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