CONSTRUCTION METHODS

AND EQUIPMENT - CONTRACT

CONS 1011 - Lecture 2b
WHAT IS A CONTRACT?

A contract can be defined as a legally binding agreement made between two

or more parties.

It is legally binding, such that if any party to the agreement fails to honour any
of the provisions contained in it, they would be liable for breach of contract to
any of the other parties to the contract.

The consequence of the breach is that the innocent party can obtain a legal
remedy, which usually takes the form of damages to compensate for the loss.

Classification of contracts

Contracts can be classified as being simple or specialty.

Contracts can be described as being unilateral or bilateral

Simple or ‘parol’ contracts are contracts that can be made by
implication. A contract does not always need to be expressed orally or in
writing. An implied contract is one in which some of the terms are not
expressed in words.

For example, by going to a doctor for a checkup, a patient agrees that

he will pay a fair price for the service. If one refuses to pay after being
examined, the patient has breached a contract implied in fact.

Specialty contract is a contract made by deed i.e. signed, sealed and

delivered. These need to have been witnessed.

A unilateral contract takes the form of a promise in return for an action.

The case of Carlill v Carbolic Smoke Ball Company (1892) is an example
of a 'unilateral contract’, obligations are only imposed upon one party
upon acceptance by performance of a condition.

A bilateral contract takes the form of a promise in return for a promise.

Requirements for formation of a legally binding
contract

A legally binding contract must have the following

essential elements:

1 Agreement – offer and acceptance

2 Intention to create legal relations

3 Consideration

4 Capacity

5 Legality
Agreement

The legal test to be applied to see if there is an agreement is that

of offer and acceptance.

A contract is formed when one party (the "offeror") makes an

offer which is accepted by the other party (the "offeree"). An
offer - a proposal to form a contract - can be as simple as the
words, "I'll wash your car for you for $5." An acceptance - the
offeree's assent to the terms of the offer - can be as simple as,
"You've got a deal."

When an offer has been made, no contract is formed until the

offeree accepts the offer.
Offer, invitation to treat, acceptance

An offer is a promise to do, or not to do something that is capable of acceptance by

another person. When an offer is accepted by another person, provided that the other
four legal requirements for a contract are made out, a legally binding contract is formed.

An offer is made by an offeror to an offeree. It may only be accepted by a person who

knows that it exists.

When an offer is made, it may

(1) lapse;
(2) be rejected;
(3) be revoked prior to acceptance [subject to any conditions attached to the offer]; or
(4) a counteroffer may be made, which automatically rejects the offer preceding it.
Lapse of an offer

An offer will terminate after a reasonable lapse of time. What amounts to a

reasonable period will depend on the circumstances.

In Ramsgate Victoria Hotel v Montefiore (1866) – the defendant offered to purchase

shares in the claimant company at a certain price. Six months later the claimant
accepted this offer by which time the value of the shares had fallen. The defendant
had not withdrawn the offer but refused to go through with the sale. The claimant
brought an action for specific performance of the contract.

Held: the offer was no longer open as due to the nature of the subject matter of the
contract the offer lapsed after a reasonable period of time. Therefore there was no
contract and the claimant's action for specific performance was unsuccessful.

Rejection of an offer

An outright rejection of an offer brings it to an end.

Revocation of an Offer
An offeror may revoke an offer at any time before acceptance takes
place .

In Dickinson v Dodds (1876), the defendant offered to sell his house to

the claimant and promised to keep the offer open until Friday. On the
Thursday the defendant accepted an offer from a third party to
purchase the house. The defendant then asked a friend to tell the
claimant that the offer was withdrawn. On hearing the news, the
claimant went round to the claimant's house first thing Friday morning
purporting to accept the offer. He then brought an action seeking
specific performance of the contract.

Held: the offer had been effectively revoked. Therefore no contract

existed between the parties. There was no obligation to keep the offer
open until Friday since the claimant had provided no consideration in
exchange for the promise. The offeror is free to withdraw the offer at
any time before acceptance takes place unless a deposit has been paid.
Counter offers

A counter offer is where an offeree responds to an offer by making an

offer on different terms. This has the affect of destroying the original
offer so that it is no longer open for the offeree to accept.

In Hyde v Wrench (1840), The defendant offered to sell a farm to the

claimant for £1,000. The claimant in reply offered £950 which the
defendant refused. The claimant then sought to accept the original offer
of £1,000. The defendant refused to sell to the claimant and the
claimant brought an action for specific performance.

Held: there was no contract. Where a counter offer is made this

destroys the original offer so that it is no longer open to the offeree to
accept.
Battle of the Forms

Often when two companies deal with each other in the course of business,
either in negotiations or by the use their standard form contracts. Often the
terms conflict yet offer and acceptance are achieved forming a binding
contract.

The battle of the forms refers to the resulting legal dispute of these
circumstances, wherein both parties recognize that an enforceable contract
exists, however they are divided as to whose terms govern that contract.

The question was raised in Butler Machine Tool Co Ltd v. Ex-Cell-O

Corporation (England) Ltd [1979], as to which of the standard form contracts
prevailed in the transaction. Lawton and Bridge LJJ looked at the traditional
offer-acceptance analysis, and considered that the last counter-offer prior to
the beginning of performance voided all preceding offers. The absence of any
additional counter-offer or refusal by the other party is understood as an
implied acceptance.
Invitation to Treat

An invitation to treat should be distinguished from an offer.

An invitation to treat is an invitation for someone to make offers in

respect to the particular goods or services. An invitation to treat thus
cannot be accepted to form a legally binding contract.

Invitations to treat and offers should be differentiated from a

declaration of intention, which is a statement that offers will be invited
in the future.

There are four types of an invitation to treat:

1 Auction sales
2 Advertisements
3 Exhibition of Goods for sale
4 Invitation for tenders
Auction sales- At an auction the bid itself is an offer and then the auctioneer can either
accept or reject the offer. A good example of this is the case of Payne and Cave (1789),
the defendant made the highest bid for the plaintiff's goods at an auction sale, but he
withdrew his bid before the fall of the auctioneer's hammer. It was held that the
defendant was not bound to purchase the goods. His bid amounted to an offer which he
was entitled to withdraw at any time before the auctioneer signified acceptance by
knocking down the hammer.

Advertisements - This is an attempt to induce offers and is therefore classified as an

invitation to treat. A very good example of this is the case of Partridge V Crittenden
(1968). Mr Partridge placed an advertisement for selling a protected species of bird in a
magazine. Then RSPCA then brought a prosecution of the Birds Act 1953 but the case
was quashed as Mr Partridge was not making an offer as it was the advertisement which
constituted an invitation to treat.
Exhibition of goods for sale - This is displaying goods in a shop such as Hi
Lo etc. this constitutes inviting customers to make offers to purchases
such items or invitation to treat. An example of this is the case of Fisher
V Bell(1925) , a shopkeeper was prosecuted for offering for sale an
offensive weapon by exhibiting a flick knife in his shop window.
Displaying an item with a price in a shop window is an invitation to treat
so he was inviting offers from potential buyers which the shopkeeper
could either accept or reject the offer.

An invitation for tenders - A tender is an estimate submitted in response

to a prior request. When a person tenders for a contract he is making an
offer to the person who has advertised a contract as being available. An
example would be if you wanted to borrow a loan you might obtain
tenders from three different banks, you therefore receive three different
offers and you then decide which one to accept.
ACCEPTANCE

Acceptance of an offer creates a legally binding contract. An offer may be accepted any means,
however if the offer specifies the means by which it must be accepted, then only that method will
suffice to perfect the formation of the contract.

Acceptance must be communicated either orally or in writing. It may be inferred by the conduct of
the parties. Mere silence and inaction is inadequate to constitute an acceptance.

Acceptance must take place while the offer is in force, namely that it has not been revoked or
allowed to lapse.

It must be on the same terms as the offer. Where there is a variance between the offer and the
purported acceptance, the purported acceptance is treated as a counteroffer.

Acceptance must be unconditional; that is to say for example if some further step is required, then
the communication will not be considered an acceptance.

The acceptance must be communicated to the offeror. Communications (email, facsimile, SMS
message or text message) are equally effective from the time they are received by the offeror.
Acceptance made by letter may be considered effective when the letter was posted, rather than
when it was received by the offeror (the ‘Postal Acceptance Rule’).
Intention to create legal relations
The parties must intend that the offer and acceptance be binding
upon them. There is a presumption operating in commercial
contracts that the parties intend to create legal relations.

Consideration
The mere fact of agreement alone does not make a contract, each
party to the contract must provide consideration for the contract
to be binding. Consideration is something of value or a promise to
do, or not to do, a certain act in the future, this is called the ‘price
of the promise’. In Dunlop v Selfridge Ltd [1915], it was defined as
"An act or forebearance of one party, or the promise thereof, is
the price for which the promise of the other is bought, and the
promise thus given for value is enforceable.
Consideration can be executed, executory and past:

Consideration is called "executory" where there is an exchange of promises to

perform acts in the future, eg a bilateral contract for the supply of goods whereby A
promises to deliver goods to B at a future date and B promises to pay on delivery. If
A does not deliver them, this is a breach of contract and B can sue. If A delivers the
goods his consideration then becomes executed.

If one party makes a promise in exchange for an act by the other party, when that
act is completed, it is executed consideration, eg in a unilateral contract where A
offers £50 reward for the return of her lost handbag, if B finds the bag and returns
it, B's consideration is executed.

Past consideration is the situation where something is done before a promise to

pay for it is made - a more typical situation is where a contract is entered into and
completed and subsequently one party makes a further promise to the other. That
other’s having previously contracted with the promisor does not amount to
consideration for the subsequent promise – the earlier contract is past
consideration: Roscorla v Thomas (1842).
Consideration must be valuable but need not be adequate.

There are some cases when the law does not recognize consideration as sufficient to constitute a
legal contract.

For example, you might call the emergency services and state that your friend is in dire conditions
and if they arrive within 5 minutes you will compensate them financially. In such a scenario there
clearly is an exchange of promises, a monetary amount is given in return for the rescuing of a
friend. However, the emergency services is already under an existing obligation to arrive as soon
as possible if the situation demands it, therefore there is no sufficiency of consideration for a legal
contract to be formed.

The court might also find a lack of consideration when they are bound by a previous contract. This
may be straight forward in as far as if two people have entered into a contract and one of them
promises to do something which they have already promised to do, then clearly there is no
sufficiency of consideration as illustrated in Stilk v Myrick (1809).

While in the simple scenario the court will most surely find a lack of consideration, in most cases it
will go to great lengths to find such consideration as valid in law, which may be illustrated by the
case of Ward v Byham [1956].
Although it is stated above that there must be an exchange of considerations
and that it needs to be considered as sufficient by the law, in certain cases a
promise can be enforced, especially in commercial situations, as it is assumed
that there is an intention to enter into a legally binding contract.

Such promises are enforced under the doctrine of promissory estoppels

which was developed by Lord Denning in Central London Property Ltd v High
Trees House Ltd [1947]. This is a case of reducing the rent during war time,
hence a promise since a contract already existed to pay the certain amount of
rent. When promising to reduce the rent therefore nothing was given in
return. Once the war ended, the rent went to its previous price. The owner
tried to acquire the full amount of the rent for the war time as well. However
the owner could not do so as Lord Denning stated that: 'I prefer to apply the
principle that a promise intended to be binding, intended to be acted on and
in fact acted on, is binding so far as its terms properly apply'

The Pinnel's Case (1602) demonstrates the principle of sufficiency of

consideration, here the court stated that 'payment of a lesser sum is no
satisfaction for the whole', in which case they would have been able to get
their money back.
Capacity

A court will not uphold a contract entered into by parties the law
does not believe have the capacity to take on such a legal
responsibility, such as minors or people who are mentally
incapacitated.

Legality

A court will not uphold a contract requiring anyone to do

something illegal.
Construction of Contracts: General Principles

Privity of Contract - The doctrine of privity of contract consists of

two general rules: firstly, a third party cannot be subjected to a
burden of contract to which he is not a party. The second is that
a person who was not a party to a contract could not sue upon
the contract in order to obtain the promised performance.

Assignments of Contractual Rights - The burden of a contract

cannot in principle be transferred so as to discharge the original
contracting party without the consent of the other party.
Factors affecting the validity of a contract

An agreement, intended to have legal effect supported by

consideration can still be limited because of vitiating
elements which can render the contract void, voidable or
unenforceable.

If an agreement is void, it means that it is of no legal

effect. Any goods or money obtained under the agreement
must be returned. Where items have been resold to a
third party, they may be recovered by the original owner.
Contracts can be void for mistake, illegality or capacity.
A voidable contract is one which, at the option of one party can
be brought to an end. The contract is always binding on one
party but not the other who can treat it as having come into
existence. Anything obtained under the contract must be
returned, insofar as this is possible. If goods have been resold
before the contract was avoided, the original owner will not be
able to reclaim them. Contracts can be voidable for
misrepresentation, undue influence, duress or capacity.

An unenforceable contract is one that cannot be enforced by an

action at law. The contract is a valid contract but it cannot be
enforced in the courts if one of the parties refuses to carry out
its terms. Items received under the contract cannot generally be
reclaimed. Contracts can be unenforceable for lack of form or
limitation period.
Misrepresentation

Misrepresentations are essentially false statements. They are

sometimes referred to as misstatements. Misrepresentations may be
classified as fraudulent, negligent or innocent.

A fraudulent misrepresentation is a statement of fact made without

belief in its truth either recklessly, knowingly or without caring whether
it is true or false with the intention that it should be acted on and it is in
fact acted upon.

Innocent misrepresentations are made where the maker of the

statement has reasonable grounds for believing in its truth, and a
negligent misrepresentation cannot be fraudulent, provided they had an
honest belief in the truth of the statement made.

Fraudulent and negligent misrepresentations entitle a claimant to an

award of damages or rescission
Mistake

Mistakes at law may affect the validity of the formation of a contract. The effect of a
mistake on the validity of a contract depends on the type and nature of the mistake
made. Mistake in contracts can be common, mutual or unilateral.

The general rule is that where a mistake has been made by the parties, at common law
the contract may be deemed void, as if the contract had never existed.

Law of Equity takes a more flexible approach in that contracts containing certain
mistakes may be treated as voidable, where either party can terminate the contract.
However, a fundamental mistake, often referred to as an ‘operative’ mistake, may
render a contract void.
Common Mistakes
Where a common mistake occurs, the parties appear to be in
agreement, but have entered into the contract under the same
misapprehension. Where such a mistake is fundamental to the
contract, it may be ‘void ab initio’ (void from the very beginning). In
the case of Bell v Lever Bros (1932), it was held that for a common
mistake to be operative the mistake ‘must go to the root of the
contract’.

(i) Mistake as to the existence of the subject matter

Where the subject matter of the contract does not exist or ceases to
exist, it may be void at common law. In the case of Couturier v Hastie
(1856), a buyer bought a cargo of corn which both parties believed to
be at sea. The cargo had to be disposed of and the court held that the
contract was void as the subject matter ceased to exist.
 (ii) Mistake as to title
Where there is an agreement to transfer property from one person to another, but the
buyer already owns the property and neither party is aware of this, the contract will be
void at common law.

(iii) Mistake as to quality

A mistake as to the quality of the subject matter will not render a contract void at
common law. In Leaf v International Galleries (1950), both parties mistakenly believed
that a painting was by the famous painter Constable. The court held that the contract
was still valid.

However, where a mistake as to quality is fundamental, it has been argued that this
could render a contract void. In particular, Lord Atkin in Bell v Lever Bros stated that ‘A
contract may be void if the mistake is as to the existence of some quality which makes
the thing without that quality essentially different from the thing it was believed to be’.
(iv) Mistake as to the possibility of performing the contract
Where the obligations under the contract are impossible to perform, the contract will
be deemed void. In Sheik Bros Ltd v Ochsner (1957), the land was not capable of the
growing the crops contracted for, so the contract was held to be void.

Mutual Mistakes
Where a mutual mistake occurs, there is a misunderstanding between the parties as to
each other’s intentions and they are said to be at cross-purposes. A mutual mistake
negates consent and therefore no agreement is said to have been formed at all.

(i) Mutual mistake as to the identity of the subject matter

Where there is ambiguity as to the understanding of the agreement, the contract will be
deemed void. In determining this, the court applied an objective test asking whether a
reasonable third party would take the agreement to mean what one party thought it
meant, or what the other party thought it meant. In the case of Raffles v Wichelhaus
(1864), the court held that there was no agreement as the parties were thinking of two
different ships when they entered into the agreement and it was therefore too
ambiguous to enforce. This can be contrasted with the case of Smith v Hughes (1971)
where the mistake related to the quality, not the identity of the subject matter and the
court held that the agreement was valid.
Unilateral Mistakes

A unilateral mistake is where only one party is mistaken and the other party knows
about it and takes advantage of the error. A unilateral mistake also negates consent and
the existence of an agreement.

(i) Unilateral mistake as to the terms of the contract

For a unilateral mistake to be operative, it must relate to the terms of the contract. This
type of mistake occurs where one party is aware of the mistake and takes advantage of
the other party’s error. Such a mistake will render the contract void.

In the case of Hartog v Colin and Shields (1939) the seller had made a mistake as to the
price of goods and it was held that the buyer must have realised the mistake and as it
concerned a term of the contract, the contract was held to be void.

A unilateral mistake as to the quality of the subject matter will not render the contract
void. In Smith v Hughes the contract was for the sale of ‘oats’. The buyer believed they
were ‘old oats’, but they were not. However, the contract was still held to be valid as the
sale of ‘old oats’ was not a term of the contract.
Mistake as to identity of the other party to the contract

Where a mistake as to the identity of the other party to the contract is made, the
contract will be deemed void if the identity of that person is central to the contract.

However, where the parties negotiate in person, there is a presumption that there is an
intention to do business with the person in their presence, in which case it is unlikely
that a contract will be void.

This was is demonstrated by the case of Phillips v Brooks (1919). The contract was held
to be valid where a jeweller sold goods to someone who purported to be someone else
as he had intended to do business with that particular person, even though he was not
who the jeweller thought he was.
Illegality

Illegal Contracts are void ab initio at common law provided the illegality was present at
the time the contract was formed and an exception does not apply.

The exceptions to illegal contracts (the contract will not be held to be void ab initio)
are:

-the parties were not in pari delicto (at equal fault)

-where a party genuinely repents and repudiates the contract prior to performance
where the claim for relief may be framed in a manner that does not refer to the
illegality otherwise present in the contract.

Where a contract has been tainted by illegality and lawful provisions exist within it,
unless one of the foregoing exceptions apply the entire contract will be void ab initio.
Performance
Contracts that are illegal in their performance may or may not be void. The
remedy of damages may be available to the innocent party for breach of
contract. Knowledge or notice of the illegality is a central consideration.

Some contracts dealing with the following subject are illegal and void ab initio
at common law:

- contracts that are in restraint of trade

- contracts that attempt to oust the jurisdiction of the courts
- that to commit a crime, tort or fraud
- pervert the course of justice, such as a contract to commit perjury
- causing corruption in public life (payment for national awards)
Duress and undue influence

Duress in contract law relates to where a person enters an agreement as a result of

threats. Where a party enters a contract because of duress they may have the contract
set aside.

Originally, the common law only recognised threats of unlawful physical violence,
however, in more recent times the courts have recognised economic duress as giving
rise to a valid claim. Where the threat is to goods the courts have been less willing to
intervene, although analogous claims in restitution suggest that this position of the law
may change. T

he basis of the duress as a vitiating factor in contract law is that there is an absence of
free consent. Duress operates at common law. Pressure not amounting to duress may
give rise to an action for undue influence in equity. The affect of a finding of duress and
undue influence is that the contract is voidable. The innocent party may rescind the
contract and claim damages.
Undue influence exists where a contract has been entered as a result of pressure which
falls short of amounting to duress, the party subject to the pressure may have a cause
of action in equity to have the contract set aside on the grounds of undue influence.
Undue influence operates where there exists a relationship between the parties
which has been exploited by one party to gain an unfair advantage.

Undue influence is divided into actual undue influence and presumed undue
influence. Where a contract is found to be entered into as a result of undue influence,
this will render the contract voidable. This will enable the person influenced to have
the contract set aside as against a party who subjected the other to such influence. In
addition, in some instances the party influenced may be able to have a contract set
aside as against a party who was not the person inflicting the influence or pressure.
Discharge of a contract
A contract may be discharged in one of the following ways:

Performance
Breach
Agreement
Frustration

A contract becomes discharged once both parties have fully

performed their contractual obligations. If one party does not
fully perform the contract this will amount to breach and the
other party may have a claim for damages unless the contract has
been frustrated. If the non performance amounts to a breach of
condition the other party will be released from their obligations.
Performance

Where a contract is one where the price is payable on completion, then completion is
generally required in order to discharge the contract. This is often expressed in the
terms of being a condition precedent. Completion triggers the requirement of payment:
no completion, no payment.

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

Held: The wife's action failed. Payment was on condition that he worked the ship to
Liverpool, since he did not fulfill this condition the widow was entitled to nothing.
Substantial performance
A exception exists where a court is satisfied that substantial performance is present. The
court may then award the contractually agreed price and deduct sums to reflect the
amount not performed. If however, the performance is not held to amount to substantial
performance the claimant is entitled to nothing. Difficulty arises as to what amounts to
substantial performance. There is no precise limit set down but is to be determined on
the facts of individual cases.

Bolton v Mahedeva [1972] The claimant installed central heating in the defendant's
home. The agreed contract price was £560. The defendant was not happy with the work
and refused to pay. Defects in the work amounted to £174. The action by the claimant to
enforce the payment failed since the court held there was no substantial performance.

Hoenig v Issacs [1952] The claimant agreed to decorate and furnish the defendant's flat
for £750 payable by two instalments and the balance on completion. The claimant
completed the work but the defendant was unsatisfied some of the furnishings and
refused to pay the all the final instalment. The cost of the defects in the furniture came
to £56. Held:The claimant had substantially performed the contract and was therefore
entitled to the contractually agreed price minus the cost of the defects.
Acceptance of partial performance
Where one party freely agrees to accept partial performance then a sum is payable for
the work completed.

Tender of performance
Where a party is willing to perform and tries to tender performance but the other party
does not accept the performance then the party seeking to tender performance is
discharged from the contract and the non accepting party is liable in damages for non
acceptance.

In Startup v Macdonald (1843) A contract stated that 10 tons of oil were to be delivered
to the defendant within the last 14 days of March. The claimant delivered the oil at
8.30pm Saturday March 31st. The defendant refused to accept the delivery because of
the lateness of the hour.

Held: The claimant had tendered performance within the agreed contractual period and
was thus entitled to damages for non acceptance.
Agreement

For a contract to be discharged through agreement there must be Accord &

Satisfaction.

Accord = agreement
Satisfaction = consideration- this must be provided by both parties

The parties must agree to end the contract. The agreement must be freely given. Both
parties must also provide consideration.

If both parties have continuing obligations then generally the consideration will be
simply each of them giving up their rights under the contract. The only time
consideration becomes an issue is where one party has fully performed their part of
the contract when the other has not. The non performing party must then provide
consideration to make the agreement binding.

If the agreement is made by deed there is no requirement to provide consideration.

Frustration
A contract may be frustrated where there exists a change in circumstances which is not
the fault of either of the parties which renders the contract either impossible to
perform or deprives the contract of its commercial purpose.

Destruction of the subject matter:

Taylor v Caldwell (1863)- The claimant hired out a music hall in Surrey for the purpose
of holding four grand concerts. The claimant went to great expense and effort in
organising the concerts. However, a week before the first concert was due to take place
the music hall was destroyed by an accidental fire. The claimant sought to bring an
action for breach of contract for failing to provide the hall and claiming damages for
the expenses incurred.

Held: The claimant's action for breach of contract failed. The contract had been
frustrated as the fire meant the contract was impossible to perform.
Personal incapacity

Where the contract becomes illegal to perform

Where a contract cannot be performed in the specified manner:

Nicholl and Knight v Ashton, Eldridge & Co [1901] By contract the parties agreed that a
cargo of cotton seed was to be shipped from Egypt to England. The contract specified
the ship, The Orlando, which was to carry the cargo. This ship became damaged and
was in for repairs when the contract was due to be performed.

Held: By naming the exact ship which was to carry the cargo, the contract was frustrated
as it was impossible for this ship to carry the cargo within the contractually agreed
period.
A contract will not be frustrated merely because it becomes more difficult or expensive to
perform:
Davis Contractors v Fareham UDC [1956] Davis Contractors agreed to build 78 houses for
Fareham Council within 8 months for an agreed price of £85,000. Due to a shortage in
skilled labour and material the contract took 22 months to complete and was much more
expensive than anticipated. Davis Contractors were paid the contractually agreed price but
bought an action arguing for more money based on the fact that the contract had become
frustrated and therefore they were entitled to further payment based on a quantum meruit
basis.

Held: The contract was not frustrated. The fact that a contract becomes more difficult to
perform or not so profitable is not sufficient to amount to frustration. It was still possible to
perform the contract.

A contract will not be frustrated if the impossibility is the fault of either of the parties

Where there exists a force majeure clause this will apply rather than the law of frustration.
Although the clause must actually cover the event which occurred: Jackson v The Union
Marine Insurance Co Ltd (1874)

Where a contract is found to be frustrated, both parties are released from their obligations
under the contract and neither party may sue for breach.
Breach
Where there exists a breach of condition this will enable the innocent party the right to
repudiate the contract (bring the contract to an end) in addition to claiming damages.

Anticipatory breach
Where a party indicates their intention not to perform their contractual obligations, the
innocent party is not obliged to wait for the breach to actually occur before they bring
their action for breach. This gives the innocent party the option to either sue
immediately or continue with the contract themselves and wait for the breach to occur
before bringing their action. This can be beneficial or risky.

Avery v Bowden (1855) By contract the claimant was to carry cargo for the defendant.
The claimant arrived early to collect the cargo and the defendant told them to sale on
as they did not have any cargo for them to carry and would not have by the agreed
date. The claimant decided to wait around in the hope that the defendant would be
able to supply some cargo. However, before the date the cargo was supposed to be
shipped the Crimean war broke out which meant the contract became frustrated. The
claimant therefore lost their right to sue for breach. Had they brought their action
immediately they would have had a valid claim.
Contents of a contract - Terms of a contract

Express and Implied terms

Express terms are terms that have been specifically mentioned and agreed by both
parties at the time the contract is made. They can either be oral or in writing.

Sometimes a term which has not been mentioned by either party will nonetheless be
‘included’ in the contract, often because the contract doesn’t make commercial sense
without that term. Terms like this are called implied terms.

There are two main types:

Terms implied by statute: the Sale of Goods Act 1979. The key provisions are:
Section 14: the goods must be of “satisfactory quality” – that is, they should meet the
standard that a reasonable person would regard as “satisfactory”. Also, if the buyer says
they’re buying the goods for a particular purpose, there’s an implied term that the
goods are “fit for that purpose
.”

Terms implied by the courts…

As a matter of fact. Something that’s so obviously included that it didn’t need to be

mentioned in the contract. If I agree to pay you £50 for a lawnmower, it probably
wouldn’t occur to us to write down that we mean fifty pounds sterling, as opposed to
any other sort of pound. That’s obvious to both of us.

As a matter of law. This is about general considerations of public policy – the courts
are laying down, as a matter of law, how the parties to certain types of contract ought
to behave. For example, in one case, the courts held that landlords of blocks of flats
ought to keep the communal areas (lifts, stairs etc) in a reasonable state of repair – so
that term was implied into the rental contract.

Customary terms. Some terms are generally known to be included in contracts in a

particular trade or locality. Amongst bakers, “one dozen” means thirteen – they don’t
have to include terms in every contract specifying that.
Exemption Clauses and Unfair Terms

Exemption clauses

Sometimes a party to a contract will include a term designed to exclude or limit his
liability in the event of a breach of contract. Such a term might read “X plc is not liable
for any property damage however caused”, or “X plc will only accept liability up to the
amount of £50”.

This might be a problem if one party is, for example, a big company, and the other is an
ordinary customer: the parties have unequal bargaining power, so the stronger party
might be able to take advantage of the weaker party. The ordinary customer is in no
position to start negotiating with the sales assistant at the till!

The law does its best to level the playing field here. If a party is trying to rely on an
exemption clause, they have to show that the other party specifically agreed to it at the
time the agreement was reached.
In respect to Unfair contract terms there is Unfair Contract Terms legislation, the main
provisions of which are:

- You can’t exclude liability for personal injury or death which results from your
negligence.

- Exemption clauses have to be reasonable. If the court thinks the term in question is
unreasonable, that term will be void.

- You can’t exclude liability for defective goods supplied to a consumer (that is, a non-
business user).

- Contracts can’t be altered unilaterally, i.e. without the agreement of the other party.
Standard form contracts

Businesses often use pre-printed contracts that specify the terms of the business
issuing it. For example, order forms might have the standard contract terms printed
on the back. If you buy a book from Amazon, the company’s terms are available for
you to read, but they’re not open to negotiation.

This makes commercial sense as a business can’t be expected to conduct

negotiations with each of its customers and draw up a special contract for each of
them.

however these standard documents are often difficult for customers to

understand. They might end up being bound by terms they didn’t know existed.

So, what happens if a company puts an exclusion clause in its standard contract?

Can the customer really be said to have agreed to the term?

Thankfully there is the Consumer Protection legislation, which protect consumers from
unfair standard terms in contracts. If the courts think a term is unfair, then it’s not
binding on the consumer.

In this context, an “unfair” term is essentially one that puts undue burdens on the
consumer, or seeks to reduce his or her statutory rights.

“A contractual term which has not been individually negotiated shall be regarded as
unfair if, contrary to the requirement of good faith, it causes a significant imbalance in
the parties’ rights and obligations arising under the contract, to the detriment of the
consumer.”