UOLLB Contract Law

Hamdahazza2003@gmail.
com 04 Dec 2021
Contract Law
have understood a party who intended to

UOLLB First Class Law Notes convey a meaning by his words or conduct.
Intention of the Parties

Bachelor of Laws Proper inference from the facts as a whole
as to what would have been the intentions
of a reasonable person in the position of the
parties.
Contract Law
Equity (Fairness)
To supplement common law where it is
Table of Contents deficient.
1. Introduction ................................................. 1 To resolve disputes in situations where
damages are not a suitable remedy.
2. Offer and Acceptance .................................. 2
To resolve disputes between persons by
3. Consideration .............................................. 5 applying principles of fairness and justness.
4. Intention, Certainty and Completeness ....... 7
Elements of Equity
5. Terms ........................................................... 8
Equitable principles (maxims)
6. Exclusion................................................... 10 Equitable remedies (Equitable relief)
7. Capacity .................................................... 13
Types of Equitable Remedies
8. Mistake...................................................... 14
Injunction – A court order by which a
9. Misrepresentation ...................................... 16 person is required to perform or not to
10. Duress and Undue Influence ................... 18 perform a particular act.
Specific performance – A court order
11. Privity ...................................................... 20
which requires a party to perform a specific
12. Illegality .................................................. 22 act stated in a contract.
13. Restraint of Trade.................................... 22 Account of Profits – A court order against
a defendant to recover the profits taken as a
14. Performance and Breach ......................... 23
result of the breach of duty.
15. Frustration ............................................... 25 Estoppel – A doctrine used to prevent a
16. Damages.................................................. 27 person from exercising his right that he has
forgone.
17. Equitable Remedies ................................ 29
Undue Influence – A court order to void a
contract imposed upon a vulnerable person
1. Introduction who entered the contract without free will
or under undue influence.
How to Discuss Cases Rescission – It is unmaking of a contract.
Names of the parties Rectification – A court order which
Court requires a change in the contract to correct
Essential facts errors.
Ratio decidendi (the rationale for the Restraining Order – A command of the
decision) court issued upon the filing of an
Obiter dicta (remarks of the judge) application for an injunction, prohibiting
the defendant from performing a
Consensus Theory threatening act until a hearing.
Consensus ad idem (meeting of minds)
Laissez-faire (unrestricted) Other Terms
Unfettered freedom of contract Decree – An official statement that
something must happen.
Objective Interpretation Deed – It is a legal instrument by which an
What meaning a reasonable person would asset owner (the grantor) transfers his or
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Hamdahazza2003@gmail.com 04 Dec 2021
Contract Law
her right of ownership (title) in an asset to treat.

another party (the grantee). Harvey v Facey (1893)
Plaintiff – Claimant or complainant
Defendant – Plaintiff v Defendant Invitation to Treat
Unjust Enrichment – A situation where a An indication of a willingness to conduct
person is unjustly or by chance financially business.
enriched at the expense of another person. An invitation to make an offer or to
Appellant – Someone who appeals for a commence negotiations.
legal decision to be changed. A display of goods is generally an
Writ – A legal document from a court or invitation to treat.
administrative body. Pharmaceutical Society v Boots (1953)
Inter alia – Among other things.
Assent – Official agreement or approval. Types of Contract
2. Offer and Acceptance Bilateral Contract

Both parties make a promise to each other.
Terms Partridge v Crittenden (1968)
Contract – promises or an agreement.
Law of contract – enforcement of promises Unilateral Contract
or an agreement. One party makes a promise.
Entering into a contract. The other party does not need to make any
The parties have voluntarily assumed promise.
liabilities with regard to each other. Carlill v Carbolic Smoke Ball Company
(1893)
Offer
An expression of willingness to contract on Collateral Contract
certain terms. A party enters into another contract which
Must be made with the intention that it will co-exists side by side with the main
become binding upon acceptance. contract e.g. assurance.
Must not require further negotiations or
discussions. Different Contractual Situations
Intention to be Legally Bound Request for Tenders

An agreement wished to be enforceable by A formal invitation to other parties to bid
a court between parties. for providing products or services.
Storer v Manchester City Council (1974) Harvela Investments Ltd v Royal Trust Co
Gibson v Manchester City Council (1979) of Canada Ltd (1985)
Blackpool and Fylde Aero Club Ltd v
A Statement of Intention Blackpool Borough Council (1990)
The offeror only states his intention to do
something. Auction
It is not an offer. The auctioneer’s request for bids is an
Harris v Nickerson (1873) invitation to treat.
The bid is an offer.
Communication When the auctioneer brings his hammer
A communication is not an offer if the down, he has accepted the offer.
offeror lacks the intention to be bound upon The collateral contract is that the auctioneer
acceptance. will accept the highest bid.
Barry v Davies (2000)
Supply of Information
One party provides information to another Machine
party. The machine represents the offer.
This is not an offer but an invitation to The acceptance is inserting the money.
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Thornton v Shoe Lane Parking (1971) One party has all the bargaining power and
prepares the terms to his advantage.
Communication of the Offer The other party is placed in a ‘take it or
An offer must be communicated. leave it’ position.
There can be no acceptance without
communication. Battle of the Forms
Two parties propose and pass to each other
Successful Communication of the Offer standard form contracts containing
Meeting of minds (consensus ad idem). differing terms to their own advantage.
The offeree is aware of the offeror’s The party who makes the last shot wins the
intention to make an offer. battle.
The offeror is aware of the offeree’s Tekdata Interconnections Ltd v Amphenol
acceptance of the offer. Ltd (2009)
Gibbons v Proctor (1891)
Communication of the Acceptance
Types of Offer Acceptance is not effective until it is
communicated to the offeror.
Counter Offer
A rejection of the original offer. Silence
A new offer that needs acceptance. Silence will not amount to acceptance.
The offeree attempts to add new terms Felthouse v Bindley (1862)
when accepting.
Hyde v Wrench (1840) Performance
Performance is the acceptance of the offer.
Cross Offer Brogden v Metropolitan Railway Company
Both parties make the same offer to each (1871)
other without realizing that the same offer
has been made by each other at that time. Exceptions to the Need of Communication
A cross offer is not a binding contract. The offeror can waive the need of
Tinn v Hoffman (1873) communication (e.g. unilateral contracts).
Communication must not be waived in
Acceptance of the Offer bilateral contracts.
An agreement to each of the terms of the Felthouse v Bindley (1893)
offer.
The terms of the acceptance must exactly Postal Acceptance Rule
match those of the offer (mirror image). Acceptance is indicated at the moment it is
The agreement must be certain. posted.
The acceptance must be communicated. Henthorn v Fraser (1892)
The offeror bears the risk of loss or delay.
Indication of Acceptance Household Fire Insurance v Grant (1879)
The acceptance can be by words or by The letter of acceptance must be correctly
conduct. named and addressed.
Brogden v Metropolitan Railway Company LJ Korbetis v Transgrain Shipping BV
(1871) (2005)
Inference of the Acceptance Exception to Postal Acceptance Rule

Acceptance can be inferred from the words When the offeror stipulates that he must
or conduct of the offeree. receive the letter of acceptance in order for
Day Morris Associates v Voyce (2003) the offer to be effective.
Holwell Securities v Hughes (1974)
Standard Form Contract
A contract between two parties to do a Instantaneous Communication
certain thing. Email
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Fax End of an Unaccepted Offer

Telex
Revocation of the Offer
Telex An offeror may revoke an offer before
Postal Acceptance Rule is not applicable. acceptance.
Entores v Miles Far East Corp (1955) The revocation must be communicated to
the offeree.
Receipt Rule (Non-Postal Acceptance) The revocation can be communicated
Acceptance is only complete when the through a reliable third party.
offeror has received the letter of Dickinson v Dodds (1876)
acceptance. Byrne v van Tienhoven (1880)
Where an offer is made unilaterally to the
Acceptance by Instantaneous whole world, it appears that it may be
Communication revoked by taking reasonable steps.
Acceptance takes place when and where Once the offeree has commenced
the message is received. performance of a unilateral offer, the
offeror may not revoke the offer.
Method of Acceptance
The offeror may stipulate the method of Change of Mind
acceptance. The offeror can change his mind and
Eliason v Henshaw (1819) withdraw the offer before acceptance.
Manchester Diocesan Council for The offeror can withdraw the offer within
Education v Commercial and General the time that the offer is open.
Investments (1970) The offeror must keep the offer open where
the offeror is obliged (e.g. by a separate
Inferred Method of Acceptance binding collateral contract) to do so for a
The method of acceptance can be inferred specified period of time.
from the making of the offer when the Offord v Davies (1862)
method is not stipulated. Routledge v Grant (1828)
Quenerduaine v Cole (1883)
Revocation of Posted Acceptance
Different Method of Acceptance The acceptance can be withdrawn before
The offeree may use a different method of the offeror receive the letter of acceptance.
acceptance as long as it is as equally Dunmore v Alexander (1830)
effective as that used by the offeror in A strict application of the postal rule would
communicating the offer. not permit such withdrawal.
Wenkheim v Arndt (1873)
Equally Effective
The method of acceptance by the offeree Conditional Offer
should be no less advantageous to the The offer terminates if the condition in the
offeror. offer is not fulfilled.
The condition may be implied.
Stipulated Method of Acceptance Financings Ltd v Stimson (1962)
The offeror may stipulate the method of
acceptance. Death of Offeror
The offeree may choose another equally Death or incapacity of the offeror
effective method. terminates the offer.
The offeror can stipulate what method must Dickinson v Dodds (1876)
be used to indicate acceptance. The offer cannot be accepted if the offeree
The offeree then must use this method. knows of the death of the offeror.
The offer can be accepted in some cases in
ignorance of the death, depending on the
nature of the offer.
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The offeree may accept the offer if the promises.

offeree does not know of the offeror’s death Something being promised by each side
and there is no personal element involved. (mutuality in agreement).
A contract is not enforceable unless there is
Death of Offeree consideration.
The offer is invalid upon the death of the Consideration must be something of value
offeree. in the eyes of the law.
Each party to a contract must be both a
Lapse of an Offer promisor and a promisee.
The offeror may set a time limit for Promisor (offeror) receives a benefit.
acceptance. Promisee (offeree) receives a detriment.
Once this time has passed the offer lapses.
The offeror can revoke within the time Agreement without Consideration
limit if the offer has not been accepted. A one-sided promise which is not
Offord v Davies (1862) supported by consideration is a gift.
The law does not enforce gifts unless they
Novation are made by deed.
It is an agreement to substitute a new
contract for the old one. Gratuitous Promise
It is valid only with the consent of all This is when a promise is given with no
parties to the original agreement. obligation or consideration in return.
The new agreement extinguishes the This agreement is not considered to be
previous rights and obligations. enforceable.
It transfers all duties and obligations from
the original obligor to the new obligor. Executory Agreement
Exchange of promise by each side.
Types of Novation
Replace an obligation to perform with a Executory Contract
new obligation. It is a contract which has not yet been fully
Add an obligation to perform. performed.
Replace a party to an agreement with a new Both sides still have important performance
party. remaining.
One party may have fully performed the
3. Consideration contract, but the other party has not.
Contractual Parties Making of Promise

Each party to a contract must be both a The making of the promise by each side is
promisor and a promisee. consideration.
They must each receive a benefit and suffer Dunlop Pneumatic Tyre Co Ltd v Selfridge
a detriment. & Co Ltd (1915)
Flow of Consideration Rules of Consideration

A promisor asks the promisee to something The consideration must not be past.
(receive a benefit). The consideration must be sufficient but
The promisor offer consideration to the need not be adequate.
promise (suffer a detriment). The consideration must move from the
The promisee performs his obligation promisee.
(suffer a detriment). An existing public duty will not amount to
The promisee receives the consideration. valid consideration.
(receive a benefit). An existing contractual duty will not
amount to valid consideration.
Consideration (Legal Benefit) Part payment of a debt is not valid
A contract is based on an exchange of consideration for a promise to forego the
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balance. Stilk v Myrick (1809)
Consideration Must Be Sufficient but Need New Valid Consideration from Same
Not Be Adequate Offeror
Being sufficient – something which the The offeree cannot fulfil his duty.
courts will recognise as legally capable of The offeror provides new incentives to
constituting consideration. encourage the offeree to finish his duty.
Need not be adequate – the courts are not This is consideration because it has a
interested in whether there is a match in practical benefit.
value between what is being offered by Williams v Roffey Bros & Nicholls
each party. (Contractors) Ltd (1991)
Thomas v Thomas (1842)
Practical Benefit / Factual Benefit
Freedom of Contract It is new consideration given by the
A contracting party can stipulate for what promisor to encourage the promisee to
consideration he chooses. fulfil his obligations.
The courts do not concern themselves with The promisor offers new incentives to the
issues of adequacy but sufficiency. promisee to avoid breach of contract or
save the trouble and expense of finding
Economic Value someone else to complete the work.
Consideration will not be sufficient if it has
no economic value. Economic Duress
White v Bluett (1853) Unlawful use of economic pressure and/or
threats intended to overcome the free will
Performance of Existing Duty Imposed by of a person, in order to force him to an
Law involuntary agreement.
A public official agrees to carry out duties
in return for a promise of payment from a Part Payment of Debt
member of the public. Part payment is not valid consideration for
The promise of payment will not generally a promise to forebear the balance.
be enforceable. Unless at the promisor’s request.
There is no consideration for the promise. Unless part payment is made before the due
The public official is only carrying out an date.
existing duty. Unless by giving goods or to a different
If the official does more than is required by destination.
the existing obligation, then the promise Pinnel’s Case (1602)
will be enforceable.
Glasbrook Bros Ltd v Glamorgan CC Exceptions to Part Payment of Debts
(1925) Where consideration is provided.
Where the debtor does something different.
New Consideration from Third Party Where payment was made by a third party.
A third party makes a promise to do Hirachand Punachand v Temple (1911)
something to encourage the offeror and
offeree to fulfil their promise to each other. Past Consideration
Such promise is good consideration. An agreement is not enforceable without
Shadwell v Shadwell (1860) consideration.
Consideration must be presented at the
New Invalid Consideration from Same same time the agreement is formed.
Offeror Past consideration is consideration made
The offeror and offeree are bound to fulfil a after an agreement is formed.
duty under an existing contract Past consideration is not valid
The fulfilment of such duty is not valid consideration.
consideration for a new contract. Re McArdle (1951)
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Roscorla v Thomas (1842) Domestic Agreement

It is presumed that there is not an intention
Exception to Past Consideration to create legal relations between family
Past consideration is valid consideration if members.
the offeror promises the offeree something Balfour v Balfour (1919)
based on what the offeree did for him in the
past. Social Agreement
Lampleigh v Braithwait (1615) It is presumed that there is not an intention
to create legal relations between friends.
Move of Consideration (Privity) Coward v MIB (1962)
A third party cannot enforce the contract
between the offeror and the offeree even if Commercial Agreement
he will receive the consideration. It is presumed that there is an intention to
Andrews v Hopkinson (1957) create legal relations.
Edmonds v Lawson (2000)
Promissory Estoppel (or Equitable Waiver
or Equitable Estoppel) View of Courts
The promisor cannot enforce the original The court will ask for whether or not
contract after he has agreed to waive or reasonable parties to such an agreement
modify the terms of the contract. would possess an intention to create legal
Central London Property Trust Ltd v High relations.
Trees Ltd (1947)
Presumption Held by Courts
Limitations on Promissory Estoppel If certain other facts are proven, then
It does not apply without existing legal another fact can be taken for granted by the
relationship. judge (or jury).
Evenden v Guildford City FC (1975)
It does not apply without the promisee’s Rebuttable Presumption
reliance on the promise. The presumption can be nullified with the
W J Alan & Co v El Nasr (1972) presence of evidence to the contrary.
It cannot cause the promisor to do An agreement is not enforceable if the
something. presumption that there is no intention to
Combe v Combe (1951) create legal relations is rebutted.
It does not apply to part payment of debts. Merritt v Merritt (1970)
Collier v P. & M.J. Wright (Holdings) Ltd
(2007) Burden of Proof
It does not apply when the cause for waiver The burden of proof (on the balance of
no longer exists. probabilities) is on the party arguing the
Tool Metal Manufacturing Co Ltd v contract is enforceable.
Tungsten Electric Co Ltd (1955)
It does not apply when the promise is not Comfort Letter
clear. It is a document prepared by someone or a
Evans v Amicus Healthcare Ltd (2003) company to assure the financial soundness
or backing of someone or another company.
4. Intention, Certainty and Completeness It is not an agreement and hence not
enforceable.
Intention to Create Legal Relations Kleinwort Benson Ltd v Malaysia Mining
For a statement to be an offer, it must be Corporation Berhad (1989)
made with the intention that it be binding
upon acceptance. Honour Clause
All parties to an agreement have an An express statement in a contract that an
intention to create legal relations. agreement is intended to be binding in
honour only.
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The courts will usually allow it to take Condition

effect and so will not enforce the It is a major term of the contract which
agreement. goes to the root of the contract.
Rose and Frank v Crompton (1925) Its breach entitles the innocent party to
repudiate the contract and claim damages.
Certainty of Terms and Vagueness Poussard v Spiers (1876)
An enforceable contract requires certainty
of terms. Condition Precedent
If an important term is not settled, the It is an event which must take place before
agreement is not a contract. a party to a contract must perform his part.
If the term is uncertain, there is no real
agreement and meeting of minds. Condition Subsequent
Scammell v Ouston (1941) It is an event that terminates the duty of a
party to perform his party if it happens.
Complete Agreement
Parties must agree on all the major Warranty
contractual elements to create an It is a minor term of a contract not essential
enforceable contract. to the existing contract.
Courtney & Fairbairn Ltd v Tolani The innocent party can claim damages
Brothers (Hotels) Ltd (1975) upon breach of warranty
He cannot end the contract upon breach of
5. Terms warranty.
Bettini v Gye (1876)
Breach of Contract
One party has failed to perform his Innominate Term (Intermediate Term)
contractual obligations. It is a contractual term that is neither a
condition nor a warranty.
Actual Breach Its breach does not guarantee the innocent
One party refuses to perform his party to rescind a contract.
obligations on the due date. Rescission is only granted when the injured
Or he performs his obligations party is seriously deprived by the breach.
incompletely. Hong Kong Fir Shipping v Kawasaki Kisen
Kaisha (1962)
Anticipatory Breach
One party announces in advance of the due Ruling of Innominate Term
date that he intends not to perform his The innocent part may be liable for
obligations, or he will fail to perform his wrongful repudiation.
obligations. Certainty is sacrificed in some sense.
The innocent party may sue for damages The classification of the terms can be
immediately after the breach is announced. challenged by court.
Term Representation
It is a provision forming part of a contract. It is a statement that is not part of the
It gives rise to a contractual obligation. contract.
It gives rise to a right to damages. Its truth is not guaranteed by the person
It gives rise to a right to terminate the making it.
contract. It does not give rise to a contractual
Its truth is guaranteed by the person making obligation.
it. It has no legal significance.
The innocent party can sue for breach of
contract. Puff
It is a statement no reasonable person
would take it seriously.
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It does not give rise to legal obligation. Situations for Considering Parol Evidence
When parol evidence is needed to complete
False Representation the contract.
No action for a breach of contract for any When parol evidence is needed to prove an
false representation. implied term.
The innocent party may bring an action for When parol evidence is needed to prove
misrepresentation. that the contract is voidable.
When parol evidence is needed to prove
Misrepresentation that the contract has not come into effect.
It is a false statement of fact made by one When parol evidence is needed to prove
party to induce another party into a that the contract is no longer in effect.
contract. When parol evidence is needed to prove the
It has to be fraudulent in order for the existence of collateral contract.
injured party to receive damages.
It is actionable if the injured party can Situations for Voidable Contract
establish that it is a contractual term. Misrepresentation
Mistake
Determining Contractual Term Fraud
Whether the maker accepted responsibility Non est factum
for the soundness of the statement. Duress
Shawel v Reade (1913) Undue Influence
Whether the statement attaches great
importance. Non Est Factum (It Is Not My Deed)
Bannerman v White (1861) A plea that the signature on the contract
Whether the maker has greater knowledge was signed by mistake, without knowledge
of the matter. of its meaning, but was not done so
Oscar Chess Ltd v Williams (1967) negligently.
Whether the contract is entered recently.
Routledge v Mackay (1954) Collateral Contract
Whether one party clearly relied upon the It is a separate contract where the parties to
other party. the main contract enter into or promise to
Esso Petroleum Co Ltd v Mardon (1976) enter into.
It is enforceable even though the main
Parol Evidence Rule contract does not contain any term of the
It prevents a party to a written contract collateral contract.
from presenting extrinsic evidence that The injured part may sue on the collateral
varies, contradicts or adds to the written contract
terms of the contract. Meanwhile the main contract remains
Jacobs v Batavia & General Plantations intact.
Trust Ltd (1924) Heilbut, Symons & Co v Buckleton (1913)
Rationale for Parol Evidence Rule Lord Denning on Collateral Contract

The contracting parties have reduced their A contract is binding when a person gives a
agreement to a final written contract. promise, or an assurance to another,
Extrinsic evidence of past agreements or intending that he should act on it by
terms should not be considered anymore. entering into a contract.
The parties had decided to leave such
evidence out of the contract. Express Term
It is a contractual provision that has been
Effect of Parol Evidence Rule agreed between the parties themselves.
One may not use evidence made prior to
the written contract to vary, contradict, or Implied Term
add to the contract. It is an external provision imposed on a
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contract by court or by statute. Finish (condition of the surface of a

Courts are generally reluctant to imply material)
terms into a contract. Freedom from minor defects
Courts are considered to be an interpreter Safety
rather than a maker of contracts. Durability
Crossley v Faithful & Gould Holdings Ltd
(2004) Acceptability Test
Whether a reasonable buyer would have
Terms Implied by Common Law accepted the goods at the same price if he
When the unexpressed term is prevalent in had known of the defect.
a trade. Shine v General Guarantee Corp (1988)
Hutton v Warren (1836)
When the unexpressed term is necessary Usability Test (Fitness Test)
for the contract to make sense. Whether a reasonable buyer could have
Moorcock (1889) used the goods for purposes for which the
When the unexpressed term would have goods were commonly supplied.
been suggested by an officious bystander. Aswan Engineering v Lupdine (1987)
Shirlaw v Southern Foundries (1939)
When the contractual relationship gives rise Remedies for Breach of Contract in
to an unexpressed term. Consumer Sales
Liverpool City Council v Irwin (1977) Repair or Replacement
All the terms implied must be reasonable. Reduction of Price
Wilson v Best Travel (1993) Rescission of the Contract
Terms Implied by Statute Consumer Sales (Dealing as a Customer)

The Sale of Goods Act (1979) The buyer will consume the product or
The Sale and Supply of Goods Act (1994) service.
The Supply of Goods and Services Act
1982 Non-consumer Sales
The Unfair Contract Terms Act (1977) The buyer will not consume the product or
The Unfair Terms in Consumer Contracts service.
Regulations (1999) It will be consumed by other people.
Sale of Goods Act (1979) Options for Injured Party

The seller must have the right to sell the Terminate the contract and claim damages.
goods. Affirm the contract and claim damages.
Goods sold by description must correspond
to the description. Rescinding for Breach
Goods must be of satisfactory quality. The injured party can discharge the
Goods sold by sample must correspond to contract.
the sample in quality. The injured party can refuse to make
further performance.
Supply of Goods and Services Act (1982) The injured party can refuse to receive
The service will be carried out with further performance.
reasonable care and skill.
The service will be provided within a Rescission for Misrepresentation
reasonable time. The contract is cancelled from the very
The service will be paid for at a reasonable beginning.
price.
6. Exclusion
Satisfactory Quality
Fitness (suitability) Exclusion Clause
Appearance It is a term in a contract that excuses a
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party from liability in specific situations. that covers the particular breach.
Houghton v Trafalgar Insurance Co Ltd
Types of Exclusion Clauses (1954)
Exclusion Clause Negligence

It seeks to exclude the liability of a party It is the breach of an obligation to act with
for breach of contract. care, or the failure to act as a reasonable
. and prudent person would under similar
Limitation Clause circumstances.
It limits the liability of a party for breach of
contract. Approach to Construction
The clause is effective if it contains express
Time Limitation language excepting a person from the
An action for a claim must be commenced consequence of the negligence.
within a certain period of time. EE Caledonia Ltd v Orbit Valve plc (1994)
The wording of the clause will be
Incorporation considered to see if it can actually cover the
A clause is a contractual term if it is negligence when there is no express
incorporated into the contract. reference to such breach.
A clause cannot form part of a contract if it White v John Warwick (1953)
is not incorporated within the contract. If the wording of the clause is wide enough,
reasons other the negligence will be
Incorporation of Exclusion Clauses considered to see whether the injured party
should be indemnified.
By Signature Hollier v Rambler Motors (1972)
The party after signing will be bound even
if it has not been read or understood. Contra Proferentem Rule (Interpretation
L'Estrange v F Graucob Ltd (1934) against the Draftsman)
The court tends to interpret the clause
By Reasonable Notice Before Contracting against the party providing it.
The term must be brought to the attention A term should be interpreted in favour of
of the party before the contract is made. the consumer.
Olley v Marlborough Court Hotel (1949)
Liquidated Damages
By Course of Dealing It is compensation payable to injured party
Conduct in previous transactions can in case of contractual breach.
constitute incorporated exclusion clauses.
McCutcheon v David MacBrayne Ltd Liquidated Damages Clause
(1964) It specifies the amount payable to the
injured party in case of contractual breach.
Limitations on Incorporating Exclusion
Clauses Penalty Damages
The exclusion clause is not effective if it is It is compensation that is not a genuine
misrepresented. estimate of the expected loss on breach.
Curtis v Chemical Cleaning (1951) It is usually unreasonably more excessive
Onerous exclusion clauses require more to than liquidated damages.
be done to bring it to the attention of the Unreasonable indemnity cannot be incurred
party. due to breach of contract.
Interfoto Picture Library v Stilletto (1989)
Penalty Damages Clauses
Construction It specifies the unreasonably excessive
It is the wording of the exclusion clause. amount payable to the injured party in case
The clause must be constructed in the way of contractual breach.
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Fundamental Breach reasonable.

It is a breach that is central to the contract. The fairness and reasonableness is decided
Karsales (Harrow) Ltd v Wallis (1956) at the time the contract is entered
It is a breach that results in very serious The burden is on the party seeking to claim
consequences. that the term is fair and reasonable.
Harbutt Plasticine Ltd v Wayne Tank and
Pump Co Ltd (1970) Consideration for Reasonableness
Exclusion clauses do not apply to Balance of bargaining power
fundamental breach. Availability of alternative sources
Difficulty of the task for which liability is
Scope of Unfair Contract Terms Act (1977) being limited
Primarily concerned with exclusion and Practical consequences of allowing or
limitation clauses. rejecting the exclusion
All of its provisions are concerned with Smith v Eric S Bush (1990)
business liability.
Intervention by Court
Scope outside the Unfair Contract Terms If one party has evidently taken unfair
Act advantage of the other.
Contracts of insurance If the term is evidently so unreasonable that
Contracts concerning land it cannot have been properly understood or
Contracts relating to intellectual property considered.
International supply contracts
Unconscionability
Negligence Liability Contractual terms are contrary to good
It is liability that is resulted from conscience.
negligence. Contractual terms are so extremely unjust.
No clause can exclude liability for death or Contractual terms are overwhelmingly one-
personal injury due to negligence. sided in favor of the party.
Any clause that purports to restrict liability
must be reasonable. Unconscionable Contract
It is unenforceable because no reasonable
Contractual Liability or informed person would agree to it.
It arises due to contractual breach instead
of negligence. Unfair Terms in Consumer Contracts
Regulations 1999
Exclusion Subject to Requirement of
Reasonableness Unfair Terms
Exclusion of liability for negligence It has not been individually negotiated.
Exclusion of liability for misrepresentation It is contrary to the requirement of good
Exclusion of implied terms faith.
Exclusion of contractual liability It causes a significant imbalance in the
Exclusion of indemnity to the contracting rights and obligations of the parties.
party Director General of Fair Trading v First
National Bank (2001)
Written Standard Term
It is a term that a party uses for nearly all of Unfair Term – Consequences
its contracts of a particular type without It is not binding on the buyer.
alteration The rest of the contract remains valid.
Reasonableness Test Scope of the Unfair Terms in Consumer

To test whether it is reasonable to rely on Contracts Regulations
the exclusion clause in question. Only applicable to consumer contracts.
The exclusion clause must be fair and
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Test of Fairness consent of the owner.

Whether it is contrary to the requirement of To recover the product plus damages for
good faith loss due to repossession in case the owner
Whether it causes a significant imbalance wrongfully repossesses it.
in the parties’ rights and obligations under
the contract to the detriment of the Obligations of Hirer
consumer. To pay the hire instalments.
To take reasonable care of the product.
Significant Imbalance To inform the owner where the product will
A term is so weighted in favour of one be kept.
party. Unable to sell the product before the final
It causes significant imbalance in the rights instalment without the consent of the
and obligations of the parties. owner.
Requirement of Intelligibility Rights of Owner in Case of Default

All the terms of the contract must be in To forfeit the deposit.
plain, intelligible language. To retain the instalments already paid and
Complex sentence structures, unfamiliar recover the balance due.
words and legal jargon should all be To repossess the product subject to court
avoided. approval and the percentage paid.
To claim damages for any loss.
Good Faith (Fair and Open Dealing)
The consumer should be given full Protection of Hirer
information To enjoy quiet possession of the product.
There are no pitfalls or traps in the contract. To pass title of the product with the consent
No advantage should be taken of the of the owner.
consumer’s necessity, lack of experience, To enjoy the product that is of
weak bargaining position. merchantable quality and fit for its purpose.
To enjoy the product that corresponds with
Definition of Consumer the description and the sample.
He is a natural person acting for non-
business purposes 7. Capacity
Hire Purchase Minor

It is a closed-end leasing in which a person A minor is a young person under the age of
agrees to pay for goods in parts until the 18 years.
full amount is paid He is not considered to have the same
capacities as an adult to enter into a
Owner in Hire Purchase contract.
The owner is the seller until he has
received full payment from the buyer. Contractual Capacity
The buyer will become the owner after he It is the ability to enter into a legally
has made full payment binding contract.
Rights of Hirer Persons without Full Contractual Capacity

To buy the product at any time by giving Minors
notice to the owner and paying the balance Mentally disordered
less a rebate. Drunk
To return the product to the owner and pay Unincorporated associations
him the reduced value due to obsolescence Corporations
or loss of profit. Crown
To assign both the benefit and the burden of Public authorities
the contract to a third person with the
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Necessaries Restitution
They are goods suitable to the condition in Return of objects or payment.
life of the minor and to his actual
requirements at the time of the sale and 8. Mistake
delivery.
Mistake at Common Law
Contract for Necessaries The contract is void if the mistake is
A minor is bound by a contract for operative.
necessaries to some extent.
He is liable to pay a reasonable price, not Mistake of Law
the contract price. The contract is not void if both parties enter
Nash v Inman (1908) into an agreement under a legal
misconception.
Beneficial Contract of Service Brennan v Bolt Burden (2004)
A minor is generally bound by a contract
which is beneficial to him Mistake of Fact
Doyle v White City Stadium (1935) The contract is void if both parties enter
into an agreement under a factual mistake
Types of Beneficial Contract essential to the agreement.
Apprenticeship Cooper v Phibbs (1867)
Training
Employment Operative Mistake
Professional Engagement It is a mistake in a contract that is serious
enough to prevent the contract from being
Right of Minors considered legal.
A minor may rid himself of his obligations
if he repudiates the contract before Bilateral Mistake
attaining the age of 18 or within a A mistake of both parties with respect to
reasonable time after that. the same point (common mistake).
A mistake of both parties with respect to
Voidable Contract different points (mutual mistake).
It is a contract that exists but that one part
has a right to set aside or render void. Common Mistake
A minor is not bound by any voidable Both parties make the same contractual
contract upon his repudiation. error.
Both parties are mistaken about a critical
Void Contract element of their agreement.
It is a contract that does not exist. Both parties share the same mistaken
All other contracts cannot be enforced assumption.
against the minor. The contract is void ad initio (void from the
beginning).
Liability of Minors Bell v Lever Brothers (1931)
They may incur liability if he ratifies a
contract after he has reached majority. Types of Common Mistakes
They may incur liability in tort or in Mistake as to existence (res extincta)
restitution. Mistake as to ownership (res sua)
They may not be able to receive the Mistake as to possibility of performance
benefits conferred upon the other party. Mistake as to quality
Mistake as to the root of the contract
Recovery of Property
A minor may be required to transfer to the Mistake as to Existence
other party any property acquired under the The contract is void when parties enter into
contract. an agreement to deal with a subject matter
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unknown to either party. Cross Purposes

It cannot be performed unless the mistake Having or acting under a misunderstanding
is brought about by the negligence of one of each other’s purposes.
party.
Couturier v Hastie (1856) Absence of Genuine Agreement (Mutual
Mistake)
Mistake as to Ownership Both parties are at cross purposes.
The contract is void when one party sells to The offer and acceptance do not
the other party something that the other correspond.
party is already owned. The contract is void as there is an absence
Bligh v Martin (1966) of agreement.
Raffles v Wichelhaus (1864)
Mistake as to Possibility of Performance
The parties have a shared misapprehension Unilateral Mistake
that performance of their agreement is A mistake of only one party.
possible but in fact it is not. Courts are generally unwilling to void a
When one party has assumed this risk, the contract with a unilateral mistake.
party will probably be in breach of a valid The non-mistaken party will have the right
contract resulting in frustration. to claim damages.
Mistake as to Quality Types of Unilateral Mistakes

The parties have a share misapprehension Mistake as to assumption or promise
of the quality of the product or service. Mistakes as to identity
Such mistake cannot nullify a contract Mistake as to signed document
unless the quality is essentially different
from what was believed to be. Mistake as to Assumption or Promise
Bell v Lever Bros (1932) The non-mistaken party is aware of the
other party’s mistake and proceeds to
Impossibility of Performance contract anyway.
Physical impossibility Smith Hughes (1871)
Sheikh Brothers Ltd v Ochsner (1957) The non-mistaken party has created the
Legal impossibility mistake to induce the then mistaken party
Cooper v Phibbs (1867) to contract.
Commercial impossibility Centrovincial Estates v Merchant Investors
Griffith v Brymer (1903) (1983)
Mistake as to the Root of the Contract Mistake as to Identity

The contract is void if the common mistake It is induced by fraud in that one party is
is so fundamental that it goes to the very claiming to be someone who he is not.
root of the contract, to the very If the contract is not void for mistake, it is
consideration provided. voidable for misrepresentation.
Rescission must be made before the third-
Frustration party contracts with the deceiver.
Legal termination of a contract due to an Otherwise the claimant cannot recover the
unforeseeable situation. goods.
Mutual Mistake Mistake as to Signed Document

It is a contractual error where both parties A person normally takes full responsibility
fail to understand each other. for his signature.
However if he is seriously misled, the
Genuine Agreement contract is void (i.e. non est factum).
It refers to a contract where the parties to
the contract have a meeting of minds.
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Void for Mistake Rescission

The claimant can prove that the contract is It is a remedy which repudiate a contract ab
void for mistake. initio if it is considered just to do so.
If the contract is void, then the deceiver Solle v Butcher (1950)
never acquired good title to the goods.
Then the title to the goods cannot be passed 9. Misrepresentation
to the innocent third party.
Misrepresentation
Voidable for Misrepresentation It is a false statement of fact or law which
If only misrepresentation can be proved, induces someone to enter into a contract.
then the contract is voidable. The false statement must be a major factor
Restitution can be made if the claimant leading to person to enter into a contract.
rescinds the contract first. It does not matter even if the representee
Restitution cannot be made if rescission is could verify but he did not do so.
made afterwards. Redgrave v Hurd (1881)
Inter Absentes (at a distance) Misrepresentation Act 1967

The contract is void for mistake if formed A contract is voidable for misrepresentation
at a distance. even if it is a term of the contract.
Shogun Finance v Hudson (2003) Previously a contract was void for mistake
when the misrepresentation was a
Inter Praesentes (Face-to-face) contractual term.
The contract is voidable if formed face to
face. Mere Representation
Lewis v Avery (1971) A remedy for misrepresentation is unlikely
if the statement is proved to be mere
Mistake in Equity representation rather than a statement of
A contract is usually voidable in equity if it fact.
contains a mistake.
Relief in equity may be available if the Actionable Misrepresentation
party seeking relief is not at fault. It must be a false statement of existing fact
or law.
Forms of Equitable Relief A statement of opinion is not generally a
Rectification misrepresentation.
Specific Performance Bisset v Wilkinson (1927)
Rescission
Statement of Opinion
Rectification It is not a misrepresentation if the opinion
It is a remedy which corrects a mistake in is genuinely held, and not contradicted by
the recording of the contract. facts know to the maker of the statement.
It applies to situations where the contract
fails to express the common intention. Misrepresentation by Statement of Opinion
It is not available when the mistake is The person expressing the opinion is aware
present in the making of the contract. of facts contradictory to the opinion.
Chartbrook v Persimmon Homes Ltd Smith v Land House Corporation (1884)
(2009) The person making the statement does not
believe it at the time that it is made.
Specific Performance The person making the statement does not
It is a remedy which specifies action to be have the stated intention.
taken. Edgington v Fitzmaurice (1885)
An order for specific performance in case
the mistake is present in the contract. False Statement of Law
Denny v Hancock (1870) Traditionally a false statement of law does
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not amount to misrepresentation. Statutory

Now restitutionary remedies may be Innocent
available for mistake of law.
Kleinwort Benson Ltd v Lincoln City Fraudulent Misrepresentation
Council (1999) The representor knows the statement to be
false or does not care whether it is true or
Burden of Proof false.
If the misrepresentation would have Derry v Peek (1889)
induced a reasonable person to contract, the
representor must show that the representee Negligent Misrepresentation
did not rely upon the representation. The representor and representee are in a
If the misrepresentation would not have fiduciary relationship.
induced a reasonable person to contract, the The representor owes the representee a
representee must show that the duty of care.
misrepresentation did induce him to The representor acts negligently in breach
contract. of this duty.
Misrepresentation by Silence Statutory Misrepresentation

Conduct The representor has no reasonable grounds
Change of circumstances to believe the statement to be true.
Non-disclosure of relevant information
Uberrimae fidei (utmost good faith) Innocent Misrepresentation
The representor has reasonable grounds to
Misrepresentation by Conduct believe the statement to be true and does
Conduct can be treated as implicitly not act negligently.
making a statement.
If the implicit statement turns out to be Remedies for Misrepresentation
untrue, it may be a misrepresentation. Rescission
Gordon v Selico (1986) Damages
Misrepresentation by Change of Rescission

Circumstances The contract is set aside.
When a statement becomes false as a result The parties are put back into the original
of a change of circumstances, keeping position before the contract is formed.
silent may be treated as a The contract is voidable, not void ad initio.
misrepresentation. The remedy of rescission must be sought
With v O’Flanagan (1936) by the claimant.
Before rescission is granted, the contract
Non-disclosure of Relevant Information continues to take place.
A true statement may be treated as The right of rescission will be exercised by
misrepresentation if relevant information is giving notice to the other party.
not disclosed. It is available for all types of
Dimmock v Hallett (1866) misrepresentation.
Car & Universal Finance Co v Caldwell
Uberrimae Fidei (Utmost Good Faith) (1965)
Both parties are obliged to disclose relevant
information even if it is not asked for. Bars to Rescission
Lambert v Co-operative Insurance Society Where a party is aware of the
(1975) misrepresentation and continues with the
contract.
Types of Misrepresentation Long v Lloyd (1958)
Fraudulent Where there is a significant lapse of time
Negligent between the making of the contract and the
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discovery of the misrepresentation except misrepresentation.

fraudulent misrepresentation. The defendant can defend himself by
Leaf v International galleries (1950) showing that there were reasonable grounds
Where restitution is impossible. for his belief that the statement was true.
Clarke v Dickson (1858)
Where rescission would affect the rights of Exclusion of Liability
a third party. Broad attempts to exclude liability have
Where one party has affirmed the contract been found to be unreasonable even if the
by his action. clauses are drawn from widely used
Where a third party has acquired some standard conditions.
rights. The right of a party to exclude damages
Where there has been substantial caused by an innocent or negligent
performance in implementing the contract. misrepresentation does not extend to a
fraudulent misrepresentation.
After Rescission Where there was a fraudulent
The party seeking rescission normally must misrepresentation the part deceived
offer to give back all benefits he has retained the right to rescind the contract
received under the contract. and sue for damages.
Exclusion or limitation of liability for
Damages misrepresentation is subject to the
An indemnity is given to the injured party requirement of reasonableness.
by way of monetary compensation.
The claimant is required to prove that the 10. Duress and Undue Influence
statement is made knowingly untrue.
Available for negligent and fraudulent Vitiating Factors
misrepresentation. Misrepresentation
Damages for fraudulent misrepresentation Mistake
are made under the tort of deceit. Duress
All losses due to the misrepresentation can Undue Influence
be recovered. Illegality
The measure of damages is by putting the
claimant back into the original position. Duress
Doyle v Olby (1969) A person enters into a contract as a result of
threats.
Remedy for Fraudulent Misrepresentation
Damages are available under the tort of Effect of Duress
deceit. The contract is void for duress to person
Derry v Peek (1889) The contract is voidable for duress to goods
and economic duress.
Remedy for Negligent Misrepresentation
Claim is allowed where a fiduciary Forms of Duress
relationship has arisen. Duress to Person
Royscott Trust v Rogerson (1991) Duress to Goods
Economic Duress
Damages for Innocent Misrepresentation
Damages are not available as long as the Duress to Person
injured party is not barred from rescission. When one party to a contract forces another
William Sindall plc v Cambridgeshire to contract with him through threats of
County Council (1993) violence.
Barton Armstrong (1976)
Burden of Proof
The claimant has to prove that he was Duress to Goods
induced to enter into the contract by the When a person threatens to destroy or take
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the goods of another unless a contract is influence the claimant.

entered into. The wrongdoer did influence the claimant.
The Siboen and The Sibotre (1976) The exercise of this influence was undue.
It was because of this influence that the
Economic Duress transaction was brought about.
When one party uses its superior economic
power to force the weaker party into a Genuinely Presumed Undue Influence
contract. The claimant need not prove that there was
Pao On v Lau Yiu Long (1980) actual undue influence.
He just needs to establish the existence of
Elements of Duress the relationship.
Pressure amounting to compulsion of the The judge will consider whether the parties
will of the victim. are in a relationship of trust and
Illegitimacy of the pressure. confidence.
Coercion of the Will Establishing Genuine Presumption

The coerced person protests at the time of There was a relationship as a matter of law
being coerced. which gives rise to a presumption of undue
The coerced person has an alternative influence.
course of action open to him. The transaction is obviously not to the
The coerced person did not receive benefit of the vulnerable party but confers a
independent advice. great advantage to the party in a fiduciary
The coerced person takes steps to avoid the position.
contract after entering into it.
Examples of These Relationships
Undue Influence Parent: child
It is power used to push the weaker person Solicitor: Client
into making a decision which would not Religious advisor: disciple
otherwise have been made. Doctor: Patient
It exists where a contract has been entered Trustee: beneficiary
as a result of pressure which falls short of
amounting to duress. Evidentially Presumed Undue Influence
It operates where there exists a relationship The relationship falls outside those where
between the parties which has been undue influence is presumed by law.
exploited by one party to gain an unfair The claimant needs to establish the
advantage. relationship and an inexplicable transaction
was made due to this relationship.
Result of Undue Influence
The contact is voidable and can be set aside Rebutting Presumption
The defendant can show that the claimant
Forms of Undue Influence acted independently and understood his or
Actual undue influence her actions.
Genuinely presumed undue influence The defendant can demonstrate that the
Evidentially presumed under influence claimant exercised free will in entering the
transaction.
Actual Undue Influence The defendant can show that the claimant
The claimant must prove that the received independent advice and was fully
wrongdoer actually exerted an undue aware of the risks involved before acting.
influence upon the complainant to enter Royal Bank of Scotland v Etridge (2001)
into the transaction.
Undue Influence Due to Third Parties
Criteria for Actual Undue Influence It exists between the spouses when a bank
The wrongdoer has the capacity to induces someone to enter into a transaction
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involving the matrimonial home as security The parties still cannot impose a burden
for business debts. upon a third party.
The transaction will be set aside if the bank The right of the third party to enforce a
has actual or constructive notice of the contract is subject to the contractual terms.
possibility of undue influence. The parties can impose conditions to limit
the right of the third party.
Constructive Notice The third party is entitled to remedy.
It arises where the bank intentionally fails Nisshin Shipping Co Ltd v Cleaves & Co
to take reasonable steps to ensure that the Ltd (2003)
transaction was entered freely without the
exercise of undue influence. Conditions for Enforcement by Third
Royal Bank of Scotland v Etridge (2001) Parties
If the contract expressly provides that the
11. Privity third party may do so.
If the terms of the contract purport to
Doctrine of Privity confer a benefit upon the third party.
Only a party to a contract can enforce it. If nothing else in the contract denies the
Only a party to a contract can sue and be purported benefit.
sued on it. If the third party can be identified or
Dunlop Pneumatic Tyre v Selfridge & Co identifiable.
(1915)
Evasion of Privity
Rules of Privity Damages on behalf of another
Only parties to a contract are bound by it. Trusts
The parties cannot compel a third party to Collateral contracts
do or refrain from doing something. Statutory exceptions
Beswick v Beswick (1968) Restrictive covenants
Only the parties can derive rights and Banker’s confirmed credit
benefits from their contract. Agency
The parties cannot confer a benefit upon a Tort
third party.
Scruttons Ltd v Midland Silicones Ltd Post-contractual Right of Third Parties
(1962) The contracting parties cannot deny the
right of the third party.
Problems of Privity The contracting parties cannot alter the
Defeat of intentions of the parties to a entitlement of the third party.
contract.
Lead to substantial injustices. Protection of Promisor
He can provide that the contract can be
Privity at Common Law varied or rescinded later.
Contracting parties cannot impose a burden He can provide that he should avail himself
on a third party. of any defences and set-offs.
Contracting parties cannot confer a benefit He can limit or exclude any liability for
on a third party. negligence (other than death or injury).
Tweddle v Atkinson (1861)
Rights of Promisee
Contracts (Right of Third Parties) Act 1999 He can enforce the contract for the third
It provides the parties with a method of party.
circumventing the privity doctrine. He can refuse to enforce the contract for
It provides third parties with a right to the third party.
enforce contractual terms. He is normally not entitled to remedy if it is
It allows the contracting parties to provide granted to the third party.
enforceable benefits to the third party. He can receive remedy if it is not granted to
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the third party. his property to a trustee for the benefit of

Jackson v Horizon Holidays (1975) the beneficiaries.
A trustee is the agent who acts on behalf of
Agency a settlor for the benefit of beneficiaries.
An agent is someone who represents his The beneficiaries are entitled to remedy.
client in a fiduciary relationship. The settlor can also bring legal action
An agent must receive authorization form against the trustee.
his client in order to act on his behalf. The intention to create a trust must be
The resulting contract creates privity proved.
between the promisor and agent.
The client drops out from the contractual Performance Interest (Expectation Interest)
relationship with the promisor. It is the benefit expected to receive if there
is no breach.
Exemption and Limitation of Liability by
Third Party Expectation Damage
A enters into a contract with B who then It is indemnity recoverable from a breach
enters into another contract with C. by the non-breaching party.
A is the promisor and B is the promisee in
the first contract. Performance Interest under Privity
B is the promisor and C is the promise in It is the benefit expected to receive by a
the second contract. third party if there is no breach.
C is the third party in relation to A. The third party is entitled to expectation
Exemption and limitation in the first damages.
contract are not applicable to the third
party. Third Party Beneficiary
A can bring an action in tort against C. He is the intended beneficiary who has the
The agency concept may be applied in right to sue the promisor or promisee of a
some situations. contract.
C can defend on grounds of the exemption
clauses in the first contract. Intended Beneficiary
Port Jackson Stevedoring v Salmond and He is a party who benefits from the
Spraggon (1980) execution of the contract.
The benefit he receives is intended by the
Collateral Contract contracting party.
A party enters into or promises to enter into He can sue the promisor or promisee of a
another contract which co-exists side by contract.
side with the main contract.
A third party enters into a contract side by Incidental Beneficiary
side with the main contract. He is a party who stands to benefit from the
The third party may be liable if he induces execution of the contract.
the promise to enter into the main contract. The benefit he would receive is not the
Andrews v Hopkinson (1957) intent of either contracting party.
He cannot sue the promisor or promisee of
Trust a contract.
It is a relationship whereby property is held
by one party for the benefit of another. Restrictive Covenant
A settlor is someone who settles property It is a clause in contracts of partnership and
on trust law for the benefit of beneficiaries. employment.
A trustee is someone who holds property on It prohibits a contracting party from
trust law for the benefit. engaging in similar employment for a
A beneficiary is someone who receives specified period of time within a certain
benefits from a trust. geographical area.
A trust is created by a settlor who transfers
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12. Illegality The court needs to determine if the statute

prohibited the formation of such contract.
Illegality St John Shipping Corporation v Joseph
Contracts that are tainted with unlawful Rank Ltd (1957)
elements are not enforceable.
Types of Common Law Illegality
Rationale for Illegality Contracts that involve in the commission of
To deter parties from such conduct. a legal wrong.
To punish wrongdoers. Contracts that involve in the commission of
To preserve the dignity of the court. acts contrary to public policy.
For reasons of public policy.
Contracts Contrary to Public Policy
Effects of Illegality A contract which is contrary to good morals
The contract is void if tainted with may be illegal.
illegality. A contract which attempts to restrain the
No action can be brought to recover a administration of justice is illegal.
benefit derived from such as void contract. A contract which tends to injure the state in
Contractual Illegality its relations with other states.
Contracts to commit crimes and torts. A contract with an alien enemy is illegal in
time of war.
Types of Illegality A contract which contemplate hostile action
Common law prohibition to a friendly foreign country is illegal.
Statutory prohibition A contract which restrain the marital
freedom is illegal.
Common Law Illegality A contract which imposes a restraint of
Any act that is considered unlawful by trade is illegal.
common law.
Illegality in Case Law
Statutory Illegality A court will not enforce an illegal contract.
Any act that is expressly prohibited by It may provide the innocent party with a
statute. remedy in some other manner.
Types of Contractual Illegality Recovery of Benefit by Innocent Party

Illegal as formed. under Illegal Contract
Legal as formed but illegal as performed. If there was a fraudulent misrepresentation.
Shelley v Paddock (1980)
Contracts Illegal as Formed If the illegal contract constitutes an unjust
A contract is illegal as formed and hence enrichment.
void ab initio if it is formed for the purpose Kirir Cotton Co Ltd v Dewani (1960)
of committing an unlawful act. If he withdraws from a contract before any
The innocent party cannot recover a benefit illegality is committed.
if it is expressly prohibited by statute Tribe v Tribe (1996)
Re Mahmoud & Ispahani (1921) If he does not need to rely on the illegal
The innocent party may recover a benefit nature of the contract.
on a quantum meruit (as much as he
deserves) basis. 13. Restraint of Trade
Mohamed v Alaga & Co (A Firm) (2000)
Restraint of Trade
Contract illegal as Performed It is a common law doctrine relating to the
A contract may be legal in its formation but enforceability of contractual restrictions on
illegal in its performance. freedom to conduct business.
The way that the contract is performed may
be prohibited by statute.
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Contexts for Restraint of Trade interest.

Employment Nordenfelt v Maxim Nordenfelt (1894)
Sale of Business
Solus Agreement (Tie Clause)
Functions of Restraint of Trade It is a restraint contract where a party
To prevent former employees from working agrees to trade only with one particular
for a competitor of the employer while company.
employed or for a period of time after the Esso Petroleum Co Ltd v Harper’s Garage
end of his employment. (Stourport) Ltd (1968)
To prevent a former business owner to
establish a rival business after selling his Forms of Solus Agreement
business to the purchaser. A buyer agrees to buy a certain product
only from one particular supplier.
Principles A supplier agrees to sell a certain product
It must be reasonable between the parties. only to one particular buyer.
It must be reasonable in the public interest.
Exclusive Service Agreement
Employment Contracts It is a restraint contract where a party
Employers can stipulate the requirement of agrees to provide their services only to the
exclusive services of their employees other party and not to work for anyone else.
during their employment contract. A Schroeder Music Publishing v Macaulay
A term will be considered for its (1974)
reasonableness when it seeks to impose a
restraint after the end of the employment. Forms of Exclusive Service Agreement
A party agrees to buy a certain service only
Reasonableness between Parties from one particular service provider.
It must do no more than is reasonably A service provider agrees to provide a
necessary for the protection of the certain service only to one particular party.
employer.
14. Performance and Breach
Public Interest
It must not be injurious to the public. Discharge of Contracts
The contract is brought to an end.
Criteria for Restraint Each party is freed from their obligations of
It must protect some legitimate interest of that contract.
the employer. The parties then have no further obligations
It must not be used simply to prevent owed to each other.
competition with the employer.
The employee must be free to exercise his Ways for Discharge of Contracts
general skills and knowledge. By performance
Herbert Morris Limited v Saxelby (1916) By another agreement
It must be reasonable with regard to three By breach
elements: subject matter, area, and By frustration
duration.
Mason v Provident Clothing & Supply Discharge by Performance
Company Ltd (1913) A contract is ended upon full performance
of the contractual obligations by both
Sale of a Business parties.
It protects the goodwill and custom of the
purchased business. Entire Obligation Principle
It protects the future business undertaken A party cannot recover payment for the
by the business. partial performance of an entire obligation.
It must not be contrary to the public Full payment can only be claimed after full
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performance. Repudiatory Breach

No part payment can be claimed after It is a breach which entitles the innocent
partial performance. party to terminate the contract.
Cutter v Powell (1795) The burden of proof falls on the party who
claim the breach has occurred.
Mitigation of Entire Obligation Principle
Partial and Inadequate Performance
A Series of Entire Obligation Any contract that is not fully performed.
Courts may interpret the contract not as The quality of the performance is not
being an entire contract. satisfactory.
The contract is made up of a series of entire
obligations. Standard of Performance
The contract is thus divided into a series of Strict Liability
stages of performance. Standard of Reasonable Care
The performer can recover the payment for
the stage completed. Strict Liability (for Products)
The performance measures up to what is
Substantial Performance demanded by the contract or it does not.
Courts will allow recovery where a party Contracts for the supply of goods impose a
has substantially performed his obligations. strict standard of performance with regard
Hoenig v Isaacs (1952) to the quality and quantity of the goods to
be supplied.
Acceptance of Partial Performance Arcos v Ronaasen (1933)
The innocent party may be liable to
compensate the performer for a partial Reasonable Care (for Services)
performance if he accepts the partial It imposes a duty on the party to use
performance. reasonable care and skill in the
Sumpter v Hedges (1898) performance of his contractual obligations.
Contracts for the supply of services require
Tender Performance that the party exercise reasonable care and
A party is willing and trying to perform skill in the performance of his contractual
The other party does not accept the obligations
performance Only the breach of a condition or
The performing party is discharged from sufficiently important innominate term
the contract gives rise to a right to terminate the
The non-accepting party is liable in contract.
damages for non-acceptance Supply of Goods and Services Act 1982
Startup v Macdonald (1843)
Consequences of Breach
Discharge by Agreement To be determined by the severity of the
When both parties agree to bring the breach
contract to an end and release each other To be decided by the innocent party
from their contractual obligations. Decro-Wall SA v International
Practitioners in Marketing (1971)
Elements for Discharge by Agreement
Accord (agreement) Right of Innocent Party
Satisfaction (consideration) To rescind the contract
To sue for damages.
Breach
A breach occurs when one party refuses to Right to Rescind
continue performing or commits an act A breach of a condition or innominate term
which prevents further performance. gives the innocent party the option to
terminate the contract.
© 2022 UOLLB 24
Contract Law
The innocent party must communicate to Effect of Affirmation on Injured Party

the party in breach he has elected to He runs the risk that the contract may later
terminate the contract be discharged by frustration.
Vitol SA v Norelf Ltd (1996) He will not be able to claim for the earlier
breach.
Consequences of Rescission He cannot rely on the earlier breach in case
A rescission for breach ends only future he later finds himself unable to perform his
obligations. obligation.
Past obligations remain.
A rescission for misrepresentation ends all Anticipatory Breach
obligations. When a party either renounces the contract
Future obligations are no longer binding. or disables himself from performing it
Future obligations are discharged. before a performance is due.
Dependent Obligations Prospective Inability

One party must be able to perform his There is strong evidence to show that a
obligation in order for the other party to be party will not be able to perform his duty.
remained bound by the contract.
The innocent party may not be able to sue Renunciation of Obligations
if he cannot continue to perform his The party in breach expressly indicates his
obligation. absolute refusal to perform.
It can be indicated by conduct.
Options for Injured Party The nonperformance must involve the
He can choose to rescind or affirm the breach of a contractual obligation.
contract in case of breach The nonperformance does not have to be
He chooses to affirm the contract if he does the fault of the party in breach.
not choose to rescind it. The breach can be due to the failure of a
He remains bound to his obligations if he third party.
affirms the contract. Universal Cargo Carriers Corp v Citati
(1957)
Termination by Injured Party
The renunciation must be clear enough to Effect of Anticipatory Breach
cause a reasonable man to conclude that the The damages are determined and can be
contract will not be performed. claimed at once before the time is fixed for
The right for the injured party to rescind performance.
the contract is dependent on the seriousness Hochster v De la Tour (1853)
of the breach.
There will be no legitimate interest for the 15. Frustration
injured party to perform his part after
termination. Frustration
A contract cannot be performed as result of
Affirmation by Injured Party a subsequent supervening event that is not
He may choose to affirm the contract by the fault of either party.
performing it.
He cannot continue to perform when Doctrine of Frustration
cooperation by the other party is needed. The court decides when a contract has been
Hounslow LBC v Twickenham Garden frustrated.
Developments Ltd (1971) All future obligations cease in case of
He cannot continue to perform when he has frustration.
no legitimate interest in performing. Law Reform (Frustrated Contracts) Act
White and Carter (Councils) Ltd v 1943
McGregor (1962)
© 2022 UOLLB 25
Contract Law
Strict Freedom of Contract Effects of war

A person who has undertaken to perform Government action
obligations has also undertaken the risk that Other frustrating events
his performance will become impossible.
Such failure to perform should be treated in Destruction of Subject Matter
the same way as failure to perform due to a Frustration occurs when something central
deliberate action. to the performance of the contract no long
exists or cannot be used anymore.
Relaxation of Freedom of Contract Taylor v Caldwell (1863)
The non-occurrence of any supervening Asfar v Blundell (1896)
event is considered as the implied condition
in the contract. Personal Incapacity
The existence of the subject matter in the Frustration occurs when the performer of
contract is considered as one of the implied the contract dies or is too ill to perform
conditions Condor v Barron Knights (1966)
If a supervening event takes place, the
parties are discharged from their Non-occurrence of an Event
obligations. Frustration occurs when a contract relies on
Taylor v Caldwell (1863) an event that does not occur as expected.
National Carriers Ltd v Panalpina Herne Bay Steam Boat Co Hutton (1904)
(Northern) Ltd (1981)
Effects of War
Force Majeure Clauses Frustration occurs when a government
It excuses a party from not performing its makes trading with companies based in
contractual obligations due to unforeseen enemy territory illegal in time of war.
events beyond his control. Contracts made heretofore will be
frustrated.
Determining Factors for Frustration Metropolitan Water Board v Dick Kerr
Terms of the contract (1918)
Context
Knowledge Government Actions
Expectations Frustration occurs when a government
Assumptions action essentially bars a contract to be
Contemplations performed for reasons of, for example,
Time of contract health and safety.
Risk assumed to be taken Gamerco SA v ICM/Fair Warning Agency
The nature of the supervening event (1995)
CTI Group Inc v Transclear SA (2008) Amalgamated Investment and Property Co
Ltd v John Walker & Sons Ltd (1976)
Frustrating Event
Frustration occurs when, without default of Other Frustrating Events
either party, an obligation has become Industrial action
impossible to perform. Serious accident
The circumstance has become radically Jackson v Union Marine Insurance Co Ltd
different from the implied circumstance for (1874)
the performance to be undertaken.
Tsakiroglou & Co v Noblee and Thorl Impossibility
(1962) It is an excuse for the nonperformance of
duties under a contract, based on a change
Types of Frustrating Events in circumstances.
Destruction of subject matter The non-occurrence of which was an
Personal incapacity underlying assumption of the contract, that
Non-occurrence of an event makes performance of the contract literally
© 2022 UOLLB 26
Contract Law
impossible. Some of the money may be retained or

made payable to cover expenses due to the
Impracticability performance of obligations
It excuses performance of a duty, where Gamerco SA v ICM/Fair Warning Agency
that duty has become unfeasibly difficult or (1995)
expensive for the party who was to
perform. Compensation for a Valuable Benefit
A benefit other than money can be
Limitation on Frustration Doctrine recovered if frustration occurs later.
A contract cannot be frustrated when the Any expenses incurred may be deducted
supervening event has been foreseen and from the benefit received to avoid unjust
provided for in the contract. enrichment before recovery.
Jackson v Union Marine Insurance Co Ltd BP Exploration Co (Libya Ltd v Hunt (No
(1874) 2) (1979)
A contract cannot be frustrated when the
alleged frustrating event has been self- 16. Damages
induced by one of the parties.
If a contractual party induces a frustrating Purpose of Contract Law
event, then it will be treated as a breach and To seek to fulfil the expectations created by
the doctrine of frustration does not apply. a binding promise.
Maritime National Fish vs Ocean Trawlers
(1935) Condition for Damages
The injured party is entitled to claim
The Effect of Frustration damages for the loss caused by the breach.
Common Law
The Law Reform (Frustrated Contracts) Act Purpose of Damages
1943 To compensate the injured party and not to
punish the party in breach.
Common Law Ruxley Electronics and Construction v
A frustrating event terminates the contract Forsyth (1995)
automatically without any need for action
by either party. Inability to Claim Damages
All future obligations after frustration are The claimant will not receive damages
discharged, but obligations incurred prior to where the breach of contract has left him
the frustrating event remain. no worse off.
Where there is a total failure of C and P Haulage v Middleton (1983)
consideration, the money paid can be
recovered. Method of Compensation
Chandler v Webster (1904) To put the injured party in the position he
would have been in but for the breach of
Failure of Consideration contract.
It occurs when a consideration has since
become worthless or has ceased to exist or Measures of Loss
been extinguished, partially or entirely. Expectation loss
Reliance loss (Expenditure Loss)
The Law Reform (Frustrated Contracts) Restitution loss
Act 1943
Expectation Loss
Money Paid or Payable Prior to Frustration The contract created certain expectations of
Where money was paid or payable prior to performance.
the frustrating event, it should be returned The claimant can have the expectations
(if paid), or should cease to be payable) (if fulfilled in the form of damages in case of
not paid but owning). breach.
© 2022 UOLLB 27
Contract Law
The claimant obtains the profits he would damages when the loss is too remote.
have received if the contract had been Those losses which arise in the usual
performed. course of things will be recovered.
The claimant is entitled to the cost of the
cure if the defendant does not perform the Test of Remoteness
contract or performs it badly. The two methods are not mutually
exclusive.
Cost of the Cure
An amount that is paid when a third party is First Method
hired to perform what was stipulated in the The degree of knowledge the parties are
contract. presumed to possess.
Watts v Morrow (1991) The scope of the contractual duty.
Reliance Loss (Expenditure Loss) Second Method

It is awarded when the claimant is unable Reasonable contemplation of damages at
to prove the value of his expectations. the time the contract was made.
It is calculated based on the amount of
expenditure incurred by the innocent party. Limitations on Damages
Anglia Television v Reed (1972) Remoteness
Causation (who is responsible)
Restitution Loss Duty to mitigate
The defendant was enriched at the
claimant’s expense. Mitigation of Damage
It is unjust to allow the defendant to retain Claimants are said to be under a duty to
his profit without compensating the mitigate their losses.
claimant.
A restitutionary reward requires the Rules of Damage Mitigation
defendant to disgorge the profit obtained as To avoid increasing loss.
a result of his wrongdoing. To act reasonably to reduce it.
Planche v Coburn (1831) British Westinghouse Electric Co Ltd v
Underground Electric Railway Company of
Total Failure of Consideration London Ltd (1912)
A consideration is the remuneration the
contract performer will get upon fulfilment Non-financial Loss
of his entire obligations. Any loss that is caused by anxiety, mental
A total failure of consideration occurs when distress and hurt feelings.
the contract performer has not received any The injured feelings are not compensable
part of the consideration after fulfilling his for a breach of contract.
entire obligations. Addis v Gramophone Co Ltd (1909)
Restitutionary claim is not allowed if the
claimant has received any part of the Exception to Non-financial Loss
consideration. When the purpose of the contract is to offer
pleasure, relaxation or peace of mind.
Unjust Benefit Implied and express terms will be
It occurs when the defendant has obtained considered to determining non-pecuniary
any profit because of his breach of contract. loss.
An account of profits is resulted where the Jackson v Horizon Holidays (1975)
defendant disgorges the benefit he has
obtained by the breach of contract. Liquidated Damages
Attorney-General v Blake (2000) It is a clause stating the sum payable by the
defendant in the event of breach.
Remoteness of Damage It is enforceable only when the amount is a
The claimant may not be able to receive genuine pre-estimate of the damage.
© 2022 UOLLB 28
Contract Law
Dunlop Pneumatic Tyre v New Garage and question

Motor (1915) Equitable maxim ‘he who comes to equity
must come with clean hands’
Penalty Clause
It states the unconscionable sum payable by Situations for Not Ordering Specific
the defendant in case of breach. Performance
It states a payable sum that is greater than If the claimant induced the defendant to
the amount or benefit that would be enter into the contract with a promise
received by the injured party if the contract which he has then failed to perform.
is performed. If the claimant has performed the contract
It states a single sum payable in case of in an unfair manner.
breach. If the specific performance would result in
It is unenforceable as it will be struck down severe hardship to the defendant.
by the court. If it is impossible for the defendant to
comply with the order.
Penalty Clause Rule If it lacks a mutuality of the right of
It is only applicable to liquidated damages enforcement.
payable on breach of a contract. If it involves personal services or
It is a rule that will be used by a court to employment.
strike down unreasonable compensation If it requires the constant supervision of the
stated in the contract. court.
Evading Penalty Clause Rule Mutuality of the Right of Enforcement

To require payment immediately on The claimant can request specific
entering into the contract but allow the performance against the defendant.
other party to pay by instalments. The defendant can also request specific
To say that the amount is payable on an performance against the claimant.
event which is not a breach of contract. It is because they are bound by the contract.
To avoid specifying that a particular sum of The claimant is liable to reward the
money will be payable on breach of a defendant if the contract is fully performed.
contract. The defendant is obliged to perform his
obligations.
17. Equitable Remedies If the defendant cannot request specific
performance for some reason, the claimant
Types of Remedy also cannot request specific performance.
Specific performance Page One Records v Britton (1968)
Damages
Injunction Damages
It can be awarded in addition to or in
Specific Performance substitution for specific performance or
It is an exceptional remedy that requires the injunction.
defendant to perform a certain act stated in It can be used to substitute specific
the contract. performance which has become impossible
(e.g. through lapse of time).
Situations for Ordering Specific
Performance Injunction
When damages are an inadequate remedy It is a court order which prohibits some
Cohen v Roche (1927) form of conduct.
When it is extremely difficult or impossible It will not be granted if it would indirectly
to quantify the loss order specific performance.
Decro-Wall International SA v
Practitioners in Marketing Ltd (1971) Negative Obligations
The claimant’s conduct must be beyond When a party promises not to do something
© 2022 UOLLB 29
Contract Law
or to refrain from doing something.
Discretionary Remedy
It is a remedy granted at the discretion of
the court.
Types of Discretionary Remedy

Specific Performance
Injunction
© 2022 UOLLB 30

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Hamdahazza2003@gmail.

com 04 Dec 2021

have understood a party who intended to

Intention of the Parties

her right of ownership (title) in an asset to treat.

2. Offer and Acceptance Bilateral Contract

Intention to be Legally Bound Request for Tenders

Inference of the Acceptance Exception to Postal Acceptance Rule

 Fax End of an Unaccepted Offer

 The offeree may accept the offer if the promises.

Contractual Parties Making of Promise

Flow of Consideration Rules of Consideration

balance.  Stilk v Myrick (1809)

 Roscorla v Thomas (1842) Domestic Agreement

 The courts will usually allow it to take Condition

Rationale for Parol Evidence Rule Lord Denning on Collateral Contract

contract by court or by statute.  Finish (condition of the surface of a

Terms Implied by Statute Consumer Sales (Dealing as a Customer)

Sale of Goods Act (1979) Options for Injured Party

Exclusion Clause Negligence

Fundamental Breach reasonable.

Reasonableness Test Scope of the Unfair Terms in Consumer

Test of Fairness consent of the owner.

Requirement of Intelligibility Rights of Owner in Case of Default

Hire Purchase Minor

Rights of Hirer Persons without Full Contractual Capacity

unknown to either party. Cross Purposes

Mistake as to Quality Types of Unilateral Mistakes

Mistake as to the Root of the Contract Mistake as to Identity

Mutual Mistake Mistake as to Signed Document

Void for Mistake Rescission

Inter Absentes (at a distance) Misrepresentation Act 1967

not amount to misrepresentation.  Statutory

Misrepresentation by Silence Statutory Misrepresentation

Misrepresentation by Change of Rescission

discovery of the misrepresentation except misrepresentation.

the goods of another unless a contract is influence the claimant.

Coercion of the Will Establishing Genuine Presumption

the third party. his property to a trustee for the benefit of

12. Illegality  The court needs to determine if the statute

Types of Contractual Illegality Recovery of Benefit by Innocent Party

Contexts for Restraint of Trade interest.

performance. Repudiatory Breach

 The innocent party must communicate to Effect of Affirmation on Injured Party

Dependent Obligations Prospective Inability

Strict Freedom of Contract  Effects of war

impossible.  Some of the money may be retained or

Reliance Loss (Expenditure Loss) Second Method

 Dunlop Pneumatic Tyre v New Garage and question

Evading Penalty Clause Rule Mutuality of the Right of Enforcement

or to refrain from doing something.

Types of Discretionary Remedy

You might also like

Fax End of an Unaccepted Offer

The offeree may accept the offer if the promises.

balance. Stilk v Myrick (1809)

Roscorla v Thomas (1842) Domestic Agreement

The courts will usually allow it to take Condition

contract by court or by statute. Finish (condition of the surface of a

not amount to misrepresentation. Statutory

12. Illegality The court needs to determine if the statute

The innocent party must communicate to Effect of Affirmation on Injured Party

Strict Freedom of Contract Effects of war

impossible. Some of the money may be retained or

Dunlop Pneumatic Tyre v New Garage and question