Contract Law 4-5 LLB (1)

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

1.

contract and intent for legally legally bindi binding ng

if contract lacks an intention to create legal relations and is thus not a contract because they did did not intend it to be. In the case of domestic and social agreements, it is presumed that there is n ot an intention i ntention to create legal relations. In the cas e of commercial commercial a greements, greements, it i t is presumed presumed that there is an i ntention to create create legal relations. be. The agreement has no legal effect at all.

2.

Edmonds v Lawson: contra ct and i ntent for legall legally y binding

the courts courts will w ill n ot examine the states of mind of the parties to the agreement agreement (a s ubjective ubjective approach approach), ), but will a sk whether w hether 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, overseas, he promised to to pay his  wife an amount of money each month.  When the parties separated, separated, the the wife sued the the husband for this monthly amount. The court refused refused to allow her action on the grounds that the agreement was not an enforceable contract because, at the outset of their agreement, agreement, it it 'was not intended by either party to be attended by legal consequences'. P roblem is court would be overwhelmed. overwhelmed.

4.

Domestic agreemens agreemens cases: Balfour v Ba lfour lfour Jones v Pad avatton (1969) (1969) Coward v MIB

Jones v Padavatton :the agreement agreement between 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 na ture ture of the dealing s, and the fac t that the Merritts Merritts  were separated separated when they signed their their contract, allow ed the the court to to as sume that their agreement agreement was wa s more than a domestic arrangement. a family arrangement such as was considered by the court in Balfour v Balfour Balfour and in Jones v Pa davatton. davatton. So the w ife could not sue on it. I do not think that those cases have any  application h ere. The parties parties there were living together in amity. 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 p roperty to the defendant and tha t she and the chi ldren would would vacate the property, in return for the defendant's financial support in respect of rent and mai ntenance whilst she went back to university an d re-trai ned in order to become able able to take over over financi al responsibility for the children in the future.

The breakdown of a relationshi p between between parents created rights and obligations and also brought into effect statutory rights and obliga tions. Moreover, Moreover, the defendant's contention that there  was no consi deration deration for the May 1998 1998 agreement was manifestly hopeless, as the agreement agreement had con stituted stituted a compromise compromise of the claiman t's statutory statutory rights to both housi ng provision and continuing maintenance for the children.

7.

8.

Soulsbury Soulsbury v Soulsbury Soulsbury [2007]: The issue in thi s appeal ap peal is CA finds that there was an intention to create legal relations  whether  whether the personal personal representative of the estate of the  between  between two former former spouses spouses wh en one agreed to forego forego deceased former husband of the claimant is liable to to pay her maintenance payments in return return for a bequest bequest in the other's the sum of £100,000 £100,000 which the deceased had promised he  will .  would ensure ensure she would would receive receive on his death if she did not enforce an order for periodi cal payments in her fa vour or seek  any other order for anci llary llary relief against hi m. domestic cases where balfour balfour v balfour presumpti on of not legally binding is rebutted.

Soulsbury v Soulsbury [2007] Darke v Strout [2003] EWCA  Merritt v Merrit Simpkins v Pays (1955)

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 turn s to pay. They had a greed that i f any of them won they would share the winnings between them. The grandmother received £250 i n pri ze money and refused to share it with the other two. The lodger brought the action to c laim one third of the prize money.

There was a binding contract despite the family  connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations.

10.

Coward v MIB Coward was killed whilst ridi ng 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 d amages from the Motor Insurance Bureau since the rider's insurance did not cover pillion passengers. The Motor I nsurance 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 hi re or reward. Coward pai d 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 socia l and domestic agreement and therefore no intention to create legal relations. The widow was therefore not entitled to compensation.

How does Simpkins v Pays di ffer 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 demonstrate an intention to create legal relations.

Esso Petroleum Ltd v Commissioners of Customs : Esso p roduced "World Cup Coins" whi ch they offered as "free gifts" to pur chasers of  their petrol. The issue was whether these coins were "produced ... for sale" under the Purchase Tax Act 1963 (UK), in which ca se 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 binding 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.

11.

12.

If it were found that Esso, the dealer, and the customer intended to create a contract, it would seem to preclude the possibility of any dealer ever offering a free gift, however neglig ible the value. A common intention to enter legal relations w ould be found more easily if the item were something of value to the purchaser. But here the coins were of little intrinsic value. If there were any  contract relating to the coins, the consideration for it  would be not the payment of money, but the entry into a contract to buy petrol. minority view: , Esso clearly anticipated that they would have value to their customers, otherwis e the promotion  would not be worthwhile. What sort of transa ction was entered? It appears to be a collateral contract, the consideration for which was entering the contract for the purchas e of the petrol. Also, offers for free gifts should be enforceable

examples where commercial contracts a re not enforceable:Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad (1989) The bank approached MMC BHD aski ng 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 L td v MMC The comfort letter had no legal effect. The fact that MMC BHD h ad refused to act as guarantor demonstrated they did not intend to be legall y 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 a re not enforceable an honour clause - Rose and Fra nk  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 p rice for the old van's trade in, but only that they would pay for the new van 'on hire purcha se 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 ag reement was not enforceable  because the terms were uncertain and required further agreement between the parties. Vis count Maugham explained that because the terms w ere uncertain, 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,

court first began to move away from a strict, literal interpretation of the terms of a contract, an d instead interpreted it with a view to preserve the bargain. The Court ruled that judges may i mply terms into a contract based on the pas t dealings of the parties rather than void the a greement.

13.

"whatever the conditi ons are, buyers sha ll obtain the 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."

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 had  been 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.

Hillas tried to exercise the option but Arcos claimed the contract was cancelled. At tri al 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 s o was unenforceable." 18.

Nicolene Ltd v Simmonds ( 1953)

(Nicolene v Simmonds [1953] 1 Q B 543) demonstrates how a court may  choose to allow a Contract to stand, even if parts of it are meaningless, if the alternative would be to set a precedent that is contrary to public policy. Here a 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 w ere. However, the court ruled that this phras e should simply be ignored, and the rest of the contract left to stand. Otherwis e, it was argued, anyone wh o wanted to renege on a contract could have it voided on a technicality.

19.  A

complete agreement: Courtney & Fairbairn Ltd v Tolani Brothers (Hotels) Ltd (1975) One party wrote to the other that he  would be happ y to contract if the other would get a third party to "negotiate fair and reasonable contract sums".

it was held that there was n o 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 w hich provides that where the price in a con tract for the sa le of  goods h as not been determined the buyer must pay a reasona ble 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 relian ce upon an ag reement The second is that, because the parties have relied upon the agreement, it is easier to imply   with certainty what the parties would origina lly 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 p rice to  be agreed by the parti es in writing and from time to time." The agreement was acted up on for some time before the defendant argued that the contract was void for uncertainty  as to price.

Foley v Class ique Coaches Ltd (1934)  Another factor in that case was tha t 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 sale of land, ie it formed part of a larger transa ction.

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 commissi on to the Plaintiffs for an introduction to company A. The Plaintiffs introduced company A  to the Defendants who pur chased two parcels of oilskins. T he Defendants refused to pay commission as an amount had not been agreed.

CA: The principle to be deduced from the cases i s that if there is a n essential term which h as  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 w ay, if there is an arrangement to supply goods a t a price "to be agreed" or to perform services on terms "to be ag reed" then although while the matter is s till executory, there may be no binding contract, nevertheless, if it is executed on one side, tha t is if the one 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.'

23.

misrepresenation an d fraud: Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964), Byrne wanted to check their financia l position, and cr editworthiness, and subsequently asked their bank, National Provinci al Bank, to get a report from Easipower's bank, Heller & Partners L td., who replied in a letter that was headed, "without responsibi lity on the part of this bank" It said that Easipower was, "considered good for its ord inary business engagements". The letter was sent for fr ee. Easipower went into liquidation a nd Hedley Byrne lost £17,000 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 of  "assumption of responsibili ty", but in the case no damages were awarded since the Disclaimer was sufficiently  clear to void.

24.

Esso Petroleum Co Ltd v Mardon (1976) Esso told him they had estimated that the throughput of a p etrol 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 sti ll 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 possessi on 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 would  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 able to 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 the 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 be a term of a con tract.

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 ca r dealer stated that it was a 1948 Morris,  when in fact it was a 1939 model car.

Oscar Chess Ltd v Williams If an in telligent bystander would reasonably infer that a warranty was intended that will suffice' It was held that the statement did not  become a term because a reasonable person in the position of the car dealer would not have thought that an inexperienced person w ould have guaranteed the truth of the statement.

27.

Heilbut, Symons & Co v Buckleton (1913), Lord Moulton set out  various criteri a 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 a t all. The shares p erformed very  poorly. Buckleton sued for breach of warranty.

28.  Which

 At trial the Court found that Heilbut made misrepresentation but wa s not done fraudulently. Nevertheless, at trial is was found that there was a  warranty in the statement regarding the rubber company. The cl aimant, Buckleton, succeeded at trial. Criteria: the importance of the statement - the more important the matter, the greater the likelihood that the parties intended the statement to be a term 2. wh ere one party is clearly relying upon the other, this 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 i s again indicative that the statement is intended to be a term of the contract.

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 (1947)

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 repa ir. Harold bought the car but it transp ired that the car had done much more then 20,000 miles si nce the last major repair. (1965)

Here, the representation w as 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 rebut this presumption by show ing that his representation  was innocent, however the vendor made the statements  without checking them out and so the representations  were not innocent.

30.

Schawel v Reade [1913]: The defendant told the plainti ff, who required a horse for stud purposes, that the animal was 'perfectly sound'. A few days later the price was agreed and, thr ee weeks later, the plaintiff bought the horse.

The statement was held to be a term of the contract, but here the defendant, who was the owner of the horse,  would appear to have had special knowl edge.

Couchman v Hill (1947). plaintiff bought heifer at auction d escribed 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 carryin g calf too young

court held plaintiff could claim damages a s 'unserved' =  warranty whi ch overrode conditions of sa le

parole evidence rule

it is said that they cannot later seek to establish that there are terms of the contract wh ich are outside the  written agreement. They cannot, in other words, seek to 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

31.

32.

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 way   judges decide what is the 'proper' inference?

34.  What

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36.

Lord Denning: it seems to me that if a representation is made in the course of dealing s for a contract for the very purpose of inducing the other party to act on it, and it actually induces h im to act on it by entering into the contract, that is prima faci e 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 w as 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 Os car Chess case the in ference  was rebutted. in the present case it is very different. The inference is not rebutted. Here we have a dealer, 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' wi ll bear the responsibility for the failure.

is the 'parole evidence rule'? Is i t still important? If  not, why not?

amounts to no more than a rebuttable presumption tha t 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 tha t 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 a greement. Because the rule can be circumvented so easily, it is not really a rule. Wh at is useful about the 'rule' is that it operates as a guide that the written terms of  the contract are, a t a minimum, the starting point for the determination of the contract's terms.

express v imp ly terms

express: meaning clearly indicated or explicitly stated'. imply means courts imply terms into the contract: were of sa tisfactory quality (because of s .14(2A) of the Sale of Goods Act 1979). generally reluctant to imply terms into a contract. The courts generall y consider their role to be that of an interpreter of contracts rather than a maker of them.

Crossley v Faithful & Gould Holdings Ltd [2004] suffered a n ervous breakdown. Under the firm's disability  insura nce 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 the contract of employment which provided that an employer ought to take reasona ble care of an employee's economic wellbeing . The in troduction of such a term would be a major extension of the 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 relationsh ip 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 a nd mercantile contracts. Here, the s tandardised implied term functions as a kin d of default rule. An example of such a situation would be that the vendors of a certain type of  good alw ays paid the broker's commission with regard to the sale; absent a term to the contrary, courts w ill 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 ins tances. Malik v BCCI (1997) Liverpool City Council v Irwin (1976) Equitable Life A ssurance Society v Hyman (2002).

40.

Malik v BCCI (1997): BCCI went insolvent due to mass ive fraud. They sued the company for their loss of job prosp ects, alleging that their fai lure to secure new jobs was d ue to the reputatational da mage they had suffered from working with BCCI. no express term in their contracts , Malik and Mahmud argued there was an i mplied term in their employment contract that nothing would be done calculated to undermine mutual trust and confidence.

If conduct objectively considered is likely to ca use serious damage to the relations hip 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 Ir win (1976) The common parts were vandalised, the lifts did n ot work, the stair lights failed, the chute was blocked, lavatory cisterns blocked and overflowed. The tenants refused to pa y rent. In an action by the council to eject them, they counterclaimed that the counci l was in breach of a d uty 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 have sought to make the tenants take responsibility, by  including terms to that effect in the contract, but they did not. By implication, they retained responsibility themselves.

42.

Equitable Life Assura nce Society v Hyman (2002). could choose to have their annuity a t 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 dir ectors could in their discr etion vary the premiums, which you would get on top.

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 legal test for the implication of such a term is a standard of strict necessity. H e called terms implied in fact 'individualised terms' and la w  'standardised i mplied terms'.

decided they would change the level of bonuses, so as to equalise the return so far as p ossible between the GAR and CAR policyholders. This meant GAR policyholders received less than they believed they were entitled to 43.

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45.

The unexpressed intention of the parties and the 'officious bystander'

The courts may imply terms into the contract to give effect to wha t appears to be the unexpressed intention of the parties. In so me circumstances, the contract will n ot function unless the term is implied. The implication is made as a matter of  necessity.Moorcock (1889).

Moorcock (1889): docked ship . tide went down to a p oint where the hull of  Bowen LJ stated that any implied warranties must the ship hit a ridge causing damage to the ship. The plainti ff argued that  be based on the presumed intentions of the the wharfingers were responsible to ensure that his vessel would remain parties. An implied warranty may be read into a safe while docked. The wharf owners, in their defence, claimed that there contract for reasons of "business efficacy" and in  were no provisions in the contract to ensure the vessel's safety nor could order to maintain the presumed intention of the they have foreseen the damage caused to the vessel. The issue before the parties. Court was whether there can be any implied war ranty in the In business transactions such as this, wha t the circumstances. The trial court found that there was an implied warranty. law desires to effect by the implication i s to give such business efficacy to the transaction as must have been intended at all events by both parties  who a re business men; not to impose on one side all perils of the transaction, or to emancipate one side from all the chances of failure. The wharfingers were in such a position that they  must have known that there was a risk of damage to the ship and would be in the best position to  judge the safety of the vessel. Shirlaw v Southern Foundries (1926) Ltd (1939):

that which in any contract is left to be implied and 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 were to suggest some express provision for it in their agreement, they w ould testily suppress him with a common 'Oh, of course'.

46.

Liverpool City Council v Ir win 1977: HL: Why did the House of Lords reject the 'variety of implication' that the law implies a term on the basis that i t is reasonable to do so, favoured by Lord Denning MR? (The rejection is mad e by Lord Wilberforce in Liverpool City Council v  Irwin (1977))

47.  A

The main reason that this variety of implication is rejected is undoubtedly because, if terms were implied into contracts on the basi s that it  was reasonable to do so, the contract would, inexorably, become wha t the  judges thought was a reaso nable contract. In these circumstances, the courts are not so much interpreting the contract as creating the contract.

contracts with B to assemble bicycles to B's specifica tions. 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 suffici ent quantities to manufacture the requisi te number of bicycles?

may be possible to establish tha t the commercial practice in such a s ituation 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, i ntended such a term to  be within their contract: see MacKinnon LJ 's officious  bystander. A possible weak ness in s uch an argument is that it may be that wh ile B is the on ly manufacturer 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 necess ity to imply the term.

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 . Th e limits a re set, principally, by the Unfair Contract Terms Act 1977 a nd the Unfair Terms in Cons umer Contracts Regulations 1999. S

49.

Slater v Finni ng [1996]:camshaft was fi t for its p urpose, although it did not work properly in the buyer's vessel: the pr oblem arose from an abnormal feature of the vessel of which neither p arty was aware the buyers of the ca mshafts were placing a high degree of reliance on the skill and competence of the sellers. The sellers were not negligent or in any sense car eless, 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

51.

v Best Travel: The claimant was i njured 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 a gainst 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 wa s reasonable for the travel agency to ensure that all accommodation offered, no matter where in the world, conformed with British safety standards.

Hutton v Warren: implied terms and c ustom  A farm tenant claimed that it was the custom of the country that the landlord would give a reas onable allowance for seeds an d 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, extrinsic evidence of custome and usag e is a dmissible to annex incidents to w ritten contracts matters wi th respect to  which they are silent.'

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53.

2 types of implied terms in common Scally v Southern Health and Social Services Board 1992 doctors had not worked the requisi te 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 j obs 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 was information about exercising rights under the superannuation scheme.

implied in fact/ law: fact:Lister v Romford Ice and Cold Storage Co Ltd [1957] s earch for an implied term necessary to give business efficacy to a particular contract LAW: incident of a definable category of contractual relationship. Liverpool City Council v Irwin. terms in la w are less likely to be linked to unexpressed intentions of parties (employer/employee and landlord

Lord Hoffman Attorney General of Belize v Belize Telecom LTd

not for court "to improve upon the instrument" it has to interpret: not to introducce terms to make it fairer.

cf Lord Simon BP Refinery v Shire of Hastings 1978

statements, such as, (i) an 'implied term must "go without saying"', and (ii) it has to 'be "necessary to give business efficacy to the contract" etc, whilst "helpful" to "a court ... in providing an answer", should "not ... be treated as different or additional tests" to the sole "question" of: "what [would] the instrument, read as a whole against the relevant  background .... reas onably be understood to mean?

Hoffman indir ectly confirms  Also the officious bystander test in Shirlaw v Southern Foundries

54.

55.

Lord Simon BP Refinery v Shire of Has tings 1978 tests for implied term

(i) "reasonable and equitable"; (ii) "necessary to give business efficacy  to the contract, so that" a "term will [n ot] be implied if the contract is effective without it"; (iii) "so obvious that 'it goes without saying '"; (iv) "capable of clear expression"; an d (v) such that it does "not contradict" an "express" contractual provision.)

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.')

unreasonable for employers 'to h ave regard to the employee's financial circumstances when he takes lawful business decisions which may  affect the employee's economic welfare.' The employer does not need to 'act as his employee's financial adviser.' 'such a n implied term would impose an unfair and unreasona ble  burden on employers.

TERMS implied in law one should not 'focus on the elusive concept of necessity' which i s 'somewhat protean' but should 'recognise that, to some extent at least, the existence and scope of standardi sed implied terms raise questions of reasonableness, fairness and the balancing of competing policy consid erations. 56.

terms and breaches

 A contractual term is a 'primary' obligation. Every breach of a 'primary' obligation gives rise to a 'secondary' obligation to pay damages for the loss caused. In some cases this is the only remedy, but in others there is the further remedy of 'terminating' (ending or rescin ding) the con tract or (b) affirm the contract (accept the breach and ins ist on continued performance of the contract) and cl aim damages

57.

conditions/warranty/innominate terms and breach

The classification of terms is i mportant because the injured party is only given this option (terminate contract) when the term breached is a condition or there is a sufficiently serious breach of a n inn ominate term. The injured party  is n ot given the righ t to terminate the contract for breach of a term that is a w arranty 

58.

Rescinding for breach

the injured party is entitled, if he so w ishes, 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 of  the other party's obligations.

59.

rescission (rescinding) for misrepresentation

means that the contract is cancelled from the very beginn ing.

60.

Note that a party rescindi ng for breach need not show that the breach of condition has actually  caused any loss. Bowes v Shand (1877) an d Re Moore and Landauer ( 1921)

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

61.

Bowes v Shand: Bancks agreed to provide a drawin g 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 inj unction to prevent Bancks from breaching the employment contract which had been made for a period of 10  years. On 3 occasions, the comic was prin ted 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 rescin ding the contract. The court asked, was the "front page" term a condition or an es sential 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 contai ned 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 wh ole 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 unimporta nt 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 Poussar d v  Spiers (1876).

Behn v Burness (1868); Bettini v Gye (1876) a nd Poussard v  Spiers (1876).

64.

condition and intent: Behn v Burness : if he receives the thing sold, and has the enjoyment of it, he ca nnot 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

 Accordingly, if a s pecific thing ha s been sold, with a w arranty of its quality, under such circumstances that the property passes by the s ale, the vendee having thus benefited by the partial execution of the contract, an d become the proprietor of the thing sold, ca nnot treat the failure of the wa rranty as a condition broken (unless there is a special s tipulation to that effect in the contract; . . . ) but must have recourse to an action for damages i n respect of the  breach of warranty. But in cas es where the thing sold is not specific, an d 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, tha t the condition expressed in the co ntract has not been performed.

 Again there is the rationale that the benefit of  property precludes rejection.

65.

conditions and intent: Bettini v Gye Bettini opera si nger: Bettini was meant to be in London '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 n ot a condition, and therefore  breach of it did not give rise to the right to terminate. If clear words had stipulated that in the event Mr Bettini did not show up Gye could terminate, or that Bettini would forfeit twice his s alary, tha t would provide the answer. Here Bettini ha d already performed his covenant to not sing i n the UK in the months running up to 30 March, and not showing for rehearsals could only affect theatrical performances and sing ing in duets during the first week or fortnight. So the breach did not go to the root of the contract, an d Gye was not entitled to terminate.

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 dismis sal on his wife's behalf.

held that faili ng to turn up for the first performances entitled Spiers and Pond to rescind the contract, for this went to the root of  the matter

67.

innominate' or 'intermediate' terms: lead to un certainty 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 s aid to be in every way fit for ordinar y 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 pur ported to terminate the contract for breach of the seaworthiness term. The owners sai d that the termination was wrongful and therefore amounted to a repudiati on of the contract. The shipowners claimed damages for wrongful repudiation.

neither conditions nor warranties Lord Diplock: Wha t mattered was not whether  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 wa s sa id earlier about the hazards of terminating. The owner was undoubtedly in breach - and, one  would have thought, in a pretty substantial w ay  - and yet it ended up winning the case because its breach was not regarded as sufficiently  serious and it wa s the cha rterer who committed the serious breach by wrongfully terminating ! Diplock test: whether the breach deprived the other party of substantially the wh ole 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 carr iage 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 unti l at least the 14th of  July and in fact i t was not ready at that date. D ended contract on 17th of  July. 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 anticip atory breach. The defendants argued that the claimant was i n breach of condition of the contract by not be ready to load on the specified date.

CA: The expected ready to load cla use was a condition despite the fact it ha d caused no loss to the defendant. The classification as a condition wa s sa id to be because of the need for commercial certainty in shipping contracts.

69.

innominate terms Cehave v Bremer HG 1976

if a clause is a condition, in the sense that any   breach of it enables the buyer to reject the goods  without having to show that the dishonest or unreasonable expectation of the seller has in fact been prejudicial to the buyer

 judgment followed the decision of Hong Kong Fir, asking whether, in Upjohn LJ's words, 'the  breach went to the root of the contract'. In this case it was held that the breach was insufficiently serious to give rise to the right to terminate, given the fact that the 'damag ed' pellets were still usable in almost exactly the same wa y 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.

70.

Bunge Corporation v Tra dax Export SA [1981] :T agreed to sell 15 long tons of soya bean meal. Buyers to provide transp ort 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 understanda ble if a r ise 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 supp ly?

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 w ith stipulations a s to time wherever the circumstances of the case indicate that this would fulfil the intention of the parties, and (2) that broadly  speaking time will be consi dered of the essence in " mercantile" contracts

71.

innominate terms cases Hong Kong Fir The Mihalis Angelos (1970); Bunge v Tradax ( 1981); The Naxos (1990) and Ba rber 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 (1 996). contrastTorvald Klaveness v Arni Maritime Corp (The Gregos) (1994)

The Naxos (1990): simi lar to Bunge  v Tradax sugar was not ready to load inaccorda nce with the time stipulation.  buyers repudiate the contract,the sugar was not forthcoming

Held: this being a mercantile contract, time was of  the essence if that w as the intentionof the parties. Time was essential to the buyers in this case, since punctualperformance wa s required to enable them to carry out their obligation s totheir own customers wh o had agreed to buy the cargo.

innominate terms actual ownership was bank?: Barber v NWS Ba nk (1996).

That the term in question was undoubtedly a condition as it was fundamental to the agreement that NWS retain property in the car until al l moneys due were paid in full, It therefore followed that B wa s entitled to rescind the agreement and recover the deposit and instalments.

72.

73.

car found to be subject to a pr ior 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 war ranty, and if i t was a conditi on, whether he was entitled to rescind the agreement and demand repayment of the deposit and a ny  instalments paid. 74.

innominate terms, mercantile ind ustry, timelines Torvald Klavenes v Arni Maritime Corp 1994

HL held that the obliga tion to re-deliver a timechartered 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 primarily  on the charterer. For the shipowner, so long as he commits no breach and nothing puts the ship offhire, his right to remuneration is unaffected by a disturbance of the ch arterer's plans .

75.

innominate terms: attempted rescission on technicality  Reardon Smith v Hansen-Tan gen Osaka was the name of the yard responsible for building the ship , although the building was subcontracted to another yard , Oshima. Th e Osaka yard could not handle a tankship of that size. Both parti es knew  this. But the buyers, wanting to get out of the contract for a nother reason, argued that the ship did not correspond with the description under s 13 of the Supply of Goods a nd Services Act 1982.

Lord Wilberforce stated that in construing a contract, the Court must, " place itself in though t in the same factual matrix as that in which the parties were. " The hull number and yard had no particular significance ("innominate terms"). The descrption needs to focus on the goods n ot excessively  technical arguments.

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 si x sp ecified dealers one a weekly basis to promote S's product.On a few occasions W fa iled to do this. S repudiated the contract, claiming that W had breached a condition.

77.

Lombard North Central v Butterworth (1987):The defendant punctual payment was made a leased a computer from the claimant. The claimant was to pay  condition. Note that the hirer was also liable in damages for £584 by 20 instalments every 3 months. A term of the lease the entire loss caused to the plaintiffs by the 'rescission' of the agreement provided that p unctual payment was required and contract  breach of this term would entitle the lessor to terminate the The term relating to prompt payment was a condition. Th e agreement. The defendant got into arrears with the parties by their agreement had demonstrated that prompt instalments and the claimant took possessi on of the computer payment was an essential term and the consequence of breach and sold it on for £175. The claimant sued the defendant  was clearly set out. Nicholls LJ stated that even one late claiming arrears and all future payments amounting to £6,869 payment would entitle the lessor to terminate irrespective of the in total. 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 sai d 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 sp ecific performance, arguing relying on such a legal right was un conscionable.

79.  Why

was the unseaworthiness of a chartered ship (in Hong Kong Fir) consi dered less important than the owner's estimate of when she would be ready to load the charterer's cargo?

80.  What

81.

The House of lords held that stating that something was a condition wa s evidence that it wa s, but not irrebutable. In this case, they reasoned that the parties could n ever have intended a  breach of this nature to result in the destruction of the contract  when they first entered into it.

Lord Hoffmann for the Privy Council a dvised that certainty was needed in the business world, particularly in a volatile market.  Accordingly the contract's terms should be strictly enforced, and Union Eagle lost its deposit.

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 the contract because the delay caused by the breakdown and the necessary repairs were not so g reat as to remove the commercial purpose of the cha rterparty. The s eaworthiness of  the vessel was thus not a con dition of the contract The term did not meet the test set out by Diplock LJ in that case: substantial deprivation of o f the whole benefit.

more could Schuler (in L Schuler v Wickman Machine Tool Sales) have done to achieve the effect of making the visits genuinely a condi tion of the contract?

 What Schuler could have done to ensure that the visits were genuinely a 'condition' of the contract (breach of which entitled Schuler to terminate the contract) was to clearly indica te in the contract that a breach of this obligation entitled Schuler to terminate the contract. See Lombard North Central plc v  Butterworth (1987) wh ere Mustill LJ discusses the a bility of a party to establish as a condition a matter which, at common law, would not be considered a condition in the sense of  allow ing the injured party to terminate the contract because the obligation stipulated  was of a minor nature.

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 North Central plc v Butterworth (1987) i s that in the latter case, the contract clearly s tipulated that the punctual payment wa s of the essence of the ag reement (clause 2(a)) a nd that failure to make punctual payments entitled the plaintiffs to terminate the agreement (clause 5).