contract law 4-5 llb (1)

7/30/2019 Contract Law 4-5 LLB (1)

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1. contract and intent for legally binding if contract lacks an intention to create legal relations and

is thus not a contract because they did not intend it to be. In th

case of domestic and social agreements, it

is presumed that there is not an intention to create legal

relations. In the case of commercial agreements, it is presume

that there is an intention to create legal

relations. be. The agreement has no legal effect at all.

2. Edmonds v Lawson: contract and intent for legally binding the courts will not examine the states of mind of the parties to

the agreement (a subjective approach), but will ask whether or

not reasonable parties to such an agreement would possess an

intention to create legal relations.

3. Balfour v Balfour (1919): domestic cases.

public policy

husband would be working overseas, he promised to pay his

wife an amount of money each month.

When the parties separated, the wife sued the husband for this

monthly amount. The court refused to allow her action on the

grounds that the agreement was not an

enforceable contract because, at the outset of their agreement,

'was not intended by either party to be attended by legal

consequences'. Problem is court would be overwhelmed.

4. Domestic agreemens cases:

Balfour v Balfour

Jones v Padavatton (1969)

Coward v MIB

Jones v Padavatton :the agreement between a mother and her

adult child did not create a contract

Coward v MIB : where the court found that an agreement

to take a friend to work in exchange for petrol money was an

arrangement which lacked contractual intention.

5. Domestic agreement

Merritt v Merritt

Merritt v Merritt

held that nature of the dealings, and the fact that the Merritts

were separated when they signed their contract, allowed the

court to assume that their agreement was more than a domesti

arrangement.

a family arrangement such as was considered by the court inBalfour v Balfour and in Jones v Padavatton. So the wife could

not sue on it. I do not think that those cases have any

application here. The parties there were living together in amit

In such cases their domestic arrangements are ordinarily not

intended to create legal relations.

6. Darke v Strout [2003] EWCA

the claimant would transfer her interest in the property to the

defendant and that she and the children would vacate the

property, in return for the defendant's financial support in

respect of rent and maintenance whilst she went back to

university and re-trained in order to become able to take over

financial responsibility for the children in the future.

The breakdown of a relationship between parents created righ

and obligations and also brought into effect statutory rights an

obligations. Moreover, the defendant's contention that there

was no consideration for the May 1998 agreement was

manifestly hopeless, as the agreement had constituted a

compromise of the claimant's statutory rights to both housing

provision and continuing maintenance for the children.7. Soulsbury v Soulsbury [2007]: The issue in this appeal is

whether the personal representative of the estate of the

deceased former husband of the claimant is liable to pay her

the sum of 100,000 which the deceased had promised he

would ensure she would receive on his death if she did not

enforce an order for periodical payments in her favour or seek

any other order for ancillary relief against him.

CA finds that there was an intention to create legal relations

between two former spouses when one agreed to forego

maintenance payments in return for a bequest in the other's

will .

8. domestic cases where balfour v balfour presumption of not

legally binding is rebutted.

Soulsbury v Soulsbury [2007]

Darke v Strout [2003] EWCA

Merritt v Merrit

Simpkins v Pays (1955)

contract law 4-5: LLBStudy online at quizlet.com/_6fgl5


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9. Simpkins v Pays (1955) :

A Grandmother, granddaughter and a lodger entered into a weekly

competition run by the Sunday Empire News. The coupon was sent in

the Grandmothers name each week and all three made forecasts and

they took it in turns to pay. They had agreed that if any of them won

they would share the winnings between them. The grandmother

received 250 in prize money and refused to share it with the other

two. The lodger brought the action to claim one third of the prize

money.

There was a binding contract despite the family

connection as the lodger was also party to the contrac

This rebutted the presumption of no intention to creat

legal relations.

10. Coward v MIB

Coward was killed whilst riding pillion on a motorcycle driven by a

friend and work colleague. collision due to the negligence of the

friend. Coward's widow sought to claim damages from the Motor

Insurance Bureau since the rider's insurance did not cover pillion

passengers. The Motor Insurance Bureau would only be obliged to

pay if insurance for the pillion was compulsory. Insurance was only

compulsory for pillions if they were carried for hire or reward.

Coward paid the friend a small weekly sum to take him to and from

work each day. The widow therefore argued that this was a contract

for hire or reward. .

Coward v MIB

There was no contract of hire or reward as it was a

social and domestic agreement and therefore no

intention to create legal relations. The widow was

therefore not entitled to compensation.

11. How does Simpkins v Pays differ from Coward v MIB? In Simpkins v Pays, the judge finds that there was a

'mutuality in the agreement' between the parties. The

women entered the contest together in the expectation

that, should they win, the winnings would be shared

amongst them. This seems to be sufficient to establish

an intention to create legal relations. In contrast, in

Coward v MIB, the Court of Appeal regards the lift to

work as a much more irregular occurrence:

it might happen or it might not. Consequently, the

agreement was regarded as too informal to demonstra

an intention to create legal relations.

12. Esso Petroleum Ltd v Commissioners of Customs : Esso produced

"World Cup Coins" which they offered as "free gifts" to purchasers of

their petrol. The issue was whether these coins were "produced ... for

sale" under the Purchase Tax Act 1963 (UK), in which case Esso

would be liable to 100,000s in tax

HL:Esso are engaged in business, and are supplying

these coins in order to promote the sale of their petrol

But it does not necessarily follow that there was any

intention on their part they should enter legally bindin

contracts with respect to the coins. Nor is there any

reason to impute to the motorist an intention to enter

into a legally binding contract for the supply of a coin

If it were found that Esso, the dealer, and the custome

intended to create a contract, it would seem to preclud

the possibility of any dealer ever offering a free gift,

however negligible the value. A common intention to

enter legal relations would be found more easily if the

item were something of value to the purchaser. But herthe coins were of little intrinsic value. If there were an

contract relating to the coins, the consideration for it

would be not the payment of money, but the entry into

contract to buy petrol.

minority view: , Esso clearly anticipated that they wou

have value to their customers, otherwise the promotio

would not be worthwhile. What sort of transaction wa

entered? It appears to be a collateral contract, the

consideration for which was entering the contract for

the purchase of the petrol. Also, offers for free gifts

should be enforceable


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13. examples where commercial contracts are not

enforceable:Kleinwort Benson Ltd v Malaysia

Mining Corporation Berhad (1989)

The bank approached MMC BHD asking if they

would act as guarantor for the loan. MMC refused

to act as guarantor but stated they it was their

company policy to ensure that their subsidiaries

are always in a position to meet their debts.

Kleinwort Benson Ltd v MMC

The comfort letter had no legal effect. The fact that MMC BHD had refused

act as guarantor demonstrated they did not intend to be legally bound. The

comfort letter referred to company policy at that time. There was nothing to

stop the company changing its policy.

14. examples where commercial contracts are not

enforceable an honour clause - Rose and Frank

Company v J.R. Crompton and Brothers Ltd

(1925).

an honour clause

Rose and Frank Company v J.R.:

15. Certainty of terms and vagueness:

Scammell v Ouston (1941)

The claimants wished to trade in their old van for

a new van with the defendants. They agreed a price

for the old van's trade in, but only that they would

pay for the new van 'on hire purchase terms' for

two years. The defendants subsequently pulled out

of the agreement, and when the claimants

attempted to sue, the defendants argued that the

agreement could not be enforced because it was too

uncertain.

Scammell v Ouston (1941)

the court found that the agreement was not enforceable

because the terms were uncertain and required further agreement between t

parties. Viscount Maugham explained that because the terms were uncertai

there

was no real agreement (a consensus ad idem)

16. consensus ad idem: agreement on identical terms

17. Hillas v Arcos (1932)

"22,000 standards of softwood of fair

specification". In the contract there was an option

to purchase additional "100,000 standards" of

lumber. The only terms of the option stated,

"whatever the conditions are, buyers shall obtainthe goods on conditions and at prices which show

to them a reduction of 5 per cent on the f.o.b. value

of the official price list at any time ruling during

1931."

Hillas tried to exercise the option but Arcos

claimed the contract was cancelled. At trial the

jury found that the contract had not been cancelled

but Arcos put forward the claim that the option

"was an agreement to make an agreement, the

terms of which were not defined, and so was

unenforceable."

court first began to move away from a strict, literal interpretation of the term

of a contract, and instead interpreted it with a view to preserve the bargain.

The Court ruled that judges may imply terms into a contract based on the pa

dealings of the parties rather than void the agreement.

Lord Wright stated in this case that people who give good consideration can

bind themselves to a duty to negotiate in good faith, Here, the agreement habeen relied upon and the court was able to infer the intention of the parties

based upon the terms in their agreement and the usage in the trade.

18. Nicolene Ltd v Simmonds (1953) (Nicolene v Simmonds [1953] 1 QB 543) demonstrates how a court may

choose to allow a Contract to stand, even if parts of it are meaningless, if th

alternative would be to set a precedent that is contrary to public policy. Here

contract contained the words subject to the usual conditions of acceptance.

The parties had not done business before, so it was impossible to tell what

the usual conditions were. However, the court ruled that this phrase should

simply be ignored, and the rest of the contract left to stand. Otherwise, it wa

argued, anyone who wanted to renege on a contract could have it voided on

technicality.


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19.A complete agreement:

Courtney & Fairbairn Ltd v Tolani

Brothers (Hotels) Ltd (1975)

One party wrote to the other that he

would be happy to contract if the

other would get a third party to

"negotiate fair and reasonable

contract sums".

it was held that there was no contract where the parties had simply agreed to negotiate.

Their agreement was not enforceable as a contract.

20. legislation or case law will enable the

court to add the necessary term to the

agreement.

also common law:

Foley v Classique Coaches Ltd (1934)

and British Bank for Foreign Trade

Ltd v Novinex Ltd (1949)

Sale of Goods Act 1979 which provides that where the price in a contract for the sale of

goods has not been determined the buyer must pay a reasonable price. Where this occurs,

the agreement can be completed and an enforceable contract exists.

common law:

The first is that courts are protecting the parties' reasonable reliance upon an agreement

The second is that, because the parties have relied upon the agreement, it is easier to imply

with certainty what the parties would originally have agreed upon as the essential terms.

21. Foley v Classique Coaches Ltd (1934)

Claimant owned a petrol station and

land adjacent to it. The defendants

ran a coach company and the

claimant sold them the adjacent land,

on condition they entered into an

agreement to buy petrol "at a price to

be agreed by the parties in writing

and from time to time." The

agreement was acted upon for some

time before the defendant argued that

the contract was void for uncertainty

as to price.

Foley v Classique Coaches Ltd (1934)

Another factor in that case was that the "agreement" had been acted on by the parties for

three years - court was more willing to enforce it. It was also linked to a contract for the sa

of land, ie it formed part of a larger transaction.

22. British Bank for Foreign Trade Ltd v

Novinex Ltd (1949):

whether the Plaintiffs were entitled to

commission on two transactions

relating to the sale of oilskins by

company A to the Defendants in

advance of which the Defendants had

promised to pay commission to the

Plaintiffs for an introduction to

company A.

The Plaintiffs introduced company A

to the Defendants who purchased two

parcels of oilskins. The Defendants

refused to pay commission as an

amount had not been agreed.

CA: The principle to be deduced from the cases is that if there is an essential term which h

yet to be agreed and there is no express or implied provision for its solution, the result in

point of law is that there is no binding contract. In seeing whether there is an implied

provision for its solution, however, there is a difference between an arrangement which is

wholly executory on both sides, and one which has been executed on one side or the other

In the ordinary way, if there is an arrangement to supply goods at a price "to be agreed" or

perform services on terms "to be agreed" then although while the matter is still executory,

there may be no binding contract, nevertheless, if it is executed on one side, that is if the on

does his part without having come to an agreement as to the price or the terms then the law

will say that there is necessarily implied from the conduct of the parties, a contract that, in

default of agreement, a reasonable sum is to be paid.'


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23. misrepresenation and fraud: Hedley Byrne & Co Ltd v Heller & Partners Ltd

(1964),

Byrne wanted to check their financial position, and creditworthiness, and

subsequently asked their bank, National Provincial Bank, to get a report from

Easipower's bank, Heller & Partners Ltd., who replied in a letter that was headed,

"without responsibility on the part of this bank"

It said that Easipower was,

"considered good for its ordinary business engagements".

The letter was sent for free. Easipower went into liquidation and Hedley Byrne lost17,000 on contracts.

The House of Lords overruled the

previous position, in recognising

liability for pure economic loss not

arising from a contractual

relationship, introducing the idea o

"assumption of responsibility", but

the case no damages were awarded

since the Disclaimer was sufficient

clear to void.

24. Esso Petroleum Co Ltd v Mardon (1976)

Esso told him they had estimated that the throughput of a petrol station in Eastbank

Street, Southport, would be 200,000 gallons a year. local council made a decision on

planning permission so no direct access from the main street. That meant fewer

customers. But Esso still told Mr Mardon the estimated throughput was 200,000. Mr

Mardon bought the petrol station and business did not go well. From 1964, Mr

Mardon negotiated a lower rent with Esso. He still put money in but lost a lot. Esso

then brought an action for possession against Mr Mardon. He counterclaimed for

damages of Esso's breach of warranty or negligence under Hedley Byrne.

HL on appeal it was not a warranty

in this sense - that it did not

guarantee that the throughput woul

be 200,000 gallons. But,

nevertheless, it was a forecast made

by a party - Esso - who had special

knowledge and skill. It was the

yardstick... by which they measured

the worth of a filling station. T:

distinguished Bisset v Wilkinson

because each party was 'equally ablto form an opinion.'

25. the statement is a term of the contract or a 'mere' representation which

is not a part of the contract.?

basic criterion is the intention of th

parties

Heilbut, Symons & Co v Buckleton

(1913). In this case, Lord Moulton

stated that for the statement to be a

term of the contract, it must

be made with the intention that it b

a term of a contract.

26.whether intention is exhibited by their words and conduct: not objective or

subjective.

Oscar Chess Ltd v Williams [1957]

a person selling a car to a second-hand car dealer stated that it was a 1948 Morris,

when in fact it was a 1939 model car.

Oscar Chess Ltd v Williams

If an intelligent bystander would

reasonably infer that a warranty wa

intended that will

suffice'

It was held that the statement did n

become a term because a reasonabl

person in the position of the car

dealer would not have thought that

an inexperienced person would hav

guaranteed the truth of the statemen


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27. Heilbut, Symons & Co v Buckleton (1913), Lord Moulton set out

various criteria that helped to ascertain whether or not this

intention was present.

Buckleton called up a manager at Heilbut to inquire about the

shares. In response to the questions, the manager stated that they

were "bringing out a rubber company". Based on this statement,

Buckleton purchased a large number of shares. The shares turned

out not to be for a rubber company at all. The shares performed very

poorly. Buckleton sued for breach of warranty.

At trial the Court found that Heilbut made

misrepresentation but was not done fraudulently.

Nevertheless, at trial is was found that there was a

warranty in the statement regarding the rubber

company. The claimant, Buckleton, succeeded at trial.

Criteria:

the importance of the statement - the more important t

matter, the greater the

likelihood that the parties intended the statement to beterm

2. where one party is clearly relying upon the other, th

is indicative that the

statement is intended to be a term, and

3. the relative knowledge of the parties is significant

because if one party has a much

greater knowledge of the matter than the other, this is

again indicative that the

statement is intended to be a term of the contract.

28.Which cases show how the principles in Heilbut, Symons & Co v

Buckleton apply?

Oscar Chess Ltd v Williams (1957); Dick Bentley

Productions Ltd v Harold Smith (Motors) Ltd

(1965); Schawel v Reade (1913); Couchman v Hill (194

29. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd:

The defendant (Harold) sold the plaintiff (Dick) a car saying that it

only done 20,000 miles since major repair.

Harold bought the car but it transpired that the car had done much

more then 20,000 miles since the last major repair.

(1965)

Here, the representation was made for the purposes of

inducing the sale, thus this was grounds for inferring

that the representation was intended as a warranty.

The court went on to say that the defendant could rebu

this presumption by showing that his representation

was innocent, however the vendor made the statement

without checking them out and so the representations

were not innocent.

30. Schawel v Reade [1913]:

The defendant told the plaintiff, who required a horse for stud

purposes, that the animal was 'perfectly sound'. A few days later the

price was agreed and, three weeks later, the plaintiff bought the

horse.

The statement was held to be a term of the contract, bu

here the defendant, who was the owner of the horse,

would appear to have had special knowledge.

31. Couchman v Hill (1947).

plaintiff bought heifer at auction described in catalogue as

'unserved'

conditions of sale stated auctioneers didn't warrant condition or

description

before sale, auctioneer, on request of plaintiff, confirmed heifer

unserved

8 weeks later, heifer died from carrying calf too young

court held plaintiff could claim damages as 'unserved'

warranty which overrode conditions of sale

32. parole evidence rule it is said that they cannot later seek to establish that

there are terms of the contract which are outside thewritten agreement. They cannot, in other words, seek

show by evidence that there are other terms to the

contract. can lead to injustice - where, for example, a

critical term is omitted from the written agreement


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33. Is it relevant to ask, as Lord

Denning does in cases such as

Dick Bentley Productions v

Harold Smith (Motors),

whether the defendant was

'innocent of fault' as an aid to

determining the existence of

contractual intention? Does

this shed any light on the wayjudges decide what is the

'proper' inference?

Lord Denning: it seems to me that if a representation is made in the course of dealings for a

contract for the very purpose of inducing the other party to act on it, and it actually induces him to

act on it by entering into the contract, that is prima facie ground for inferring that the

representation was intended as a warranty. It is not necessary to speak of it as being collateral.

Suffice it that the representation was intended to be acted on and was in fact acted on. But the

maker of the representation can rebut this inference if he can show that it really was an innocent

misrepresentation, in that he was in fact innocent of fault in making it, and that it would not be

reasonable in the circumstances for him to be bound by it. In the Oscar Chess case the inference

was rebutted. in the present case it is very different. The inference is not rebutted. Here we have adealer, Mr Smith, who was in a position to know, or at least to find out, the history of the car. He

could get it. 'Fault', means something in the nature of negligence. The party who is

at 'fault' will bear the responsibility for the failure.

34.What is the 'parole evidence

rule'? Is it still important? If

not, why not?

amounts to no more than a rebuttable

presumption that the written contract is the whole contract. The exceptions to the rule are so

numerous that its status as a 'rule' is highly questionable. These exceptions

include evidence to establish that a contract is void or voidable on the grounds of mistake,

misrepresentation or fraud; to indicate an implied term or custom; or to

prove the existence of a collateral agreement. Because the rule can be circumvented so easily, it is

not really a rule. What is useful about the 'rule' is that it operates as a guide that the written terms

the contract are, at a minimum, the starting point for the determination of the contract's terms.

35. express v imply terms express: meaning clearly indicated or explicitly stated'.

imply means courts imply terms into the contract: were of satisfactory quality (because of s .14(2A)

of the Sale of Goods Act 1979).

generally reluctant to imply terms into a contract. The courts generally consider their role to be th

of an interpreter of contracts rather than a maker of them.

36. Crossley v Faithful & Gould

Holdings

Ltd [2004]

suffered a nervous breakdown.

Under the firm's disability

insurance scheme, so long as he

was an employee he was

entitled to benefits while totally

unable to work. He tendered his

resignation in terms suggested

by Faithful Ltd. Unfortunately

that terminated his right to

benefits. The scheme insurer

stopped payments after one

year.

Crossley v Faithful & Gould Holdings: CA declined to find that there was an implied term within t

contract of employment which provided that an employer ought to take reasonable care of an

employee's economic wellbeing. The introduction of such a term would be a major extension of th

existing law and would place an intolerable burden upon employers.

37.When will courts imply terms: Where there is an established trade usage.

Because of the relationship between the parties.

To give effect to an unexpressed intention of the parties.

By operation of statute.

38. courts implying terms: Trade

usage

common in commercial and mercantile contracts. Here, the standardised implied term functions

a kind of default rule. An example of such a situation would be that the vendors of a certain type o

good always paid the broker's commission with regard to the sale; absent a term to the contrary,

courts will imply such a term into this type of contract.

39. courss implying terms: The

nature of the relationship

landlord and tenant or employer and employee are two such instances.

Malik v BCCI (1997)

Liverpool City Council v Irwin (1976)

Equitable Life Assurance Society v Hyman (2002).


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40. Malik v BCCI (1997): BCCI went insolvent due to massive fraud. They sued

the company for their loss of job prospects, alleging that their failure to

secure new jobs was due to the reputatational damage they had suffered

from working with BCCI. no express term in their contracts, Malik and

Mahmud argued there was an implied term in their employment contract

that nothing would be done calculated to undermine mutual trust and

confidence.

If conduct objectively considered is likely to caus

serious damage to the relationship between

employer and employee a breach of the implied

obligation may arise.

not limited by any rule that an employee had to

know of the breach while the employment

relationship subsisted,

41. Liverpool City Council v Irwin (1976)

The common parts were vandalised, the lifts did not work, the stair lights

failed, the chute was blocked, lavatory cisterns blocked and overflowed.

The tenants refused to pay rent. In an action by the council to eject them,

they counterclaimed that the council was in breach of a duty to keep the

common parts of the estates in decent repair.

HL: held that the nature of the agreement placed

responsibility with the landlords. They could ha

sought to make the tenants take responsibility, b

including terms to that effect in the contract, but

they did not. By implication, they retained

responsibility themselves.

42. Equitable Life Assurance

Society v Hyman (2002). could choose to have their annuity at a

"guaranteed annual rate" ("GAR") or a "current annuity rate" ("CAR").

From 1993 the current annuity fell below the guaranteed one. Article 65 of

the Society's articles said the directors could in their discretion vary the

premiums, which you would get on top.

decided they would change the level of bonuses, so as to equalise the

return so far as possible between the GAR and CAR policyholders. This

meant GAR policyholders received less than they believed they were

entitled to

Lord Steyn held there was an implied term that

the directors could not use their discretion in to

profits in this way. This implication was,[1]

strictly necessary... essential to give effect to the

reasonable expectations of the parties... The leg

test for the implication of such a term is a

standard of strict necessity. He called terms

implied in fact 'individualised terms' and law

'standardised implied terms'.

43. The unexpressed intention of the parties and the 'officious bystander' The courts may imply terms into the contract to

give effect to what appears to be the unexpressed

intention of the parties. In some circumstances,

the contract will not function unless the term is

implied. The implication is made as a matter of

necessity.Moorcock (1889).

44. Moorcock (1889): docked ship. tide went down to a point where the hull of

the ship hit a ridge causing damage to the ship. The plaintiff argued thatthe wharfingers were responsible to ensure that his vessel would remain

safe while docked. The wharf owners, in their defence, claimed that there

were no provisions in the contract to ensure the vessel's safety nor could

they have foreseen the damage caused to the vessel. The issue before the

Court was whether there can be any implied warranty in the

circumstances. The trial court found that there was an implied warranty.

Bowen LJ stated that any implied warranties mu

be based on the presumed intentions of theparties. An implied warranty may be read into a

contract for reasons of "business efficacy" and in

order to maintain the presumed intention of the

parties.

In business transactions such as this, what the

law desires to effect by the implication is to give

such business efficacy to the transaction as mus

have been intended at all events by both parties

who are business men; not to impose on one sid

all perils of the transaction, or to emancipate on

side from all the chances of failure.

The wharfingers were in such a position that the

must have known that there was a risk of damag

to the ship and would be in the best position to

judge the safety of the vessel.

45. Shirlaw v Southern

Foundries (1926) Ltd (1939):

that which in any contract is left to be implied a

need not be expressed

is something so obvious that it goes without

saying; so that, if, while the parties were

making their bargain, an officious bystander we

to suggest some express provision for it

in their agreement, they would testily suppress

him with a common 'Oh, of course'.


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46. Liverpool City Council v Irwin 1977:

HL: Why did the House of Lords reject the 'variety of implication' that

the law implies a term on the basis that it is reasonable to do so,

favoured by Lord Denning MR? (The

rejection is made by Lord Wilberforce in Liverpool City Council v

Irwin (1977))

The main reason that this variety of implication is

rejected is undoubtedly because,

if terms were implied into contracts on the basis that

was reasonable to do so,

the contract would, inexorably, become what the

judges thought was a reasonable

contract. In these circumstances, the courts are not s

much interpreting the

contract as creating the contract.

47.A contracts with B to assemble bicycles to B's specifications. One of

these specifications is that the bicycles will be fitted with a unique gear

system. B manufactures these gear systems. Is there an implied term

that B will supply A with this gear system in sufficient quantities to

manufacture the requisite number of bicycles?

may be possible to establish that the commercial

practice in such a situation requires B to supply the

gear system. A court would require convincing

evidence of such an invariable practice and this may

not exist. A second argument rests upon necessity -

that the parties, by necessity, intended such a term to

be within their contract: see MacKinnon LJ's officio

bystander. A possible weakness in such an argumen

is that it may be that while B is the only manufacture

of such a gearing system, B may not be the only

supplier of such a system. If it can be obtained

elsewhere, there may be no necessity to imply theterm.

48. Terms implied by operation of statute:

Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods

Act 1994), that goods sold by a seller in the course of his business shall

be of satisfactory quality (not 'merchantable' quality).

note: limits to which the parties can defeat

terms implied by statute law. The limits are set,

principally, by the Unfair Contract

Terms Act 1977 and the Unfair Terms in Consumer

Contracts Regulations 1999. S

49. Slater v Finning [1996]:camshaft was fit for its purpose, although it

did not work properly in the buyer's vessel: the problem arose from an

abnormal feature of the vessel of which neither party was aware

the buyers of the camshafts were placing a high degree of reliance on

the skill and competence of the sellers. The sellers were not negligent

or in any sense careless, but that is no defence under the Sale of Goods

Act 1979. As a matter of strict law, then, it seems hard for the sellers to

escape liability.

HL: As the defendants were not aware nor were in a

position to exercise skil l and judgment they were not

liable.

50.Wilson v Best Travel:

The claimant was injured when he fell through some glass patio doors

whilst on holiday in Greece. The glass conformed to Greek safety

standards but did not conform to British safety standards. The

claimant brought an action against the travel agent asking for a term

to be implied as a matter of law, that all accommodation offered by the

defendant should conform to British safety standards.

The courts did not imply a term. Whilst this was a

contract of a defined type, it was reasonable for the

travel agency to ensure that all accommodation

offered, no matter where in the world, conformed wi

British safety standards.

51. Hutton v Warren: implied terms and custom

A farm tenant claimed that it was the custom of the country that thelandlord would give a reasonable allowance for seeds and labour to

keep the land arable, and that he would leave manure should the

landlord wish to purchase it.

Parke B held in favour of the farm tenant, because as

he said, 'in commercial transactions, extrinsicevidence of custome and usage is admissible to anne

incidents to written contracts matters with respect to

which they are silent.'


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52. 2 types of implied terms in common

Scally v Southern Health and Social Services Board 1992

doctors had not worked the requisite 40 years before

retirement to get full superannuation (or pension)

benefits. But by law[1] they could "top up" their

payments within twelve months of beginning their jobs

and get the full entitlements. Their employer did not tell

them this. So they failed to get better rates.

-argued a 'necessary' term of employment wasinformation about exercising rights under the

superannuation scheme.

implied in fact/ law:

fact:Lister v Romford Ice and Cold Storage Co Ltd [1957] search for a

implied term necessary to give business efficacy to a particular contra

LAW: incident of a definable category of contractual relationship.

Liverpool City Council v Irwin. terms in law are less likely to be linke

to unexpressed intentions of parties (employer/employee and landlor

53. Lord Hoffman Attorney General of Belize v Belize

Telecom LTd

cf Lord Simon BP Refinery v Shire of Hastings 1978

Hoffman indirectly confirms

Also the officious bystander test in Shirlaw v Southern

Foundries

not for court "to improve upon the instrument" it has to interpret: not

introducce terms to make it fairer.

statements, such as, (i) an 'implied term must "go without saying"',

and (ii) it has to 'be "necessary to give business efficacy to the contrac

etc, whilst "helpful" to "a court ... in providing an answer", should "n

... be treated as different or additional tests" to the sole "question" of:

"what [would] the instrument, read as a whole against the relevant

background .... reasonably be understood to mean?

54. Lord Simon BP Refinery v Shire of Hastings 1978 tests

for implied term

(i) "reasonable and equitable"; (ii) "necessary to give business efficac

to the contract, so that" a "term will [not] be implied if the contract is

effective without it"; (iii) "so obvious that 'it goes without saying '"; (iv

"capable of clear expression"; and (v) such that it does "not contradic

an "express" contractual provision.)

55. implied terms in law (relationships)

Crossley v Faithful and Gould Holdings (Was there an

'implied term of any contract of employment that the

employer will take reasonable care for the economic well

being of his employee.')

TERMS implied in law one should not 'focus on the

elusive concept of necessity' which is 'somewhat

protean' but should 'recognise that, to some extent at

least, the existence and scope of standardised implied

terms raise questions of reasonableness, fairness and

the balancing of competing policy considerations.

unreasonable for employers 'to have regard to the employee's financia

circumstances when he takes lawful business decisions which may

affect the employee's economic welfare.' The employer does not need

'act as his employee's financial adviser.'

'such an implied term would impose an unfair and unreasonable

burden on employers.

56. terms and breaches A contractual term is a 'primary' obligation. Every breach of a 'primar

obligation gives rise to a 'secondary' obligation to pay damages for th

loss caused. In some cases this is the only remedy, but in others there

is the further

remedy of 'terminating' (ending or rescinding) the contract or (b)

affirm the contract (accept the breach and insist on continued

performance of the contract) and claim damages

57. conditions/warranty/innominate terms and breach The classification of terms

is important because the injured party is only given this option

(terminate contract) when the term breached is a condition or there i

a sufficiently serious breach of an innominate term. The injured party

is not given the right to terminate the contract for breach of a term th

is a warranty

58. Rescinding for breach the injured party is entitled, if he so wishes, to treat the contract as

discharged (i.e. brought to an end) and to refuse to make further

performance of his own obligations or to receive further performance

the other party's obligations.

59. rescission (rescinding) for misrepresentation means that the contract is cancelled from the very beginning.


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60. Note that a party rescinding for breach need not

show that the breach of condition has actually

caused any loss. Bowes v Shand (1877) and Re

Moore and Landauer (1921)

Bowes v Shand (1877) and Re Moore and Landauer (1921)

61. Bowes v Shand:

Bancks agreed to provide a drawing for a comic

strip, and Associated Newspapers agreed to

publish it on the front page of the comic section

of the paper. Associated Newspapers

subsequently sought an injunction to prevent

Bancks from breaching the employment

contract which had been made for a period of 10

years. On 3 occasions, the comic was printed on

page 3, and Bancks protested. After the third

occasion, he informed Associated Newspapers

that the contract was terminated

Bowes v Shand:

Bancks was justified in thinking that the breaches would continue, and was

therefore justified in rescinding the contract.

The court asked, was the "front page" term a condition or an essential term, a

breach of which would allow the party to rescind the contract and sue for

damages?

62. Re Moore and Landauer (1921)

There was an agreement for the sale of 3,000

tins of canned fruit packed in cases of 30 tins.

When delivered it was discovered that half the

cases contained only 24 tins although the total

number of tins was still 3,000. The market value

was not affected.

CA: held that notwithstanding that there was no loss to the buyer, he could

reject the whole consignment because of the breach of s13 of the Sale of Goods

Act (goods must correspond with the description).

63. conditions: if intention is clearly expressed, a

term will be a condition, however unimportant

it

is. However if the intention is not clearly

expressed, the court will again have to draw the

'proper inference'. Behn v Burness (1868);

Bettini v Gye (1876) and Poussard v

Spiers (1876).

Behn v Burness (1868); Bettini v Gye (1876) and Poussard v

Spiers (1876).

64. condition and intent: Behn v Burness :if he receives the thing sold, and has the

enjoyment of it, he cannot afterwards treat the

descriptive statement as a condition, but only as

an agreement, for a breach of which he may

bring an action to recover damages.7

Again there is the rationale that the benefit of

property precludes rejection.

Accordingly, if a specific thing has been sold, with a warranty of its quality,under such circumstances that the property passes by the sale, the vendee

having thus benefited by the partial execution of the contract, and become the

proprietor of the thing sold, cannot treat the failure of the warranty as a

condition broken (unless there is a special stipulation to that effect in the

contract; . . . ) but must have recourse to an action for damages in respect of th

breach of warranty. But in cases where the thing sold is not specific, and the

property has not passed by the sale, the vendee may refuse to receive the thing

proffered to him in performance of the contract, on the ground that it does not

correspond with the descriptive statement, or in other words, that the conditio

expressed in the contract has not been performed.

65. conditions and intent: Bettini v Gye

Bettini opera singer: Bettini was meant to be inLondon 'without fail' 6 days before rehearsals,

but did not arrive until 28 March, at which

point he was ready to perform. However, Gye

rejected Bettini's performance. (1876)

held the provision for arriving 6 days before was not a condition, and therefor

breach of it did not give rise to the right to terminate. If clear words hadstipulated that in the event Mr Bettini did not show up Gye could terminate, or

that Bettini would forfeit twice his salary, that would provide the answer. Here

Bettini had already performed his covenant to not sing in the UK in the month

running up to 30 March, and not showing for rehearsals could only affect

theatrical performances and singing in duets during the first week or fortnight

So the breach did not go to the root of the contract, and Gye was not entitled to

terminate.


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66. intention and conditions: Poussard v

Spiers (1876)

Spiers and Pond engaged another performer, Miss Lewis to be ready to take

over if Poussard could not. Miss Lewis would receive a douceur if she was

not hired, and 15 a week if she was. Poussard continued to be ill for the

first three days. On Thursday 4 December she was well again, but Spiers and

Pond refused to have her back. Mr Poussard claimed for wrongful dismissal

on his wife's behalf.

held that failing to turn up for the first

performances entitled Spiers and Pond to

rescind the contract, for this went to the root o

the matter

67. innominate' or 'intermediate' terms: lead to uncertainty in law, but harder

to rescind on technicality.

Hong Kong Fir 1962

The charterparty said that the owners would maintain the ship in an

efficient state both as to hull and machinery. By Cl 1 the vessel was said to be

in every way fit for ordinary cargo service. From Liverpool to Osaka the ship

was off hire for some 5 weeks. At Osaka, 15 weeks were needed to get the ship

ready for sea. D purported to terminate the contract for breach of the

seaworthiness term. The owners said that the termination was wrongful

and therefore amounted to a repudiation of the contract. The shipowners

claimed damages for wrongful repudiation.

neither conditions nor warranties

Lord Diplock: What mattered was not whethe

you call a particular contract term a "warranty

or a "condition" but how serious the breach of

the term was

it was held that the charterer was wrong in

terminating. This illustrates what was sa id

earlier about the hazards of terminating. The

owner was undoubtedly in breach - and, one

would have thought, in a pretty substantial wa

- and yet it ended up winning the case because

its breach was not regarded as sufficiently

serious and it was the charterer who committethe serious breach by wrongfully terminating!

Diplock test: whether the breach deprived the

other party of substantially the whole of the

benefit of the contract.

68. innominate terms

Mihalis Angelos:

The owners of the ship, The Mihalis Angelos, chartered the ship to the

defendant to use for the carriage of some cargo. A clause in the agreement

stated the ship was expected ready to load on 1st July. owners had no

grounds for believing the ship would be ready to load on that date as it was

in Hong Kong at the time and would not be ready until at least the 14th of

July and in fact it was not ready at that date. D ended contract on 17th ofJuly. The cargo that they expected to be carrying had not arrived due to the

bombing of a railway in Vietnam. The ship owners brought an action against

the defendants for anticipatory breach. The defendants argued that the

claimant was in breach of condition of the contract by not be ready to load

on the specified date.

CA: The expected ready to load clause was a

condition despite the fact it had caused no los

to the defendant. The classification as a

condition was sa id to be because of the need f

commercial certainty in shipping contracts.

if a clause is a condition, in the sense that any

breach of it enables the buyer to reject the goowithout having to show that the dishonest or

unreasonable expectation of the seller has in

fact been prejudicial to the buyer

69. innominate terms

Cehave v Bremer HG 1976

judgment followed the decision of Hong Kong

Fir, asking whether, in Upjohn LJ's words, 't

breach went to the root of the contract'. In thi

case it was held that the breach was

insufficiently serious to give rise to the right to

terminate, given the fact that the 'damaged'

pellets were still usable in almost exactly thesame way to manufacture cattle food. This

echoes the essence of Hong Kong Fir's

decision, i .e. it does not deprive the innocent

party of substantially his whole intended

benefit.


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70. Bunge Corporation v Tradax Export SA [1981] :T agreed to sell 15 long tons

of soya bean meal. Buyers to provide transport and to give 15 days notice

of probable readiness of vessel and approximate quantity required for

that shipment. Notice given 17 June, less than 15 days before the end of

June, therefore in breach of cl 7. Damages claimed for breach of

condition. More understandable if a rise in price and seller wanted to sell

elsewhere. As there was a fall in price during the 4 days late, why didn't

the seller waive the breach and supply?

HL: Argued that this was an innominate term as

per Diplock in Hong Kong, and breach did not

make performance impossible, but here the time

issue is essential in

court will require precise compliance with

stipulations as to time wherever the circumstanc

of the case indicate that this would fulfil the

intention of the parties, and (2) that broadly

speaking time will be considered of the essence i" mercantile" contracts

71. innominate terms cases

Hong Kong Fir

The Mihalis Angelos (1970);

Bunge v Tradax (1981); The Naxos (1990) and Barber v NWS Bank (1996).

contrastTorvald Klaveness v Arni Maritime Corp (The Gregos) (1994)

Hong Kong Fir

The Mihalis Angelos (1970);

Bunge v Tradax (1981); The Naxos (1990) and

Barber v NWS Bank (1996).

contrastTorvald Klaveness v Arni Maritime Corp

(The Gregos) (1994)

72. The Naxos (1990): similar to Bunge

v Tradax

sugar was not ready to load inaccordance with the time stipulation.

buyers repudiate the contract,the sugar was not forthcoming

Held: this being a mercantile contract, time was

the essence if that was the intentionof the partie

Time was essential to the buyers in this case,

since punctualperformance was required to enab

them to carry out their obligations totheir own

customers who had agreed to buy the cargo.

73. innominate terms actual ownership was bank?:

Barber v NWS Bank (1996).

car found to be subject to a prior finance agreement. P

asked the court to determine whether a term to the effect that the bank

was the actual owner of the vehicle at the date of the agreement was a

condition or a warranty, and if it was a condition, whether he was entitled

to rescind the agreement and demand repayment of the deposit and any

instalments paid.

That the term in question was undoubtedly a

condition as it was fundamental to the agreemen

that NWS retain property in the car until al l

moneys due were paid in full,

It therefore followed that B was entitled to rescin

the agreement and recover the deposit and

instalments.

74. innominate terms, mercantile industry, timelinesTorvald Klavenes v Arni Maritime Corp 1994

HL held that the obligation to re-deliver a time-chartered ship on due date was probably not a

condition.

Where the charter-party is for a period of time

rather than a voyage, and the remuneration is

calculated according to the time used rather than

the service performed, the risk of delay is primar

on the charterer. For the shipowner, so long as h

commits no breach and nothing puts the ship of

hire, his right to remuneration is unaffected by a

disturbance of the charterer's plans.

75. innominate terms: attempted rescission on technicality

Reardon Smith v Hansen-TangenOsaka was the name of the yard responsible for building the ship,

although the building was subcontracted to another yard, Oshima. The

Osaka yard could not handle a tankship of that size. Both parties knew

this. But the buyers, wanting to get out of the contract for another reason,

argued that the ship did not correspond with the description under s 13

of the Supply of Goods and Services Act 1982.

Lord Wilberforce stated that in construing a

contract, the Court must," place itself in thought in the same factual matr

as that in which the parties were. "

The hull number and yard had no particular

significance ("innominate terms"). The descrptio

needs to focus on the goods not excessively

technical arguments.


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76. innominate terms: attempted rescission on technicality

L. Schuler v Wickman Machine Tool Sales (1974).

entered into a contract with Wickman in which Wickman

would have the sole right to distribute one of S's products in

the UK. The contract had a term 'it shall be a condition of this

agreement that' W visit six specified dealers one a weekly basis

to promote S's product.On a few occasions W failed to do this.

S repudiated the contract, claiming that W had breached a

condition.

The House of lords held that stating that something was a

condition was evidence that it was, but not irrebutable. In this

case, they reasoned that the parties could never have intended

breach of this nature to result in the destruction of the contrac

when they first entered into it.

77. Lombard North Central v Butterworth (1987):The defendant

leased a computer from the claimant. The claimant was to pay

584 by 20 instalments every 3 months. A term of the lease

agreement provided that punctual payment was required and

breach of this term would entitle the lessor to terminate the

agreement. The defendant got into arrears with the

instalments and the claimant took possession of the computer

and sold it on for 175. The claimant sued the defendant

claiming arrears and all future payments amounting to 6,869

in total.

punctual payment was made a

condition. Note that the hirer was also liable in damages for

the entire loss caused to the plaintiffs by the 'rescission' of the

contract

The term relating to prompt payment was a condition. The

parties by their agreement had demonstrated that prompt

payment was an essential term and the consequence of breach

was clearly set out. Nicholls LJ stated that even one late

payment would entitle the lessor to terminate irrespective of th

effect of the breach.

78. Union Eagle v Golden Achievement 1997 PC:

Union Eagle paid 10% of the HK$4.2m price for a Hong Kong

flat as a deposit. Time was said to be 'of the essence'.

Completion was meant to be 5pm 30 September 1991, and

clause 12 said failure to complete meant the deposit was forfeit

and the agreement rescinded. They were 10 minutes late.

Union Eagle sued for specific performance, arguing relying on

such a legal right was unconscionable.

Lord Hoffmann for the Privy Council advised that certainty wa

needed in the business world, particularly in a volatile marke

Accordingly the contract's terms should be strictly enforced,

and Union Eagle lost its deposit.

79.Why was the unseaworthiness of a chartered ship (in Hong

Kong Fir) considered less important than the owner's

estimate of when she would be ready to load the charterer's

cargo?

The unseaworthiness of the vessel was not considered a

sufficiently serious breach of

an innominate term in Hong Kong Fir Shipping Co Ltd v

Kawasaki Kisen Kaisha Ltd (1962) as to justify terminating th

contract because the delay caused by the breakdown and the

necessary repairs were not so great as to remove the

commercial purpose of the charterparty. The seaworthiness o

the vessel was thus not a condition of the contract The term d

not meet the test set out by Diplock LJ in that case: substantia

deprivation of of the whole benefit.

80.What more could Schuler (in L Schuler v Wickman Machine

Tool Sales) have done to achieve the effect of making the visits

genuinely a condition of the contract?

What Schuler could have done to ensure that the visits were

genuinely a 'condition' of the contract (breach of which entitle

Schuler to terminate the contract) was to clearly indicate in th

contract that a breach of this obligation entitled Schuler to

terminate the contract. See Lombard North Central plc v

Butterworth (1987) where Mustill LJ discusses the ability of a

party to establish as a condition a matter which, at common

law, would not be considered a condition in the sense of

allowing the injured party to terminate the contract because th

obligation stipulated

was of a minor nature.

81. Compare the decision in Schuler with that in Lombard. How

are they different?

The critical difference between the decision in Schuler AG v

Wickman Machine Tools Sales Ltd (1973) and Lombard Nort

Central plc v Butterworth (1987) is that in the latter case, the

contract clearly stipulated that the punctual payment was of th

essence of the agreement (clause 2(a)) and that failure to mak

punctual payments entitled the

plaintiffs to terminate the agreement (clause 5).

contract law 4-5 llb (1)

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