UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINISTRATION

BUSINESS LAW
UNIT 2 LAW OF CONTRACT
Definition
A contract is a legally binding agreement between two or more parties which is
essentially commercial in nature. Not all agreements are considered legally binding.
For an agreement to be considered legally binding, the parties must intend legal
consequences to follow their actions, for instance, a social agreement between siblings
may not be considered legally binding because at least one of the parties would not
have contemplated that legal action would be commenced against him if he breached
his side of the bargain.
Types of Contracts
1.
2.

Simple contracts
Speciality contracts

Essentials of a binding contract

A. Offer
An offer may be defined as a clear statement of the terms on which the offeror is
prepared to do business with the offeree. An offer may be bilateral (i.e. a promise made
in return for a promise) or unilateral (i.e. a promise made in return for the completion of
a specified act). For an offer to be valid, it must:
1. Have clearly stated terms (it must be definite)
2. The offeror must have an intention to do business
3. The offer must be communicated
Clearly stated terms
The statement constituting the offer must not be vague Gunthing v Lynn
Gunthing v Lynn
(Where the offeror promised to pay a further sum for a horse if it was lucky.
However, if an apparently vague offer is capable of being made certain, either
by implying terms or by reference to previous dealings between the parties, or
within the trade, then it will be regarded as certain.)

Intention to do business
Invitation to treat is not an intention to do business Fisher v Bell,
Pharmaceutical Society of Great Britain v Boots Cash Chemists, Patridge v
Crittenden
Fisher v Bell
(The restriction of offensive Weapons Act 1959 made it an offense to offer
for sale certain weapons including flick knives. A shopkeeper who
displayed these knives in his window was found not guilty of the offense,
since although he had displayed the goods, accepted buyers offers, and
sold the goods he had not offered them for sale, because goods on display
are not an offer to sell, they are an invitation to treat)
Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Where by statue certain drugs had to be sold in the presence of a qualified
pharmacist. Boots operated a self-service shop, with a qualified pharmacist
present at the checkout, but not at the shelves on which the drugs were
displayed. The precise location of the place of sale was therefore relevant
to determine whether or not an offence had been committed. It was held
that the display was an invitation to treat, the customers tender of the
acceptance. The sale therefore took place at the check-out, and Boots
therefore did not commit an offence)
Patridge v Crittenden
(P placed an advertisement which read "Bramblefinch Cocks, Bramblefinch
Hens, 25 shillings each." The advertisement was placed in a general
classified section and did not use the words "offer for sale". He sold a bird
to a third party who opened its box in the presence of C, an RSPCA
inspector. From the bird's leg ring, it was apparent that the bird was a wild
bird and had not been bred in captivity. To offer such a bird for sale was an
offence under the Protection of Birds Act 1954. P was charged with that
offence, and convicted, but the conviction was quashed on appeal. The
advertisement was deemed to be an invitation to treat and not an offer for
sale. Therefore, the offence could not be demonstrated to have occurred. P
could have been charged with the offence of the completed sale, but the
prosecution had instead chosen to rely on the offence of "offering for sale"
and had then failed to establish that offence.)

Statements of negotiation are not intentions to do business Harvey v Facey

(H sent a telegram to F, enquiring as to whether F would sell his property
Bumper Hall Pen and, if so, what his lowest acceptable cash price would
be. F responded only that the lowest price for the property would be 900.
H tried to accept this and requested the title deeds. Held that there was no
contract, judging the second telegram to be an invitation to treat at a price
not lower than 900. Point of Law is an offer must be clearly
distinguishable from a mere response to a request for information.)

Offer must be communicated

Offer may be communicated verbally, in writing or by conduct Carlill v

Carbolic Smoke Ball Co. Ltd.
(The Carbolic Smoke Ball Company, during an influenza epidemic, placed
an advertisement indicating that they promised to pay 100 to anyone who
caught influenza after using their ball as indicated for two weeks. They had
deposited 1000 in a bank account as a gesture of good faith. Mrs Carlill
purchased the ball, used it as directed, but caught influenza and suffered a
prolonged bout of illness. The court awarded Mrs Carlill 100.)
Points of Law:
(i) A suggestion that the offer was too vague to form the basis for a binding
agreement, in that it had no time limit, was rejected by the court, which felt
that the ball must have been intended to protect its user during the two
week prescribed period of use.
(ii) The court viewed the deposit of the 1000 as evidence of an intention to
pay any claims and therefore rejected the notion that the offer was simply
an advertising gimmick.
(iii) The proposal that it is impossible to make an offer to the world at large
was also rejected; the contract that arises from such an offer will be
unilateral.
(iv) The use of the product was deemed sufficient consideration. v.
Communication of acceptance, in unilateral contract of this kind, may be
made by conduct.
Note: There does not have to be a deposit of money - see Wood v Lectrik
Ltd 1932. Note also that business contracts are usually bilateral, made by
an exchange of promises between parties. In this case, there is the
exchange of a promise in return for an act (the use of the ball).

Note Invitation to submit tenders are generally considered invitation to treat, although it may
also be considered an offer by the advertisers to consider any offer submitted to them.
(Blackpool v Blackpool Council)
Blackpool v Blackpool Council)
(BBC invited tenders to operate an airport, to be submitted by noon on a fixed
date. The plaintiffs tender was delivered by hand and put in the Town Hall letter
box at 11am. However, the tender was recorded as having been received late and
was not considered. The club sued for breach of an alleged warranty that a tender
received by the deadline would be considered. The judge awarded damages for
breach of contract and negligence. The council's appeal was dismissed by the
Court of Appeal.)

Termination of offers

By refusal and counter offer Hyde v Wrench,

(The defendant offered to sell his farm to the plaintiff for 1000 but, via an
agent, the plaintiff offered 950. The defendant agreed to consider the offer
but wrote and rejected it some days later. The plaintiff then sought to
purchase the farm at the original offer price; the defendant refused. The
court held that the counter-offer constituted rejection of the original offer,
from which no agreement could then arise. Point of Law is that a counteroffer is an implied rejection of an original offer, which cannot then
subsequently be accepted.)
Stevenson v McLean
(D offered to sell iron to P for cash. P wrote and asked for four months
credit. This inquiry was not held to be a counter offer but a request for
information and did not terminate D offer.)

By lapse of time Ramsgate Hotel v Montefiore

(M was an investor who offered to buy shares in the plaintiff's company.
The offer was made in June but was ignored until November when the
company responded by allotting the shares. The defendant refused to take
up the shares and his refusal was deemed justified. His offer was deemed
to have lapsed and he recovered his part-payment. Point of Law is that
acceptance of an offer must be within a reasonable period of time. (What
constitutes a reasonable period of time will depend on the offer concerned.
Offers regarding, for example, perishable goods will need to be accepted
quickly. Offers on shares are usually speedily accepted because of their
fluctuating price. Reasonable time is a matter of fact to be found by the
court.)

By revocation Dickinson v Dodds

(Dodds offered to sell property to Dickinson on a Wednesday, stating that
the offer would remain open until 9 am on the Friday. On Thursday,
Dickinson heard from a reliable source that the property had already been
sold, but wrote to Dodds accepting the original offer anyway. It was held
that the communication from the reliable third party was sufficient to
revoke the offer and that there could be no contract. Point of Law is
Revocation of an offer may be communicated by a reliable third party and
must be communicated before acceptance. (It is difficult to discern who
might be a "reliable" third party and this question should be treated as a
fact to be found by the court. The decision is a difficult one to apply as
there is no clear statement to describe the standing of the third party.)

By death where contract involves personality of the offeror

Note - promise to keep the offer open for a certain time or to give someone the right of first
refusal will not be legally binding unless the offeree gave some payment to the offeror in return
for the promise. (Routledge v Grant)
(The defendant offered to lease the plaintiff's property with the plaintiff to give a
final answer on the matter within six weeks. Within six weeks, he withdrew his
offer, which the plaintiff then attempted to accept anyway. It was held that the
defendant could withdraw his offer at any time before acceptance, regardless of
the stipulated six weeks. Point of Law is that Revocation of an offer must be
communicated prior to acceptance.)
B. Acceptance
This is an agreement to be bound by all the terms of the offer. To be valid, an
acceptance must:

Be exactly on the same terms of the offer and must not be varied otherwise it would be
considered a counter offer Hyde v Wrench
(The defendant offered to sell his farm to the plaintiff for 1000 but, via an
agent, the plaintiff offered 950. The defendant agreed to consider the offer
but wrote and rejected it some days later. The plaintiff then sought to
purchase the farm at the original offer price; the defendant refused. The
court held that the counter-offer constituted rejection of the original offer,
from which no agreement could then arise. Point of Law is that a counteroffer is an implied rejection of an original offer, which cannot then
subsequently be accepted.)

Jones v Daniel
(D offered to buy J's property for 1,450. J wrote accepting but adding
terms to the contract not previously discussed. Held, the addition of the
terms amounted to a counter offer)

Be certain and definite

Be communicated in the manner implied or expressed in the offer and this may be verbal,
in writing or by conduct Felthouse v Bindley
(The plaintiff wrote to his nephew regarding the price of a horse and
eventually offered his nephew 30 and 15 shillings for it. In his letter he
stated that if he received no further communication from his nephew, he
would assume the horse to be his. The nephew did not reply and the horse
was mistakenly sold by an auctioneer. The uncle sued the auctioneer in
conversion. It was held that the plaintiff had no cause of action as the
horse did not belong to him. Acceptance could not be imposed on the
offeree on the basis of silence.)

Powell v Lee
(P applied for the post of headmaster at a school and was shortlisted. The
six defendants were the managers of the school and selected P for the
post. L asked one manager, D, to telegraph another candidate, advising
him that he had not succeeded, but issued no instructions to contact P. D,
however, advised P that he had been selected. At a later date, the matter
was reconsidered and the other candidate was selected instead of P. P was
advised of this and sought damages for loss of earnings resulting from
breach of contract of employment. It was held that there had been no
authorised communication of acceptance to P and thus no contract had
been concluded. Point of Law being an authorised party must
communicate acceptance.)
Brogden v Metropolitan Railway
(P had supplied coal to the defendants for many years but without the
benefit of a formal written contract. It was decided to formalize matters and
the defendants sent a draft contract, which was amended by the plaintiff
before it was returned. Several clauses were added and the name of an
arbitrator was inserted. When the defendants received the amended draft, it
was simply filed away without further acceptance or correspondence. The
supply of coal continued, under the terms of the revised draft contract, as if
that revised document had been accepted. The parties then had a
disagreement and the plaintiffs refused to supply any more coal, asserting
that the railway company's lack of acceptance meant that there was no
binding contract. It was held that the revised terms had been accepted by
way of conduct and that a binding agreement existed.)
Entores v Miles Far East Corp.
(It follows that when acceptance is made by means of telephone, fax or
telefax the offeror must actually receive the acceptance. It has been argued
that this situation be treat as face to face where receipt only occurs when
the recipient reads of received the message.)
Note instantaneous communication and communication by post Adams v
Lindsell
(The offer and acceptance of a contract for the sale of wool were sent in the
post, but the offer letter was misdirected to the wrong county. The defendants
sold the wool to another party, as they did not receive a reply to their offer
until after they would have expected to receive it in the normal course of the
post. Acceptance of the offer had been sent by return of post by the plaintiffs;
the delay had been caused by the misdirection of the offer on the part of the
defendants. The plaintiffs sued for breach of contract. It was held that the offer
was effective, in this instance, once it had actually been received, and not at
the time it ought to have been received in the ordinary course of the post.
Point of Law being where acceptance is posted, it will be effective from the
moment of posting. Mistake by a party to an agreement (eg: the misdirection
of a letter) will be taken against the party making the mistake.)
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Household Insurance v Grant

(D, applied for shares in the company. A letter of allotment was posted to him
that was never received. The company registered the shares and they earned
dividends of five shillings. When the company went into liquidation, the
liquidator sued Grant for the remaining balance. It was held that he had to do
so. There was a contract between the Company and himself which was
completed when the letter of allotment was posted regardless of the fact that it
was lost in the post.)
Byrne v Van Tienhoven
(A Cardiff firm offered by letter to sell tin-plates to a company in New York,
then sent a later letter, withdrawing that offer. However, prior to the delivery of
the letter of revocation to the New York company, that company had posted a
letter of acceptance. It was held that the postal rule does not apply to a letter
of revocation. There was, therefore, a valid contract, which had come into
being upon the posting of the acceptance letter. Point of Law being the
revocation of an offer is not effective until it is actually communicated.)
Holwell Securities v Hughes
(Hughes agreed to grant the plaintiff an option to buy his property for 45000.
Under the agreement, Hughes was to receive notice in writing within six
months of the date of the agreement made on 19th October 1971. On 14th April
1972, the plaintiff's solicitors sent a letter agreeing to exercise the option and
buy the property. Hughes never received the letter, sent by ordinary mail. It
was held that acceptance had not been made.)
Also note that acceptance cannot be withdrawn or revoked.

C. Consideration
Definition

In Currie v Misa, consideration was defined as a benefit to one party or a detriment to

the other party.
Currie v Misa
(Because of the rule that consideration must move from the promisee, detriment
tothe promisee will be present in nearly all cases and benefit to the promisor is
oftenmerely a by-product of this detriment, but either one is sufficient. It must be
remembered, however, that detriment does not necessarily imply suffering net
lossor disadvantage: the promisee incurs a detriment by doing an act, making a
promise or refraining from doing an act, however small or insignificant, provided
that it has been agreed that she should do the act, etc. in return for the promise.)

In Dunlop v Selfridge, consideration was defined as the price one party pays for the
other partys act or promise.
Dunlop v Selfridge
(Dunlop sold its tires to a wholesaler on the condition that they were sold to
retailers who agreed to sell at the specified prices. Selfridge was one such retailer
and they sold at prices below the specified prices. There appeared to be no
privity of contract between Dunlop and Selfridge. The court also noted that there
was no consideration flowing from Dunlop to Selfridge so it was not possible for
Dunlop to enforce against Selfridge.)
According to the law of contract, any party who intends to enforce a promise given by
the other party must have given consideration for that promise.
Types
There two types of consideration, namely, executed and executory consideration.
Executed consideration may be defined as doing an act in return for a promise (an act
for a promise), whilst executory consideration is when a party makes a promise in return
for another promise (promise for promise).
Essential elements of consideration
For consideration to be valid, the following essential elements must be present:
1.
Consideration must not be past Re McArdle
(This case is the archetypal example of a past benefit being unacceptable as
Consideration in a Contract. The occupants of a house carried out certain
improvements during their tenancy, and were offered payment in recompense
by the owner. However, the owner died before doing so, and his
representatives refused to honour the promise. The courts supported the
owner's representatives, because the tenants had not provided good
consideration.)
Note that in this case the tenants' work was carried out at their own behest,
and not at the request of the owner. Had the owner explicitly requested the
tenants to do the work, and then offered payment, the court may have been
able to use the doctrine of ImplicitAssumpsit to incorporate the past work into
the agreement, and thereby deem it consideration.

Act done in response to a specific request and act done in a situation where payment is
normally expected would not be considered past consideration even though no specific
fee was agreed upon by the parties at the time the act was done Re Stewart v Casey
(Patents were granted to Stewart and another in respect of an invention
concerning appliances and vessels for transporting and storing
inflammable liquids. Stewart entered into an arrangement with Casey
whereby Casey was to introduce the patents. Casey spent two years
pushing the invention and then the joint owners of the patents rights
wrote to him as follows; in consideration of your services as the practical
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manager of the patents we whereby agree to you 1/3 share of the patents:.
Casey also received the letters patent. some time later Stewart died and
his executor claimed the letters patent from Casey, suggesting that he had
no interest in them because consideration for the promise to give him 1/3
share was past. It was held that the previous request to render the
services raised an implied promise to pay. The subsequent promise could
be regarded as fixing the value of the services so that Casey was entitled to
a 1/3 share of the patent rights.)
2. Consideration must move from promisee to the promisor (the party receiving the
promise is the promisee and the party making the promise is the promissor).
Note - most contracts are bilateral therefore, both parties would have to give
consideration for their promises to be binding.
3. Consideration must be sufficient but need not be adequate. This means that
what is given or promised as consideration must be something of legal value and
must not be illegal or contrary to public policy, however, it need not be something
of substantial value or something of the same value as the promise Alliance
Bank v Broome
(The defendant owed an unsecured debt to the plaintiffs. When the
plaintiffs asked for some security, the defendant promised to provide some
goods but never produced them. When the plaintiffs tried to enforce the
agreement for the security, the defendant argued that the plaintiffs had not
provided any consideration. It was held that normally in such a case, the
bank would promise not to enforce the debt, but this was not done here. By
not suing, however, the bank had shown forbearance and this was valid
consideration, so the agreement to provide security was binding.)
White v Bluett
(A son had not provided consideration (for his father's promise not to sue him on
a promissory note) by promising not to bore his father with complaints.)

Thomas v Thomas
(In this case the court reviewed an oral promise made by a man on his
death bed which ran contrary to the terms of his will. The executors gave
effect to those wishes by putting the spouse of the deceased plaintiff in
possession of the home. It was held that there was not valid consideration
to make the promise enforceable. They stated that "A pious respect for the
wishes of the testator does not in any way move from the plaintiff. Motive is
not the same thing as consideration. Consideration means something
which is of some value in the eye of the law, moving from the plaintiff.)

Chappell v Nestle & Co.,

(Chocolate manufacturers sold gramophone records for Is. 6d. plus three
wrappers of their 6d. bars of chocolate It was held that the delivery of the
wrappers formed part of the consideration though the wrappers were of
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little value and were in fact thrown away. If the delivery of the wrappers
formed part of the consideration it could, presumably have formed the
whole of the consideration, so that a promise to deliver records for
wrappers alone would have been binding.)
Collins v Godefroy
(P was called by subpoena to give evidence in a case involving D. he
afterwards alleged that D had promised to pay him six guineas for his loss
of time. P failed in his action since he was bound by has to attend the trial
and he did not therefore do anything for D that he was not already bound to
do. P therefore had not provided any consideration.)
Stilk v Myrick.
(P was a seaman who had agreed to work throughout a voyage for $5 per
month. During the voyage two of the crew of eleven deserted and the
captain promised to divide their wages between the rests of the crew if they
would complete the voyage. On completion of the voyage P requested his
share and was refused. His legal action failed on the grounds that he was
already contractually bound to complete the voyage and did not therefore
provide any consideration for the promise of the deserter wages.)
4.

Consideration must not be illegal or vague.

Note Part payment of a debt is not sufficient consideration Pinnels case.
(Where a person promise that he will not insist upon his strict legal rights
and the other party acts upon that promise, then the law will require that
such a promise be honored and that he be estopped from going back on
that promises even though it is not supported by consideration.)
Exceptions
Part-payment at an earlier date
Part-payment at a different place
Where goods or other material benefit accompany the part payment
Promissory estoppel is a defense where part-payment is considered in sufficient
consideration Central London Property Trust v High Trees House.
(P, leased a block of flats to D. Due to the war D. was unable to sub-let the flats
and so P agreed to accept half rent. Six months after the war P claimed the full
rent for the post-war period. The claim succeeded. However, the court also
considered whether P would have succeeded if he had claimed the full rent back
to the start of the war.)

D.

Intention to Create Legal Relations

In determining whether the parties intend legal consequences to follow their actions, the
courts usually make two general presumptions capable of being rebutted by specific
evidence to the contrary. These presumptions are:

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1. Parties in a domestic or social relationship are presumed not to intend legal

consequences to follow their agreements unless the contrary is proved Balfour
v Balfour
(Mr. Balfour agreed to pay his wife a sum of money for maintenance while
he was posted to Ceylon. After they separated, Mrs. Balfour took action to
hold him to his payments. The action failed because there was no
indication that the arrangement was intended to be a contract)
Merit v Merit
(Husband left home to live with another woman agreed in writing to pay
wife 40 month maintenance said if she used it to pay mortgage he would
sign house over to her when fully paid when fully paid, he refused to sign
over house. It was held that there was intention to create legally binding
agreement, reasoning that the agreement took place in response to marital
breakdown.)
Simpkins v Pays.
(Defendant, her granddaughter and the plaintiff regularly took part in
newspaper competition all contributed but entered in defendant's name no
set arrangement re: payment of postage etc. when entry successful,
defendant refused to share with plaintiff, the plaintiff sued for his share
court ruled legally binding relationship as sufficient 'mutuality in the
arrangements between parties'.)
2. Parties in business or commercial relationship are presumed to have intention to
create legal relations unless the contrary is proved Rose Frank Co. v
J.R.Crompton & Bros.
(The defendants agreed to sell materials in USA via NY-based firm
agreement in writing contained 'Honourable Pledge Clause': 'This
arrangement is not entered into ... as a formal or legal arrangement and
shall not be subject to legal jurisdiction to the law courts' defendants
terminated agreement without notice and refused to fulfill order received
before termination notification. It was held that the rule clause meant no
legally binding consequences existed.)
Jones v Vernons Pools.
(P claimed that he had sent D a football coupon on which the draws he had
predicted entitled him to a dividend. D denied having received the coupon.
They relied on a clause printed on the coupon which stated that the
transaction should not give rise to any legal relationship but be binding
in honour only. It was held that this clause was a bar to an action in
court.)
Defects in Contracts
A contract may be defective even though the essential elements of a binding contract
are present. The defect may be due to; 1 lack of capacity to contract by one or both
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parties to the contract, 2 the presence of vitiating factors, or 3 illegality of the

contract.
Defects in the contract may render the contract void, voidable or unenforceable.

In a void contract, the defect is considered serious in the eyes of the law that the law
sees the contract as non-existent. Any property given or money paid will have to be
returned.

For a voidable contract, the defect is not considered so serious and therefore the
contract is not void, but, the aggrieved party has the option of canceling the contract
is he or she so desires.
An unenforceable contract is valid but not enforceable against a vulnerable party.

Contractual Incapacity
This renders the contract unenforceable against the vulnerable party.
1. Minors Contracts are generally unenforceable against a minor except the contract is for
the purchase of necessary items. Necessary items are items that are necessary for the
minors life style and social standing, items the minor requires at the time of sale and
delivery and of which the minor did not have adequate supply at the time of sale and
delivery Peters v Fleming
Peters v Fleming
(Held, an expensive gold watch chain was a necessary for a rich young
man. Firstly, he must show that they are capable of being necessaries.
Items of mere luxury, eg a racehorse can never be a necessaries, but it was
shown that a luxurious item of utility such as a gold watch maybe
necessary. The broad definition of necessaries was clearly not adopted for
the benefit of the minor, but to give protection to suppliers who gave credit
to young men from wealthy families.)
Nash v Inman.
(A tailor sued a minor for the price of clothes, including 11 waistcoats. His
action failed because he could not show that the minor was not already
adequately supplied. A minor is not liable if he has an adequate supply,
even if the supplier did not know this.)
2.

Mentally impaired person Contracts are unenforceable against a mentally

impaired person only where the other party knew or should have known that the
person was mentally impaired at the time of contract of contract in any event, a
mentally impaired person is bound to pay a reasonable price for goods supplied
even when the other party knows that he is mentally impaired.

Vitiating factors
Vitiating factors may either render the contract void or voidable. Vitiating factors are:
misrepresentations, mistakes, undue influence and duress.
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1. Misrepresentation renders the contract voidable. Misrepresentations are untrue

statements made by one party before the contract was finalized which induced the other
party to enter into the contract. The misrepresentation must be a statement of fact and
must have induced the other party to enter into the contract. Statement of law, opinion
and intention are usually not considered statements capable of being misrepresented
except in certain exceptional circumstances Bisset v Wilkinson
(The vendor of land stated that it would support 2000 sheep. It turned out
that this was not the case, but the vendor was not liable because the land
had not previously been used for sheep and the purchaser knew this. The
statement was therefore held to be one of opinion not fact.)
Smith v Land & House Prop. Corp.,
(The vendor of a hotel described it as let to Mr. Frederick Fleck 9a most
desirable tenant The tenant was in fact in arrears with his rent. It was held
to be statement of fact since the vendor was impliedly stating that he knew
the fact that supported his opinion that the tenant was desirable.)
Edington v Fitzmaurice
(P was induced to lend money to a company because the directors said
they intended to use the money to finance expansion. In fact this intention
never existed since the directors said they intended to use the money to
finance expansion. In fact this intention never existed since the directors
needed the money to pay off company debts. It was held that there had
been a fraudulent misrepresentation)
Esso Petroleum v Mardon
(Esso found a site for filling station in a busy main road. A company
executive of 40 years estimated that sales would be $200,000 per year, so
Esso bought the site. Planning permission was refused for direct access
to main road, this reduce sales. The executive present to M that sale would
be $200,000 gal even though he estimate 100,000- $150,000 per year. M was
sued by Esso. In return he bought a counter-claim against Esso claiming
damages in contract for breach of warranty and damages in tort for
negligent statement. It was held by the Court of Appeal.)
Lawrence v Lexcourt Holdings.
Note Failure to volunteer information is generally not misrepresentation - Smith v
Hughes.
(P was shown a sample of oats by D and thinking that they were old oats he
bought them. They were in fact new oats and he refused to accept them. It
was held that his mistake did not invalidate the contract. The parties were at
cross-purposes but not to such as extent that there was no agreement. The
mistake was only one of quality and as such does not operate to render the
contract void.)

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However, a half truth may be considered misrepresentation because its

incompleteness misled Dimmock v Hallett
(In this case a seller of land told a buyer that the land on the farm was let.
However the failed to mention that the tenant where about to leave. Leaving
out this fact presented a distorted picture of the true situation and that
amounted to a misrepresentation.)
Misrepresentation may be innocent, fraudulent or negligent.
2.

Mistake
An operative mistake makes the contract void. Mistake may be:
Common mistake concerning the existence of the subject matter
Galloway v. Galloway
(A man and a woman made a separation agreement believing that
they were not married because unknown to them, at the time of their
marriage ceremony that the mans wife was still alive.
The
separation agreement was held to be void for mistake because the
mirage which was the basis of the agreement was void.)

Mutual mistake concerning the identity of the subject matter

Raffles v Wichelhaus
(P agreed to sell to D a consignment of cotton which was to arrive
ex Peerless from Bombay. There happened to be two ships called
Peerless sailing from Bombay, one in October and the other in
December. P was thinking of one ship and D of the other. It was held
that there was no contract.)

Unilateral mistake by one party regarding the identity of the other party. A
contract will not be void for mistaken identity unless the claimant can
prove all of the following;

1. that the claimant intended to deal with some other person than the
contracting party Kings Norton Metal Co. v Edridge
(A rogue named Wallis ordered some goods on notepaper headed
Hallam & Co from kings Norton. The goods were paid by a cheque
drawn by Hallam & Co Kings Norton received another letter
purporting to come from Hallam & Co)
Merrett v Merrett
(Husband left home to live with another woman agreed in writing to
pay wife 40 month maintenance said if she used it to pay mortgage
he would sign house over to her when fully paid when fully paid, he
refused to sign over house. It was held that there was intention to
create legally binding agreement, reasoning that the agreement took
place in response to marital breakdown.)

Cundy v Lindsay and

14

2. that the other party was aware of the claimants mistake and
3. that when the contract was made the issue of identity was crucial
Phillips v Brooks
(A man entered the Ps shop and asked to see some pearls and some
rings. He selected pearls at the price of 2550 and a ring at the price
of 450 He produced a cheque book and wrote out a cheque for
3000 In signing it, he said: You see who I am, I am Sir George
Bullough, and he gave an address in St. Jamess Square. P knew
that there was such a person as Sir George Bullough, and finding on
reference to a directory that Sir George lived at the address
mentioned, he said, Would you like to take the articles with you? to
which the man replied: You had better have the cheque cleared first,
but I should like to take the ring as it is my wifes birthday tomorrow,
whereupon the plaintiff let him have the ring. The cheque was
dishonored, the person who gave it being in fact a fraudulent person
named North who was subsequently convicted of obtaining the ring
by false pretences. In the meantime, North, in the name of Firth, had
pledged the ring with the defendants who, bona fide and without
notice, advanced 350 upon it.)
Lewis v Avery Contrast
(P advertised his car for sale and was induced to accept a cheque
from a crook who said he was the famous actor Richard Green. The
cheque was dishonored. P then claimed the car from D who had
bought it in good faith from the crook. The claim failed because his
contract with the crook was not void for mistake, since the
presumption that he intended to contract with the person physically
before him had not been overcome. Ps mistake was as to the credit
worthiness of the other party and not as to his identity. the contract
between P and the crook was voidable, however, means valid until
avoided and P had not avoided by the time the crook sold the car to
D. the contact was therefore valid and the crook was able to pass
title to D.)

3.

Duress
Since the essence of a contract is that it is a voluntary agreement, evidence that
a party entered into an agreement by compulsion may make the contract
voidable. Duress is a common law doctrine whereby threats or use of violence to
force a party to enter into the makes the contract voidable Barton v
Armstrong.
(There was a dispute between two share holders in the same company (A
and B), including a threat by A to kill B. Later B purchased As shares on
terms that were very favorable to A. The contract was set aside on the
grounds of duress, even though there may have been other factors
inducing B to sell his shares.)
15

4.

Undue influence
Where one party abuses his/her personal influence or authority over another to
make the other party enter into the contract, the transaction is voidable if the
influence is effective Williams v Bayley

Williams v Bayley
(A father agreed to mortgage his property to a bank if the bank would
return to him promissory notes on which his son had forged his signature.
The bank had hinted at prosecution and transportation of the son if the
father did not agree to execute the mortgage. The agreement to execute
the mortgage was set aside because undue influence had been proven.)

Tate v. Williamson.
(D became financed advised to an extravagant Oxford undergraduate. The
undergraduate sold his estate to D for about half its value and died of
alcoholism at the age 24. His executors were successful in having the sale
of the estate set aside.)

Where a fiduciary relationship exists between the parties, undue influence is

presumed once the complaint can prove that the resulting transaction was
disadvantageous to him.
Where no fiduciary relationships exists, the
complainant must prove undue influence. Fiduciary relationship is presumed in
certain situations such as principal and agent, lawyer and client, doctor and
patient, bank manager and customer etc. See cases such as Alcard v. Skinner,
Re Craig and Goldsworthy v Brickell where fiduciary relationships were held to
exist.
Alcard v. Skinner,
(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. 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.)

16

Goldsworthy v Brickell
(The plaintiff had granted a tenancy of his substantial farm to the first
defendant, and made him a partner. The first defendant later bought out the
plaintiff who was in turn later reconciled with his only son who had
previously had some considerable involvement with the farm. The plaintiff
gave a general power to the son who now sought to set aside the
transactions as having been obtained by undue influence. Held: A
presumption of undue influence could be raised where the gift was so large
or improvident that it could not be accounted for from mere friendship.)
Re Craig
(C, an old man of 84 years whose wife had died, employed Mrs. M as
secretary/companion. From the beginning she occupied a position of trust,
and in addition to running the house she took a confidential part in running
C's affairs. In course of the six years for which she was employed he gave
her money to the extend of $30,000. An action was taken to set the gifts
aside. The action succeeded as it was held that the circumstance raised the
presumption of undue influence which Mrs. M had not failed to rebut.)

ILLEGALITY & PUBLIC POLICY

A contract that is otherwise valid may be unenforceable due to illegality or public policy.
Illegal Contracts
A contract is illegal if it involves the breach of some law or some defined morality. It is
against the policy of the common law to allow an action on a contract containing an
illegal or wrongful element.
Examples of illegal contract are:
a)
b)
c)
d)
e)
f)
g)
a)

Contracts prohibited by statute

Contracts to defraud the Income Tax Department
Contracts involving the commission of a crime or tort
Contract with a sexually immoral element
Contracts against the state
Contract leading to corruption in public life
Contracts which interfere with the course of justice
Contracts prohibited by statute
A contract which contravenes the terms or policy of a statute is illegal, eg. In
Jamaica statute provided that all transactions must be done in consideration
of local currency only except as exempted by the Bank of Jamaica. A
contract designed to avoid the statute and have dealings in foreign currency
without approval is prohibited.
17

b)

Contracts to defraud the Income Tax Department

Contracts designed to defraud the revenue of the state are illegal e.g. where an
employee receives a car allowance although he has no car.

c)

Contracts involving the commission of a crime or tort

Where the consideration in or the purpose of a contract is criminal or
tortuous, the contract is illegal eg., where the consideration is the delivery
of ganja. See Beresford v Royal Insurance Company.
(The forfeiture rule was applied in a case involving suicide. An
insured may not recover under a policy of insurance in respect of
loss intentionally caused by his own criminal or tortious act,
however clearly the wording of the policy may suggest otherwise,
and his personal representative is in no better position:)

d)

Contracts involving sexual immorality

Where the consideration is an act of sexual immorality, eg., homosexuality
or prostitution the agreement is illegal. Where the purpose of the contract
is to further sexual immorality, eg., the renting of a house to prostitutes
who will use the house for then-business, the contract is also illegal. See
Pearce v. Brooks
(A contract to hire out a carriage to a prostitute for the purposes of
her profession was held to illegal.)

e)

Contracts against the interest of State

This situation occurs where for example. A state calls an economic
blockade on another. Any contract ignoring the blockade would be illegal.

f)

Contracts leading to corruption of public life

Such illegal contracts involve the bribery of officials or donations made to
charitable organizations with the agreement that an official would do
something. These contracts are void even though no crime has been
committed.

g)

Contracts which interfere with the course of justice

Any contract that tends to pervert the course of justice is illegal. A
contract not to prosecute or to compromise in criminal proceedings is
illegal unless the proceedings could have been initiated in the civil courts
for torts. Also, a contract under which an accused person indemnifies a
person who has provided bail for him is illegal. However, if proceedings
18

could have been civil, eg., in some traffic offences) a contract not to
pursue criminal proceedings, will not be illegal.

The Consequences of Illegality

The general rule is that no action can be brought on an illegal contract. Any party who
participated in the performance of the illegal contract will be debarred from claiming
damages for breach of contract.
Money paid or property transferred is generally irrecoverable.
Public Policy
There are some contracts that are not illegal per se but which will be held void for being
against public policy. These are:
a)
b)
c)
d)

Contracts to oust the jurisdiction of the courts

Contracts striking at the sanctity of marriage
Contracts impeding parental duties
Contracts in restraint of trade

a)

Contracts to oust the jurisdiction of the courts

The court is the final arbiter of the law. An agreement providing that one
party may not take legal proceedings to the court is void for being against
public policy. The courts jurisdiction cannot be ousted by any agreement
parties. A party cannot bind himself, to refrain from submitting questions of
law to the court and agreements not to refer disputes as to interpretation to
the court is void.

b)

Contracts striking at the sanctity of marriage

Such contracts involve three types of situations, (a) A contract by which a
party undertakes not to marry at all is void. However, if X contracts not to
marry Y, the contract is not void. (b) A contract between a husband and wife
for future separation is void; however a contract for immediate separation is
valid, (c) A contract to marry another after ones spouse is dead is void.
Contracts which impede a party in his martial duties are void.

c)

Contracts impeding parental duties

A contract by which one party deprives himself of the custody of his child is
void. Only a court order to this effect is binding.

19

d)

Contracts in restraint of trade

Such a contract restricts one party to suffer some restriction in carrying out
his trade or profession, eg., where an employee agrees not to work for another
employer, or where buyers and sellers agree to regulate prices. A contract is restraint
of trade is prima facie void, but will be held valid if it is (a) reasonable as between the
parties, and the restraint is no more than necessary to protect the proper interests of
person whom it was designed to benefit and (b) not injurious to the public.
The question of whether a restraint is reasonable is decided by the judge.
Consequences of Contract against Public Policy
These contracts are not illegal in the full sense; instead they are void to the extent of the
public policy contravention. As a result, unlike in the case of illegal contracts, money
paid or property transferred is generally recoverable. The court will perform an act of
severance, i.e., separating the valid part of the contract from the void part.
Terms of Contract
A contract is made up of terms offered by one party and accepted by the other party.
Contracts usually consist of both express terms and implied terms.
Express terms - These are terms in the contract that have been specifically
communicated by a party to the contract. Communication may either be verbal or in
writing, and both parties know or should know that these terms exist.
Implied terms These terms are deemed to be part of the contract or are deemed to
apply to the contract. These terms may be implied by Statute, Custom or the Courts.
Terms implied by statute - Parliament for instance safeguards consumers by
implying certain terms into sale of goods contracts (see sections 13 to 16 of the Sale of
Goods Act).
Terms implied by custom In some trades it is customary for certain practices to
prevail in the performance of a contract, for example, the percentage of commission
charged for services rendered in a particular trade.
Terms implied by the courts The courts would sometimes imply terms into a
contract if it were so obvious that the parties can only be deemed to have intended it,
especially if the contract will not make any sense if the terms are not implied. For
example, it is implied that in a conduct for delivery of goods the customer is not
expected to go into the delivery truck and remove the goods himself.
Conditions, Warranties and Innominate terms
Implied and express terms may be further classified into conditions, warranties and
innominate terms.

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Conditions are the most important terms, which form the main structure of a contract.
These crucial terms must be pointed out to the other party before the formation of a
contract is completed. Breach of conditions gives the wronged party a right to cancel
the contract and claim compensation for any loss suffered.
Warranties are minor terms of the contract, which are ancillary rather than crucial or
important to the contract. A breach of warranty does not give the wronged party the
right to refuse to perform his side of the obligation but rather, he will be entitled to claim
compensation for any loss suffered as a result of the breach.
Example In a contract for the sale of a car, they year of manufacture, model and
engine capacity will be considered conditions, while things such as the car stereo,
window tint will be considered warranties. Innominate terms are broad terms in the
contract, which have not been categorized by the parties into conditions and warranties.
The court is given the task in situations of breach to determine whether such terms are
conditions or warranties. In order to make this decision the court takes various factors
into consideration, which include the intentions of the parties and the extent of damage
to the injured party. Poussared v Spiers, Bettni v Gye.
Poussared v Spiers
(The plaintiff had contracted with the defendants to sing in an opera they were
producing. Due to illness, she was unable to appear on the first night and some
nights thereafter. When Mme Poussard recovered, the defendants refused her
services as they had hired a replacement for the whole run of the opera. It was
held that after her failure to appear on the opening night had been a breach of a
condition and the defendant were at liberty to treat the contract as discharged.)
Bettni v Gye
(Bettini, an opera singer, was engaged by Gye to appear in a season of concerts.
He undertook to be in London at least six days before the first concert for the
purpose of rehearsals. He arrived three days late because of a temporary illness.
He gave no advance notice and Gye refused to accept his services. It was held
that the plaintiff had been engaged to perform for a 15-week season and the
failure to attend rehearsals could only affect a small part of this period. The
promise to appear for rehearsals was a less important term of the contract. The
defendant could claim compensation for a breach of warranty but he could not
repudiate Bettini's contract.)

Exclusion / Exemption Clauses

Sometimes in contracts, one party would seek to limit financial claim against himself, or
exclude himself from legal liability through the use of exclusion or exemption clauses.
Exclusion clauses are simply clauses stated in a contract by which one party seeks to
limit or exclude himself from liability. For an exclusion clause to be effective, it must
satisfy the following three criteria:
1.

It must be incorporated within the contract

21

2.
3.

It must be clear and unambiguous

It must not be rendered ineffective by statute

For a party to be bound by an exclusion clause irrespective of whether the contract is

verbal or in writing.
Olley v Marlborough Court Hotel, Thornton v Shoe Lane Parking, Chapelton v
Barry UDC.
Olley v Marlborough Court Hotel
(Where P booked in at the hotel, when she went to her room she saw a notice on
the wall stating that the hotel would not be liable for articles lost or stolen unless
they were handed in for safekeeping. P left some furs in the bedroom, closed the
self-locking door and hung the key on a board in the reception. The furs were
stolen. It was held that the exemption clause was not effective as the contract
was completed at the reception desk and accordingly a notice in the bedroom
came too late to be incorporated into the contract.)
Thornton v Shoe Lane Parking
(Thornton drove his car into an automatic car park which he was using for the
first time. He received a ticket from an automatic machine, which referred to
conditions which were displayed on the premises. One of those conditions
excluded Shoe Lane's liability for any injury suffered on the premises. Thornton
was not aware of the conditions. He was injured and so sued the defendant.
The court held that the exclusion clause was not part of the contract. Shoe Lane
had not taken reasonable steps to bring the clause to Thornton's attention before
he entered the contract when he was purchasing the ticket. The judges drew
attention to the "width" or "stringency" of the clause, and stated that more notice
was required for such terms. The ticket cases did not apply here, because
Thornton was given no chance to negotiate or return the ticket or any of its terms.
Therefore the exclusion clause did not protect Shoe Lane.)
Chapelton v Barry UDC.
(On the beach was a pile of chairs and a nearby notice which stated "hire of
chairs 2d per session of 3 hours - Public requested to obtain ticket from
attendant". The plaintiff took a chair and obtained a ticket. He then went to sit
down and fell through the canvas. The judge would have found for P, but said
that the wording on the ticket, "The council will not be liable for any accident or
damage arising from hire of the chair" obliged him to find for D." On appeal it
was decided there was no restriction on the notice because the ticket could not
modify the terms of the contract.)
Note That a party may be deemed to have implied notice from past dealings
Kendall v Lilllico
(Concerned a contract for Brazilian ground nuts extract, sold for the purpose of
compounding into feed stuffs for cattle and poultry. The buyer used the goods for
feeding his turkeys. This proved to be fatal. Evidence showed the extract was not
dangerous to cattle.)
22

That the more onerous the terms, the greater the degree of notice required Interfoto
Picture Library Ltd. V Stiletto Productions That customers are deemed to have
constructive notice of the content of any contractual documents they sign whether they
have read it or not LEstrange v Graucob
Customers cannot claim they misunderstood a clause unless the seller helped to cause
misunderstanding Curtis v Chemical Cleaning & Dyeing Co. An exclusion clause is
not effective if it is ambiguous; the courts may apply the contra proferentem rule to
restrict the effect of the exclusion clause Andrews v Singer
Usually, a party cannot exclude liability for a fundamental breach; however in some
circumstances, the court may allow the exclusion clause to protect the party in breach
Photo Production Ltd v Securior Transport Ltd
LEstrange v Graucob
(Mrs. L'Estrange owned a cafe. She ordered a cigarette machine from the
manufacturers which, it turned out, never worked properly. Although an implied
contract term in the sale of goods is that the goods will be suitable for the
purpose intended, the contract -- which Mrs. L'Estrange had signed -- did state
that the manufacturers disclaimed all liability regarding the malfunction of the
machine. It was held that Mrs. L'Estrange could not claim damages on the
grounds that she ``did not see'' the clause in the contract. There was no evidence
of fraud or misrepresentation that might have mitigated this judgement.)
Andrews v Singer
(The exclusion clause in a contract for the sale of a number of singer cars stated
that it related to new singer cars. One of the cars, which was a used car, was
defective and the purchasers claimed for the defect. The sellers claimed the
protection of the exclusion clause. Held: the exclusion clause would be read
strictly and so did not apply to used cars only new ones. An exemption clause
will not protect a third party who is not a party to the contract containing the
clause:)
Privity of Contract
Persons who are not parties to the contract cannot enforce the contract; neither can the
burdens of the contract be enforced against them. They are said not to be privy to the
contract or have privity of contract.
Tweddle v Atkinson, Dunlop Rubber Co. v Selfridge, Beswick v Beswick.

Tweddle v Atkinson
(Tweddle's father & Atkinson - Tweddle's father in law - contracted to contribute a
sum of money each to the support of Tweddle and his wife. Tweddle senior kept
up his part of the bargain, but Atkinson died before paying anything. Tweddle
sued the executors of Atkinson's estate. His suit was rejected because he himself
23

was not party to the contract, even though it was for his benefit. It is not possible
to claim that there is an implicit contract between Tweddle (junior) and Atkinson,
because there is no consideration from Tweddle to Atkinson.)
Dunlop Rubber Co. v Selfridge
(An act or forbearance of one party, or the promise thereof is the price for which
the promise of the other is bought and the promise thus given postal regardless
of the fact that it was lost is the post.)
Beswick v Beswick

Exceptions to the doctrine of privity of contract

Agency Principals may be sued by third parties where agents have entered
into contracts on their behalf.
Third-party insurance Third parties can claim under the insurance policy
even though they did not pay the premiums.
Assignment of contractual rights Third parties who have been assigned the
benefits of a contract may sue on them.
Trusts Beneficiaries of a trust may bring an action to compel trustees to act
in accordance with the terms of the trust.
Collateral contracts
Contracts for the benefit of a group

1.
2.
3.
4.
5.
6.

DISCHARGE OF CONTRACT
Method of Discharge
A party who is subject to the obligations of a contract may be discharged from those
obligations in any of the following ways:
(a)

Performance

(b)

Agreement

(c)

Breach

(d)

frustration

Discharge of Performance is the normal method. As a general rule contractual

obligations are discharged only by complete and exact performance. Partial or incorrect
performance does not suffice.
Where the promisor is unable or unwilling to give more than partial performance there is
no discharge. The practical effect of this rule is that where a contract provides for
payment by one party after performance by the other, no action to recover payment may
24

be maintained until performance is complete, nor will an action for a proportionate

payment be available on the basis of quantum meruit. Cuter v Powell.
(The defendant agreed to pay Cutter 30 guineas for acting as second mate aboard
a vessel plying between Jamaica and Liverpool. Cutter died when the vessel was
nineteen days short of Liverpool. His widow could recover nothing in respect of
the work he had performed during the previous 49 days of the voyage. Where a
person agrees to do something for a lump sum, he can normally only sue for
payment if the work is substantially performed; the courts will not imply a
contract in favour of a plaintiff who has made an express agreement and failed to
perform it.)

Performance must be complete to bring a case. Moore & Co. v Laundaeur.

(The plaintiff entered into a contract to sell the defendants a certain quantity of
Australian canned fruit, the goods to be packed in cases containing 30 tins each.
The goods were to be shipped per S.S. Toroneo:. The ship was delayed by
strikes at Melbourne and in South Africa, and was very late in arriving at London.
When the goods were discharged about one half of the consignment was packed
in cases containing 24 tins only, instead of 30, and the buyers refused to accept
them. It was held although the method of packing made no difference to the
market value of the goods the sale was by description and was not complied with.
Consequently buyers were entitled to reject the consignment.)

Exceptions include:(i)

Divisible contracts (Hoening v Isaacs)

(D employed P who was an interior decorator and furniture designer
to decorate a 1 room flat owned by D. P was to provide furniture,
including a fitted bookcase, wardrobe & a bedstead for $750. The
terms of the contract regarding payment were as follows net cash
as the work proceed and the balance on completion. D made 2
payments of P of $150 each on the 12 th & 19th of April. P. claimed
that he had completed the work on the 28 th of August & asked for the
balance. D asserted that the work done was bad and faulty paid P
$100 and moved into the flat. P sued D for the balance. It was held
that D was liable.)

(ii)

Substantial performance (Dawkins & Co. v Lee)

25

Acceptance of Partial Performance

If the promisee voluntarily accepted less than complete performance where he had
genuine freedom of choice, the promisor is entitled to claim payment on a quantum
meruit basis.
Prevention of Performance
Where a party is prevented from completing his undertaking because of some act or
omission of the other party, the party who has been prevented from performing may
either sue for damages or for payment on a quantum meruit basis.
Discharge by Agreement
A contract may provide for its own discharge by inclusion of a clause imposing a
condition precedent or condition subsequent or it may contain a term giving one or both
parties the right to end the agreement by giving notice to the party (e.g. contracts of
employment).
Condition Precedent prevents the contract from coming into operation unless the
condition is satisfied. The condition becomes binding it is contingent to something
occurring.
(1)

Hargraves Transportation Ltd. V Lynch

(2)

Pynn v Campbell
(An agreement for the sale of a patent was drawn up and signed. It was
also agreed at the time that the written agreement was not to be binding
unless a third party approved of the invention. In an action on the
written agreement evidence was admitted to show that the third party
had not approved therefore the agreement was not effective.)

Condition Subsequent provides for the discharge of obligations outstanding under the
contract in the event of a specific occurrence.
Mutual Agreement Both parties can agree to accept something different where there
has been accord and satisfaction that the former obligation is discharged.
Where a contract is partially/wholly executed, discharge of such contract must be
supported by consideration or made under seal. The party to whom something is owed
may agree to accept something different in place of the former obligation; but where the
subsequent agreement by which one of the parties consent to accept something
different in place of the original obligation is under threat, the old obligation remains
undischarged.

26

Discharge of Breach
Refusal or substantive failure by one party to perform his obligations, releases the other
party from his obligations and renders the party in default liable for breach of contract;
The general principle is that the breach must be a breach of condition of the contract
and not a breach of warranty. In the case of a Breach of Condition, the injured party
can treat the contract as being automatically discharged in which case he cannot also
sue for damages or breach of contract since he has indicated his willingness to regard
the contract as dead and has therefore waived his right to action for damages.
However, if he has incurred expenses on the contract he may bring a quasi contractual
quantum meruit action for compensation.
In the case of Breach of Warranty the injured party can sue for damages but must go on
with the contract he does not have the right to rescind or terminate the contract.
If a person chooses the latter course he keeps the contract alive and should
immediately commence action to enforce it, i.e., sue for damages or specific
performance.
Discharge by Acceptance of Breach
A breach does not, in itself discharge a contract but it may, in circumstances give the
innocent party the right to treat it as discharge if he so wishes. There are several forms
of breach of contract:
(1)
(2)

failure to perform the contract which is the most usual form - as where a
seller fails to deliver goods by the appointed time;
express repudiation where one party states he will not perform is part of the
contract.
(i)

Rochester v De LaTour
(In which the defendant agreed to utilize the services of a plaintiff as a
travel courier. A month later, the defendant wrote to the plaintiff stating
that the aforementioned services were no longer required. It was held
that this action constituted a breach of contract.)

(ii)

Omnium Enterprises v Sutherland

(The defendant agreed to charter a steamship to the plaintiff, but
later on sold the ship to a third party, thus making completion of
the contract impossible. It was ruled that this constituted a
breach of contract.)

27

Remedies for Breach of Contract

The standard remedy for breach of contract is the award of damages as compensation
for the loss suffered by the injured party. As an alternative, the injured party, in some
cases, claim payment for the value of what he has done (quantum meruit) or seek a
court requiring the defendant to perform the contract (specific performance).
Where appropriate, the plaintiff may apply for declaration that the contract has been
rescinded or obtain restitution of property which he has transferred.
The right to remedy for breach of Contract is subject to time limit (limitation) i.e. the right
of action for breach, may be statute barred because of lapse of time.
As a general rule the amount awarded as damages is what is needed to put the plaintiff
in the position he would have achieved if the contract had been performed.
If for example there is a failure to deliver goods at a contract price of $100 per ton and
similar goods are obtainable at a market price $110 per ton, damages are calculated at
the rate of $10 per ton. (Sale of Goods Act 1979 s. 51) More complicated questions of
assessing damages can arise but the general principle is to compensate for financial
loss.
Lapse of Time
The right to sue for breach of contract becomes statute barred six (6) years from the
date of the breach (or 12 years if the contract is by deed). The plaintiffs rights cease to
be enforceable at law but right to liquidate a sum may be revived by acknowledgement
in writing the debtor even if made after the limitation period has expired.
In the following situation the 6 year period does not begin at date of breach but later:(i)

(ii)

if plaintiff is a minor or of unsound mind at the time of the breach, the 6-year
period begins only when his disability ceases. Once begun it is not
subsequent disability;
if the defendant or his agent conceals the right of action by fraud, the 6 year
period begins only when plaintiff discovered or could by reasonable diligence,
have discovered the fraud.
(Case Applegate v Moss 1970)
(The defendant built a house under a contract specifying the design.
Contrary to the design no concrete raft foundation was installed.
This was discovered only eight years later, and eventually the house
was condemned. Held: The claim was not statute barred. The cause
of action arose only at the point where the defect became known or
reasonably could have become known to the claimant.)

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Discharge by Subsequent Impossibility Contra Supervening Impossibility

Subsequent impossibility is a basic common law rule that a party is not discharged from
his contractual obligation merely because performance has become more onerous or
impossible owing to some unforeseen event. The general rule is that contractual
obligations are absolute and if a party wishes to protect himself from subsequent
difficulties in performance, he should so stipulate for that protection.
The Doctrine of Frustration has, however, developed a number of exceptions to the
general rule of absolute contractual liability.
Where without the fault of either party some totally unforeseen event takes place which
renders future performances either impossible or completely impracticable, the doctrine
of frustration will apply.
Limited circumstance in which frustration occurs include:
(i)
where the basis on which the contract was predicated is totally destroyed.
Taylor v Caldwell (Theatre burnt down.)
(D owned Surrey Gardens & Music Hall, and agreed to rent it out to the
plaintiffs, P, had planned to use the music hall for four concerts for 4
different dates during the summer. According to the contract the parties
had signed, the defendants were to provide most of the performers. P,
were to receive the gate receipts and advertise for these events. On
June 11, 1861, a week before the concert was to be given, the music hall
burned to the ground. P, sued the music hall owners for breach of
contract for failing to rent the music hall. The court held that existence
of the Music Hall in Surrey Gardens was an implied condition essential
for the fulfillment of the contract. The destruction of the music hall was
the fault of neither party, and rendered the performance of the contract
by either party impossible.)
(ii)

The Non-occurrence of an event Krell v Henry (non-recovery of money.)

(The plaintiff offered to rent out his rooms overlooking a street where
processions to the royal coronation were going to take place. The
defendant offered to pay 75 to rent the rooms in order to watch the
processions. The defendant put down 25. The king got sick and the
processions didnt happen. The defendant refused to pay. The plaintiff
sued for the remaining 50 and the defendant countersued for the 25
deposit. The trial court dismissed the plaintiffs complaint and gave
judgment for the defendant on his counterclaim. The plaintiff appealed.)

(iii)

Death or Illness A contract for personal services may be frustrated by death

or unduly prolonged illness of employee. Temporary illness or incapacity will
not, in most cases, discharge the contract unless it can be shown that those
go to the root of the contract i.e. a condition of the contract.

(iv)

Government interference where government prohibits performance for such

a period that it would be unreasonable to expect performance after the
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prohibition ceases; e.g. change in law (Avery v Bowden and Reshipton,

Anderson & Co.)
(Ps ship was chartered by the defendant, who agreed to load the ship
with cargo at Odessa within 45 days. D, later stated that he did not
intend to load any cargo, but P waited to see if he would change his
mind. However, before the 45 days had elapsed, the Crimean War broke
out and the contract became illegal since it would now have involved
trading with the enemy. It was then held that by waiting, the plaintiff lost
his right to action against the defendant since the contract had been
rendered obsolete by matters beyond the control of either party.)
(v)

Self-induced Frustration The doctrine of frustration will not apply where

frustration is self-induced Maritime National Fish Ltd v Ocean Sea
Trawlers.
(If either party contributes to the occurrence of the event, they cannot
claim that it amounts to a frustrating event. If there is a requirement that
vessels with trawls be licensed, then if you have 5 vessels and only 3
licenses, then you cannot claim that your inability to use all the vessels,
amounts to a frustrating event such as to excuse you from payment of
the hire fee for the vessel.)

The doctrine of frustration may also not be applicable where express terms in a
contract cover the contingency complained of British Movie News v London
Cinema Ltd.

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