COURSE WORK ON CONTRACT LAW 3

NAME: IDENTITY: DATE: SCHOOL:

TEMITOPE OLUYOMI OLOTU EBS 10013 FEBRUARY 21, 2012 Executive Business School /Bradford University School, UK Mr ADISA

LECTURER:

Question: It is a basic common law rule that a party is not discharged from his contractual obligations merely because performance has become more onerous or impossible owing to some

unforeseen events

Answer: A contract may be discharged i.e brought to an end, and the contractual relationship between the parties extinguished in four possible ways; Agreement, Performance, Frustration, thus three are the lawful one while the last one which is Breach is unlawful.

Discharge by Performance: The general rule is there must be entire performance. i.e it must be entire and exact. Cutter V Powell (1895) Term Rep 320 (1775-1802) AILER Rep 159.

Partial Performance: Sumpter V Hedges (1898) I QB673

Substantial Performance: Bolton V Mahadeva (1972) 1 WLR 1009 Tender of Performance: Startup V MacDonald (1843) 6 man 593

 Divisible Contracts: Taylor V Webb (1937) 2 QB 283

Prevention of Performance: Planche V Colburn (1831) 8 Bing 14

Terms as to Time: Behzadi V Shaftesbury (1991) 1 ALLER 477 Discharge by Agreement : A contractual obligation may be discharged by a subsequent binding agreement between the parties, since both parties enter a contract as the result of a mutual agreement then pure logic dictates that the parties should be able to release each other from any or further performance as a result of reaching another agreement. There are two ways in which the contract could be discharged by agreement, Bilateral discharge and Unilateral discharge.

Bilateral Discharge Accord and Satisfaction: Pinnels case (1602) 5 Go Rep 117a; 77 ER 237

WAIVERS: There as to be a consideration in place Williams V Roffey Bro & Nicholls (Contractors) Ltd.

Rescission and Variation; Rickards V Oppenheim (1956) 1 KB 616

Unilateral Discharge

Release by deeds: British Russian Gazette Ltd V Associated Newspapers Ltd (1933) 2 KB 616.

Discharge by Frustration A situation when it becomes impossible to perform an obligation under a contract because of the occurrence of an event which is not due to the fault of the two parties and which they did not foresee and could not have prevented. National Carriers V Panalpina (Northern) Ltd (1981) AC 675 Taylor V Caldwell (1863) 3 B & S 826 Paradine V Jane (1647) Aleyn 26 The following situations could amount to frustration

Total or Partial destruction of subject matter (FIRE) Taylor V Caldwell, it was held that the agreement was frustrated by fire and the parties discharged.

Subsequent

Legal

Changes:

(Government

Interference):

It

occasionally happens that once a contract has been entered into in

law, quite independently, may move to the position that the performance of contracts of the type entered into is illegal. Re Stupton, Anderson & Co Harrison Bros (1915) 3 KB 676 Outbreak of war

Death or Illness: Robinson V Davison where a pianist was engaged to perform but he took ill before the date of performance and could not perform it was held that the agreement was frustrated by illness.

Commercial Sterility: These is a circumstances where, even though the contract is not impossible to perform, the commercial purpose of the contract has disappeared as a result of the intervening event or an event which is fundamental to the contract cannot or does not occur, then the contract might still be held to be frustrated. This is commonly claimed when the essence of the bargain has in fact been lost. Krell V Henry (1903) 2 Kb 740

However, this doctrine will not apply in the following circumstances. Where the event is contemplated by an express stipulation in the contract.

Where the contract contains an absolute undertaking to be performed in any event

Where the event was induced by one of the parties. Maritime national Fish V O Can Trawlers, 1935 Act AC 524

Where the event is onerous but not sufficiently grave to constitute a frustrating event. Davis Contractors V Fareham UDC 1956 AC 696, 1956 2 AER 145.

The House of Lords recognized the harshness of the principle in the Fibrosa case (1943) AC 32) and devised rules to modify the harshness created by the rule which was Pioneer by Viscount Simon IC and was immediately passed in the House as Law reform frustrated. Contracts Act 1943.

LIMITATIONS OF THE LAW REFORM FRUSTRATION CONTRACTS ACT 1943

Frustration is a common law doctrine originally developed to avoid some of the harshness of the existing common law rule. Nevertheless, it can still lead to injustice itself. As a result, Parliament, following the Fibrosa case, passed the Law Reform (frustrated contracts) Act 1943 specifically to deal with the consequences of frustrating events

and to provide a fairer means of identifying to recover and in what circumstances. There are three main areas which the 1943 Act covers. Recovery of money paid in advance of a contract

Recovery for work already completed under the contract

Financial reward where a valuable benefit has been conferred. Gamerco SA V LCM/ Fair WARNING agency (1995) 1 WLR 1226

BP. Exploration Co (Libya) Ltd V Hunt (No 2) (1979) 1 WLR 783. The effectiveness of the 1943 Act is also limited. Further because it does not apply in certain circumstances identified in the Act itself.

By S 2 (4): The Act will not apply in the case of severable or divisible. Contracts where one part of the contract has been completely performed before the frustrating event. This is not a problem if that part of the contract is paid for separately.

By S 2 (5): The Act will not apply to contracts for the carriage of goods by sea, expect time charter-parties.

By S 2 (5): The Act does not apply to insurance contracts. Nevertheless, such contracts in any case concern accepting the risk

of specific events occurring, e.g a house burning down for which a sum of money is then payable, so this exclusion is perfectly logical

By S 2 (5) C: the Act will not apply in the case of the perishing of goods under S 7 of the sale of Good Act 1979.

Finally, discharged can be explained as contract that as ended. However, its becomes frustration if performer becomes absolutely impossible by the parties it becomes discharge by frustration.

Discharge by Breach: A breach occurs where a party fails to perform his obligation under a contract or where it was performed wrongly. Discharge by Breach is classified into two; ACTUAL BREACH AND ANTICIPATED BREACH. FOSTER V KNIGHT (1872) LR 7 EX CH 111 Avery V Bowden (1855) 5 EX B714

Question 2: Upon recovery from a serious illness, Jones made a gift of some of his properties to Mark, his Medical Advisor. The motive of the gift was gratitude. Jones now repents his generosity and wishes to know whether the law allows him to recover the gifts. (A) ADVISE HIM

- Assuming that the gifts were made two month ago. - Assuming that the gifts were made 15 years ago.

Answer 2 According to BARROMS DICTIONARY OF LEGAL TERMS Fourth Edition, Gift is defined as a voluntary transfer of property made without

consideration that is, for which no value is received in return, which is accepted by the recipient.

The issue involved in this case 18 undue influence which involves a Medical Adviser and his patient.

Undue influence traditionally developed under Equity and so many remedy is at the Courts discretion. The area developed so as to cover those areas where any form of improper pressure prevented a party from exercising their free will in entering a contract. Since equity is inevitably more flexible than common law, the doctrine could be applied whenever a party has exploited the other party to gain an unfair advantage.

Clearly, there is nothing wrong with trying to induce another person to enter a contract. This is in essence no more than basic bargaining. It is the degree of influence applied and also the context in which it occurs that the Court is actually concerned with in determining what is and what is not acceptable. Because of the relative vagueness of this reasoning the Courts were traditionally reluctant to give a full and precise definition of undue influence in the way that they have been similarly reluctant to be too positive or precise in their definition of fraud

Undue influence is defined in All Card V Skinner (1877) 36 CHD as some unfair and improper conduct, some coercion from outside, some

overreaching, some form of cheating and generally though not always, some form of personal advantage obtained by the quilt party. It can also be said that undue influence occurs where a party enters into a contract under any kind of influence which prevents him from exercising a free and independent judgment, and it makes the contract voidable. There are two types of undue influence
-

Actual undue influence (No Special relationship) class 1

- Presumed undue influence (special relationship) class 2 Actual Undue Influence: This represents the original situation where there was no special relationship between the parties and so the party alleging the undue influence is required to prove it. If the claimant can prove the actual influence of the other party, like duress but in sufficient for duress i.e. Specific orent acts of persuasion e.g a promise to pay money after a threat to report a criminal offence. Daniel V Drew (2005) EWCA GV 507 Williams V Bayley (1866) LR 1 HL 200

Presumed Undue Influence: The use of the expression presumption here is one which describes the shift in the evidential burden of proof on the question of fact. The claimant has to show, first, that there is a

relationship of trust or confidence between themselves and the wrong doer and second, the existence of a transaction which calls, for an explanation. This relationship can arise between Trustee and Beneficiary Solicitor and Chant Doctor and Patient Parent and Child- Lancashire loans co V black (1933) 1 Kb 380 RELIGIOUS ADVISOR AND DISCIPLE ALLARD V SKINNER (1887)36 ch d 145 Where there is no fiduciary relationship between the parties, the party who alleges he was unduly influenced must prove that he was so dominated by the other party that he did not exercise his own free, independent will in entering into the contract. Barclays Bank V OBrien (1993) Lloyds Bank V Bundy (1979) QB 326 However, in the case of Jones V Mark, it can be classified under Presumed Undue Influence because of the fiduciary relationship of Doctor and Patient.

According to Jones the gift given to Mark (Medical Advisor) was with a motive of gratitude for the recovery from a serious-illness.

ADVICE TO JONES
A.

Assuming that the gifts were made two months ago, Jones can still recover the gifts because it is not too late. Enmity will be used as a remedy of recovering the gift. Under the defense of undue influence.

B.

Assuming the gifts were made 15 years ago, Jones cannot recover the gifts because he was slept over of his right. Therefore enmity cannot function and since dealing defeats enmity he cannot claim recovered of the property like in the case of Allcard V Skinner (1887) 36 Ch D 145.

Question 3: With reference to relevant Judicial Authorities, explain the critical issues relating to remoteness of damage and measure of damages in contractual obligations

Answer 3: DAMAGES The major remedy at common law for breach of contract is an award of damages. This is a monetary sum fixed by the Court to compensate the injured party.

In order to recover substantial damages, the innocent part must show that he has suffered actual loss if there is no critical loss he will only be entitled to nominal damages in recognition of the fact that he has a valid cause of action in making an award of damages; the Court has two major considerations. Remoteness of damages.
a)

REMOTNESS OF DAMAGES:

The rule governing remoteness of loss

in contract was established in Hadley v Baxendale (1854) 9 Exch 341.

The Court established the principles that where one party is in breach of contract, the other should receive damages which can fairly and reasonably be considered to arise naturally from the breach of contract itself (in the nominal course of things), or which may be reasonably be assumed to have been within the contemplation of the time they made the contract as being the probable result of a breach. Thus, there are two types of loss for which damages may be recovered: - What arises naturally, and - What the parties could foresee when the contract was made as the likely result of breach.

THE MEASURE OF DAMAGES In assuming the amount of damages payable, the Courts use the following principles. - The amount of damages is to compensate the claimant for his loss not to punish the defendant - Damages are compensatory not restitutionary

The most usual basis of compensatory damages is to put the innocent party into the same financial position he would have been in, had the contract been properly performed. This is sometimes called the expectation loss basis. In the case of Vitoria Laundry Ltd V Newman Industries Ltd (1949) 2 KB 528, Victoria Laundry were claiming for the profits they would have made had the boiler been installed on the contractually agreed date. The problem of remoteness and measures of damages are easily determined if the damages are liquidated. Liquidated damages are damages which the parties agree in advance as payable in the event of breach. This is usually done by parties providing in the contract itself that a specific sum shall be payable, in event of breach. The plaintiff can recover the specific sum even if his actual loss may be less, but if his actual loss is more than the specified sum he will only recover the specified sum. When damages are not liquidated they are said to be unliquidated. In liquidated damages are damages which have not previously been assessed or provided for in the contract.

INJUNCTION This is a decree of the Court directing a party to refrain from a particular conduct or action that might constitutes a breach of contract. Lumley V Waaner (1852) 42 ER 687

QUANIUM MERUIT: The latin phase simply means so much as the thing is worth. It is thus a claim made when a contract makes no express or implied provision for remuneration. For example a person may perform a service for another, or bestow a benefit upon him without being under the contractual obligation to do so; or a party to a contract may be unable to fulfill the entire obligation. He may have a claim in Quantium Meruit.

Quantuim Meruit is based on the fact that something has been done. Craven Elis V Cannons Ltd (1936) 2 KB403

RESCISSION: The right to resend is also available as a remedy for breach of contract, where the injured party can treat the contract as discharged.

MUTIGATION OF LOSS: There is a common law rule that an injured party must take all reasonable steps to mitigate (minimize) the loss that may be occasioned by the breach. The injured person is not permitted to exploit his misfortune. If he fails to do what is reasonable to minimize his loss, he may not claim compensation for loss which is due to his father. Reasonableness is the key-note of the principle. Brace V Calder (1895) 2QB 25 3 Pillkington V Wood (1953) 2 Ch 770

SPECIFIC PERFORMANCE: This is also a decree of the Court directing a defendant to perform the promise that he has made in the contract. Nut brown V Thornton.

Question 4: Unilateral mistake as to the identity of a contractual party is a controversial area of contract law. Discuss with reference to relevant cases

Answer 4: MISTAKE: This is a situation in which one or both parties to an agreement acted under an untrue believe about the existence or non-existence of a subject matter which is a material fact in the contract. However, it is important to note that mistake as to the quality of the subject matter of the contract is not a mistake in law of contract. Leaf V International Galleries (1950) 2 Kb 86 where the buyer and the seller of an art work mistakenly believed that the work was that of a popular artist. It was held that this was no mistake in law of contract because it relates to the quality of the subject matter and not to his existences or nonexistences, in other words the parties both intended to deal with what they physically saw.

Mistakes at law may affect the validity of a contract depending on the type and nature of the mistakes. The general rule is that where a mistake has been made the parties at common law, the contract may be deemed void as if it never existed, while Equity takes a more flexible approach in that the contract may be treated as voidable that is may be terminated at the instance of the innocent party. There are basically three classes of mistake - Common mistake - Mutual mistake
-

Unilateral mistake

Common Mistakes: This occurs when both parties make the same error relating to a fundamental fact. The case may be categorized as follows: A RES EXTINCTA: A contract will be void at common law if the subject matter of the agreement is, in fact non-existent example in COUTRIER V HASTIE (1856) 5Hl Case 673. In addition Section 6 of the Sale of Goods Act 1979, provides that where there is a contract for the sale of goods, and the goods without the knowledge of the seller, have perished at the time when the contract was made, the contract is void.

Other relevant cases includes: GRIFFTH V BRYMER (1903) 19 TLR 434, GALLOWAY V GALLOWAY (1014) 30 TLR 531. B. RES SUA: Where a person makes a contract to purchase that which, infact, belongs to him, the contract is void. (1867) LR 2 HL 149. C. MISTAKE AS TO QUALITY: A mistake as to the quality of the subject matter of a contract has been confined to very narrow limits. According to Lord Atkins, A mistake will not affect assant unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be. (i) (ii) BELL V LEVER BROSS LTD (1931) AC 161; LEAF V INTERNATIONAL GALLERIES, 1950 2 KB 86 COPPER V PHIBBS

Mutual

Mistake:

This is where the two parties in a contract

misunderstand each other. In this situation, they are said to be at cross purpose because there are no meeting of the mind. The Court will apply an objective test and consider whether a reasonable man would take the

agreement to mean what one party understood it to mean or what the other party.
-

If the test leads to conclusion that the contract could be understood in one sense only. Both parties will be bound by the contract in this sense.

If the contract is totally ambiguous under this objective test then, there will be no consensus and idem (agreement as to the same thing) and the contact will be void. RAFFLES V WICHELAUS, (1864) 2 H & C 906.

UNILATERAL MISTAKES: This is a situation where only one of the parties to a contract is making a mistake and such mistake is not known to the other party. These cases may be categorized as follows:

A MISTAKES AS TO THE TERMS OF THE CONTRACT: Where one party is mistaken as to the nature of the contact and the other party is aware of the mistake, or the circumstances are such that he may be taken to be aware of it, the contract is void. For the mistake to be operative, the mistake by one party must be as to the terms of the

contract itself, like in the case of HARTOG V COLIN & SHIELD, 1933 3 AER 566. A mere error of the judgment as to the quality of the subject matter will not suffice to render the contract void for unilateral mistakes. see The case of SMITH V HUGHES, (1871) LR 6 QB 597. Equity follows the law and will rescind a contract affected by unilateral mistake or refuse specific performance as in, WEBSTER V CEEIL (1861) 30 BEAV 62. B. MISTAKE AS TO IDENTITY: Where one part makes a contract with a second party, believing him to be a third party (i.e some are else). The law makes a distinction between contract here the parties are inter absents and where the parties are inter presents. E.g where A enters into a contract with B while thinking that he is entering into a contract with C, such a contract shall be declared void and A shall be discharge for performing his obligation under the contact if he can prove the following.

That he intended to deal with another person different from B when he dealt with.

 That B himself ought to be aware that A would not have entered into a contract with him.

That at the line of negotiation of the contract identity of B was very material in the sense that if B had disclosed to his identity, A would not have entered into the contract with him.

That he took reasonable stop to verify the identity of B. note that where the parties enter into the contract face to face it may be difficult to prove unilateral mistake because the parties would have been taken to have believed each other and wanted to enter into the contract with each other. The case of Phillips V Brooks Ltd (1919) 2 KB 243. The Court held that he could have only intended to contract with the party he actually met face to face. The pawn shop gained good title because it bought in good faith without notice of any defect in title.

C.

UNILATERAL MISTAKE AS TO THE NATURE OF THE DOCUMENT SIGNED (NON EST FACTUM): As a general rule, a person is bound by their signature to a document, whether or not they have read or understood the document.

LESTRANGE V GRAUCOB (1934) KB 394. However, where a person has been induced to sign a contractual will be voidable. Sometimes, the plea makes a document void. The plea was originally used to protect illiterate persons who were tricked into putting their mark on documents. It eventually became available to liberate persons who had signed a document believing it to be something totally different from what it actually was. FOSTER V MACKINNON, (1869) LR 4 CP 704

The use of rule in modern times have been restricted, for a successful plea of non est factum, two factors have been establishment. - A party has some disability which is being taken advantage of and - He thinks he is signing a entirely different type of document. The decision of the House of Lord is the leading case SAUNDERS V ANGLIA BUILDING SOCEITY (1971) AC 104

REFERENCES
1.

UNLOCKING CONTRACT LAW (SECOND EDITION) by JACQUELINE MARTIN and CHRISTUNER

2.

Textbook of Contract Law (Eighth Edition) by Ewen Mekendrick.

3. LAW OF CONTRACT SWEET & MAXWELL 4. COURSE MATERIAL