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COURSE WORK
ON
CONTRACT LAW 3
NAME: TEMITOPE OLUYOMI OLOTU
IDENTITY: EBS 10013
DATE: FEBRUARY 21, 2012
SCHOOL: Executive Business School/Bradford University School, UK
LECTURER: Mr ADISA
Question:
“It is a basic common law rule that a party is not
discharged from his contractual obligations merely
because performance has become more onerous or
impossible owing to some unforeseen events”
Answer:
A contract may be discharged i.e brought to an end, and the
contractual relationship between the parties extinguished in four
possible ways; Agreement, Performance, Frustration, thus three
are the lawful one while the last one which is Breach is unlawful.
Discharge by Performance: The general rule is there must be
entire performance. i.e it must be entire and exact.
Cutter V Powell (1895) Term Rep 320 (1775-1802) AILER Rep 159.
Partial Performance: Sumpter V Hedges (1898) I QB673
Substantial Performance: Bolton V Mahadeva (1972) 1 WLR
1009
Tender of Performance: Startup V MacDonald (1843) 6 man
593
Divisible Contracts: Taylor V Webb (1937) 2 QB 283
Prevention of Performance: Planche V Colburn (1831) 8 Bing
14
Terms as to Time: Behzadi V Shaftesbury (1991) 1 ALLER
477
Discharge by Agreement: A contractual obligation may be
discharged by a subsequent binding agreement between the
parties, since both parties enter a contract as the result of a
mutual agreement then pure logic dictates that the parties should
be able to release each other from any or further performance as
a result of reaching another agreement. There are two ways in
which the contract could be discharged by agreement, Bilateral
discharge and Unilateral discharge.
Bilateral Discharge
Accord and Satisfaction: Pinnel’s case (1602) 5 Go Rep 117a;
77 ER 237
WAIVERS: There as to be a consideration in place Williams V
Roffey Bro & Nicholls (Contractors) Ltd.
Rescission and Variation; Rickards V Oppenheim (1956) 1 KB
616
Unilateral Discharge
Release by deeds: British Russian Gazette Ltd V Associated
Newspapers Ltd (1933) 2 KB 616.
Discharge by Frustration
A situation when it becomes impossible to perform an obligation
under a contract because of the occurrence of an event which is
not due to the fault of the two parties and which they did not
foresee and could not have prevented.
National Carriers V Panalpina (Northern) Ltd (1981) AC 675
Taylor V Caldwell (1863) 3 B & S 826
Paradine V Jane (1647) Aleyn 26
The following situations could amount to frustration
Total or Partial destruction of subject matter (FIRE) Taylor V
Caldwell, it was held that the agreement was frustrated by
fire and the parties discharged.
Subsequent Legal Changes: (Government Interference): It
occasionally happens that once a contract has been entered
into in law, quite independently, may move to the position
that the performance of contracts of the type entered into is
illegal.
Re Stupton, Anderson & Co Harrison Bros (1915) 3 KB 676
Outbreak of war
Death or Illness: Robinson V Davison where a pianist was
engaged to perform but he took ill before the date of
performance and could not perform it was held that the
agreement was frustrated by illness.
Commercial Sterility: These is a circumstances where, even
though the contract is not impossible to perform, the
commercial purpose of the contract has disappeared as a
result of the intervening event or an event which is
fundamental to the contract cannot or does not occur, then
the contract might still be held to be frustrated. This is
commonly claimed when the essence of the bargain has in
fact been lost.
Krell V Henry (1903) 2 Kb 740
However, this doctrine will not apply in the following
circumstances.
Where the event is contemplated by an express stipulation
in the contract.
Where the contract contains an absolute undertaking to be
performed in any event
Where the event was induced by one of the parties. Maritime
national Fish V O Can Trawlers, 1935 Act AC 524
Where the event is onerous but not sufficiently grave to
constitute a frustrating event. Davis Contractors V Fareham
UDC 1956 AC 696, 1956 2 AER 145.
The House of Lords recognized the harshness of the principle in
the Fibrosa case (1943) AC 32) and devised rules to modify the
harshness created by the rule which was Pioneer by Viscount
Simon IC and was immediately passed in the House as Law reform
frustrated. Contracts Act 1943.
LIMITATIONS OF THE LAW REFORM FRUSTRATION CONTRACTS ACT
1943
Frustration is a common law doctrine originally developed to
avoid some of the harshness of the existing common law rule.
Nevertheless, it can still lead to injustice itself. As a result,
Parliament, following the Fibrosa case, passed the Law Reform
(frustrated contracts) Act 1943 specifically to deal with the
consequences of frustrating events and to provide a fairer means
of identifying to recover and in what circumstances.
There are three main areas which the 1943 Act covers.
Recovery of money paid in advance of a contract
Recovery for work already completed under the contract
Financial reward where a valuable benefit has been
conferred.
Gamerco SA V LCM/ Fair WARNING agency (1995) 1
WLR 1226
BP. Exploration Co (Libya) Ltd V Hunt (No 2) (1979) 1 WLR 783.
The effectiveness of the 1943 Act is also limited. Further because
it does not apply in certain circumstances identified in the Act
itself.
By S 2 (4): The Act will not apply in the case of severable or
divisible. Contracts where one part of the contract has been
completely performed before the frustrating event. This is
not a problem if that part of the contract is paid for
separately.
By S 2 (5): The Act will not apply to contracts for the carriage
of goods by sea, expect time charter-parties.
By S 2 (5): The Act does not apply to insurance contracts.
Nevertheless, such contracts in any case concern accepting
the risk of specific events occurring, e.g a house burning
down for which a sum of money is then payable, so this
exclusion is perfectly logical
By S 2 (5) C: the Act will not apply in the case of the
perishing of goods under S 7 of the sale of Good Act 1979.
Finally, discharged can be explained as contract that as ended.
However, its becomes frustration if performer becomes absolutely
impossible by the parties it becomes discharge by frustration.
Discharge by Breach: A breach occurs where a party fails to
perform his obligation under a contract or where it was performed
wrongly. Discharge by Breach is classified into two; ACTUAL
BREACH AND ANTICIPATED BREACH.
FOSTER V KNIGHT (1872) LR 7 EX CH 111
Avery V Bowden (1855) 5 EX B714
Question 2: Upon recovery from a serious illness, Jones
made a gift of some of his properties to Mark, his Medical
Advisor. The motive of the gift was gratitude. Jones now
repents his generosity and wishes to know whether the
law allows him to recover the gifts.
(A) ADVISE HIM
- Assuming that the gifts were made two month ago.
- Assuming that the gifts were made 15 years ago.
Answer 2
According to BARROM’S DICTIONARY OF LEGAL TERMS Fourth
Edition, “Gift” is defined as a voluntary transfer of property
made without consideration that is, for which no value is received
in return, which is accepted by the recipient.
The issue involved in this case 18 “undue influence” which
involves a Medical Adviser and his patient.
Undue influence traditionally developed under Equity and so
many remedy is at the Court’s discretion.
The area developed so as to cover those areas where any form of
improper pressure prevented a party from exercising their free
will in entering a contract. Since equity is inevitably more flexible
than common law, the doctrine could be applied whenever a
party has exploited the other party to gain an unfair advantage.
Clearly, there is nothing wrong with trying to induce another
person to enter a contract. This is in essence no more than basic
bargaining. It is the degree of influence applied and also the
context in which it occurs that the Court is actually concerned
with in determining what is and what is not acceptable. Because
of the relative vagueness of this reasoning the Courts were
traditionally reluctant to give a full and precise definition of
‘undue influence” in the way that they have been similarly
reluctant to be too positive or precise in their definition of “fraud”
Undue influence is defined in All Card V Skinner (1877) 36 CHD as
some unfair and improper conduct, some coercion from outside,
some overreaching, some form of cheating and generally though
not always, some form of personal advantage obtained by the
quilt party. It can also be said that “undue influence” occurs
where a party enters into a contract under any kind of influence
which prevents him from exercising a free and independent
judgment, and it makes the contract voidable.
There are two types of undue influence
- Actual undue influence (No Special relationship) class 1
- Presumed undue influence (special relationship) class 2
Actual Undue Influence: This represents the original situation
where there was no special relationship between the parties and
so the party alleging the undue influence is required to prove it. If
the claimant can prove the actual influence of the other party, like
duress but in sufficient for duress i.e. Specific orent acts of
persuasion e.g a promise to pay money after a threat to report a
criminal offence.
Daniel V Drew (2005) EWCA GV 507
Williams V Bayley (1866) LR 1 HL 200
Presumed Undue Influence: The use of the expression
‘presumption’ here is one which describes the shift in the
evidential burden of proof on the question of fact. The claimant
has to show, first, that there is a relationship of trust or
confidence between themselves and the wrong doer and second,
the existence of a transaction which calls, for an explanation. This
relationship can arise between
Trustee and Beneficiary
Solicitor and Chant
Doctor and Patient
Parent and Child- Lancashire loans co V black (1933) 1
Kb 380
RELIGIOUS ADVISOR AND DISCIPLE – ALLARD V SKINNER (1887)36
ch d 145
Where there is no fiduciary relationship between the parties, the
party who alleges he was unduly influenced must prove that he
was so dominated by the other party that he did not exercise his
own free, independent will in entering into the contract.
Barclays Bank V O’Brien (1993)
Lloyds Bank V Bundy (1979) QB 326
However, in the case of Jones V Mark, it can be classified under
“Presumed Undue Influence” because of the fiduciary relationship
of Doctor and Patient.
According to Jones the gift given to Mark (Medical Advisor) was
with a motive of gratitude for the recovery from a serious-illness.
ADVICE TO JONES
A. Assuming that the gifts were made two months ago, Jones
can still recover the gifts because it is not too late. Enmity
will be used as a remedy of recovering the gift. Under the
defense of undue influence.
B. Assuming the gifts were made 15 years ago, Jones cannot
recover the gifts because he was slept over of his right.
Therefore enmity cannot function and since ‘dealing
defeats enmity” he cannot claim recovered of the
property like in the case of Allcard V Skinner (1887) 36 Ch
D 145.
Question 3: With reference to relevant Judicial Authorities,
explain the critical issues relating to “remoteness of
damage” and “measure of damages” in contractual
obligations
Answer 3:
DAMAGES
The major remedy at common law for breach of contract is an
award of damages. This is a monetary sum fixed by the Court to
compensate the injured party.
In order to recover substantial damages, the innocent part must
show that he has suffered actual loss if there is no critical loss he
will only be entitled to nominal damages in recognition of the fact
that he has a valid cause of action in making an award of
damages; the Court has two major considerations. Remoteness of
damages.
a) REMOTNESS OF DAMAGES: The rule governing remoteness
of loss in contract was established in Hadley v Baxendale
(1854) 9 Exch 341. The Court established the principles that
where one party is in breach of contract, the other should
receive damages which can fairly and reasonably be
considered to arise naturally from the breach of contract
itself (‘in the nominal course of things’), or which may be
reasonably be assumed to have been within the
contemplation of the time they made the contract as being
the probable result of a breach.
Thus, there are two types of loss for which damages may be
recovered:
- What arises naturally, and
- What the parties could foresee when the contract was made
as the likely result of breach.
THE MEASURE OF DAMAGES
In assuming the amount of damages payable, the Courts use the
following principles.
- The amount of damages is to compensate the claimant for
his loss not to punish the defendant
- Damages are compensatory – not restitutionary
The most usual basis of compensatory damages is to put the
innocent party into the same financial position he would have
been in, had the contract been properly performed.
This is sometimes called the ‘expectation loss’ basis. In the
case of Vitoria Laundry Ltd V Newman Industries Ltd (1949) 2
KB 528, Victoria Laundry were claiming for the profits they
would have made had the boiler been installed on the
contractually agreed date.
The problem of remoteness and measures of damages are
easily determined if the damages are liquidated.
Liquidated damages are damages which the parties agree in
advance as payable in the event of breach. This is usually done
by parties providing in the contract itself that a specific sum
shall be payable, in event of breach. The plaintiff can recover
the specific sum even if his actual loss may be less, but if his
actual loss is more than the specified sum he will only recover
the specified sum. When damages are not liquidated they are
said to be unliquidated.
In liquidated damages are damages which have not previously
been assessed or provided for in the contract.
INJUNCTION
This is a decree of the Court directing a party to refrain from a
particular conduct or action that might constitutes a breach of
contract. Lumley V Waaner (1852) 42 ER 687
QUANIUM MERUIT: The latin phase simply means so much as the
thing is worth. It is thus a claim made when a contract makes no
express or implied provision for remuneration. For example a
person may perform a service for another, or bestow a benefit
upon him without being under the contractual obligation to do so;
or a party to a contract may be unable to fulfill the entire
obligation. He may have a claim in Quantium Meruit. Quantuim
Meruit is based on the fact that something has been done. Craven
Elis V Cannons Ltd (1936) 2 KB403
RESCISSION: The right to resend is also available as a remedy for
breach of contract, where the injured party can treat the contract
as discharged.
MUTIGATION OF LOSS: There is a common law rule that an injured
party must take all reasonable steps to mitigate (minimize) the
loss that may be occasioned by the breach. The injured person is
not permitted to exploit his misfortune. If he fails to do what is
reasonable to minimize his loss, he may not claim compensation
for loss which is due to his father. Reasonableness is the key-note
of the principle. Brace V Calder (1895) 2QB 25 3 Pillkington V
Wood (1953) 2 Ch 770
SPECIFIC PERFORMANCE: This is also a decree of the Court
directing a defendant to perform the promise that he has made in
the contract. Nut brown V Thornton.
Question 4: Unilateral mistake as to the identity of a
contractual party is a controversial area of contract law.
Discuss with reference to relevant cases
Answer 4:
MISTAKE:
This is a situation in which one or both parties to an agreement
acted under an untrue believe about the existence or non-
existence of a subject matter which is a material fact in the
contract.
However, it is important to note that mistake as to the quality of
the subject matter of the contract is not a mistake in law of
contract. Leaf V International Galleries (1950) 2 Kb 86 where the
buyer and the seller of an art work mistakenly believed that the
work was that of a popular artist. It was held that this was no
mistake in law of contract because it relates to the quality of the
subject matter and not to his existences or non-existences, in
other words the parties both intended to deal with what they
physically saw.
Mistakes at law may affect the validity of a contract depending on
the type and nature of the mistakes. The general rule is that
where a mistake has been made the parties at common law, the
contract may be deemed void as if it never existed, while Equity
takes a more flexible approach in that the contract may be
treated as voidable that is may be terminated at the instance of
the innocent party. There are basically three classes of mistake
- Common mistake
- Mutual mistake
- Unilateral mistake
Common Mistakes: This occurs when both parties make the
same error relating to a fundamental fact. The case may be
categorized as follows:
A RES EXTINCTA: A contract will be void at common law if the
subject matter of the agreement is, in fact non-existent
example in COUTRIER V HASTIE (1856) 5Hl Case 673. In
addition Section 6 of the Sale of Goods Act 1979, provides
that where there is a contract for the sale of goods, and the
goods without the knowledge of the seller, have perished at
the time when the contract was made, the contract is void.
Other relevant cases includes: GRIFFTH V BRYMER (1903) 19
TLR 434, GALLOWAY V GALLOWAY (1014) 30 TLR 531.
B. RES SUA: Where a person makes a contract to purchase that
which, infact, belongs to him, the contract is void. COPPER V
PHIBBS (1867) LR 2 HL 149.
C. MISTAKE AS TO QUALITY: A mistake as to the quality of the
subject matter of a contract has been confined to very
narrow limits. According to Lord Atkins, ‘A mistake will not
affect assant unless it is the mistake of both parties, and is as
to the existence of some quality which makes the thing
without the quality essentially different from the thing as it
was believed to be.
(i) BELL V LEVER BROSS LTD (1931) AC 161;
(ii) LEAF V INTERNATIONAL GALLERIES, 1950 2 KB 86
Mutual Mistake: This is where the two parties in a contract
misunderstand each other. In this situation, they are said to be at
cross purpose because there are no meeting of the mind. The
Court will apply an objective test and consider whether a
‘reasonable man’ would take the agreement to mean what one
party understood it to mean or what the other party.
- If the test leads to conclusion that the contract could be
understood in one sense only. Both parties will be bound by
the contract in this sense.
- If the contract is totally ambiguous under this objective test
then, there will be no consensus and idem (agreement as to
the same thing) and the contact will be void. RAFFLES V
WICHELAUS, (1864) 2 H & C 906.
- UNILATERAL MISTAKES: This is a situation where only one of
the parties to a contract is making a mistake and such
mistake is not known to the other party. These cases may be
categorized as follows:
A MISTAKES AS TO THE TERMS OF THE CONTRACT: Where
one party is mistaken as to the nature of the contact and the
other party is aware of the mistake, or the circumstances are
such that he may be taken to be aware of it, the contract is
void. For the mistake to be operative, the mistake by one
party must be as to the terms of the contract itself, like in the
case of HARTOG V COLIN & SHIELD, 1933 3 AER 566.
A mere error of the judgment as to the quality of the subject
matter will not suffice to render the contract void for
unilateral mistakes. see The case of SMITH V HUGHES, (1871)
LR 6 QB 597. Equity follows the law and will rescind a
contract affected by unilateral mistake or refuse specific
performance as in, WEBSTER V CEEIL (1861) 30 BEAV 62.
B. MISTAKE AS TO IDENTITY: Where one part makes a contract
with a second party, believing him to be a third party (i.e
some are else). The law makes a distinction between
contract here the parties are inter absents and where the
parties are inter presents. E.g where A enters into a contract
with B while thinking that he is entering into a contract with
C, such a contract shall be declared void and A shall be
discharge for performing his obligation under the contact if
he can prove the following.
That he intended to deal with another person different
from B when he dealt with.
That B himself ought to be aware that A would not have
entered into a contract with him.
That at the line of negotiation of the contract identity of B
was very material in the sense that if B had disclosed to
his identity, A would not have entered into the contract
with him.
That he took reasonable stop to verify the identity of B.
note that where the parties enter into the contract face to
face it may be difficult to prove unilateral mistake
because the parties would have been taken to have
believed each other and wanted to enter into the contract
with each other. The case of Phillips V Brooks Ltd (1919) 2
KB 243. The Court held that he could have only intended
to contract with the party he actually met face to face.
The pawn shop gained good title because it bought in
good faith without notice of any defect in title.
C. UNILATERAL MISTAKE AS TO THE NATURE OF THE
DOCUMENT SIGNED (NON EST FACTUM): As a general rule,
a person is bound by their signature to a document,
whether or not they have read or understood the
document.
‘L’ESTRANGE V GRAUCOB (1934) KB 394. However, where
a person has been induced to sign a contractual will be
voidable. Sometimes, the plea makes a document void.
The plea was originally used to protect illiterate persons
who were tricked into putting their mark on documents. It
eventually became available to liberate persons who had
signed a document believing it to be something totally
different from what it actually was. FOSTER V
MACKINNON, (1869) LR 4 CP 704
The use of rule in modern times have been restricted, for
a successful plea of non est factum, two factors have been
establishment.
- A party has some disability which is being taken advantage
of and
- He thinks he is signing a entirely different type of document.
The decision of the House of Lord is the leading case
SAUNDERS V ANGLIA BUILDING SOCEITY (1971) AC 104
REFERENCES
1. UNLOCKING CONTRACT LAW (SECOND EDITION) by
JACQUELINE MARTIN and CHRISTUNER
2. Textbook of Contract Law (Eighth Edition) by Ewen
Mekendrick.
3. LAW OF CONTRACT SWEET & MAXWELL
4. COURSE MATERIAL