Joshua runs a shop selling French wine. He has had a delivery of rare wines and so decides to place an advert in Monday's edition of the ‘Wine Lovers’ Digest’, stating that he has 10 bottles of Chateau Rouge 1978 for £156 a bottle.
On Tuesday, Mary sees the advert and immediately telephones Joshua to inform him that she wishes to purchase all 10 bottles for the price stated. As Mary cannot get through to Joshua, she leaves a message on his voicemail.
On Wednesday, Charles also sees the advert and immediately telephones Joshua. When Joshua answers, Charles states, 'I accept your offer, I will buy all 10 bottles of Chateau Rouge 1978 for the price stated in your advert.' Joshua replies, 'I have changed my mind – the price is now £205 a bottle.' Charles is furious and threatens legal action against Joshua.
On Thursday, Horace visits Joshua's store after seeing the advert. He states that he is willing to buy all 10 bottles and pay the price advertised. Joshua says, 'The price is now £250 a bottle.' Horace replies, 'I will pay £223 and that is all.' Joshua states, 'I am not sure.' Horace responds, 'Look, I will give you until next Friday to decide whether you are willing to sell me the wine for £223 a bottle.' Horace leaves his business card with Joshua.
On Saturday morning, Joshua decides to write to Horace and agrees to sell him the wine for £223 a bottle. He posts the letter but, due to a high-profile strike by postal workers, it never arrives.
On Sunday morning, Horace changes his mind and telephones Joshua to inform him that he no longer wishes to purchase the wine. He leaves a voicemail on Joshua's answerphone.
Advise Joshua, Mary, Charles and Horace as to whether they have entered into any binding contracts.
- This question concerns offer and acceptance. Students will need to analyse the facts in order to see if any valid contracts have been formed and, if so, whether any party will be in breach of their contractual obligations. There is no need to discuss the other requirements for a valid contract such as consideration, capacity and intention to create legal relations.
- Joshua’s placement of the advert in the ‘Wine Lovers’ Digest’, stating that he has 10 bottles of Chateau Rouge 1978 for £156 a bottle, will amount to an invitation to treat rather than an offer. As a general rule, adverts are treated as invitations to treat, see Partridge v Crittenden  1 WLR 1204 where it was held that the placement of an advert was an invitation to treat and did not amount to an offer. It is important to appreciate the differences between an offer and an invitation to treat. An offer can be accepted and will form a legally binding agreement, whereas an invitation to treat will not. An invitation to treat is merely an invitation to parties to make an offer themselves, which can then either be accepted or rejected by the maker of the invitation to treat. Whereas an offer is final and certain, and there is no further need for negotiation; an invitation to treat is seeking business and is inviting parties to negotiate with you.
- When Mary purports to accept his offer by leaving a message on his voicemail, she is in fact making an offer. This is because the offer is clear and precise and she intends for her statement to constitute an offer, which, if accepted by the offeree, would constitute a binding agreement. Joshua would be the offeree and so it would be up to him to accept or reject her offer. He does neither so there has been no agreement.
- Rather than accepting Joshua’s ‘offer’, Charles is in fact making an offer. The offer has been communicated to Joshua (R v Clarke  40 CLR 227). Joshua is free to change the price as the advert is only an invitation to treat. By stating that the wine is now £205 a bottle, Joshua is making a counter-offer which will kill off Charles’ original offer (Hyde v Wrench (1840) 49 ER 132). The counter-offer will be treated as an offer in its own right. The offeree cannot go back and accept the original offer, as this no longer exists.
- In order to have accepted Charles’ offer, Joshua’s acceptance would need to have agreed to the terms of the offer. This is known as the ‘mirror image rule’. The acceptance must be a clear and unequivocal mirror image of the terms of the offer. There cannot be differences between the terms offered and those accepted. This is because there cannot be a contract where the parties are both at odds as to what they have agreed. There is no agreement here and Charles cannot argue that there is a contract between him and Joshua.
- Horace has made an offer. Joshua makes a counter-offer to sell Horace the wine for £250 a bottle. Horace then makes a counter-offer to pay £223 a bottle and states that he is holding the offer open until next Friday.
- Joshua attempts to accept Horace’s offer on Saturday and his acceptance mirrors the terms of Horace’s offer. Acceptance, in order to be effective, must reach the offeror (Entores Ltd v Miles Far East Corp  2 QB 327). However, there are exceptions such as the postal rule, where acceptance will take place as soon as the offeree posts the letter (Adams v Lindsell (1818) 1 B & Ald 681). The question here is whether the acceptance actually took place when Joshua posted the letter, due to the fact that it was well known there was a postal strike. Therefore, was it reasonable to use the post in these circumstances? The parties have not restricted the method of communicating acceptance (Henthorn v Fraser  2 Ch 27).
- On Sunday, Horace attempts to revoke his offer. Revocation can take place any time until the offeree accepts the offer (Byrne & Co v Leon Van Tienhoven & Co (1879–80) LR 5 CPD 344). However, notice of the revocation must actually reach Joshua in order for it to be effective. The revocation has been left on Joshua’s voicemail, therefore when has it been received by Joshua? If we apply the case law surrounding the communication of acceptance it is noted in Korbetis v Transgrain Shipping BV  EWHC 1345 (QB), the offeree attempted to accept an offer by fax; however, there was a clerical error and it was never actually received. The court held that communication had not actually taken place and the offeree should have checked to see if their acceptance had been received. Arguably, the revocation should have been received on Monday morning as it would be the next working day. The key question would be what happened first: Joshua’s acceptance or Horace’s revocation of his offer.
Sonya works for Midland Enterprises Ltd, a company that makes components for the motor industry. Sonya is employed as a technician and she oversees production. Midland Enterprises Ltd have a large number of orders from customers which they need to meet otherwise they will be in breach of contract. Sonya is feeling the pressure of meeting the deadline and is annoyed that there is such a large volume of work. She approaches her line manager and asks for additional pay in lieu of the increase in orders. Her line manager points out that the work she is doing is only done during her contractual hours. However, Sonya indicates that unless she receives an extra £50 per day, she will have to be signed off with stress. Her line manager agrees to pay Sonya the extra money. Sonya works hard to meet the deadline and manages to do so. When she receives her pay packet she notices that she has not been paid the extra £50. She complains to her line manager who tells her that she will not be paid the extra money.
- Students are expected to apply the rules relating to the doctrine of consideration to the problem scenario. Consideration is defined in Currie v Misa (1875) LR 10 Ex 153 by Lush LJ as ‘a valuable consideration’ which may ‘consist either in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other’.
- Students might refer briefly to principles relating to the doctrine of consideration, such as the principle that consideration must move from the promisee (Thomas v Thomas (1842) 2 QB 851). Applying this to the question, the consideration should move from Sonya, who is the promisee, since the promise to pay the money has been made by Midland Enterprises Ltd to Sonya.
- Consideration must be sufficient in the eyes of the law. This means that it must have some value in the eyes of the law. Students should cite White v Bluett (1853) 23 LJ Ex 36 on this point and apply this principle to the facts in the question. An extra £50 obviously has some value in the eyes of the law.
- While consideration must have some value, it need not be adequate. This means that the value of the consideration need not be of equivalent value to the value of the promise that it is given in exchange for. Students should cite the case of Chappell & Co Ltd v Nestle Co Ltd  AC 87 on this point and apply this principle to the facts in this case. It is irrelevant whether any extra work that Sonya does in exchange for this £50 is of equivalent value.
- The problem requires students to apply the law relating to existing contractual duties. Performance of an existing contractual duty does not amount to sufficient consideration for a promise to pay extra (Stilk v Myrick (1809) 2 Campbell 317), unless the promisee agrees to exceed that duty (Hartley v Ponsonby (1857) 7 Ellis and Blackburn 872). Sonya agrees to perform an existing duty for the extra money. This promise on its own is not sufficient consideration.
- However, where the promisor receives a practical benefit and/or obviates a disbenefit in exchange for performance, see Williams v Roffey Bros  2 WLR 1153. In this question, Midland Enterprises Ltd obtains practical benefit in being able to meet the deadline, avoiding cancelling/postponing any order and thus avoiding breaching the company’s contracts with the customers.
- Since the question states that Sonya has informed her line manager that she will be signed off with stress unless she receives the extra money, students should consider whether the defence of economic duress might apply here (look at DSND Subsea Ltd v Petroleum Geo Services ASA  BLR 530 on economic duress in Chapter 7).
Ferdinand decides that he is going to purchase a new car and visits Lucy’s Automobiles Ltd (LAL). He only has £15,000 to spend. He sees a shiny red sports car that he likes and is upset to see that it costs £18,000. He approaches Lucy, the manager of LAL, and asks her if she would sell him the sports car for £15,000. Lucy informs him that she will be able to reduce the price to £15,000 as long as Ferdinand agrees to the fact that LAL will not be liable in the event that the car is defective. Ferdinand agrees and is given a copy of the sales contract which contains all the terms to the contract. Ferdinand has forgotten his glasses and so cannot read the terms, but he still goes ahead and signs the contract.
Two weeks after taking delivery of the sports car, Ferdinand notices that the steering is defective, which makes the sports car difficult to drive. He takes the car back to LAL and demands a full refund. Lucy refuses and informs Ferdinand that by having agreed to the exclusion clause, he no longer has a right to claim that there has been a breach of contract. Ferdinand protests and states that he never properly read the contract so is not bound by it. After a heated exchange, he leaves LAL’s premises and is now seeking legal advice.
Please advise Ferdinand as to his rights against LAL.
- This question examines implied terms, express terms and exclusion clauses. The parties have agreed express terms such as the price of the car and the exclusion clause in the contract.
- However, in addition to any express terms, there are terms implied in this contract for the sale of goods by the Sale of Goods Act 1979. The key implied term would be s 14(2) which states that the goods supplied must be of satisfactory quality. This section only applies where the seller is selling in the course of a business and a one-off sale is sufficient for these purposes (Stevenson v Rogers  QB 1028). This does not mean the goods have to be acceptable, or what the buyer herself considers to be satisfactory; rather, the test is based on what the reasonable person will regard as satisfactory.
- Under s 14(2A), ‘goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances’. The court also takes into account the factors listed under s 14(2B), which include fitness for the common purpose for which goods are supplied, appearance and finish, freedom from minor defects, safety and durability. The implied term under s 14(2) does not apply to defects that the buyer has made known to the seller before contracting, and when the buyer took the opportunity to examine the goods and the examination ought to reveal the defect (s 14(2C)).
- Also relevant is s 14(3), which states that the goods must be fit for the particular purpose that has been made known to the seller by the buyer. This section also only applies where the seller is selling in the course of a business. Crucially, the buyer must have relied upon the seller’s skill and judgment and it must have been reasonable for him to do so.
- The fact that the car’s steering is defective, making it difficult to drive, might amount to a breach of s 14(2) and (3). A reasonable person may well agree that the car is of unsatisfactory quality, given the extent of the defect, the age and price of the car. The car has the implied purpose of being roadworthy and suitable for driving on the road.
- The seller has attempted to exclude liability for any defects. To be effective, an exclusion clause needs to be incorporated into the contract, to cover the breach of contract, and to be valid under the Unfair Contract Terms Act (UCTA) 1977 and the Unfair Terms in Consumer Contract Regulations 1999.
- The exclusion clause has been incorporated by signature. The fact that the buyer did not read the contract is irrelevant (see L'Estrange v F Graucob Ltd  2 KB 394 and Saunders v Anglia Building Society  AC 1004). The exclusion clause, if it is deemed an onerous term, has been brought to the buyer’s attention (see the effect of an onerous term in a contract in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd  QB 433).
- The next question would be to ask whether the exclusion clause covers the breach. According to Anson’s Law of Contract, ‘the words of the exemption clause must exactly cover the liability which it is sought to exclude’ (Beatson, Burrows & Cartwright, 29th edn, OUP, p178). The strict approach taken by the courts is demonstrated in Andrew Bros v Singer & Co Ltd  1 KB 17. We would need more information to ascertain this.
- We will look at whether the exclusion clause is valid under UCTA 1977. Under UCTA 1977, you cannot exclude the implied terms in a contract against a consumer (see s 6(2)). Here, looking at s 12 UCTA 1977, the buyer falls within the definition of a consumer. Therefore, it is not possible to exclude liability for any possible breaches of s 14(2)–(3) of the Sale of Goods Act (SGA) 1979.
- Section 14(2) and (3) SGA 1979 provide conditions. The buyer can treat any breach of a condition as giving him the right to repudiate the contract (reject the goods) and demand the return of his purchase price and claim any additional damages.
Define misrepresentation and critically evaluate the merits of an action for misrepresentation under the Misrepresentation Act 1967.
- A mispresentation is an unambiguous false representation of fact or law made by X to another party (Y) and, if that statement induces Y to enter into a contract with X, causing loss to X, Y may have an action in misrepresentation.
- It is important to note the effect of an actionable misrepresentation: it will make the contract voidable and not void. Where an action for misrepresentation is successful, the innocent party may claim damages and/or rescind the contract (depending upon the category of misrepresentation).
- Not all false statements made during contractual negotiations will lead to a successful action for misrepresentation. Silence is not grounds for an action in misrepresentation (Keates v The Earl of Cadogan (1851) 10 CB 591) because, according to the principle of freedom of contract, each contracting party is responsible for protecting his own interests. A false statement of fact may be made by conduct, and thus conduct may be an actionable misrepresentation if it induces the other party to enter into the contract (Spice Girls Ltd v Aprilia World Service BV  EWCA Civ 15). However, a mere advertising puff or sales talk is not actionable (Dimmock v Hallett (1866–67) LR 2 Ch App 21).
- As a general rule, a false statement of opinion made during contractual negotiations is not an actionable misrepresentation (Bisset v Wilkinson  AC 177). However, a statement of opinion in some circumstances can amount to an actionable misrepresentation (Esso Petroleum Co Ltd v Mardon  QB 801).
- Likewise, statements of future intention are, as a general rule, not actionable (Wales v Wadham  1 WLR 199). However, where there is a change of circumstances relating to a representation that has already been made and which was true when it was made, but later become false. If there is such a change of circumstances, then there is a duty on the representor to correct the representation previously made: With v O’Flanagan  Ch 575.
- The statement needed to induce the other party into entering into the contract. According to Edgington v Fitzmaurice (1885) LR 29 Ch D 459, the statement need not be the sole inducement which led the party to enter into the contract. However, it must certainly be an inducement: JEB Fasteners Ltd v Marks Bloom & Co  1 All ER 583.
- Misrepresentation requires that the false statement of fact or law be material, but it is not entirely clear whether this is a separate requirement to the requirement of inducement (see Museprime Properties Ltd v Adhill Properties Ltd (1991) 61 P & CR 111).
- Establishing tort of deceit (fraudulent misrepresentation). The claimant has the burden of proof and must show, on a balance of probabilities, that the defendant made the fraudulent statement: (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. The damages for the tort of deceit: the claimant may be awarded the tortious measure of damages in respect of the losses that he suffered. This measure of damages is designed to put the claimant back in the position he was before he entered into the contract. The remedy of recession is also available.
- The Misrepresentation Act 1967 makes it easier for the claimant to recover damages for negligent misrepresentation than the tort of deceit. Once it is established by the claimant that there has been a misrepresentation, it is for the defendant to prove that they have not been negligent (see s 2(1) and Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd  QB 574). Additionally, if a defendant is liable for negligent misrepresentation under s 2(1), Misrepresentation Act 1967, then the remedies available to the claimant are the same as those available for fraudulent misrepresentation, namely rescission and damages. An action under s 2(1), Misrepresentation Act 1967 is also preferable for a claimant because the measure of damages is the same generous award that is available for fraudulent misrepresentation at common law, namely the tortious measure of damages recoverable in the tort of deceit, which covers all losses that flow directly from the misrepresentation, whether foreseeable or not. Thus, the defendant who is liable for negligent misrepresentation is liable to the same extent as if he had fraudulently misrepresented the fact; this is known as the ‘fiction of fraud’ (see Royscot Trust Ltd v Rogerson  2 QB 297).
- Recovering under the Misrepresentation Act 1967 is preferable to recovering under the tort of negligent misstatement. This is because the claimant must establish that there is a special relationship between him and the defendant. The measure of damages available for negligent misstatement at common law is the tortious measure, but it is less generous than the measure of damages available for fraudulent misrepresentation in that a claimant may only recover for losses that are reasonably foreseeable.
Critically evaluate the extent to which the law relating to mistake is coherent, logical and consistent.
- This question requires students to critically evaluate the case law relating to mistake as to identity. Students should focus specifically upon identity. A basic answer will provide a narrative of the relevant case law. A good answer will provide some critique and address the question. An excellent answer will also demonstrate evidence of wider reading.
- Students will recognise that this area deals with situations involving one party contracting with a rogue and should acknowledge that key cases have attempted to decide which of two innocent parties should bear the consequences of the fraud. The seller will argue he made a mistake as to the rogue’s identity, which prevents the formation of the contract, so the contract is void and the goods should be returned to seller. But then the third-party buyer loses out. On the other hand, if the contract was formed between seller and rogue, then the third party can keep the goods, but the seller loses out. The case law has been complex, introducing artificial distinctions.
- The courts have introduced a distinction between face-to-face negotiations and negotiations at a distance. In face-to-face negotiations, there is a presumption that the original seller was intending to deal with the person who was physically present in the shop, irrespective of the name he was giving himself. In negotiations at a distance, the opposite applies – so the original seller intended to be dealing with the person identified on the agreement (i.e., the assumed name).
- Students should give an example of face-to-face negotiations – Phillips v Brooks Ltd  2 KB 243, in which it was held that it could not be argued that mistake as to identity prevented formation of the contract. The seller had always been intending to deal with the person physically present in the shop, irrespective of the name given by the rogue. The seller intended to deal with the rogue. Thus, the rogue gave his agreement to the contract – no mistake as to identity and the contract was formed.
- However, students should acknowledge that where the seller makes checks, this could displace the presumption that the seller intends to deal with the rogue. Thus, the contract will be void for mistake – see Ingram v Little  1 QB 31.
- Phillips v Brooks Ltd was also applied in Lewis v Averay  1 QB 198 in which it was held that the seller had been intending to deal with the person physically present in front of him (the rogue). The contract was formed. No mistake as to identity.
- Students should also consider negotiations made at a distance. Where a contract is negotiated in writing at a distance, and parties do not see each other at all, the court reaches the opposite conclusion. The original seller could only mean to be dealing with the name on paper (the assumed name). There is a mistake because the assumed name did not give their agreement, so the contract would be void for mistake as to identity.
- The case of Cundy v Lindsay (1878) 3 App Cas 459 should be cited here. Lindsay was meaning to deal with the name identified on paper (Blenkiron). Thus, there was a mistake as to identity because the real Blenkiron never gave their agreement or ordered these goods. This mistake as to identity prevented the formation of the contract, so the contract is void. Lindsay could recover the goods.
- Students should offer some analysis of the rationale for this decision. No contract could be said to have been formed between the seller and the rogue because the seller knew nothing of the rogue and never intended to deal with him.
- Thus, the decisions of the courts have created a distinction between cases of mistake as to identity involving face-to-face negotiations and those involving negotiations at a distance. This distinction has been subject to academic criticism because it is overly complicated and highly artificial.
- This confusion was compounded by the decision of the House of Lords in Shogun Finance v Hudson  1 AC 919 in which the House affirmed the distinction between face-to-face negotiations and negotiations at a distance by a 3:2 majority. In this case there were no face-to-face dealings between Shogun Finance and the rogue. The negotiations were treated as negotiations at a distance so Shogun could only intend to deal with the assumed name, Mr Patel, and the contract was void.
- The decision in Shogun was heavily criticised by academics because it failed to clarify the confusion in this area. The distinction between face-to-face negotiations and negotiations at a distance is artificial and unnecessarily complicated. The minority in the House questioned which set of cases would be applied to negotiations by telephone or fax.
- Shogun would be able to claim that the mistake as to identity prevented formation of the contract. Students might consider whether the decision in this case is satisfactory. It might be thought to be unsatisfactory since, although it protects the original buyer, it creates a problem for the third-party buyer, despite the fact that both are innocent parties. In fact, if anything, the seller should bear the risk because he was willing to deal with the rogue and hand over the property without payment – he accepted this risk. By contrast, the third-party buyer is more innocent since he knows nothing of the origin of the goods.
Discuss the development of the law of economic duress.
- Duress can be defined as the coercion of a contracting party’s consent, which renders the contract voidable. There can be physical duress where the coercion is unlawful, or economic duress where it is illegitimate pressure. Duress is a vitiating factor that will make a contract voidable. Whether the contract is set aside will be at the discretion of the court. A party having entered into a contract may, at a later date, seek to argue that the contract should not be valid as their free will has been overcome by unlawful pressure.
- Traditionally, only physical duress was accepted as a vitiating factor. There needed to be unlawful pressure that constituted a physical threat towards the claimant (Barton v Armstrong  AC 104).
- The ability to set aside a contract for economic duress was accepted in Occidental Worldwide Investment Corp v Skibs A/S Avanti (The Siboen and The Sibotre)  1 Lloyd’s Rep 293. In Pao On v Lau Yiu Long  AC 614, the Privy Council accepted obiter that economic duress could be relied upon to set aside a contract. Lord Scarman stated that in order for economic duress to ‘render a contract voidable…it must amount to a coercion of will, which vitiates consent. It must be shown that the payment made or the contract entered into was not a voluntary act’. Crucially, His Lordship stated that there needs to be a coercion of will that prevents the claimant from having truly consented to entering into the contract.
- In Universe Tankships Inc of Monrovia v International Transport Workers Federation (The Universe Sentinel)  1 AC 366 it was held that there needed to be illegitimate pressure which overcomes the claimant’s consent at the time he enters into the contract. It is not a question of the claimant not understanding the terms of the contract. The commercial pressure may coerce the weaker contracting party but it may be regarded as legitimate. However, on the facts, the economic pressure concerned industrial relations and was considered an illegitimate commercial pressure.
- The key question is what will amount to illegitimate commercial pressure (see Atlas Express Ltd v Kafco (Importers and Distributors) Ltd  QB 833).
- In DSND Subsea Ltd v Petroleum Geo Services ASA  BLR 530, Dyson J reiterated the requirements for illegitimate pressure. He stated that there were three requirements to illegitimate pressure: the pressure has to result in the victim having no other practical choice, the pressure has to be illegitimate, and the pressure must be a significant cause in the victim entering into the contract.
Critically evaluate the way in which the rules relating to the doctrine of privity of contract have developed in English law.
- According to the common law doctrine of privity of contract, only parties to a contract can enforce the contract in a court of law. The common law doctrine of privity of contract prevents third parties from being able to enforce terms in the contract (i.e., to sue) and from incurring liability.
- Consider the key cases of Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd  AC 847, Tweddle v Atkinson (1861) 1 Best and Smith 393 and Beswick v Beswick  AC 58 to see the effect of privity of contract. Discuss the problems that this rule causes for third parties.
- It should be noted that privity of contract is only a general rule and that there are a number of common law and statutory exceptions.
- At common law some of the most important exceptions are the law of tort (see Donoghuev Stevenson  AC 562), collateral contracts (Shanklin Pier Ltd v Detel Products Ltd  2 KB 854) and the limited ability of a third party to rely on an exclusion clause. Discuss why these exceptions are important and how they operate.
- The most important statutory exception is the Contracts (Rights of Third Parties) Act 1999. Whilst the 1999 Act does not permit a third party to be treated as a party to a contract (s 7(4)), the third party can enforce a contract. The 1999 Act will allow a benefit but not a detriment to be conferred on the third party.
- A benefit can be conferred on a third party in a number of ways. Section 1(2) outlines the circumstances in which the contract will purport to confer a benefit on the third party. These are that the ‘third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into’.
- Reasons for the 1999 Act were outlined by the Law Commission in its report: Privity of Contract: Contracts for the Benefit of Third Parties (Law Com No 242, 1996). For academic commentary of the problems with the general rule of privity of contract and the emphasis of reform, see MacMillan, C, ‘A Birthday Present for Lord Denning: The Contracts (Rights of Third Parties) Act 1999’  63 The Modern Law Review 721.
When organising her forthcoming wedding, Ingrid hires a room at a country mansion to host the reception at a cost of £7,500. She pays a deposit of £750 upon booking, with the balance due on the day before the wedding reception. Ingrid hires a DJ for the evening and agrees to pay him on the night. She also hires caterers to prepare a wedding feast and transport it to the reception. She pays the caterers a deposit of £500 in advance, with the balance of £4,500 payable on the day before the wedding.
One week before the wedding, the DJ rings Ingrid to tell her that his house has been burgled and all of his very expensive music equipment, which he needs to perform, has been stolen. He tells her that he will be unable to perform at the wedding. Five days before the wedding, the caterers are visited by a Food Safety Officer who finds that their kitchens do not meet appropriate food hygiene requirements. The Food Safety Officer serves a Hygiene Emergency Prohibition Notice on the caterers which states that they are prohibited from using their own kitchens to prepare food for commercial purposes. Two days before the wedding, there is a fire at the country mansion which started in the kitchens and spread throughout the house, badly damaging half the house. The room used for wedding receptions is badly damaged and cannot be used.
Advise Ingrid as to her rights and remedies in respect of her contracts with the DJ, the caterers and the country mansion.
- Students should consider whether the contract between Ingrid and the DJ is frustrated, whether the contract between Ingrid and the caterers is frustrated, and whether the contract between Ingrid and the country mansion is frustrated.
- Students should explain that the doctrine of frustration is a narrowly applied doctrine and provide a definition of frustration. A contract is frustrated where an event renders performance of the obligations under the contract impossible, illegal or radically different: Davis Contractors Ltd v Fareham UDC  AC 696. Frustration applies where an unforeseen change of circumstance occurs after the contract is formed and makes it impossible to perform. If the contract is frustrated, then it has the effect of discharging the parties from performing their obligations under the contract.
- Dealing with the contract with the DJ first. Where performance of a contract is rendered impossible or radically different due to the disappearance of the subject matter, the contract will be frustrated: Taylor v Caldwell (1863) 3 BNS 826. However, where performance can in fact be carried out by hiring other equipment or by another person, then there is likely to be no frustration.
- Moving on to the contract with the caterers, supervening illegality would appear to apply here to frustrate the contract. The caterers are unable to use their own kitchens to prepare the food as a result of the prohibition order: Denny, Mott & Dickson Ltd v James B Fraser & Co Ltd  AC 265. Students might point out that the caterers would be unable to use the kitchens at the country house itself due to the fire – thus, impossibility might also be relevant here: Taylor v Caldwell.
- Students might also consider here whether the frustrating event is self-induced. As a catering company, they must be aware of the standards of hygiene to be met, and by falling below those standards, are they unable to rely on the doctrine of frustration? Maritime National Fish Ltd v Ocean Trawlers Ltd  AC 524.
- Finally, students should deal with the main contract with the country house itself. Is the contract for the venue for the party impossible to perform? The room was booked for the event and this is now damaged by fire, so students should discuss the applicability of impossibility of performance due to the destruction of the subject matter, which frustrates the contract: Taylor v Caldwell. Students should consider any alternative rooms. Students will need to consider whether the room itself is the subject matter of the contract. If it is not, and if the party could possibly be held elsewhere in the mansion, then the contract is not frustrated.
- There appears to be no force majeure clause in any of the contracts allocating the risk to either side. There is no evidence that any of the events were foreseeable.
- Consideration should be given to the effects of frustration. At common law the loss lay where it fell – this means that money already paid could not be recovered and money payable remained payable unless there was a total failure of consideration: Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd  AC 32.
- Students should apply the Law Reform (Frustrated Contracts) Act 1943. Under s 1(2), money paid prior to the frustrating event is recoverable. So, the £500 deposit paid to the caterers is recoverable. Under s 1(2), any money that is payable ceases to be payable. Thus, Ingrid will not have to pay the remaining balance to the caterers. If the contract with the DJ is also frustrated, she will not have to pay the money owed to him under the contract. The contract with the country house is not likely to be frustrated, but if it is, Ingrid will recover her deposit paid and will not have to pay the balance due.
- The proviso under s 1(2) is that any expenses already incurred can be offset against the money already paid or payable. So, if the country house, the caterers or the DJ have incurred any expenses already, they will be able to recover that money so far as the court thinks it is just to do so: Gamerco SA v ICM/Fair Warning (Agency) Ltd  1 WLR 1226.
Discuss the circumstances in which a claimant is unable to recover his expectation interest for breach of contract.
- The most common remedy for breach of contract is common law damages. The aim of an award of damages is to compensate the claimant for the loss that they have suffered and the normal measure of damages in contract law seeks to put the claimant in the position that they would have been in had the contract been performed. Thus, damages in contract law look forward to the position that the claimant would have been in after performance of the obligations under the contract and protect the claimant’s expectation interest.
- Students should contrast this measure of damages with the measure of damages awarded in the law of tort.
- However, there are restrictions on the claimant recovering their expectation interest. The expectation interest cannot be recovered where the claimant’s losses are unquantifiable. So, where a claimant is unable to calculate exactly how much money he would have had if the contract had been performed (expectation losses), a different measure of damages must be adopted (reliance losses).
- Students should consider the cases of Anglia Television Ltd v Reed  1 QB 60 and McRae v Commonwealth Disposal Commission (1951) 84 CLR 377 and discuss why the claimants in these cases were unable to claim their expectation interest.
- A claimant will also be unable to recover his expectation losses where the court considers those to be disproportionate to the breach of contract, see Ruxley Electronics and Construction Ltd v Forsyth  AC 344. In Ruxley the cost of cure was held to be disproportionate. The claimants contracted to build a swimming pool that ran to a depth of 7 feet 6 inches in the diving area. However, after construction, the pool was only 6 foot deep in the diving area. To ensure that the defendant was placed in the position that he expected to be in had the contract been performed properly (to calculate his expectation losses), the cost of fixing the problem by rebuilding the pool so that the diving area reached the depth contracted for (the ‘cost of cure’) was calculated at £21,560. However, the House of Lords was unwilling to allow the defendant to recover such an excessive and disproportionate sum of money in light of the fact that the defendant had been supplied with a pool that was suitable for domestic use. Consequently, the House held that the defendant had only really suffered disappointment and awarded him the sum of £2,500 for loss of amenity.
This is a sample of our (approximately) 17 page long Privity Contracts And Third Parties notes, which we sell as part of the Contract Law Notes collection, a 1st package written at Oxford in 2016 that contains (approximately) 1004 pages of notes across 228 different documents.
Privity Contracts And Third Parties Revision
The following is a plain text extract of the PDF sample above, taken from our Contract Law Notes. This text version has had its formatting removed so pay attention to its contents alone rather than its presentation. The version you download will have its original formatting intact and so will be much prettier to look at.
Contract Reading Session 4 Chen-Wishart chapter 16
2 basic rules: a contract cannot confer enforceable rights on 3rd parties nor confer obligations on 3rd parties.
CW says the one about rights is unfair, since it restricts parties' freedom to contract and removed 3rd party's legitimate expectation that he would have rights.
The rules are partly based on the doctrine of consideration: consideration can only be given in return for the promise sought i.e. given upon request, which obviously a 3rd party cant do. However this can cause confusion: Treitel gives the example where A promises his daughter, B, that he will pay £1000 to any man that marries her, C. C provides consideration, while B is the promisee. Not clear which, if any, can sue.
Justifications of privity rules: (1) Exclusivity- contracts must be voluntary and therefore not include 3rd parties; (2) Priority of Buyersconsideration is not just an evidentiary thing but a way of ensuring that there is an exchange rather than a gift/exploitation and therefore those who give consideration (the pomisee) should get the enforceable rights/duties; (3) Floodgates- if anyone who benefited could sue then there would be unlimited claims
Criticisms of the Contracts Act 1999: the scope of 1.1(b) is broad and uncertain- the law says that White v Jones falls outside it but it's not clear that in reality it would. "Purport" is a vague terms and it would be better to use the surer footing of whether the parties intended the 3rd party to gain enforceable benefits from the contract. The problem with the term "purport" is that where a benefit appears to be conferred, but nothing is stated about the parties' intentions, there is a strong presumption that the parties intended there to be an enforceable right, which reverses the burden of proof.
She says that the law should uphold the parties' intentions not by conferring rights on third parties but by giving greater rights to the promisee- LC says no because promisee might be dead or unwilling to sue. CW rejects both as valid reasons, the second because it undermines the main parties' intentions. Counter-argument is that this will produce uncertainty since TP wont know whether they can rely on the right and make plans based on it or not.
The presumption in s.2 that the main contracting parties (MCP) forego their usual rights in terms of modifying the contract wont necessarily correspond to their intentions.
It also undermines the doctrine of consideration and makes gifts enforceable e.g. If A contracts B to to landscape C's gardens as a present and then A calls it off due to hardship, and B agrees, C can still enforce the promise.
There are (and before the new act were) various ways for a 3rd party to benefit from a contract: (1) where one of the three parties is an
agent, the principal is not considered a 3rd party but can sue in his own right; (2) The collateral contract approach of Shanklin; (3) Sometimes sub contractees have been able to use the exemption clauses conferred on their masters, though judicial opinion has changed several times on the matter; (4) ability of 3rd party to bring a tortious claim in certain circumstances will enable them to sue principal, but the rules on this are complex; (5) if the court construes the promisee as holding his right to sue promisor as "on trust" for TP then the court may assign him the right; (6) One party can assign his rights over to TP except where TP has no genuine interest in taking them or contract forbids it or where it is personal i.e. assignment only allowed where it makes no difference to the promisee who he performs for; (7) negotiable instruments can be used e.g. a cheque which involves the drawer, the bank and the payee; (7) statutory exceptions.
1. Passing Benefit to a Third Party i) Privity doctrine Tweddle v Atkinson (1861) 1 B&S 393: P was engaged and D (wife's father) and X (P's father) contracted to pay P some money each upon marriage. P sued D for non-payment, but the court held that even though the contract explicitly stated that he should have the power to sue either of the parties to the contract, as a TP he could not enforce this right. Blackburn J: in general no action can be maintained upon a promise unless consideration moves from the party to whom it was made. In this case P gave no consideration so the promise was unenforceable. Dunlop Pneumatic Tyre Co Ltd v Selfridge  AC 847: Dunlop sold goods to Dew on the condition that Dew wouldn't sue below the list price and would ensure that anyone to whom they sold the goods would not sell below the list price. S bought from Dew and sold below the list price, but the court refused Dunlop an injunction against S since (1) Dunlop was not a party to the agreement between S and Dew, and so couldn't impose or enforce terms on their agreement, and (2) Dunlop had not given consideration in return for S's promise as to selling price. Viscount Haldane: There are certain fundamental principles of contract law: "only a person who is a party to a contract can sue on it" and consideration is another. Lord Atkinson: in the absence of consideration, this is a nudum pactum Smith & Snipes Hall Farm Ltd v River Douglas Catchment Bd  2 KB 500 (Lord Denning only): P owned land and paid D to build a barrier by the river so that his land wouldn't get flooded. When it did flood, X, a tenant of P's, sued D for the loss of his crops caused by the flood. CA allowed his action, the majority on the grounds that property is an exception to the privity rule since the covenant of D "runs with the land". Lord Denning criticised the privity rule itself:
****************************End Of Sample*****************************
Buy the full version of these notes or essay plans and more in our Contract Law Notes.
Related Contract Law Samples:
Breach And Damages Notes
Breach And Remedies For Breach Notes
Commentary On Contract (Rights Of Third Parties) Act 1999 Notes
Consideration And Estoppel Intention To Create Legal Relations Notes
Consideration Promissory Estoppel Notes
Consideration Theory Notes
Content Exclusion Clauses Notes
Contract Law Problem Question Summary Notes
Contract (Rights Of Third Parties) Act 1999 Notes
Contractual Terms, Incorporation, Exclusion Clauses Notes
Damages Introduction To Remedies Notes
Doctrine Of Frustration Notes
Doctrine Of Mistake Notes
Enforceability Consideration And Promissory Estoppel Notes
Exclusion Clauses Notes
Frustration And Termination Notes
Great Peace Shipping Ltd V Tsavliris Salvage Ltd Notes
Identifying Contractual Terms Notes
Implied Terms And Construction Of Terms Theory Notes
Implied Terms Notes
Is There Actually A Doctrine Of Mistake At All Notes
Misrepresentation Requirements Notes
Mistake And Frustration Notes
Mistake Of Common Law, Equity And Frustration Notes
Non Commercial Guarantees And Unconscionable Bargains Notes
Offer Acceptance Certainty Intention. Notes
Offer, Acceptance, Intention, Certainty, Third Parties Notes
Offer And Acceptance Certainty Performance In Expectation Of A Contract Notes
Offer And Acceptance Notes
Other Remedies Notes
Performance Of Pre Existing Duty Notes
Privity Contracts And Third Parties Notes
Privity Of Contract Notes
Privity Theory Notes
Promisee Remedies In Contract For Benefit Of 3rd Party Notes
Promissory Estoppel Notes
Remedies For Misrepresentation Notes
Requirements For Consideration Notes
Royal Bank Of Scotland V Ettridge Notes
Should We Have A General Doctrine Of Unfairness Notes
Specific Remedies Notes
Termination, Damages, Specific Performance, Injunctions 2010 Notes
Termination Of Contract Notes
Terms Of Contract Notes
The Concept Of Consideration Notes
The Problem Of Certainty Notes
Ucta Requirements Notes
Undue Influence And Unconscionability Notes
Undue Influence Notes
Undue Influence, Duress And Exploitation Notes
Unfair Contract Terms Act 1977 Notes
Unreasonable Terms Notes
What Are The Requirements Of An Offer And An Acceptance Notes
What Constitutes Acceptance Notes
What Is The Privity Doctrine Notes
Working Guide To Damages Notes