Chapter 2

On-the-Spot Question

Why do you think the Court of Appeal held that there was a unilateral offer in Carlill v Carbolic Smokeball Co? Can you distinguish this case from Partridge v Crittenden?

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Answer

The Court of Appeal held that there was a unilateral offer in Carlill v Carbolic Smoke Ball Co [1863] 1 QB 256 because there was a clear intention to be bound by the promise to pay 100l. to anyone who used the smoke ball but still contracted influenza. This intention to be bound was evidenced by the deposit of 1,000l. in the bank. The case of Partridge v Crittenden [1968] 1 WLR 1204 can be distinguished as there was no such clear intention to be bound to the first person to answer the advertisement evidenced in this case.

On-the-spot Question

Fred has lost his tap shoes and puts up notices in the West End offering £50 to anyone who finds them. Fred later decides to buy another pair and so decides to revoke his offer. He removes the old notices and puts up several new notices announcing the revocation. Ginger has previously seen the offer and finds Fred’s tap shoes. She is a fan of Fred and is so excited to see him that she forgets to ask for the reward.

Advise Ginger.

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Answer

The first issue in this question is whether Fred’s initial notice constitutes an invitation to treat or an offer. Applying cases such as Williams v Carwardine (1833) 4 B & Ad 621 and Carlill v Carbolic Smoke Ball Co [1863] 1 QB 256, the notice is likely to demonstrate sufficient intention to be bound, thus it may be a unilateral offer. An offer can only usually be revoked by communicating this to the offeree before acceptance (Byrne & Co v Leon Van Tienhoven & Co(1879–80) LR 5 CPD 344). If so, Fred can only revoke his offer in the same way in which the offer was made (Shuey v US [1975] 92 US 73).

On-the-spot Question

Mohammed meets Sandra on Monday in the supermarket and he offers to sell her his car for £3,000. Sandra asks whether he might consider a slightly lower price. Mohammed shakes his head and then says that the offer is open until 5pm on Friday. Sandra is unsure as to whether Mohammed lives at number 34 or 56 Shakespeare Drive and decides to send a letter accepting his offer to number 34. Sandra doesn’t watch the news and is unaware that there is a seven-day postal strike starting tomorrow. Sandra posts the letter on Monday at 4pm. Mohammed changes his mind and decides to telephone Sandra informing her of this fact. He leaves a message on her answerphone at 4.05pm on that Monday. Sandra never checks her answerphone. On Thursday, Sandra bumps into Mohammed at the chemist and informs him, ‘I’ve accepted your offer’; however, Mohammed is listening to his MP3 player and does not hear her.

Advise Sandra as to whether there is a binding contract between her and Mohammed.

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Answer

• Mohammed has made Sandra an offer to sell her his car for £3,000. It is a valid offer because it is clear and precise. It must be clear that the offeror intended for his statement to constitute an offer, which, if accepted by the offeree, would constitute a binding agreement. This means that the offer must be sufficiently certain and capable of being binding on the offeror. Here, this requirement is satisfied.
• The question is whether Sandra asking Mohammed if he would accept a lower price amounts to a counter-offer (which will kill off the original offer: Hyde v Wrench (1840) 49 ER 132) or a request for further information (which will not kill off the original offer: Stevenson, Jacques & Co v McLean (1879–80) LR 5 QBD 346).
• Mohammed states that the offer is open until 5pm on Friday.
• On Monday at 4pm, Sandra purports to accept Mohammed’s offer. The acceptance must mirror the offer. This means that the acceptance must be a clear and unequivocal mirror image of the terms of the offer. There cannot be differences between the terms offered and those accepted. Presumably Sandra’s acceptance mirrors the terms of Mohammed’s offer.
• Sandra’s acceptance must be communicated to Mohammed. Crucially, the offeree must communicate his acceptance to the offeror (this is known as the ‘receipt rule’). Until acceptance is communicated, the offeror is free to revoke his offer. See Entores Ltd v Miles Far East Corp [1955] 2 QB 327. This means that acceptance does not take place until Mohammed actually receives Sandra’s acceptance. However, there are a number of exceptions to this and the relevant one here is the postal rule – where the offeree sends his acceptance by post, acceptance is regarded as having taken place when the letter is posted, and not when the letter actually reaches the offeror (see Adams v Lindsell (1818) 1 B & Ald 681).
• Students must ask whether it was reasonable for Sandra to use the post to send her acceptance. However, she has possibly sent the letter to the wrong address. Where the letter is posted to the wrong address, the postal rule does not apply – see Korbetis v Transgrain Shipping BV [2005] EWHC 1345 (QB).
• If the postal rule applies then the offer is accepted when Sandra posts the letter and, therefore, any subsequent revocation of the offer by Mohammed will be ineffective.
• Mohammed attempts to revoke his offer by leaving Sandra a voicemail at 4.05pm on Monday. Revocation actually must be communicated to the offeree in order for it to be effective. But here Sandra has not checked her voicemail, so when would receipt of Mohammed’s revocation take place? This would be a point of discussion for students.
• On Thursday, Sandra again purports to accept Mohammed’s offer. Acceptance must be communicated and, here, Mohammed cannot hear Sandra’s acceptance. Consider Entores Ltd v Miles Far East Corp [1955] 2 QB 327 to determine whether acceptance could take place here.

Chapter 3

On-the-spot Question

Sarah, who is 17 years old, smokes 80 cigarettes a day. Her father William is concerned about her health and promises to buy her a horse if she stops smoking. Her mother Hillary loves her very much and on a separate occasion tells her that she will give her £12,000 next year, telling her ‘nothing makes a parent happier than making sure that their children are well looked after’.

What would happen if William and Hillary refused to honour their promises?

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Answer

The question focuses on what will amount to consideration. Consideration needs to be sufficient, and must be something of value in the eyes of the law. It needs to be something tangible, and so doing something out of natural love and affection cannot amount to good consideration (White v Bluett (1853) 23 LJ Ex 36). However, forgoing smoking and other vices was found to amount to good consideration in the American case of Hamer v Sidway (1891) 27 NE 256. Therefore, William’s promise could potentially be enforceable, whereas Hillary’s could not be enforceable.

On-the-spot Question

Flyaway Airlines employ Michael and Stuart as cabin crew. Each flight requires at least four members of cabin crew to operate safely. One of the cabin crew turns up to work drunk and is unable to work. Along with Michael and Stuart there are two other members of cabin crew on the flight. After a disagreement before take-off, the airline promises Michael and Stuart an extra £250 bonus each as the airline believes that they will have to work a lot harder to serve all the customers and to avoid any complaints.

Can Michael and Stuart enforce the promise for an additional £250 each?

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Answer

• The question looks at consideration and in particular whether promises to pay more are enforceable.
• Students should define what is meant by consideration. Outline who is the promisor and promisee. Where a person (the promisor) promises to do something for another party (the promisee), the promisee must provide something of value in the eyes of the law (known as ‘consideration’) in return for that promise, otherwise the promise cannot be enforced. In Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847, Lord Dunedin cited Sir Frederick Pollock’s classic definition: ‘An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.’
• In order to enforce the promise to pay an additional £250, Michael and Stuart will have to demonstrate to the courts that they have provided consideration for the additional payment. Consideration must be of something of value in the eyes of the law; although it need not be adequate (Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 870), it must still be sufficient (White v Bluett (1853) 23 LJ Ex 36).
• The question is whether Michael and Stuart have provided their employer with consideration. On the facts, they have presumably had to work harder than normal. However, in Stilk v Myrick (1809) 2 Campbell 317, the court refused to allow sailors to recover additional payment in similar circumstances. Although contrast with Hartley v Ponsonby (1857) 7 Ellis and Blackburn 872. However, where someone performs additional services in excess of those they have originally been paid for, they can recover: see Hanson v Royden (1867–68) LR 3 CP 47.
• The employer wanted to avoid customer complaints and so could it be said that Michael and Stuart have provided a practical benefit? See Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR 1153. Students should apply the approach of Glidewell LJ.

On-the-spot Question

Does the doctrine of promissory estoppel extinguish or suspend the promisor’s rights to recover the money owed?

Discuss.

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Answer

The equitable doctrine of promissory estoppel is a further exception to the rule that promises to accept less will not amount to good consideration. Promissory estoppel is where equity assists the promisee. The question is whether promissory estoppels will extinguish or suspend the promisor’s rights. Students will need to look at the effect of the decisions in Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130 and Tool Metal Manufacturing Co Ltd Tungsten Electric Co Ltd [1955] 1 WLR 761. From High Trees it would appear that promissory estoppel can also extinguish the right to recover the waived rent during the period that these conditions exist. This would appear to suggest that whilst being suspensory in relation to ongoing obligations, promissory estoppel can extinguish the debt or any other periodic payment during this period. Although, in Tool Metal, promissory estoppel merely suspended the obligation to make payments owed for the duration of the war (the promisor could ask for payments to recommence once the war was over), but there was no right to recover the waived payments (these were extinguished). 

Chapter 4

On-the-spot Question

Can you think of any other contracts that you have entered into recently? Consider what the terms of the contract were.

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Answer
One example of a recent contract could be the purchase of a watch from a jewellery shop. The express terms are that you are buying a watch that is a ‘men’s stainless steel wrist watch’ for £250. There are also a number of implied terms which will be implied into the contract by the Sale of Goods Act 1979.

On-the-spot Question

Why did the courts decide the cases of Oscar Chess and Dick Bentley differently?

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Answer

The cases of Oscar Chess Ltd v Williams [1953] 1 WLR 370 and Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 were decided differently due to the special skill or expertise of the statement maker. In Dick Bentley it was the fact that the statement maker had special skill or expertise and should have known better than to rely on the reading on the milometer, which made the statement that the car had only done 20,000 miles a term of the contract; whereas, in Oscar Chess, the statement maker had no special skill or knowledge and therefore the statement was treated as a representation.

On-the-spot Question

Which of the following are contracts for the sale of goods and which are contracts for services?

• You travel by bus to university
• You buy a custom-made laptop
• You pay to have a portrait painted of you by a famous artist.

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Answer

In order to answer this you need to begin by looking at the case of Robinson v Graves [1935] 1 KB 579, which states that it is necessary to question what the substance of the contract was. Travelling by bus is clearly a service, just as having a portrait painted would be. However, a custom-made laptop would be a contract for the sale of goods. This is because the substance of the contract was for the laptop, albeit that you chose its specifications.

On-the-spot Question

Granny Smith has been making cakes in her kitchen to sell at the local fete for years. Her earnings enable her to go on holiday to Italy every summer. If Granny Smith was to sell her set of cake tins, do you think that she would be a seller in the course of a business?

What about Jonathan who makes his living buying and selling on internet auctions? Do you think that s 14(2) would apply to the sale of the laptop Jonathan used to buy and sell on the internet?

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Answer

Section 14(2) states the goods supplied must be of satisfactory quality. This section only applies where the seller is selling in the course of a business and a one-off sale is sufficient for these purposes (Stevenson v Rogers [1999] QB 1028). This does not mean the goods have to be acceptable, or what the buyer herself considers to be satisfactory; rather, the test is based on what the reasonable person will regard as satisfactory. The question would be whether Granny Smith and Jonathan would be regarded as selling in the course of a business. In Stevenson v Rogers, a fisherman who was selling a fishing boat that he had used to catch fish for around 20 years was found to be selling in the course of a business, even though the fishing boat was only incidental to his business as a fisherman. Arguably, Jonathan is in business and, if the laptop was a business asset, then s 14(2) would apply as he would be selling in the course of a business. For Granny Smith we would need to ascertain if she was in business and, if so, whether the cake tins were business assets.

On-the-spot Question

Louise is shopping for a new sweatshirt. At the point of sale, there is a notice that states ‘No refunds at all are available on items purchased’. Louise buys the sweatshirt but after a week she notices that the stitching in the sleeves has become undone. She returns to the shop and the manager points to the notice and refuses to give her a refund.

Advise Louise as to whether there is a breach of contract and, if so, whether the exclusion clause has been incorporated.

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Answer

Louise enters into a contract for the sale of goods with the shop. The sweatshirt meets the definition of goods under s 61(1) of the Sale of Goods Act (SGA) 1979. The seller is selling in the course of a business so s 14(2) applies and there is a term implied into the contract that the goods sold must be of satisfactory quality. The fact that the stitching in the sleeves becomes undone after only a week would render the goods of unsatisfactory quality. Section 14(2) is an implied condition and, if breached, entitles the innocent party to repudiate the contract and/or claim damages. Louise has a right to a refund. The exclusion clause is invalid under s 6(2) of the Unfair Contract Terms Act (UCTA) 1979 as the implied terms (ss 13–15 SGA 1979 – note: s 12 SGA 1979 can never be excluded in any contract in which UCTA 1977 is applicable) cannot be excluded in a business-to-consumer contract. Students might also discuss the point that the exclusion clause must be incorporated and covers the alleged breach.

On-the-spot Question

How is the requirement of reasonableness defined? What factors are relevant? Create a checklist and compare it to s 11 UCTA 1977 and Schedule 2.

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Answer

• Reasonableness is defined under s 11, UCTA 1977, which states that ‘the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’.
• Schedule 2 of UCTA 1977 provides guidelines to determine whether a term is reasonable or not. Relevant factors to determine reasonableness are:
• The strength of the bargaining positions of the parties relative to each other.
• Did the customer receive an inducement to agree to the term?
• Did the customer know or ought he reasonably to have known of the existence and the extent of the term?
• Did the term exclude or restrict any relevant liability if some condition was not complied with?
• Whether the goods were manufactured, processed or adapted to the special order of the customer.

On-the-spot Question

Referring to the question above where Louise has bought a sweatshirt, are there any additional reasons why the exclusion clause might be invalid?

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Answer

You are expected to consider the effect of the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 in order to determine whether the exclusion clause in this question is valid. Remember that Louise is clearly a consumer here and the other contracting party (the shop where she bought the sweatshirt) is a business. Under s 6 of UCTA 1977, a business is not permitted to exclude terms implied by the Sale of Goods Act 1979, so the shop would not be able to claim that s 14, SGA 1979 does not apply. Any exclusion clause that attempted to do this would be invalid under UCTA 1977.

Chapter 5

On-the-spot Question

Why do you think that the law imposes no duty to disclose information between contracting parties?

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Answer

Contract law is based upon the principle of freedom of contract. This means that parties are free to contract with one another with minimal interference from the law. Thus, one party will not be protected by the law from entering into a bad bargain with another party – caveat emptor – ‘let the buyer beware’. Consequently, generally speaking, the law will not impose a duty on one party to disclose information to another party before they enter into a contractual relationship.

On-the-spot Question

Consider whether the following statements are actionable misrepresentations or not:

1. A dating website advertises its service: “We believe in happy every after. Find your fairy tale love with your knight in shining armour.”
   • You ask your accountant to look over the accounts of a restaurant you are considering buying. He tells you, “In my opinion, it is a solid investment.” After buying the restaurant, you find out that it is not profitable.
   • You are offered a job at a company and told that there is an annual work weekend away to Las Vegas, all expenses paid by the company. However, before you accept the job, the weekend away is cancelled due to the economic crisis.
   • You decide to rent a flat from a landlord after he informs you that in six months’ time he plans to install a communal swimming pool for residents’ use. However, after six months there is still no swimming pool.

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Answer

1. This is mere advertising puff or sales talk which is not expected to be believed. Thus, it will not be actionable for misrepresentation. See Dimmock v Hallett (1866–67) LR 2 Ch App 21.
2. Generally speaking, statements of opinion are not actionable for misrepresentation: see Bisset v Wilkinson [1927] AC 177. However, where the statement is one from a party with expertise or special knowledge on the matter in question, as an accountant would have in this case, then the statement becomes actionable: Esso Petroleum Co Ltd v Mardon [1976] QB 801.
3. While there is generally no duty on a contracting party to disclose information to the other party, one exception to this rule arises where there is a change of circumstances relating to a representation that has already been made and that was true when it was made, but later became false. If there is such a change of circumstances, then there is a duty on the representor to correct the representation previously made: With v O’Flanagan [1936] Ch 575. Thus, the company must inform you of the change in circumstances, otherwise there will be an actionable misrepresentation.
4. Generally speaking, a false statement of future intention is not actionable for misrepresentation provided that the maker of the statement honestly held that intention at the time they made the statement: Wales v Wadham [1977] 1 WLR 199. So, if the landlord honestly intended to install the swimming pool, there is no actionable misrepresentation. However, if the intention is not honestly held at the time of making the statement, then the maker is misrepresenting his intention, which is a misrepresentation of fact and is actionable: Edgington v Fitzmaurice (1885) LR 29 Ch D 459. So, if the landlord knew at the time of making the statement that there would not be a swimming pool installed within six months, there will be an actionable misrepresentation.

On-the-spot Question

Which of the following examples would amount to inducement?

• The sales particulars of a house state that it has a 60-foot swimming pool. The purchaser only wishes to purchase the property because it is a good location to build a block of flats. In reality, the pool is 25 foot.

• The accounts prepared for the sale of a pub state that the pub made £67,000 profit last year. The purchaser was offered an opportunity to check the accounts, but refused. In fact, the pub only made £23,000 profit last year.

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Answer

• The false statement must induce the other party to enter into the contract. The statement need not be the sole inducement that led the party to enter into the contract: Edgington v Fitzmaurice (1885) LR 29 Ch D 459, but it must certainly be an inducement: JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583.
• In the first example, the statement regarding the swimming pool does not appear to induce the purchaser to enter into the contract since he wishes to build a block of flats on the location. Thus, there is no inducement.
• In the second example, the statement regarding profitability of a business that is being purchased is likely to be an inducement. It does not matter that the purchaser turned down the opportunity to inspect the books: Redgrave v Hurd (1881–82) LR 20 Ch D 1. However, there may be no claim in misrepresentation where it is reasonable for the claimant to take the opportunity to check the truth of the statement: Smith v Eric S Bush (1990) 1 AC 831, HL.
• There will be no inducement where the claimant does not rely on the false statement: Attwood v Small (1838) 6 Cl & F 232.

On-the-spot Question

What are the advantages of pursuing an action in negligent misrepresentation under s 2(1), MA 1967 rather than fraudulent misrepresentation at common law?

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Answer

• The Misrepresentation Act 1967 makes it easier for the claimant to recover damages for negligent misrepresentation than the tort of deceit. Once it is established by the claimant that there has been a misrepresentation, it is for the defendant to prove that they have not been negligent (see s 2(1) and Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574). Additionally, If a defendant is liable for negligent misrepresentation under s 2(1), Misrepresentation Act 1967, then the remedies available to the claimant are the same as are available for fraudulent misrepresentation, namely rescission and damages. An action under s 2(1) of the Misrepresentation Act 1967 is also preferable for a claimant because the measure of damages is the same generous award that is available for fraudulent misrepresentation at common law, namely the tortious measure of damages recoverable in the tort of deceit, which covers all losses that flow directly from the misrepresentation, whether foreseeable or not. Thus, the defendant who is liable for negligent misrepresentation is liable to the same extent as if he had fraudulently misrepresented the fact; this is known as the ‘fiction of fraud’ (see Royscot Trust Ltd v Rogerson [1991] 2 QB 297).
• Recovering under the Misrepresentation Act 1967 is preferable to recovering under the tort of negligent misstatement. This is because the claimant must establish that there is a special relationship between himself and the defendant. The measure of damages available for negligent misstatement at common law is the tortious measure, but it is less generous than the measure of damages available for fraudulent misrepresentation in that a claimant may only recover for losses that are reasonably foreseeable.

On-the-spot Question

When would you use negligent misstatement at common law instead of negligent misrepresentation?

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Answer

Negligent misstatement at common law is a tortious action, whereas negligent misrepresentation under s 2(1), Misrepresentation Act 1967 is a contractual action. Thus, one might pursue an action in tort for negligent misstatement at common law even where there is no contractual relationship between you and the maker of the statement. In order to succeed in such an action, the claimant will need to prove that there was a special relationship between himself and the maker of the statement.

Chapter 6

On-the-spot Question

Fred places an advert on a website advertising for sale rare paintings by a famous Dutch expressionist. He is contacted via text message by a rogue who states that he is interested in purchasing the paintings. Fred and the rogue agree to a virtual meeting using an internet video-conferencing application. At the online meeting, the rogue introduces himself as ‘Victor Gorky’, a Russian art dealer. Fred agrees to sell the paintings to the rogue on credit.

Is there a valid contract for sale here?

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Answer

The answer to this question will depend upon whether the courts choose to treat video conferencing as face-to-face negotiations or negotiations at a distance. There is no case law on this point at present, but the courts have drawn a distinction between face-to-face negotiations and negotiations at a distance. In cases involving face-to-face negotiations, there is a contract between the seller and the person physically present in front of him (the rogue): Phillips v Brooks Ltd [1919] 2 KB 243. Where the contract is negotiated at a distance and parties do not see each other, such as where the contract is negotiated in writing, then the seller is deemed to intend to deal with the name on paper (the assumed name): Cundy v Lindsay (1878) 3 App Cas 459 and Shogun Finance v Hudson [2004] 1 AC 919. This distinction has been the subject of much academic criticism as it seems to be artificial, illogical and complicated. It is difficult to see how this distinction can be maintained in light of increasing developments in modern-day technology, such as video conferencing or internet calls.

On-the-spot Question

When is a contract void for common mistake? Can the decision in Bell v Lever Bros. Ltd be justified?

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Answer

A contract is void for common mistake where the parties have reached an agreement, but they have made a fundamental mistake at the time of, or before the formation of, the contract which goes to the very root of the contract, so that the problem makes performance of the contract impossible or very different to what was intended. One example is the case of Couturier v Hastie (1856) 5 HL 673 where the mistake made was as to the existence of the subject matter of the contract. However, where the mistake is not fundamental, but instead relates to some characteristic or quality of the contract, the contract is not void for mistake: see Bell v Lever Bros Ltd [1932] AC 161, HL. In this case, the House of Lords held that a redundancy agreement was valid despite the fact that the employees (directors of a subsidiary company) could in fact have been dismissed for breaching their contracts of employment by engaging in inappropriate business conduct. The House held that there had been no mistake as to the subject matter of the agreement; it was still a contract about employment. The House held that the mistake had been made only as to the amount of money negotiated as redundancy pay, and that this was merely an attribute or characteristic of the contract. Thus, the contract was not void for mistake. However, this decision is difficult to justify and has been criticised by leading academics. Professor JC Smith stated that if the mistake as to the level of compensation in this contract was not fundamental enough for the doctrine of mistake to be applicable, then no mistake would ever be fundamental enough: ‘it is impossible to envisage a mistake as to quality which is more fundamental than that’ (‘Contracts – mistake, frustration and implied terms’ [1994] LQR 400 at p412).

On-the-spot Question

If the law will only allow a party to escape from a contract under the doctrine of mistake in very rare circumstances, do you think that equity could be of any assistance?

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Answer

Equity will often step in where the law fails to offer a party a fair result. In Solle v Butcher [1950] 1 KB 671, Denning LJ held that although not void in law, a contract was voidable in equity due to the parties’ fundamental mistake. However, the Court of Appeal later disapproved of Denning LJ’s obiter comments (see Great Peace Shipping Ltd v Tsavliris (International) Ltd [2002] EWCA Civ 1407) because it could not be reconciled with Bell v Lever Bros Ltd and because the courts should not protect parties against extremely bad bargains.

Chapter 7

On-the-spot Question

In Atlas Express Ltd, why did the court find that there was illegitimate pressure?

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Answer

The court held that there was illegitimate pressure in this case because the claimant had forced the defendant to renegotiate the contractual delivery price by threatening to breach the contract. The court held that the defendant’s consent was vitiated by economic duress because the defendants knew they had no alternative.

On-the-spot Question

Andy owns Little Hampstead House and has hired Historic Actors Ltd (HAL) to recreate life in the sixteenth century. Andy has advertised the historical re-enactment during the August bank holiday and is expecting a large number of visitors. HAL informs him three days before they are due to provide the actors that unless Andy pays £500 more, they will not be able to provide the actors. Reluctantly, Andy agrees and pays the £500. Three months later, when HAL submits an invoice, Andy decides not to pay them. HAL is now suing Andy for breach of contract.

Advise Andy.

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Answer

• HAL will insist that Andy pays the original contract price and the additional £500. Andy can try and rely on economic duress as a defence. If there is economic duress, the contract will be rendered voidable.
• Looking at the case of Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833, illegitimate commercial pressure can amount to economic duress. Not all commercial pressure will be regarded by the courts as illegitimate. 
• On commercial pressure and the need for vitiating of consent, see the judgment of Lord Diplock in Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel) [1983] 1 AC 366.
• The requirements for economic duress were restated by Dyson J in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530. His Lordship stated that there were three requirements to illegitimate pressure: the pressure has to result in the victim having no other practical choice, the pressure has to be illegitimate, and the pressure must be a significant cause in the victim entering into the contract. Applying these requirements to the facts, Andy would need to show that HAL exerted illegitimate pressure. HAL have applied pressure here, but was the practical effect of the pressure to leave Andy without a real choice? The question is whether Andy could have contracted with another party to supply historical actors. It seems that with only three days to go before the event, Andy is left with little real choice. However, was the pressure illegitimate? We need to consider Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833. Arguably, the pressure could be regarded as illegitimate. It seems that the pressure is a significant cause in the victim entering into the contract.
• Dyson J stated that it is important as to whether the victim protested at the time or whether he later affirmed the contract. Here, Andy refuses to pay the invoice, but did he protest at the time as three months is a long time to wait to protest?

On-the-spot Question

Explain the difference between actual and presumed undue influence.

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Answer

Actual undue influence arises where undue influence is actually exerted on one party such that the free will of that party in deciding to enter into the contract is compromised. This type of undue influence does not require there to be a special relationship of trust and confidence between the parties. However, presumed undue influence arises where undue influence is presumed to have been exerted because of the relationship between the parties. Unlike actual undue influence, with presumed undue influence there must be a special relationship of trust and confidence between the parties that has been exploited by one party. The presumption of undue influence can be automatic (Class 2A) where there exists a certain type of relationship, or where on the facts one party placed particular trust and confidence in the other party (Class 2B).

Chapter 8

On-the-spot Question

In common law, can a third party ever rely on an exclusion clause?

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Answer

The House of Lords has held that a third party to a contract may not rely on an exclusion clause contained within a contract because the third party is not privy to the contract: Scruttons Ltd v Midland Silicones Ltd [1962] AC 446. The House was reluctant to allow the third-party stevedore to rely on the limitation clause within the contract because neither contracting party was acting as an agent for the stevedore. However, in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd, The Eurymedon [1975] AC 154, the Privy Council held that a third party could enforce an exclusion clause where they were being sued by the shipper for negligence because the contract specifically contained a clause which said that any independent contractor (which the third-party stevedore was here) would be protected by the exclusion clause. The carrier was held to be acting as an agent for the stevedore.

On-the-spot Question

Mohamed has asked Boris to act as his agent and to enter into contracts on his behalf. Boris contracts to purchase a car from Pauline, without disclosing that he is acting as an agent. Pauline later finds out that Boris is only an agent and refuses to sell the car to Mohamed.
Can Mohamed enforce the contract against Pauline?

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Answer

Mohamed is an undisclosed principal. Boris is acting as an agent on Mohamed’s behalf and does not need to disclose that he is working for Mohamed. Pauline believes that she is contracting with Boris as the other party to the contract. Mohamed is permitted to intervene on the contract and can enforce the contract that Boris has made on his behalf. Undisclosed principal is an important exception to the common law doctrine of privity of contract.

On-the-spot Question

How would you summarise the impact of the Contracts (Rights of Third Parties) Act 1999 on the common law doctrine of privity of contract?

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Answer

The Contracts (Rights of Third Parties) Act 1999 has provided an important exception to the common law doctrine of privity of contract. The Act permits third parties to enforce a contract where the contract refers to them by name or where the third party can be identified by description or as a member of a particular class. This means that a contract can now confer an enforceable benefit to a third party. However, the contract cannot confer a burden on a third party (i.e., a liability).

Chapter 9

On-the-spot Question

Is the exception of substantial performance justified?

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Answer

The courts can hold that a contract has been discharged where a party has substantially performed their obligations. The question is what does substantial performance mean? A definition is provided by Anson’s Law of Contract (29th edn, OUP, 2010) at p455. However, academics and members of the judiciary have doubted that the exception is good law. In Ministry of Sound (Ireland) Ltd v World Online Limited[2003] EWHC 2178(Ch), the trial judge, Mr Strauss QC, doubted the existence of substantial performance, referring to it as the ‘doubtful doctrine of substantial performance’. Professor Peel has criticised the doctrine of substantial performance, saying that it is ‘based on the error that contracts, as opposed to particular obligations, can be entire…To say that an obligation is entire means that it must be completely performed before payment becomes due…In relation to ‘entire’ obligations, there is no scope for any doctrine of ‘substantial performance’ (Peel, Treitel on The Law of Contract (12th edn, 2007) at para 17-03).  Stevens and McFarlane support this view: ‘It is submitted, however, that the leading textbook writers are correct to suggest that there is no room for the so-called doctrine of substantial performance. Obligations are entire, not contracts. The builder's obligation to complete the work was entire, his obligation to do so in a workmanlike manner was not’ (LQR 200 11 (Oct), 569–599).

On-the-spot Question

Sally asks Rupinda to help her produce a new range of books on wild animals. Rupinda is writing the book on hedgehogs. Please advise Rupinda as to her right to payment in the following alternative scenarios:

1. Rupinda has written half the book and has grown tired of writing it. She tells Sally that she will not write any more of the book and sends Sally what she has written. Sally finishes the book.
2. Rupinda has finished the book with the exception of the introduction and index. She is unable to complete these due to illness. She sends Sally what she has written.
3. Rupinda has written half the book and Sally has just informed her that the eminent zoologist Dr Zoo is now going to write the book, therefore Rupinda’s version is no longer needed

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Answer

1. Rupinda could argue that Sally has accepted her partial performance. Rupinda may be able to recover part of the contract price for the work she has performed (by way of quantum meruit). However, Sally would have an option as to whether to accept Rupinda’s partial performance. See the importance of the other party having a choice in Sumpter v Hedges [1898] 1 QB 673.
2. If it could be argued that Rupinda has substantially performed her contractual obligation, then she could recover the contract price less the cost of completing the introduction and index. The question would be whether she has substantially performed her contractual obligation.
3. Rupinda could argue that she has attempted to perform her entire obligation under the contract but has been wrongfully prevented from completing this obligation. She could recover a sum of money under quantum meruit (see Planché v Colburn (1831) 8 Bing 14).

On-the-spot Question

Read the summary of the two cases below and compare the facts and decisions. Why do you think that the courts reached the opposite conclusions in these cases? Can these cases be reconciled?

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Answer

You were asked to consider the cases of Krell v Henry [1903] 2 KB 740 and Herne Bay Steam Boat Co v Hutton [1903] 2 KB 683. Both cases concern the coronation of Edward VII. Unfortunately, shortly before he was due to be crowned king, Edward VII had become ill and the coronation date was postponed. The issue was whether the contracts in Krell and Herne Bay were frustrated (i.e., were the defendants no longer under a contractual obligation to pay the contract price). The issue in both cases was whether the coronation procession (Krell) or the king’s presence at the navel review (Herne Bay) was the purpose of the contract. In Krell, the purpose of hiring the room was to watch the coronation and Vaughan Williams LJ had started that ‘…[This] was regarded by both contracting parties as the foundation of the contract’. Vaughan Williams LJ, in Herne Bay, did not consider the king’s presence at the naval review to be the sole purpose of the contract. The question is whether these cases can be reconciled. A starting point would be to consider the judgment of Vaughan Williams LJ. His Lordship is clear that, in Krell, the parties knew that the foundation of the contract was to see the coronation procession. This sole purpose was the only reason why the defendant had hired the room. However, in Herne Bay, the boat was still available for the defendant to use to visit the assembled fleet. The contract had two purposes: to see the naval review by the king and to see the assembled British fleet. It was still possible to do the latter and so the contract had not been discharged by frustration.

Chapter 10

On-the-spot question

Music Corp manages Tiny Y, an up-and-coming singer. On Tiny Y’s debut album, Music Corp secures the world-famous, multi-million-record-selling artist, Jimmy J, to duet on one track. This is intended to be released as Tiny Y’s debut single and is expected to get a lot of radio air-play. After contracting, Jimmy J realises that he will be much too busy and informs Music Corp that he will be unable to duet with Tiny Y.

Advise Music Corp.

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Answer

Music Corp may be able to recover damages for the breach of contract by Jimmy J. An award of damages is available as a common law remedy and damages will be awarded unless the court considers that it is inappropriate to do so. The aim of an award of damages is to compensate the claimant for the loss that they have suffered and the normal measure of damages in contract law seeks to put the claimant in the position that they would have been in had the contract been performed (to protect the expectation interest of the claimant). However, a claimant will not be able to recover his expectation losses where those losses are too difficult to quantify. Since Tiny T is an up-and-coming singer and Jimmy J is a world-famous artist, it might be difficult to quantify the profits that would have been made by this collaboration. Consequently, Music Corp might instead only recover damages that seek to put the claimant back in the position that they were in prior to entering into the contract (their reliance losses). See Anglia Television Ltd v Reed [1972] 1 QB 60 in which the television company were limited to recovering only their reliance losses (which put the claimants back in the position that they were in before entering into the contract), such as any expenses incurred in preparation for filming that were reasonably within the contemplation of the parties.

On-the-spot question

In the above example, involving the contract to hire a coach, what steps would you expect the claimant to take in order to mitigate his losses?

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Answer
In the above example of a coach company hiring out a coach to the defendant who then breaches the contract by announcing he no longer needs the coach, the coach company is expected to take reasonable steps to mitigate its losses. The claimant is expected to avoid doing anything that will make his losses worse, but he is not expected to go to extreme lengths to reduce his losses; he need only take reasonable steps to minimise their extent (see British Westinghouse Co v Underground Electric Railway Co [1912] AC 673). He would be expected to take reasonable steps to hire out the coach to other parties, such as re-advertising the services of the coach in his usual method of advertising, and he might even offer a reasonable discount to attract a customer. However, the claimant is not expected to do anything more than what a normal or prudent commercial party would do in the circumstances, so he is not expected to go to great lengths to try and hire the coach out, such as by cold-calling people or offering such a significant discount that he is effectively giving the service away for a nominal fee.

On-the-spot question

Why did Lord Nicholls in Attorney-General v Blake warn against awarding account of profits in commercial disputes?

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Answer

In Attorney-General v Blake [2001] 1 AC 268, Lord Nicholls stated clearly that allowing recovery for account of profits should not be the norm for breach of contract in commercial disputes. His Lordship stated that to extend such recovery to commercial law would allow for ‘very far-reaching and disruptive’ consequences.

His Lordship was concerned that as contracting parties often elect to breach a contract for commercial reasons (i.e., to obtain a better contract price elsewhere), it would be wrong to award an account of profits in these circumstances. The government, in Blake, were able to recover the defendant’s profits because, in the circumstances, they had a legitimate interest to prevent the publication of the book.