Whole Module Flashcards
A case name and a good quote on what a promise is
A promise is a unilateral, gratuitous obligation, it only requires one party to undertake to perform and does not require the agreement or acceptance of a second party to be enforceable. As in formation of another contract the court applies an objective test, asking what the reasonable person would infer from the circumstances - royal bank of Scotland v Carlyle
Key characteristics of a promise
- The promisor must intend to be legally bound by his promise
- No need for the promisee to accept the promise for it to be binding
- Promises can be enforced through the courts by the promisee
- The existence of a promise is difficult to prove previously it required an oath (smith v Oliver) and now requires a formal written document unless conducted in the course of business
- A promise can have conditions attached to it but that does not mean the promise is bound to fulfil it.
Do promises need to be in writing?
The requirements of writing (Scotland) Act 1995 - gratuitous unilateral obligation must be in writing unless in the course of business! S1 2 a ii
Differences between a contract and a promise
A gratuitous contract = where only one party performs and gets nothing in return, but both parties have to agree to it
Onerous contract = both parties agree and perform obligations in exchange for performance
Promise = does not require acceptance and is legally binding as soon as it is made
Case which demonstrates a gratuitous contract
Morton’s Trustees v Aged Christian Friend Society of Scotland - entered an agreement to pay charitable donations subject to conditions fulfilled by the society. This was agreed. When he died he left two unpaid instalments the court held there was an enforceable contract
Case which demonstrates a gratutious contract
Morton’s Trustees v Aged Christian Friend Society of Scotland - entered an agreement to pay charitable donations subject to conditions fulfilled by the society. This was agreed. When he died he left two unpaid instalments the court held there was an enforceable contract
Case which demonstrates a promise
Smith v Oliver where a church stated Oliver had promised £7000 in her will, there was no record and court ruled it was a promise. As they couldn’t prove the promise their action failed
How are unilateral gratuitous promises constituted?
Clear and unambiguous
Written down unless in the nature of business - requirements of writing act 1995
Definition of a contract
A contract is an agreement between parties who have the capacity to make it in the form demanded by the law, to perform an act on one side or both that is not impossible, illegal, indeterminate, to create enforceable obligations in the court of law
What is the basic rule of a contract?
Agreement - would a reasonable person looking at ask the actings of the parties conclude they had reached an agreement on all the essentials of the contract - consensus in idem
What are the essential terms of a contract
Depends on what type of contract
Parties and subject matter
Not necessarily price because s8 of Sale of Goods Act allows court to fix a reasonable price
Mathieson Gee v Quigley
Asked to remove slit from pond, responded they would provide the necessary plant for removal - both thinking of different things no consensus in idem
Avintair v Ryder Airline Services
Parties may indicate they have moved forwards and one party may stay to perform obligations - court held that they were entitled to reasonable remuneration as the services provided were not intended to be free
Thomson v James
This case demonstrated the postal acceptance rule, which lies in favour of the person who is responding to the offer. Offer must be communicated to the offeree because if not the offer cannot be accepted
Glasgow steam shipping co v Watson
Even if there is no set time limit an offer will lapse after a reasonable time period has passed
Carlill v carbolic smoke ball co
Had issued a public offer to pay a reward if anyone who contracted influenza after having used the product as instructed. Court ruled it was a valid offer
Definition of acceptance
Unconditional agreement to all the terms of the offer by words or conduct
An acceptance is the final unqualified assent
Acceptance by action example
A vending machine - offers its contents and you accept by putting money in
Exception to qualified acceptance but case law is inconsistent
Erskine v glendinning - acceptance of the lease of a mill subject to lease drawn out - didn’t add anything of substance so no qualified acceptance
But
Stobo Ltd v Morrisons - similar fact different outcome - subject to contract clause - was a qualified acceptance
What are the 5 main grounds for challenging validity of a contract and what does it do - void/voidable
Capacity (void), force and fear (voidable), faculty and circumvention (voidable), undue influence (voidable, error and misrepresentation (voidable)
What is a void contract?
A contract although apparently formed has no legal force or binding effect and so never comes into existence
What happens if parties have fulfilled part of their obligations under an apparent (void) contract?
They cannot use the law of contract to reclaim any money or property passed over under the apparent contract because there is no contract.
How would someone reclaim money if a contract is void?
Through unjustified enrichment
What is a voidable contract?
A contract that exists but only up to the point where it is set aside
Requirements for annulment
Restitution in integrum (restoration of original condition) is possible
contract has not been affirmed by s1(3) of ROWSA or age of legal capacity the
There has been no unnecessary delay in taking action to annul
McLeod v Kerr
Contract voidable due to fraud (using someone else’s id) car can not be recovered as rights of 3rd party would be affected
Describe lack of consensus and a case
Parties have to agree on the essential terms of the contract to have consensus in idem
Mathieson Gee v Quigley
Lack of capacity
A mental inability to enter into legal obligations
Starting point of capacity
All natural persons have active capacity until death except insofar as restricted or eliminated all together by the status of childhood or by mental illness or infirmity
What is the age of capacity
Under 16
What is a young person
16-17
Limits on young people
If a young person enters into a transaction then they may apply to the court to set the transaction aside, if before they reach the age of 21 - they consider the transaction to be a prejudicial transaction
Definition of prejudicial and what section of Age of Legal Capacity Act 1991
S3(2)
A transaction is one which an adult exercising reasonable prudence would not have entered into in the circumstances of that young person,
The transaction has caused or is likely to cause substantial prejudice to the young person
What adults do not have capacity - case
Insane person
Intoxicated - bar is very high - Taylor v Provan - intoxication has to be a very high level
Quote on intoxication and case
Erskine says persons while in a state of absolute drunkenness and consequently deprived the exercise of reason, cannot oblige themselves…to a lesser extent which only darkens reason, has not the effect of annulling the contract - Taylor v Provan
General rule of illegal contracts
They are unenforceable
But certain contracts which are illegal under statute may be void, voidable or unenforceable depending on the wording of the statute
Key case demonstrates restitutio in integrum (restoration to original condition)
Boyd and Forrest v Glasgow and South Western Rail Co = the railway was there, the bridges were built and working 2 years before the action was so restitutio in integrum not possible as that would be taking out an entire railway
Example of someone who voided a contract due to threat of physical assault
Early of Orkney v Vinfra- the earl sued Vinfra who claimed they feared their life as the ear, payed his hand upon his sword
Hislop v Dickson Motors LTD
An employee was suspected of embezzlement, admitted to taking money and said would repay it
Made her sign a blank cheque and court rules forceful removal of the money was not voluntary and she did not consent - while she was willing to trade off her assets at the threat of criminal prosecution she did not disclose the information of the second and so no consent was given
What is faculty and circumvention and where did it come from
Involves one party taking unfair advantage of another who is in a vulnerable state.
Developed from the concept of fraud
What three elements are required for faculty and circumvention
1 weakness and facility (age,bodily infirmity, distress or mental health)
2 circumvention and act of fraud
- Loss (disadvantage, lesion - a loss due to another party’s failure to perform)
Expand on the three elements of faculty and circumvention
When a contract is to be avoided on this ground not only must the party be shown to be ignoring it. At the the time of the contracts formation, but it must also be proved that the contract was to her disadvantage, she was induced to enter into the contract as a result of fraud and circumvention - can be difficult to establish circumvention
What must be shown for undue influence
A relationship of trust existed
Dominant party received a substantial benefit from the contract
Subservient party did not receive independent advice
Case that was the starting point for undue influence
Gray v Binny- 24 year old man, on the advice of his solicitor and mother, he was not adequately informed of the consequences of the deed and his legal rights. Court emphasised importance of protecting from undue influence. He was vulnerable to the influence of his mother and the solicitor
What are the different kinds of error
Dissensus - Mathieson Gee v Quigley
Unilateral error - only one party in error
Mutual error - both parties are in error
Misrepresentation
Concept of error plus
There is an additional factor that would justify the contract not been enforced
What are Mcbrydes four situations where error can be identified
Where the contract was induced
Where the party took advantage of the error
Where the contract was gratuitous
Where the error has been induced by the other party of the contract
What is misrepresentation
Misrepresentation must not be a trivial statement it must be an inaccurate statement of fact, trade puffs generally not accepted
Negligent misrepresentation
If a person fails to take reasonable care in the circumstances can make the contract voidable
Explain the concept of incorporation
Determining which terms are to be included in the contract
Terms can be implied or express but must be properly incorporated into the contract to have effect
General rule is that terms cannot be incorporated after the contract has taken effect unless the parties agree
Flynn v Scott
A term must be a statement of fact and not opinion
Claiming a car was in good running order was held to be a statement of opinion
Burnside v chestnut
Entire agreement clauses do not preclude implied terms. - very specific language needed to succeed in including implied terms as they are already a part of the contract
Bannerman v White
Claimant asked if sulphur had been used in the cultivation and that he would not buy if that was the case. He was assured that it hadn’t been used and thus was held to be a condition of the contract. If you make a statement just before agreeing the contract more likely to be a term.
Couchman v Hill
Exception - partially written agreement
Called animal unserved but was actually meaning a calf. Oral assurance overrides a grouchier description constituting a term. The more important the statement, the more likely it is to be binding
Dick Bentley productions v Harold Smith Motors
If a party relies on the other party’s expertise, that’s more likely held to be a term
Oscar chess Ltd v Williams
Relative expertise of parties matters, an amateur dealing with a professional will cause certain things said to be considered a term
W part exchanges a car to a dealer calling it an older model then it actually was so less valuable. W had not intended to promise age of car as contractual term
Routeledge v McKay
If an oral statement is not referred to when ultimately captured in writing, less likely to be a term
Ecay v Godfrey
Maker asked recipient to verify statement - more likely to be a representation - get it surveyed
Hopkins v tanquery
If party insists doesn’t need to get surveyed - term relied on belief he was honourable
Red hand test
Onerous contracts should have a red hand and be written in red ink- liability for injury as well as property
The more unreasonable a clause the greater notice should be given to it.
Taylor’s v Glasgow corporation
A woman goes to the local baths and fell down the stairs and suffered injury. The baths were relying on an excemption clause in the back of the ticket - judge ruled this was not sufficient - not containing contractual conditions
Parker v South eastern railway
Left luggage - reasonable notice must be given to excemption clauses this means it should be brought to the party’s attention
Admitted he knew there was writing just didn’t read it
Montgomery Litho Ltd v Maxwell
Incorporation by signature - inner house held clause was not properly brought to his attention had not been given fair notice that he could be liable not company
McCurcheon v MacBrayne
A car ferry sank losing the claimants car. He had previously used the ferry and had sometimes been asked to sign an exclusion clause sometimes not. On this occasion he had not.
The court did not incorporate the term as it was not sufficiently regular to be implied
What is the nature of a breach of contract
A contract is an agreement forced by law, the terms of the contract determine the obligations owed by the parties to one another. Breach occurs when one or more parties break the terms of the contract without justification
What are the remedies for breach of contract
Retention, rescission, damages, specific implement, interdict
Wade v Waldon
Shows the narrow line between repudiation and rescission
A comedian contracted to appear at two Glasgow shows, looked for ads, found out the shows were cancelled, they referred him to a clause in the contract that all artists must provide bill matter, he offered to fulfil obligation. Then refused
They said he was repudiated the contract in the breach and they were entitled to rescind. The court disagreed did not go to the root of the contract so could not claim for damages
What is rescision
Rescision is the rightful act of the other party indicating that as a result of repudiation, he regards himself as no longer required to fulfil his contractual obligations I.e. to effectively treat his duties under the contract as at an end. Imitation of this fact is advisory, the contract remains alive
What does it mean to repudiate a contract
Make clear you will not perform the contract despite no right to withhold performance
Must go to the root of the contract
Does not terminate the contract
Interdict
A preventative remedy by which the court forbids the carrying out or continuation of some action
Stop someone from doing something I.e prevent someone from selling a house where there is a contract to sell it to you
How can mutuality cause problems
Where a party who is in breach cannot sue to enforce the contract where there is another party who breached first.
Scottish law commission had recommended statutory reform to address this in draft contract bill contained in their 2918 report, not implemented yet
Quote for mutuality
The remedies that are available to enforce performance and to secure future performance are dependant on the concept of mutuality
Graham v Turkey
Mutuality- cannot sell goods form other manufactures breached this clause
When one party tried to sue the other it was he,f that they breached the contract first - mutuality had ceased if you breach you can be sued
Quote on retention
Retention is of considerable practical importance as it serves to provide security of future peromance
Materiality
Means the degree of importance or how serious the breach is
Affects the remedy you may be able to get
What remedy would you use if breach not serious enough to justify recision
Retention and lien
Leading case for damages
General v Blake - the crown was entitled to recover the gains made by firmer British spy who had defected to the SU in the 1969s and later published a profitable memoirs in breach of his lifelong duty as an employee of the crown
When is retention often invoked
Leases - sometimes you want to enforce performance
What is a specific implement
Appropriate remedy when a positive act of performance other than the payment of money is sought from the contract breaker - such as the delivery of goods or rendering of services
Leading case for remoteness
Balfour Beatty v Scottish Power - involved in works to build a viaduct, generator failed and the work was ruined - but Scottish power not liable as loss suffered too remote
Tow stage test for remoteness
Loss was a normal result of breach
The parties were aware of special circumstances that made a particular loss more probable
Requirements of Writing (Scotland) Act 1995
The act specifies when writing is required for certain types of contracts to be valid
Contracts involving land or creation of real rights must be in writing
A gratuitous unilateral obligation must be constituted in writing unless in the conduct of business
Contracts of guarantee and creation, transfer or extinction of an interest in land must also be in writing
Ensures that specific transactions are formally documented to prevent disputes about their terms
S1(2) (a) ii of ROWSA - need for writing?
Hogg - it’s about whether the obligation is fined as a result of jurisdiction action of one party (unilateral) or two (bilateral)
Following that logic all contracts must be bilateral and no contracts can fall into the category of gratuitous unilateral obligation in ROWSA
This means that this section can only apply to promisee (which are definitely unilateral), not to contract - even if the contract is gratuitous (even if there is only one party has duties but for a gratutious contract there needs to be an agreement of both parties unlike a promise)
A contract of sale
Coma, sale of house or land,
Sale of goods in a shop
Contract of lease or hire
Person A transfers property to B, often in exchange for rental payment
Loan
Usually money
Property is transferred to possession of another and repaid/returned over time
Contract of carriage
A person getting on a ferry or train and buys a ticket
Contract of employment
Employee A agrees to provide their services to employer B in a regular basis in exchange for payment
Services contract
Person A agrees to provide some service to person B usually in exchange for payment
What types of obligations can be said to be gratuitous unilateral obligations and therefore require writing under s1(2)(a) (ii) (unless in course of business of course)
Yes - promises where the promisor obtains no benefit (only one party involved in creation so unilateral, only one party required to perform so gratuitous)
Yes - promises where the promisor obtains a benefit (creation by only one party so unilateral, only one party required to perform so gratuitous but argument that benefit obtained by the promisor renders it onerous)
No - contracts where both parties have to perform an onerous obligation. (Both parties created it so bilateral, both parties required to perform so onerous)
No - contracts where only one party has to perform a substantive obligation ( both parties created so bilateral, only one party required to perform so gratutious)
What are the essential elements of a contract that must be agreed for consensus in idem
The parties to the contracts (Fleming buildings Ltd v Forrest - tried to act through their business but that’s a separate entity to themselves as it was their personal house)
Is the contract on of sale - goods or land to be sold must be identified and price agreed -
BUT price need not always be agreed s8 of Sale of goods act 1979 allows court to fix a reasonable price where contract of sale is agreed,
The nature of identification depends on what’s been sold fungible property may only be classified by one, whereas property will require more identification
Essential terms if a lease are subjects, rent,duration, (maybe rent review clause, purchase option)
Time limits of contract
An offer once made can be revoked at any time before the offerees acceptance is communicated to the offeror - revocation of an offer need not comply with any set of formalities (McMillan v Caldwell)
If time limit set for accepting the offer then offer will lapse on expiry (flaws v international oil pollution compensation fund)
Even if n time limit offer will lapse after a reasonable period - Glasgow steam shipping v Watson
If you promise to keep an offer open for a certain time you will be held to that promise
Things which are not an offer
A unilateral promise - no acceptance needed
Replies to a request for information or enquiry as to willingness to sell - Harvey v facey
Party recapping its negotiating position - Glasgow city council v smith
Invitation to treat
Invitations to treat
Display of goods in a shop - fisher v bell
Goods displayed on supermarket shelf - pharmaceutical society of GB v Boots cash chemists
Putting items up for auction or inviting tenders for supply of materials/tenders
Automated machines - probably standing offer - Thornton v shoe lane parking
Adverts presumed to be ITT even if calls itself an offer - Fenwick v macdonald Fraser
BUT carlill v carbolic smoke ball - even so if this was in Scotland it would be a promise
Communicating acceptance of an offer
Offeree must do or say something to communicate they have accepted the offer - sabre leasing v Copeland
Silence will not usually be deemed as acceptance and the offer per cannot stipulate that no response is acceptance - Higgins v Wilson
BUT Shaw v James Scott builders shows acceptors silence evedencies intent to be bound
The postal acceptance rule
It is an exception to the rule that acceptance is only effective once it is communicated to the offeror
It says that posting an unqualified acceptance creates a contract not the delivery of it ( Jacobsen sons v underwood and son
It means from that moment the offeror cannot withdraw their offer
Only applies to postal acceptances not offers, counteroffers or withdrawals, nor instantaneous forms of communicarion
Outcome of court determining that a transaction is prejudicial of a young person and the exceptions
Outcome is the contract is reduced/set aside but some exceptions
Contract can’t be set aside if restitutio in integrum is not possible
Any of the parties to the transaction may apply to the court to have the transaction ratified before the young person turns 21
If a young person lied about their age or offered the transaction after reaching 18 then they will be barred from applying to the court to set aside the transaction s3
Effect of lack of capacity
No contractual obligations created
Parties cannot sue each other for breach of contract
If one party has already done some performance and wants to receive their remedy would not be under the law of contract but under the law of unjustified enrichment
How does the court assess whether there is intention to enter legally binding obligations as set out from Morgan utlilites limited v Scottish water solutions
Decide whether the parties showed an intention to be bound immediately
Use an objective approach what would a reasonable person in the position of the parties have understood, where it is a commercial transaction what would have been the reasonable expectations of sensible businesspeople
Court should look not only at the events as they unfolded but also the behaviour of the parties after the agreement was allegedly completed
The court must take a neutral approach
What are the presumptions that the court can use to ascertain whether the parties intended to create legally binding obligations
Commercial agrangements - presumption parties do intend to enter into legally binding obligations
- applies where both parties acting in course of business but also in consumer contracts where only one party acting in course of business. (Carlyle v RBS)
- express statement that not intended to be legally binding will rebut (woods v cooperative insurance society)
- subject to contract will not automatically rebut presumption (Stobo v Morrisons) - but clear intention to not be bound until contract put into writing will rebut
Family arrangements - presumption parties do not intend to enter into legally binding obligations (Balfour v Balfour)
Social arrangements - presumption parties do not intend to enter legally binding obligations (Robertson v anderson)
Pacta illicita
It covers agreements to do that which is impossible as well as illegal
An illegal agreement is unenforceable as a matter of law
A promise to commit an illegal act is unenforceable
Consequences of pacta illicita
Ex turpi causa non oritur actio - no action arises from illegality - the parties to an illegal agreement cannot rely on its terms, cannot enforce it - the agreement is not a complete nullity though, property may still pass lawfully to another party
If property is passed on unjustly then the party who is at loss may have an action for unjustified enrichment but not if they are in part delicto
Remedies under unjustified enrichment are equitable- dowling and rutter v abacus frozen foods ltd
What does the equitable element mean
If the parties are in pari delicto, then any losses suffered lie where they have fallen. Thus the following maxim applies, ex turpi causa melior est conditio possidentis - in an illegal situation, the position of the possessor is preferable)
Where there is partial performance if an illegal contract provided not in pari delicto an innocent party may claim redress in the basis of the law of unjustified enrichment
Are the circumstances such that it would be inequitable to afford the party who has suffered loss remedy?
When might an agreement be pacta illicita
Agreements to commit crime or delict
Agreements in which the object is lawful but intend to fulfil in an unlawful way
Immoral contracts are also unenforceable - subject to society change
Sexual immorality - but subject to change
Parties cannot be bound to do the impossible but can be bound to fulfil an obligation which is impractical
Pacta illicita and restrictive covenants
Covenants in restraint of trade - agreeemnts which restrict or inhibit a person or business from conducting their trade or business
Prima facie, restrictive covenants are unenforceable and have been likened to pacta illicita by Black
General rule of formalities of contracts
No particular formalities required for creation of a contract s1(1) of ROWSA
“They can be concluded orally, either face to face or by phone, they can be concluded silently for instance at the checkout queue at a supermarket. Can be concluded by fax, pdf, or text message…”
Exceptions to the general rule that contracts don’t need formalities
Where the offer says that acceptance must be in a particular form then the acceptance has to meet that condition otherwise it has not met the offer
There are certain contests which can only be constituted in writing (after the act was made) - contracts or unilateral obligations for the creation, transfer .. interest in land and gratutious unilateral obligations otherwise in the course of business (promise)
As well as wrt ink signatures digital ones can now be used (s9A)
Where a contract which needs to meet ROWSA fails the contract is not validly formed
Personal bar - exceptions to contracts that must be in writing under ROWSA
Personal bar can kick in to stop a party denying the validity of the contract due to it not being in writing when all the following are satisfied:
- party wishing to enforce the contract must have acted or refrained from acting in reliance to the contract, and as a result of acting or refraining has been affected to a material extent and would be adversely affected to a material extent by the withdrawal of the other party and
The party denying the validity if the contract (B) must know and acquiesce that the other party acted or refrained from acting in reliance to the contract s1(3)
The consequences of personal bar
The party denying the contract is not entitled to withdraw from the contract and
The contract shall not be regarded as invalid despite not complying with ROWSA
It only applies to an agreement that is otherwise valid I.e. the parties intended to create legally binding obligations and the only issue was the lack of written formalities
Execution in counterpart
This method of contracting has been out on a statuirty footing by the Kegak writings (counterparts and delivery) Scotland act 2015:
S1 (1) a document shall be executed in counterpart
S1(5) document executed in counterpart only becomes effective after it has been delivered by the other party (plus an6 other steps required by the law)
S4 delivery of traditional documents can be electronic provided this is agreed by the parties or reasonable in the circumstances
Tow important features said to attach to void contract
There is no need for a court decree to declare it is void-this can happen)
No one can acquire rights under such a contract - I.e not possible to pass good title to property under a void contract
Voidable - annulment can be effected by,..
Intimation to the other party to the contract (seeking court declarator if the other party disputes the avoidance) or
By judicial decree (action for reduction of the contract but can also be a defence to an cation for performance)
A contract which is voidable is good and effective until it’s annulled. If neither party to the contract takes steps to annul then it will continue to exist.
What happens from the point of annulment
Avoiding a contract has the effect of rendering it retrospectively void I.e if from the point of avoidance /annulment it is treated as if it never existed
Because contract was effective fir a time, third parties who acquire rights before the contract is annulled are protected - provided they are in good faith and for value
Force and fear (voidable)
When a person “agrees” to a contract in circumstances where force is being exerted against them and this leads to fear, the obligations they have entered into in that state are void on the basis that there was no valid consent, only the enforced simulation of consent
More common situation is there is a degree of consent but it is not free only they have entered into it reluctantly this makes it voidable
E.g. threat of physical violence - earl of Orkney v vinfra
Threat of defamatory conduct
NOT A THREAT TI TAKE LEGAK ACTION TO ENFORCE A VALID DEBT pristnell v hutcheson
But if threat of legitimate action compels the parties to enter into an obligation he wouldn’t have otherwise agreed to , becomes duress (force)- hislop v Dickson motors
Express v implied terms
An express term is one which the parties have expressly agreed will form part of their contract
An implied term is one which the parties have not agreed between them but which the court is willing to add into the contract in certain limited situations
Muirhead and turnbull v Dickson
Express terms
Is where the parties have concluded a neat written contract which comprehensively covers the terms of their agreement
There is a presumption that a document which appears to be a complete written agreement contains allegations of the express terms of the contract or promise, but this presumption can be rebutted by evidence that there are additional terms (which need not written) contract Scotland act 1997 s1
Written contracts may contained an entire agreement clause which states that the document constitutes the entire agreement between the two parties - such a clause in conclusive meaning no evidence of additional express terms outside the document will be allows csa 1997 s1 3
Csa refers only to express terms - suggests an entire agreement clause doesn’t prevent court from implying terms
Burnside v Promontoria - loan to Burnside to fund purchase of 26 properties. Burnside argued the P had failed to comply with an implied term of the agreements. Court held that the clause in the agreement did not affect the implied term, the whole point was that it was intended to be already part of the contract. Judgement provides guidance of when courts will imply terms into contracts .
Pre contractual statement of fact
A pre contractual statement of fact which becomes a term of the contract - if a term turns out to be factually untrue the wronged party may sue for breach of contract
A pre contractual statement of fact which is merely a representation inducing a contract (which is not intended to be a term) - if a statement turns out to be factually untrue it could amount to a misrepresentation, potentially making the contract voidable (damages only available if misrepresentation fraudulent or negligent )
This is statement of fact not opinion. Flynn v Scott - claiming second hand car was in good running order was held to be a statement of opinion
Do they intend the statement to have contractual effect (term) or not ( representation)
The closer in time a statement is made prior to the agreement being reached the more likely is that the statement will be regarded as a term of the contract - Bannerman v white - b formed contract with w regarding purchase of hops to use to produce beer. Claimant stated they would be unwilling to buy if they had been sulphur treated. Defendant claimed they were untreated when they weren’t . B brought action against W if damages contending that statement was a contractual term which W had breached. Court found it was a contractual term not representation.
The more important it is that a stated fact is true, the more likely it is a term - couchman v hill - c purchased a pregnant cow which seller stated was not, cow died from pregnancy, c sued fir breach of contract, held that D was liable for breach of contract
Where the party making the statement has special knowledge or skill and the other party relays on it, more likely it’s a term - Dick Bentley productions v Harold smith - H bought secondhand car, an employee understated the mileage of the car, H sued for breach of contract in the ground the statement was a term of the contract and it was breached
If an oral statement is not referred to when the agreement is captured in writing, suggests it’s not a term - routledge v McKay - claimant bought a motorcycle that stated it was a newer model then it actually was but had been modified and re registered by a previous owner. Statement was a representation, the registration year was not prima facie evidence of a contractual term, neither party was an expert.
Where party making the statement suggests the other should seek an independent verification of accuracy if statement, this suggests not to be a contractual term Ecay v Godfrey - defendant sold boat to claimant he satiated he was aware the boat was working but advised claimant to have it surveyed, but it turned out to be defective, his statement was held to be a representation
BUT if the party making the statement insists the other party doesn’t need to verify accuracy it may suggest statement was meant to be a contractual term - Hopkins v Tanqueray - defendant selling horse on day before sale he assured him that the house is perfectly sound
Ways in which additional contractual terms can be incorporated into a contract
Through tickets
Through notices
Through signature
Through prior course to dealing
Considering whether terms have been successfully incorporated into a contract
Is the document contains the additional terms itself contractual in nature
Has sufficient notice been given of the terms
When was notice given
Incorporation of express terms - is the document containing the additional terms itself contractual in nature
Tickets with contracts of carriage are generally contractual
Invoices generally not Buchanan and co v MacDonald
receipts generally not mccutcheon v macbrayne
Incorporation of express terms - has suffient notice been given
Grayson plant v plean precast - defendants hired a crane in a verbal contract, the general conditions for the hiring plant were not provided before an accident . Sent it after the accident . Importance of providing reasonable and sufficient notice of contract terms to parties
The red hand test - more unreasonable a clause is the greater notice must be given of it
Incorporation of express terms - when was notice given
Must be before the contract is concluded for the terms to be incorporated
Notice after will be ineffective - McCutcheon v MacBrayne - car was destroyed when ship sank, company’s usual practice was to issue a risk notice , this time not risk note was supplied - the clause had not been properly incorporated into the contract
Thornton v Shoe Lane Parking - put a sign up saying they were not liable to damages once psssed the ticket machine sign was inside the car park
Parker v South Eastern Railway (1877) incorporation - tickets
P depositied a bag in a cloakroom of the station
P received a ticket which said see back in its face, on the back were conditions including limited liability fir any item up to £10
P claimed for damages against railway amounting to £24 after his bag was misplaced
Question is whether there was reasonable notice of this
If the railway company brought sufficient notice to the conditions
Contract is concluded at the time the ticket is bought
The customer is bound by those terms as long as they are suffiently brought to his notice beforehand not otherwise. Not bound by the terms printed on ticket if they differ from notice.
Incorporation - notice Olley v Marlborough Court Hotel Ltd. [1949] 1 K.B. 532
Pulley registered and paid at reception of hotel
Saw a notice excerpting the hotel from liability for lost or stolen articles when she went up to her room
He property was stolen due to the negligence of the hotels staff in allowing a thief to go in her room
Held that the hotel was liable as notice had come too late
Excemption was not incorporated into the contract as contract had already been made at the reception
W N White & Co Ltd v Dougherty (1891)
notices placed under front of auctioneers lectern form part of the sale contract
Wright v Howard Baker & Co
Notices at a workplace can form part of an employment contract
Incorporation- prior course of dealing
Where the parties have contracted in particular terms in previous dealings, terms used before can be incorporated into the current transaction even if no notice given or even if after the contract concluded
McCutcheon v MacBrayne - C regularly transported car using ferry, car was lost when ferry sank
Ferry company sought to exclude liability because of a risk note that claimant had signed 4 times before when using the service but on that day the risk note was not signed.
Claimant said he knew the conditions but not specific content
But there was no consistent course of dealing only sometimes would he be asked to sign it then sometimes nothing
Incorporation - signature/acceptance Montgomery Litho v Maxwell
Signing will not always incorporate terms if they are unusual that they should have been brought to the party’s attention
Defender signed but the point was whether the terms and conditions should have been drawn the attention of the other party
Other ways of indicating acceptance of additional terms
Opening shrink wrap if computer software - beta computers v adobe systems
Click wrap contracting - cookies on a website
What is a breach of contract
A contract is a binding agreement between two or more persons and the obligations it creates are enforceable, if a contract needs to be enforced something has probably gone wrong, when a contract has gone wrong this is known as a breach of contract.
If a person does not honour a legally binding obligation - be it a promise or a contractual obligation - then the counterparty has a range of options
When is a contract breached
Usually refers to non performance
Partial performance
Delayed performance
Anticipatory performance
Defective performance
What are the factors that determine what the appropriate remedy for a breach of contract is
The nature of the breach (material or immaterial)
What the innocent party want to achieve - compel the non performing party to perform the contract according to its terms, to bring the contract to an end, to be free of future obligations under the contract, to receive damages for non performance
In Scotland what are breaches like
All breaches of contract have the same effect in terms of remedies
There is no requirement to establish negligence
The concept of fault is not relevant to the determination of liability for breach of contract/promise
Contrast with continental legal systems where there are different remedies based on the reason of breach
Self help remedies
Remedies that are exercisable without assistance of court
They are often defensive
Retention
Rescission
They rely on materiality and mutuality
What is retention
The innocent party might exercise the self help remedy of retention meaning that the innocent party withholds performance of its own obligations to force the counterparty to remedy the breach
It brings into consideration the concepts of mutuality and materiality
Mutuality
Both parties have rights under contract
Rights are reciprocal in nature either both parties are bound or neither so
If one party does not perform the other doesn’t need to
A party that has not performed cannot compel the other to perform
Can only insist in performance if they have performed
Graham and co v United Turkey Red Co Ltd
Graham entered into a contract to only sell united turkey goods in a commission basis. Graham breached the obligation when he started seelimg goods made by other manufacturers, held that he was only entitled ti commission from united turkey up until the time when he was still performing his contractual agreement
Assessing whether retention or withholding of performance is available by reason of the counterpartys breach
This is done by assessing the interdependency of
The obligation breached and the obligation, performance of which was withheld by the innocent party
Bank of east Asia v Scottish enterprise - here the right of retention does not apply if conditions of contract become fulfilled
Muirhead and Turnbulk v Dickson
MT supplied piano to D to be payed monthly instalments when D doesn’t Pay MT tried to repossess. D thought it was a contract of sale.
Contract are made according to what people say
Fisher v Bell
Advertisement
Shop displays are invitation to treat not offer
Shopkeeper found not guilty of making an offer to sell an offensive weapon
Assessing whether obligations are counterparts
Macari v Celtic fc
Retention
Macari sacked without final pay for breach of contract
Held Macari was prima facie in breach of contract- other party was able to withhold performance
Pharmaceutical soc of GB V Boots cash chemists
Pre contractual statement
Contract of sale is concluded when the customer pays for the item not when they pick it up as the chemist was at the till
Harvela investments v royal trust
ITT
Offered to sell to the highest bidder but accepted a lower bid
Held bound to accept the highest bid
Blackpool and flyde aero club v Blackpool bc
An invitation to tender before a dea cline can imply a unilateral contract to consider timely bids
Local council owned an airport, it held tender, with deadline at 12pm to submit tenders into postbox, C submitted tender at 11 but was not considered as the letter box was not cleared
D said will consider all tenders but didn’t notice one tender in postbox got sued for damages
Countess of Dunmore v Alexander
Postal acceptance rule
Dispute over whether correspondence between 2 potential employers has formed a contract to hire a servant as both letters received at the same time
No contract
Regis v bank of Scotland plc
Law of promises
Lord president gill
A promise is a unilateral jurisdiction act, it has a binding force because if the declaration expression of his will to be bound
Malik v BBCI
Duty of care implied by law
Employer has a duty of care to nit cause harm to others
Liverpool city council v Irwin
Terms applied in fact
Council flats, one sided lease with no obligations on the council
Held implied obligation to carry out repairs. This term is one which ensures business efficiency
Roger’s v Parish
New Range Rover had blemishes in the paint work
Held unsatisfactory quality
Lamarra v capital bank plc
Freedom from minor defects
L bought range rover through HP but it had minor defects
Held L could not be expected to accept as they had paid a large amount
Bartlett v Sydney Marcus
Second hand car
B bought a second hand jaguar at discounted price because of faulty clutch. Tried to claim damages
Held car was roadworthy despite faults, claim failed
Douglas v Glenvarigill
Rejection of goods
Bought car tried to reject for faults 15 months later
Held too late for short term right to reject
Morrisons v Robertson
Fraud induced error
Morrisons claim to have his cows returned was successful as the fraud induced him into the contract and ownership rights didn’t belong to R.
Void contract
Macleod v Kerr
Fraud induced error
Fraud did not induce M to contract and so ownership rights were transferred to K. Th car was not returned to original seller
Hislop v Dispckson motors
Force and fear
Assistant accused of theft by bosses, pressured on 2 incidents
Held first incident of pressure was legitimate second wasn’t
Anderson v the beacon fellowship
Facility and circumvention
A was depressed and depended on religious group B and made donations
The pressure was sufficient to amount to circumvention and if proved would invalidate the transaction
Honeymans exrs v sharp
Undue influence
Widow and art advisor
Held art advisor abused widows trust, not contract
Stuart v Kennedy
Mutual error
Both believed they were using different measurements of stone coping
Held no contract as no consensus in idem making the contract void
Angus v Bryden
Error in transaction
Error in sake if fishing rights, A did not mean to sell all fishing rights of his land only some
The error was rectified in court
Spook erection v kaye
Error in motive
Sellers wrongly believed land was burdened with 990 year lease it was actually 99 and was about to run out
Held contract was not ti be reduced as there was no misrepresentation and error was in motive
Menzies v Menzies
Error and misprepresentation
Misrepresentation must be material in the sense it induces a person to contract and has been made in pre contractual negotiations
Cuthbertson v Lowes
Requirement of legality
Sale of potatoes by scotch acre
Contract void on legality but court gave decree for market value of potatoes
Jamieson v watts
Requirement of legality
Building work valued about £40 not permitted by license
Held payment could not be claimed above what the license states
Patel v Mirza
Restitution
No one should profit from wrongdoing so 8n illegal contracts, all should be returned to the original status
St John shipping corp v Joseph rank
Unlawfulness under statute
Overloaded ship creating an illegal contract so they tried to withhold payment in deliver
Held despite illegality payment was due
Wade v waldon
Rescission
Allayed that the pursuer failed to provide the required 14 days notice as stipulated in the contract
Material breach of contract
White and carter v McGregor
Anticipatory breach
Innocent party may elect to perform its side if the bargain and claim the contract price
Highland and universal properties v Safeway properties
Remedy for specific implement
Cour granted specific implement
Safeway was in breach and was specific implement, they negotiated in the transfer of the lease and a cinema was made in the shopping centre
Dudley electronics and construction v Forsyth
Loss
Contract for building a swimming pool to specified depth but depth was wrong
Held cost of damages for repair was unreasonable but amenity damages were payable for loss of being able to dive in the pool
Morgan Guarnaty trust co of New York v Lothian regional council
Unjustified enrichment
LRC received payment from MG in void contract and so was enriched
Held LRC was liable and had to pay MG
Newton v Newton
Unjustified enrichment
Believed both he and his wife owned the house and payed repairs
On divorce found out the house belonged to his wife
The wife was enriched, so liable to the man
Shalliday v smith
Unjustified enrichment
Condictio causa data causa non secuta
Ms house, w paying for repairs in anticipation for it becoming matrimonial home, did not happen, M was liable
Negotiorum gestio
Unauthorised management of anothers affairs, dominus does not know
Is mutuality presumed
Yes unless there is clear indication to the contrary - Inveresk v Tullis Russell
Inveresk plc v Tullis Russell Papermakers
I brought a claim against T
T had previously initiated a separate action against I for damages for breach of contract arising from the same contract
Dispute involved T plea of retention which I argued was irrelevant
Lord ordinary in favour of T
Court held retention was valid in the principle of mutuality
Materiality
Materiality of the breach means the level of seriousness
The more serious the greater range of remedies
A determination of this requires examination of the whole contract
Open to the parties to stipulate what is the essence of the contract
Go to the root of the contract
Woodar investment development v wimpey construction uk
Wimpey contracted to buy some land from Woodar and laid third party
, included a clause allowing a termination when statutory authority commences compulsory purchase proceedings
Environment secretary commenced purchase and Wimpey rescinded the purchase
Woodar claimed Wimpey committed repudiatiry breach
Allowed Woodar to obtain damages for third party’s loss
A contracting party is entitled only nominal damages when he has personally suffered no loss
Rescind/recission
The effect of recissiom is to terminate the contract or bring it to an end
What happens in the event of recission is that the parties are relieved of any obligation to make further performance of their primary or substantive obligations under the contract - MacNeilk v Aberdeen city council
What does retention do
Retention suspends the contract it does not break it
Retention is key in pressuring the parties to ensure future performance of obligations
Resile
Lawfully withdraw from a contract but not in response to repudiation or breach
Repudiate
Make clear that you will not perform the contract
Does not end the contract but gives the other party the choice to walk away
Rescind
Bringing a contract to an end in response to repudiation or material breach by the other party
Recission is the rightful act of the other party indicating that as a result of the other party’s repudiation he regards himself no longer required to fulfil his contractual obligations - effectively treats his duties under the contract as at an end
J H & W Lamont of Heathfield Farm v Chattisham Ltd
Issue was whether C was obliged to deliver a discharge if a standard security that L had granted to an options agreement.
The relationship deteriorated and land was not developed.
C argued it was entitled to withhold performance of its obligation
Held that entitled to receive a discharge if the standard security but not entitled to rely on the principle of contractual retention
Lien
Lien is the retention of a physical thing
It is a self help remedy
Refusal of the innocent party to give up obsession to the contract breaker
Repairs lien - B repairs As phone but A tries to demand return without paying, B can refuse to return until it’s paid
Solicitors lien - allowed to hold onto clients papers until payment
Landlord lien - can retain possession of tenants goods if rent unpaid
What if retention doesn’t work
The innocent party may want to accept the contract breakers breach (repudiation) and to bring the contract to an end I.e. to reduce and the act of recission or if they don’t want termination they can go to judicial remedies
Benefit and disadvantage of judicial remedies
Principal benefit is that if established they are enforceable by the compulsion of the state, a decree(payment) is enforceable by diligence
Fisadvantages are it may be slow, expensive, require lawyers and outcome of litigation is never certain
What are the types of judicial remedies
Declarator
Interdict
Specific implement
Decree for payment
Damages for loss arising from breach of contract
Declarator
Is an order of the court declaring what the law is
E.g. parties might dispute what is the proper interpretation of a contract question and one party could ask the court for declarator
Interdict
Is a preventative remedy often sought in urgent circumstances
In cases of urgency often sought on the say so of one party, and the court will grant an interdict ad interim (for the time being) if ,
There is prime facie (sufficient, a legal claim) evidence that the person to be interdicted has or threatens to commit a legal wrong and
The balance of convenience favours grant
Examples of kinds of harms or threatened harms to support an interdict
Breach of contract (e.g. main contractor wants to remove parts of a building already built)
Breach of other legal right (e.g protestors boarding an oil rig)
Act of harm or threatened harm to a person (matrimonial interdict)
Act of damage or threatened damage to property
Failure to comply with an interdict it interdict ad interim
Constituted a contempt of court
A contempt of court is punishable by imprisonment
It is capable of being committed by a juristic person as well as human actor
Transocean drilling v greenpeace - issue was whether an organisation can be found in breach of interdict when the actions were carried out by individuals. Organisation had a duty to dimply and not misunderstand the requirement. If such steps not taken omissions of individuals might be attributed to the organisation
Trans field shipping v Mercator shipping inc
Case introduced the test of assumption of responsibility for contractual damages which when applicable will override the normal remoteness rules that a party in breach will not be liable for loss that is reasonably foreseeable if he had not sssumed responsibility for such loss
Charters was to deliver ship to ship owner but it was delivered later
The owners entered into a follow on time charter with third party which due to the delay had to be renegotiated to a lower price due to fall in market price
Owners sued for difference in price
Chartere accepted liability but only for the difference in price for the period of delay
Specific implement
To compel performance you ask the court for an order of specific implement
If granted this compels some positive performance making the contract breaker do something
Interdict v specific implement
Interdict is a protective or negative order - court is being asked to grant an order to prevent or stop an unlawful action
Specific implement is a positive order - the court is being asked to require the person subject to it to do something
Keep open clauses
Retail parks investments v royal bank of Scotland - brought an action for specific implement again RBS
Highland and universal properties v Safeway properties - the tenant was under the obligation to keep the premises open for the trade specified in a sub clause throughout normal hours of business
Specific implement limitations
It is the primary remedy in Scot’s law but sometimes the innocent party will not be able to enforce the contract if deemed unfair or inequitable
Not available in respect of personal relationships - Page one records v Britton - pop group fell out with manager and wanted to replace him, held that the injunction must be refused
Action for payment of a sum of money due
What happens if the counterparty refuses or fails to pay money due under a contract?
The innocent party or the creditor in that payment obligation can seek a decree for payment
It is also possible to claim payment of interest due under the contract and interest at the judicial rate ( from date of action)
Payment action v specific implement
Cannot seek specific implement to pay a sum of money
If payment action is granted court grants a decree for payment in a specified sum
If payment sought of a sum of money due the correct remedy is an action for payment
Damages
Presumed that every breach of contract can give rise to a damages claim - Webster v cramond- prima facie, iron company sold iron pipes to owner of mill, but failed to deliver. In an action for damages the mill owners failed to prove specific pecuniary damage. Held they were entitled to moderate damages for the trouble
Not always the case - Wilkie v Brown - brown carried out alterations on wilkies cottage but w claimed work was not complete, B walked off site, found B was in breach of contract but the pursuer failed to prove loss therefore could have no damages
Awards of damages are related to loss
The fundamental objective if damages
Is intended to place the innocent party in the position they would have been in but for the breach by the contract breaker - damages are compensatory
Loss is usually assessed at date of breach
Damages how to assess loss
Loss can be the difference in the value of the contractual and actual performance or
Loss can be the cost of curing the breach
Damages could be the cost of repairing a defective house or to make it conform with the contract specification or
Claim the difference in value between how it should have been and the defective state
What types of loss are recoverable - damages
Usually involves economic loss which is compensated by a money reward
Historically innocent party could only claim for monetary loss
Addis v Gramaphone Co - pursuer could only claim for lost wages, not his hurt feelings
Now accepted that in non commercial contracts in some limited circumstances, non monetary loss might be recoverable for unjustly to feelings or distresss and where principal object was for enjoyment - Diesen v Samson - failed photographs for a wedding
Events post dating the breach of contract
Court can take into account events subsequent to the conclusion of the contract
Bunge SA v Nigeria BV - S agreed to sell Russian wheat to B but before delivery Russia imposed an export ban, b claimed damages. Tribunal held b sustained no loss as Russian ban had persisted through the contract. Upheld by the Supreme Court
What is causation in the context of damages
The innocent party must show that its loss was caused by the breach of contract of the other party
Karlshamns oliefabriker v monarch steamship - ship hired to take cargo but it was delayed due to it being unseaworthy which was a breach of contract by the ship provider, ship set sale late and ww1 broke out, giv requisitioned the ship and significant expense was added
Held the hirer was allowed to to claim those extra costs from the ship provideor, the unseaworthy need had been the cause of the loss which lead to the subsequent link in chain of causation
Remoteness
Concept of remoteness, acts as a control or limiting factor on the kinds or extent of losses that would otherwise be recoverable on a but for test
Balfour Beatty construction v Scottish power
Bb constructing viaduct and temporary generator was pouring cement which had to have a continuous movement. The generator failed and most of the work was ruined. Bb claimed the costs of that work as damages SP said it was too remote
held that need for continuous pour was beyond what the defenders could reasonable have contemplated - held that for the loss to be recoverable SP did not need to foresee the precise consequence if the loss so long as they forese the type of loss
-held too remote
Hadley v Baxendale helps define what a recoverable for breach of contract
Loss which arises in the usual course of things or
It was in the reasonable contemplation of the parties as the probable result of the breach
Trans field shipping inc v Mercator shipping inc - remoteness
Ms owned ship they let to T and T said they’d return at a certain date. While chartering rates were high MS entered into a follow on let with Cargill. T returned the vessel late and cargill cancelled. Charter rates dropped and the owners re let but at a much lower price
Owners claimed the difference between the higher rate and the lower one received)
T argued they were only liable for the difference in market rate of the days they were late
Held that the owners loss of profit on the follow on charter was too remote
Mitigation (make something less serious) of loss
Innocent party expected to take steps to mitigate or reduce their loss
Should act with common sense but don’t have to take extraordinary steps
Onus if prof in breaching party to show losses are unreasonable
Remedies provided by the contract
Parties free agree clauses in their contract, which exclude or pre-estimate their loss in the event of breach
Exemption clause - party seeks to limit their liability for damages
Liquidated damages clause - clause to pre determine amount of damages payable in specified circumstances
Penalty clauses
A clause that seeks to punish the party in breach
A penal sum inserted as a punishment on the defaulter irrespective of the amount of any loss which could at the time have been in contemplation of the parties
Enables the court to intervene where there is a penalty clause
Cavendish square holdings v Talal El Makdessi
C bought out Ms share in an advertising business, parties signed under which M would be bound by a non compete covenant to not set up a competing business during a certain period
Under the agreement if he did he would not be entitled to receive the final two instalments of the price paid and could be required it sell his remaining shares to C
C breached the covenant but argued the clauses weren’t enforceable
Held that the clauses were not penalties
Pacta illicita - restrictive covenants
An exclusivity clause - party a will on,y trade with party b and not their competitors
A non complete clause - party a will not undertake the same business as b
A non solicitation clause - party a will not poach clients from b
Each of these restrains party A’s ability to enter into more contracts and that could be seen as a bad thing since Scot’s law aims to protect parties freedom of contract but the clauses can also protect the legitimate interests of the covenantee
Nordenfelt v maxim nordenfelt approach on restrictive covenants
Covenants in restraint of trade are prima facie unenforceable
But it can be justified and enforceable if the covenantee can show
The covenant is necessary to protect a legitimate interest of the covenantee, th restraint in trade is reasonable as between the parties and the restraint in trade is in the public interest
Sort of thing courts might consider when deciding to enforce a restrict covenant (usually by interim interdict) , how restrictive it is, how long for and how wide an area covered
Nordenfelt v Maxim Nordenfelt Guns and Ammunition
N sold business to M and agreed to enter into a restrictive covenant not to work for any rival business for a 25 year period, later he worked fir a rival business
Appellant argued that the clause was a restraint of trade and had to be reasonable to be upheld and the worldwide geographical limitation was unreasonable.
The clause was upheld
Stewart v stewart
Feud between two brothers
One bother employed the other as photographer assistant
The brother working there required a loan and said he would not work for any other photography business within a 20 mile radius
He then wanted to move away and start his own business
The court upheld this restrictive covenant as reasonable
Liquidated damages clause
Popular because they avoid the lottery of seeing what the court would award in the case of a breach and allow a potentially breaching party to be aware of amount and plan for it
This is a substitute damages not a supplement
The basis of law of penalties set out in Makdessi and parking eye
Damages are aimed at providing compensation
The law against penalties tries to ensure that contractually agreed liquidated damages focus in compensation not on punishment
If a clause is considered to be a penalty it becomes illegal and unenforceable
The rule of penalties applies on,y to contractual term which takes effect upon a breach of contract
Rule only applies to terms of a primary obligations of performance under the contract
The penalty test
A clause will be a penalty where it imposes detriment to the party in breach which is out of proportion to any legitimate interest of the innocent party in enforcing the contracts obligations
Clause will be a penalty where it is exorbitant or unconscionable, having regard to the innocent party’s interest in performance of the contract
Clause will be a penalty where extravagant disproportion between the stipulated sum and highest level of damages a court could possibly award first the breach
Pacta sunt servanda
Idea that Agreements must be kept
Frustration
Doctrine of frustration is an exception and allows parties to be freed from their obligations due to events happening after the contract ,
Taylor v Caldwell
Taylor v Caldwell
C hired music hall but hall burnt down before the event, C brought damaged for breach of contract to cover expenses incurred in preparing the contract. The contract was frustrated so liability to pay damages
Supervening illegality
Situations where performance of the contract becomes illegal after the contract is formed
Cantiere san rocco v Clyde shipbuilding and engineering- two shipbuilding companies start a contract, money was to be paid by Cantiere in instalments they paid money on the signing of the contract. War broke out and Clyde had not yet started work and the war made it illegal for them to fulfil the terms.
Cantiere brought action against them for the oayment.
Respondents ordered to pay the costs to the appellants
The contract was frustrated by the war
Where change is foreseeable likely frustration doesn’t apply
If contract can be performed in illegal way and lawful was law will presume parties will be lawful - Robert purvis plant hire v farquhar Brewster - absence of planning permission for the intended use predated lease
Supervening impossibility
Applies where it becomes impossible to perform contract
Taylor v Caldwell - music hall burns down
Commercial frustration
Contract is frustrated on basis supervening event goes to root of contract and performance is radically different then what the parties envisaged
Krell v Henry - rented out window to view coronation procession to Henry for 2 days procession not mentioned in contract
Paid deoisit it a further shillings due
The cornination shifted due to kings illness
Brought claim for the shillings
Contract was frustrated did not have to pay
Summary of law of frustration as set out in Robert purvis plant hire v farquhar Brewster
Object of frustration is to give effect to the demands of justice to escape injustice after a significant change in circumstances
Doctrine is not invoked lightly
Bring ps the contract to an end immediately
Frustrating event must be an outside event cannot reply on frustration by own action
Maritime national fish v ocean trawlers - contract was not frustrated because did not assign lisecne onto this charter
Party seeking to rely on frustration must not be at blame
The supervening even must have rendered performance illegal or impossible
If parties have foreseen the event and made provision or even if they didn’t doctrine of frustration won’t apply
Consequences of frustration
Both parties freed from contract from date of frustration
Only applies to de futuro performance, terms which can be given effect remain enforceable such as dispute resolution clause or an exemption to liability clause
When parties have not performed under it they can just walk away
If one party has performed they can rely on unjustified enrichment
Force majeure clauses
An express contractual term which sets out how the parties obligations will be impacted by supervening vents
Force majeure clause allows parties to specify what events to engage it and specify their preferred consequences
Can avoid frustration if force majeure clause out into the contract
Ways in which an obligation can be extinguished
Performance
Acceptilation
Delegation
Novation
Assignation
Frustration
Termination
Prescription
Confusion
Compensation and set off
Acceptilation
Where the creditor discharges his right (debt) without full performance being rendered by the debtor
Delegation
Where third party pays the debt on debtors behalf
Novation
The situation where all remaining unperformed obligations are substituted for new obligations which extinguished the old ones
Hawthorns v whimster
Assignation
Involves the transfer if rights under a contract to a third party
Prescription
Extinguishes certain rights and obligations after a particular time period has passed, it would cease to exist
An obligation will prescribe if a continuous period of 5 years elapses from the. Date it becomes enforceable without the creditor making a claim and the debtor acknowledging it
Jus quaesitum tertio
Right acquired by a third person
