn while performance is under way (Errington v Errington&Woods)

Unilateral contract • In a unilateral, or one-sided, contract, one party, known as the offeror, makes a promise in exchange for an act (or abstention from acting) by another party, known as the offeree. If the offeree acts on the offeror's promise, the offeror is legally obligated to fulfill the contract, but an offeree cannot be forced to act (or not act), because no return promise has been made to the offeror

Errington v Wood, [1952] 1 KB 290, [1952] 1 All ER 149 • A father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage instalments, the father would transfer the house to them. The father then became ill and died. The mother inherited the house. After the father's death the son went to live with his mother but the wife refused to live with the mother and continued to pay the mortgage instalments. The mother brought an action to remove the wife from the house.

Errington v Wood, [1952] 1 KB 290, [1952] 1 All ER 149 • Held: The wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under normal contract principles an offer may be revoked at any time before acceptance takes place, however, with unilateral contracts acceptance takes place only on full performance. Lord Denning held that once performance had commenced the Mother was estopped (=barred, prevented) from revoking the offer since it would be unconscionable (= unusually harsh and shocking to the conscience, grossly unfair) for her to do so. Furthermore there was an intention to create legal relations despite it being a family agreement.

Formation of a contract: offer and acceptance • Acceptance must be unconditional and a counter offer means the offer is no longer open to accept (Hyde v Wrench)

Hyde v Wrench (1840) 49 ER 132 Chancery Division • The defendant offered to sell a farm to the claimant for £ 1, 000. The claimant in reply offered £ 950 which the defendant refused. The claimant then sought to accept the original offer of £ 1, 000. The defendant refused to sell to the claimant and the claimant brought an action for specific performance. (= equitable remedy that compels a party to execute a contract according to the precise terms agreed)

Hyde v Wrench (1840) 49 ER 132 Chancery Division • Held: There was no contract. Where a counter offer is made this destroys the original offer so that it is no longer open to the offeree to accept.

Formation of a contract: offer and acceptance • Silence can never be acceptance (Felthouse v Bindley)

Felthouse v Bindley [1862] EWHC CP J 35 Court of Common Pleas • A nephew discussed buying a horse from his uncle. He offered to purchase the horse and said if I don't hear from you by the weekend I will consider him mine. The horse was then sold by mistake at auction. The auctioneer had been asked not to sell the horse but had forgotten. The uncle commenced proceedings against the auctioneer for conversion. The action depended upon whether a valid contract existed between the nephew and the uncle.

Felthouse v Bindley [1862] EWHC CP J 35 Court of Common Pleas • Held: There was no contract. You cannot have silence as acceptance.

Formation of a contract: consideration • Consideration is the price for which the promise of the other is bought (Dunlop Pneumatic Tyre Co. V Selfridge&Co. ) • Consideration must be real, tangible and of value (Chappel v Nestle)

Dunlop Pneumatic Tyre Co. V Selfridge&Co • Dunlop, a tyre manufacturing company, made a contract with Dew, a trade purchaser, for tyres at a discounted price on condition that they would not resell the tyres at less than the listed price and that any reseller who wanted to buy them from Dew had to agree not to sell at the lower price either. Dew sold the tyres to Selfridge at the listed price and made Selfridge agree not to sell at a lower price either and that they would pay £ 5 in damages if they violated this agreement. Selfridge proceeded to sell the tires below the price he promised to sell them for. Dunlop brought action and was successful at trial but this was overturned by the Court of Appeal

Is it lawful for Dunlop to sue Selfridge even though no contractual relationship exists between them? • The Lords agree fundamentally with the decision of the Court of Appeal; there was no contract between Dunlop and Selfridge and therefore Dunlop cannot sue. There a few fundamental principles of law underpinning this decision: a) the doctrine of privity, which states that only a party to a contract can sue in breach of the contract; b) the doctrine of consideration would require the promisee (Dunlop) to give consideration to Selfridge for the contract to be completed, and this did not occur as Dunlop did not give anything to Selfridge (Selfridge made a promise to Dunlop to only sell at a certain price but it was gratuitous because Dunlop gave no consideration in return)

Chappel v Nestle [1960] AC 87 House of Lords • Nestle ran a sales promotion whereby if persons sent in 3 chocolate bar wrappers and a postal order for 1 shilling 6 d they would be sent a record. Chappel owned the copyright in one of the records offered and disputed the right of Nestle to offer the records and sought an injunction to prevent the sales of the records which normally retailed at 6 shillings 8 d. Under s. 8 of the Copyright Act 1956 retailers were protected from breach of copyright if they gave notice to the copyright holders of the ordinary retail selling price and paid them 6. 25% of this.

Chappel v Nestle [1960] AC 87 House of Lords • Nestle gave notice stating the ordinary selling price was the 1 shilling 6 d and 3 chocolate bar wrappers. The question for the court was whether the chocolate bar wrappers formed part of the consideration. If they did it was impossible to ascertain the value they represented and therefore Nestle would not have complied with their obligation to give notice of the ordinary retail selling price. If the wrappers were a mere token or condition of sale rather than constituting consideration, then the notice would be valid and Nestle could sell the records.

Chappel v Nestle [1960] AC 87 House of Lords • Held: The wrappers did form part of the consideration as the object was to increase sales and therefore provided value. The fact that the wrappers were simply to be thrown away did not detract from this. Therefore Chappel were granted the injunction and Nestle could not sell the records as they had not complied with the notice requirements under s. 8. •

Formation of a contract: consideration • Past consideration is no consideration (Re Mc. Ardle)

Re Mc. Ardle (1951) Ch 669 Court of Appeal • Majorie Mc. Ardle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband's father who had died leaving the property to his wife for life and then on trust for Majorie's husband his four siblings. After the work had been carried out the brothers and sisters signed a document stating that they agree that the executors pay Marjorie £ 480 from the proceeds of sale. However, the payment was never made. Held: The promise to make payment came after the consideration had been performed therefore the promise to make payment was not binding. Past consideration is not valid.

Formation of a contract: consideration • Consideration must move from the promisee (Tweddle v Atkinson)

Tweddle v Atkinson [1861] EWHC QB J 57 • A couple were getting married. The father of the bride entered an agreement with the father of the groom that they would each pay the couple a sum of money. The father of the bride died without having paid. The father of the son also died so was unable to sue on the agreement. The groom made a claim against the executor of the will.

Tweddle v Atkinson [1861] EWHC QB J 57 • Held: The claim failed: The groom was not party to the agreement and the consideration did not move from him. Therefore he was not entitled to enforce the contract.

Formation of a contract: intention to create legal relations • Domestic arrangements are presumed not to give rise to legal relations (Balfour v Balfour) unless the contrary is proved (Merritt v Merritt)

Balfour v. Balfour, 2 K. B. 571 (1919). • Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff remained in England for medical treatment and the defendant agreed to send her a specific amount of money each month until she could return. The defendant later asked to remain separated and Mrs. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her husband had agreed to send. • Mrs. Balfour obtained a decree nisi and five months later was granted an order for alimony. The lower court entered judgment in favor of the plaintiff and held that the defendant’s promise to send money was enforceable. The court held that Mrs. Balfour’s consent was sufficient consideration to render the contract enforceable and the defendant appealed.

Balfour v. Balfour, 2 K. B. 571 (1919) • Issues • Must both parties intend that an agreement be legally binding in order to be an enforceable contract? • Under what circumstances will a court decline to enforce an agreement between spouses?

Balfour v. Balfour, 2 K. B. 571 (1919) • Holding and Rule • Both parties must intend that an agreement be legally binding in order to be an enforceable contract. • The court will not enforce agreements between spouses that involve daily life. • Agreements between husband wife over matters that affect their daily lives are not subject to contractual interpretation, even when consideration is present. Spouses normally intend that the terms of their agreements can be varied as situations develop. The court held that it was presumed that the parties made the agreement as husband wife and did not intend that it could be sued upon. The court held that as a matter of public policy it could not resolve disputes between spouses. • Disposition • Judgment for plaintiff Mrs. Balfour reversed.

Balfour v. Balfour, 2 K. B. 571 (1919) • Note • Contracts related to the social aspect of marriage will not be enforced by the courts. Contracts between spouses related to business relationships can be enforced, however. Courts are willing to support negotiated divorce settlements and written statements of support.

Merritt v Merritt [1970] 1 WLR 1211 Court of Appeal • A husband left his wife and went to live with another woman. There was £ 180 left owing on the house which was jointly owned by the couple. The husband signed an agreement whereby he would pay the wife £ 40 per month to enable her to meet the mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transfer his share of the house to her. When the mortgage was fully paid she brought an action for a declaration that the house belonged to her.

Merritt v Merritt [1970] 1 WLR 1211 • Held: The agreement was binding. The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the parties were separated. Where spouses have separated it is generally considered that they do intend to be bound by their agreements. The written agreement signed was further evidence of an intention to be bound.

Formation of a contract: intention to create legal relations • Business arrangements are presumed to lead to legal relations (Edwards v Skyways Ltd unless a contrary intent can be shown (Rose and Frank Co v J R Crompton & Bros)

Edwards v Skyways (1964) • The plaintiff pilot was made redundant by the defendant. He had been informed by his pilots association that he would be given an ex gratia payment (ie, a gift). The defendant failed to pay and the pilot sued. The defendant argued that the use of the words "ex gratia" showed that there was no intention to create legal relations. •

Edwards v Skyways (1964) • It was held that this agreement related to business matters and was presumed to be binding. The defendants had failed to rebut this presumption. The court also stated that the words "ex gratia" or "without admission of liability" are used simply to indicate that the party agreeing to pay does not admit any preexisting liability on his part; but he is certainly not seeking to preclude the legal enforceability of the settlement itself by describing the payment as "ex gratia".

Rose & Frank Co v Crompton Bros [1925] AC 445 House of Lords • The claimants and defendants entered an agreement for the supply of some carbonised tissue paper. Under the agreement the claimants were to be the defendant's sole agents in the US until March 1920. The contract contained an honourable pledge clause which stated the agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in neither England nor the US. The defendants terminated the agreement early and the claimants brought an action for breach.

Rose & Frank Co v Crompton Bros [1925] AC 445 House of Lords • Held: The honourable pledge clause rebutted the presumption which normally exists in commercial agreements that the parties intend to be legally bound by their agreements. The agreement therefore had no legal affect and was not enforceable by the courts.

Capacity • Corporations are limited in their capacity to contract by their objects clause Rolled Steel Products (Holdings) Ltd v British Steel Corporation)

Capacity • Minors are bound to pay a reasonable price for necessaries actually delivered (Nash v Inman) and employment contracts substantially for their benefit (De Francesco v Barnum) but can avoid contracts of continuous obligation (Steinberg v Scala (Leeds) Ltd. )

Nash v Inman ([1908] 2 K. B. 1)

Nash v Inman ([1908] 2 K. B. 1) • Nash, a tailor on Savile Row, entered into a contract to supply Inman (a Cambridge undergraduate student) with, amongst other things, 11 fancy waistcoats. Inman was a minor who was already adequately supplied with clothes by his father. When Nash claimed the cost of these clothes Inman sought to rely on lack of capacity and succeeded at first instance.

Nash v Inman ([1908] 2 K. B. 1) • Fletcher-Moulton LJ • ‘An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services so rendered, and will enforce that obligation against the estate of the infant or lunatic. ’

Nash v Inman ([1908] 2 K. B. 1). • Minors cannot bind themselves to contracts other than those for necessaries, items that are necessary or beneficial to them – so, no contract was enforceable. .

De Francesco v Barnum (1889), • Contracts that are considered for the benefit of the minor are those of service, education, training, apprenticeship and employment. However, the courts will reject a contract if it is considered not in the benefit of a minor. For example, in the case of De Francesco v Barnum (1889), a minor aged 14, had an agreement to train as a dancer on stage; the contract had conditions which were considered not beneficial to the minor and therefore, the minor was not bound by the contact.

The contents of a contract: terms • Terms must be incorporated into the contract (Oscar Chess Ltd v Williams) • Parties are bound by contracts they have signed (L’Estrange v Graucob) • Terms can be implied into a contract e. g. for business efficacy (The Moorcock) but this must represent the presumed intention of both parties (Shell (UK) Ltd v Lostock Garages Ltd)

Oscar Chess Ltd v Williams [1957] 1 WLR 370 Court of Appeal • Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The registration document stated it was first registered in 1948. The following year her son used the car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The son stated the car was a 1948 model and on that basis the Oscar Chess offered £ 290 off the purchase price of the Hillman. Without this discount Williams would not have been able to go through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and worth much less than thought. They brought an action for breach of contract arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to repudiate the contract and claim damages.

Oscar Chess Ltd v Williams [1957] 1 WLR 370 Court of Appeal • Held: The statement relating to the age of the car was not a term but a representation. The representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better position to know the age of the manufacture than the defendant.

The Moorcock (1889) 14 PD 64 • The claimant moored his ship at the defendant's wharf on the river Thames. The river Thames is a tidal river and at times when the tide went out the ship would come into contact with the river bed. The ship became damaged due to uneven surfaces and rocks on the river bed. The claimant sought to claim damages from the defendant and the defendant argued that there was no provision in the contract warranting the condition of the river bed.

The Moorcock (1889) 14 PD 64 • Held: The court implied a term in fact, that the river bed would be safe for mooring. The court introduced the business efficacy test i. e. the term must be necessary to give the contract business effect. If the contract makes business sense without the term, the courts will not imply a term.

Shell UK v Lostock Garage Limited [1976] 1 WLR 1187 Court of Appeal • Lostock Garage entered a solus agreement with Shell by which they would only buy and sell petrol from Shell for 20 years. For agreeing to being tied in to Shell they received a discount. However, after entering this agreement, Shell began supplying petrol to Lostock’s neighbouring garages at an even lower price. Lostock were unable to compete with these prices and began obtaining petrol from a third party. Shell brought an action for breach of contract and Lostock asked the court to imply a term that Shell would not abnormally discriminate against them in supplying other garages in the locality.

Shell UK v Lostock Garage Limited [1976] 1 WLR 1187 Court of Appeal • Held: • The court refused to imply a term in fact as it was not a necessary term to imply as the contract made business sense without it, nor was it obvious that Shell would have agreed to it. They also refused to imply a term in law. Whilst the term may be a reasonable one to include it lacked sufficient certainty.

Shell UK v Lostock Garage Limited [1976] 1 WLR 1187 Court of Appeal • Lord Denning MR: • “If Shell had been asked at the beginning: 'Will you agree not to discriminate abnormally against the buyer? ' I think they would have declined. It might be a reasonable term, but it is not a necessary term. Nor can it be formulated with sufficient precision. ”

The contents of a contract: terms • Terms can also be implied by common law (Liverpool City Council v Irwin) as well as by statute (e. g. Sale of Goods Act 1979) • Terms can be conditions going to the root of the contract and allowing for repudiation as well as an action for damages (Poussard v Spiers and Pond) or warranties only giving rise to damages (Bettini v Gye)

Liverpool City Council v Irwin [1977] AC 239 House of Lords • Liverpool city council owned a block of flats in which the defendant was a tenant. The common parts of the flats, the lifts, stair cases, rubbish bins etc, had fallen into disrepair. A rent strike was implemented by many of the tenants including the defendant. The council sought to evict the defendant for non payment of rent and she counter claimed for breach of an obligation to repair. However, the tenancy agreement did not mention any obligation to repair. In fact the tenancy agreement only imposed obligations on the tenant with no mention of the obligations of the landlord. The defendant asked the court to imply a term that the council had an obligation to repair the common parts of the block of flats.

Liverpool City Council v Irwin [1977] AC 239 House of Lords • Held: The courts did imply a term. The implied term arose as a legal incident in contracts of a defined type between landlord and tenant that the landlord was to take reasonable care to maintain the common parts.

Poussard v Spiers (1876) 1 QBD 410 • Madame Poussard entered a contract to perform as an opera singer for three months. She became ill five days before the opening night and was not able to perform the first four nights. Spiers then replaced her with another opera singer.

Poussard v Spiers (1876) 1 QBD 410 • Held: Madame Poussard was in breach of condition and Spiers were entitled to end the contract. She missed the opening night which was the most important performance as all the critics and publicity would be based on this night.

Bettini v Gye (1876) QBD 183 • Bettini agreed by contract to perform as an opera singer for a three month period. He became ill and missed 6 days of rehearsals. The employer sacked him and replaced him with another opera singer.

Bettini v Gye (1876) QBD 183 • Held: Bettini was in breach of warranty and therefore the employer was not entitled to end the contract. Missing the rehearsals did not go to the root of the contract.

The contents of a contract: exclusion clauses • Exclusion clauses may affect consumers adversely so, to be incorporated, the party subject to them must be aware of them (Olley v Marlborough Court Hotels) • They are not incorporated if in a form not easily recognisable as contractual (Curtis v Chemical cleaning Co) and the party seeking to rely on them must make every effort to communicate to the party subject to them (Thornton v Shoe Lane Parking)

Olley v Marlborough Court [1949] 1 KB 532 • The claimant booked into a hotel. The contract was made at the reception desk where there was no mention of an exclusion clause. In the hotel room on the back of the door a notice sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property. The claimant had her fur coat stolen.

Olley v Marlborough Court [1949] 1 KB 532 • Held: The notice was ineffective. The contract had already been made by the time the claimant had seen the notice. It did not therefore form part of the contract.

Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal • The claimant was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. One of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine.

Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal • Held: The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract. •

Curtis v Chemical Cleaning [1951] 1 KB 805 Court of Appeal • The claimant took her wedding dress to the cleaners. She was asked to sign a form. She asked the assistant what she was signing and the assistant told her that it excluded liability for any damage to the beads. The form in fact contained a clause excluding all liability for any damage howsoever caused. The dress was returned badly stained.

Curtis v Chemical Cleaning [1951] 1 KB 805 Court of Appeal • Held: The assistant had misrepresented the effect of the clause and therefore could not rely on the clause in the form even though the claimant had signed it.

The contents of a contract: exclusion clauses • Under the Unfair terms in Consumer Contracts Regulations a term must not be an unfair surprise or be contrary to good faith (Director General of Fair Trading v First National Bank)

Director General of Fair Trading v First National Bank • Lord Bingham: "Good faith in this context is not an artificial or technical concept. . . It looks to good standards of commercial morality and practice. It lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the objective which the regulations are designed to promote. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position"

Vitiating factors: misrepresentation • Misrepresentation – a false statement of material facts used to induce a party to enter a contract (Edgington v Fitzmaurice) • M. can be: • Fraudulent – made knowingly • Reckless • Negligent

Edgington v Fitzmaurice (1885) 29 Ch D 459 • The claimant purchased some shares in the defendant company. The company prospectus stated the shares were being offered in order to raise money to expand the company. In fact the company was experiencing financial difficulty and the money raised from the sale of the shares was going to be used to pay the company debts.

Edgington v Fitzmaurice (1885) 29 Ch D 459 • Held: Despite the fact that the statement related to a statement of future intent, it was an actionable misrepresentation as the defendant had no intention of using the money to expand the company.

Vitiating factors: mistake • Common m. – when both parties mistake the existence of a subject-matter the contract is void (Couturier v Hastie), but a common mistake as to quality has no effect on the contract (Bell v Lever Bros) • Mutual mistake – when the parties are at cross purposes the contract may be void • Unilateral m. - where one party is mistaken and the other knows of the mistake the contract is void

Couturier v Hastie (1856) 5 HLC 673 • A cargo of corn was in transit being shipped from the Mediterranean to England. The owner of the cargo sold the corn to a buyer in London. The cargo had, however, perished and been disposed of before the contract was made. The seller sought to enforce payment for the goods on the grounds that the purchaser had attained title to the goods and therefore bore the risk of the goods being damaged, lost or stolen.

Couturier v Hastie (1856) 5 HLC 673 • Held: The court held that the contract was void because the subject matter of the contract did not exist at the time the contract was made.

Bell v Lever bros [1932] AC 161 House of Lords • Lever bros appointed Mr Bell and Mr Snelling (the two defendants) as Chairman and Vice Chairman to run a subsidiary company called Niger. Under the contract of employment the appointments were to run 5 years. However, due to poor performance of the Niger company, Lever bros decided to merge Niger with another subsidiary and make the defendants redundant.

Bell v Lever bros [1932] AC 161 House of Lords • Lever bros drew up a contract providing for substantial payments to each if they agreed to terminate their employment. The defendants accepted the offer and received the payments. However, it later transpired that the two defendants had committed serious breaches of duty which would have entitled Lever bros to end their employment without notice and without compensation. Lever bros brought an action based on mistake in that they entered the agreement thinking they were under a legal obligation to pay compensation.

Bell v Lever bros [1932] AC 161 House of Lords • The House of Lords held that this was only a mistake as to quality and did not render the contract essentially different from that which it was believed to be. The action therefore failed.

Vitiating factors: duress • A contract may be avoided where it is made as a result of threats of violence (Barton v Armstrong) • This applies also where a party is put under excess commercial pressure (Express v Kafko)

Barton v Armstrong [1976] AC 104 Privy Council • Armstrong was the chairman and held the largest sharing holding in Landmark Corporation Ltd a public company. Barton was the managing director and also had a substantial shareholding. There were two other directors Bovil and Cottrel. There had been a long history of ill will between the parties and a struggle over who should have controlling power with Armstrong being the most aggressive. The other directors in the company were also unhappy with Armstrong and wanted him to be removed for abusing certain privileges and they disagreed with the way he ran the company believing him to be putting the company at risk of insolvency. However, Armstrong refused to resign.

Barton v Armstrong [1976] AC 104 Privy Council • The three managed to take control of subsidiary companies and removed all credit facilities from Landmark Corp. When Armstrong discovered the credit had been removed he made a number of death threats to Barton to pressure him into signing an agreement which contained various elements including the purchase by Barton of Armstrong's shares in the company at a substantial over value. Barton agreed to this partly due to the threats but also due to the fact that it would mean that Armstrong would no longer have controlling interest and he believed he would be able to turn the company around without Armstrong's dealings. However, the company became insolvent shortly after and Barton sought to have the contract set aside.

Barton v Armstrong [1976] AC 104 Privy Council • Held: The contract could be set aside. Where there is duress to the person there was no obligation to show that he would not have entered the agreement but for the threat, it simply being sufficient that the death threats were a cause.

Vitiating factors: undue influence • Traditionally a person in a special relationship could avoid a contract made through unfair influence (Allcard v Skinner) • Otherwise the unfair pressure must be proved (National Westminster bank v Morgan)

Allcard v Skinner (1887) 36 Ch D 145 • In 1867 an unmarried woman aged 27 sought a clergyman as a confessor. The following year she became an associate of the sisterhood of which he was spiritual director and in 1871 she was admitted a full member, taking vows of poverty, chastity and obedience. Without independent advice, she made gifts of money and stock to the mother superior on behalf of the sisterhood. She left the sisterhood in 1879 and in 1884 claimed the return of the stock. Proceedings to recover the stock were commenced in 1885. •

Allcard v Skinner (1887) 36 Ch D 145 • It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of undue influence brought to bear upon the plaintiff through the training she had received, she was disentitled to recover because of her conduct and the delay.

Allcard v Skinner (1887) 36 Ch D 145 • "At the time of the gift the Plaintiff was a professed sister, and, as such, bound to render absolute submission to the Defendant as superior of the sisterhood. She had no power to obtain independent advice, she was in such a position that she could not freely exercise her own will as to the disposal of her property, and she must be considered as being [not] a free agent"

Allcard v Skinner (1887) 36 Ch D 145 • In the end Allcard was not actually able to claim her property back because of the long delay she had made before taking the issue to court. • A delay of six years was deemed too long to be reasonably accepted by the Court of Appeal and Mrs Allcard received nothing.

Vitiating factors: illegality • Some contracts are prohibited by statute (Cope v Rowlands) • Common law makes immoral contracts unenforcable (Pearce v Brooks) and those based on corruption (Parkinson v College of Ambulance)

Cope v Rowlands (1836) • Contract made it illegal for stockbrokers to conduct certain business in London without obtaining a licence.

Cope v Rowlands (1836) • Held: Lack of a licence made the contract illegal and unenforceable. The provision was to protect the public from the harm that could be caused by unregulated brokers.

Pearce V. Brooks (1866), L. R. 1 Ex. 213). • The plaintiff sued the defendant, a common prostitute, for the price of a carriage with which he had supplied her, well knowing she was going to use it for the purposes of her calling.

Pearce V. Brooks (1866), L. R. 1 Ex. 213) • Held, he could not recover the price • Immorality vitiates a contract.

Discharge of contract: performance • The basic rule: in an entire contract all obligations must be performed (Cutter v Powell) • An exception is where part performance is freely accepted (Sumpter v Hedges) or where a party has substantially performed (Hoenig v Isaacs) • A party is not bound to perform when he has been prevented by the other party (Planche v Colbourn)

Cutter v Powell [1795] EWHC KB J 13 • The claimant's husband agreed by contract to act as a second mate on the ship the 'Governor Parry' on a return voyage to Jamaica. The voyage was to take eight weeks and he was to be paid on completion. A term in the contract stated: "Ten days after the ship 'Governor Parry, ' myself master, arrives at Liverpool, I promise to pay to Mr. T. Cutter the sum of thirty guineas, provided he proceeds, continues and does his duty as second mate in the said ship from hence to the port of Liverpool. Kingston, July 31 st, 1793. " Six weeks into the voyage the claimant's husband died. The claimant sought to claim a sum to represent the six weeks work undertaken.

Cutter v Powell [1795] EWHC KB J 13 • Held: The wife's action failed. Payment was on condition that he worked the ship to Liverpool, since he did not fulfil this condition the widow was entitled to nothing.

Sumpter v Hedges (1898) 1 QB 673 Court of Appeal • The claimant agreed to build two houses and stables for the defendant. It was agreed that £ 565 would be payable on completion. The claimant commenced performance and then ran out of money and was unable to complete. He had performed just over half of the contract. The defendant completed the work himself. The claimant sought to recover £ 333 representing the value of the work he had completed. He argued that in completing the work himself, the defendant had thereby accepted partial performance and prevented the claimant from completing the contract.

Sumpter v Hedges (1898) 1 QB 673 Court of Appeal • Held: The claimant's action failed. The court held that the defendant had no choice but to accept partial performance as he was left with a half completed house on his land.

Hoenig v Isaacs [1952] 2 All ER 176 Court of Appeal • The claimant agreed to decorate and furnish the defendant's flat for £ 750 payable by two instalments and the balance on completion. The claimant completed the work but the defendant was unsatisfied with some of the furnishings and refused to pay all the final instalment. The cost of the defects in the furniture came to £ 56.

Hoenig v Isaacs [1952] 2 All ER 176 Court of Appeal • Held: The claimant had substantially performed the contract and was therefore entitled to the contractually agreed price minus the cost of the defects

Planche v Colburn [1831] EWHC KB J 56 Kings Bench Division • The claimant agreed to write a book on costume and armour for the defendant as part of a series called 'the Juvenile Library'. The agreed contract price was £ 100 to be payable on completion. The claimant commenced writing and had completed a great deal of it when the defendant cancelled the series. The defendant refused to pay the claimant despite his undertaking and the fact that the claimant was still willing to complete. The claimant brought an action to enforce payment.

Planche v Colburn [1831] EWHC KB J 56 Kings Bench Division • Held: The claimant was entitled to recover £ 50 because the defendant had prevented the performance.

Discharge of contract: agreement • Parties can agree to end obligations by each providing consideration for a new agreement to end existing obligations (British Russian Gazette Ltd v Associated Newspapers Ltd)

Discharge: frustration • Traditionally parties were bound by absolute obligation to perform (Paradine v Jane) • This was unfair so a principle developed ending the obligation to perform where an unforeseen event beyond the control of either party made it impossible to perform (Taylor v Caldwell) • Self-induced frustration will not relieve a party of obligations (Maritime National Fish Ltd v Ocean Trawlers Ltd)

Paradine v. Jane • This action grew out of the English Civil War. Prince Rupert was commander of the armies of his uncle, King Charles I. Forces on both sides often looted the estates of the nobles for the purpose of gaining supplies. On July 19, 1643, the British Royalist forces, known as the Cavaliers, took possession of land owned by the plaintiff, Paradine, which was under lease to the defendant, Jane. The Royalists held the land for three years, finally relinquishing it in 1646 after the remaining Royalist resistance collapsed.

Paradine v. Jane, Aleyn 26, 82 Eng. Rep. 897 (K. B. 1647). • Facts • Paradine (P) sued Jane (D) for a failure to pay rent for three years on leased lands. Jane asserted as a defense that the lands had been seized and occupied by Prince Rupert of Germany, and that Jane had been put of possession and frustrated in the performance of his duties under the lease and was not bound to perform under the contract. • Issue • If a party creates a charge or duty to himself, is he obligated to perform in the face of frustration of purpose?

Paradine v. Jane, Aleyn 26, 82 Eng. Rep. 897 (K. B. 1647). • Holding and Rule • Yes. If a party creates a charge or duty to himself, he is obligated to perform in the face of frustration of purpose. • The court held that if the law rather than a party creates a duty and the party is unable to perform due to frustration of purpose, that duty will be excused. However if the party creates the duty and becomes unable to perform due to frustration of purpose, the law will not protect the party in his own agreement and performance will not be excused. The court held that in this case the lessee would have gained the advantage of the profits and therefore he must bear the risk of the losses.

Discharge: frustration • Early cases such as Paradine v Jane show the historical line that the courts took toward a frustration of purpose in contract; here, the courts held that where land under lease to the defendant had been invaded by Royalist forces, he was still under obligation to pay rent to the land owner. • It was not until the case of Taylor v Caldwell that a doctrine of frustration was formally recognised, alleviating the potential harshness of previous decisions. Here, two parties contracted on the hire of a music hall, for the performance of concerts. Subsequent to contracting, but prior to the dates of hire, the music hall burned down. It was held the contract was impossible to perform; Judge Blackburn stated that the absolute liability set forth in Paradine v Jane would not apply in this case, as there was an implied condition that the music hall would be in existence at the date of the planned concerts. This had the effect of excusing the parties from the contract

Discharge: breach • Whether the injured party can repudiate or sue for damages depends on the nature of the term breached (Bunge Corporation v Tradax Export SA)

Remedies: damages • The breach must be the factual cause of the damage (London Joint Stock Bank v Mac. Millan) and must be a loss naturally arising from the breach or one in the contemplation of both parties when the contract was formed (Hadley v Baxendale)

Hadley v Baxendale [1854] EWHC Exch J 70 Courts of Exchequer • The crankshaft broke in the Claimant’s mill. He engaged the services of the Defendant to deliver the crankshaft to the place where it was to be repaired and to subsequently return it after it had been repaired. Due to neglect of the Defendant, the crankshaft was returned 7 days late. The Claimant was unable to use the mill during this time and claimed for loss of profit. The Defendant argued that he was unaware that the mill would have to be closed during the delay and therefore the loss of profit was too remote. •

Hadley v Baxendale [1854] EWHC Exch J 70 Courts of Exchequer • Held: • The damages available for breach of contract include: • 1. Those which may fairly and reasonably be considered arising naturally from the breach of contract or • 2. Such damages as may reasonably be supposed to have been in the contemplation of both the parties at the time the contract was made. • • If any special circumstances exist which were actually communicated to the Defendant, the Claimant may recover any damages which would ordinarily follow from a breach of contract under the special circumstances communicated.

Equitable remedies • Specific performance: enforces completion of a contract so is only granted where it is possible for the court to oversee it (Ryan v Mutual Tontine Westminster Chambers Association)

Ryan v Mutual Tontine Westminster Chambers Association[1893] 1 Ch 116 • The lease of a residential flat contained a covenant by which the landlord agreed to appoint a resident porter who would perform certain services specified in the lease. The landlord appointed a resident porter but he spent several hours every weekday acting as chef at a neighbouring club. The tenants brought an action against the landlord for breach of his covenant to appoint a full time resident porter. The issue before the Court was whether the Court could grant an injunction to prevent continuance of the breach of the covenant or order specific performance of it.

Ryan v Mutual Tontine Westminster Chambers Association[1893] 1 Ch 116 • „The contract is that these services shall be performed during the whole term of the tenancy; it is therefore a long-continuing contract, to be performed from day to day, and under which the circumstances of non-performance might vary from day to day. I apprehend, therefore, that the execution of it would require that constant superintendence by the Court, which the Court in such cases has always declined to give. Therefore, if the contract is regarded as a whole, there is good ground for saying that it is not one of which the court could compel specific performance. ”

Equitable remedies • Injunctions: can be used to protect legitimate interests • Rescission: puts the parties back to their precontractual position (Clarke v Dickinson) • Rectification: a contractual document may be changed where it does not accurately reflect the actual agreement (Craddock Bros Ltd v Hunt)

• Clarke v Dickson (1858) EB & E 148 Clarke was induced by representations made by Dickson to buy shares in the Welsh Potosi Lead and Copper Mining Company. Later when the company was being wound up Clarke discovered for the first time that the representations by which he was induced to buy the shares were false and fraudulent on the part of Dickson. Clarke therefore brought an action to recover the deposits which he had paid for the shares. The issue before the court was whether it was possible for the court to order restitutio in integrum given that Clarke's shares were now worthless.

Clarke v Dickson (1858) EB & E 148 • Crompton J 'When once it is settled that a contract induced by fraud is not void, but voidable at the option of the party defrauded, it seems to me to follow that, when that party exercises his option to rescind the contract, he must be in a state to rescind; that is, he must be in such a situation as to be able to put the parties into their original state before the contract. Now here I will assume, what is not clear to me, that the plaintiff bought his shares from the defendants and not from the Company, and that he might at one time have had a right to restore the shares to the defendants if he could, and demand the price from them. But then what did he buy? Shares in a partnership with others. He cannot return those; he has become bound to those others. Still stronger, he has changed their nature: what he now has and offers to restore are shares in a quasi corporation now in process of being wound up.

Clarke v Dickson (1858) EB & E 148 • That is quite enough to decide this case. The plaintiff must rescind in toto or not at all; he cannot both keep the shares and recover the whole price. That is founded on the plainest principles of justice. If he cannot return the article he must keep it, and sue for his real damage in an action on the deceit. Take the case I put in the argument, of a butcher buying live cattle, killing them, and even selling the meat to his customers. If the rule of law were as the plaintiff contends, that butcher might, upon discovering a fraud on the part of the grazier who sold him the cattle, rescind the contract and get back the whole price: but how could that be consistent with justice? The true doctrine is, that a party can never repudiate a contract after, by his own act, it has become out of his power to restore the parties to their original condition

Craddock -v- Hunt; 1923 When negotiating for the purchase of property the parties agreed orally that an adjoining yard was to be excluded. The written contract as exchanged included the yard.

Craddock -v- Hunt; 1923 • Held: Recitification was ordered.

Summary • Formation of a contract: offer, acceptance, consideration • Capacity: age of majority, mental capacity • The contents of a contract: conditions, warranties • Vitiating factors: misrepresentation, mistake, duress, undue influence • Discharge of a contract: by performance, agreement, breach, frustration • Remedies: damages, specific performance, injunction, rescission, rectification