Contract Law: Second Semester Notes

Terms of a Contract

A contract may be made by words or conduct or partly, by word or partly, by conduct. The words may be written or spoken or partly written and partly spoken. The words, whether written or spoken, which the parties use in formulating their agreement, are the expressed terms of the contract. However, those expressed terms do not always constitute the whole contract; there may be other terms which have been implied by the law, either according to the provisions of an act of parliament or to give effect to the presumed intention of the parties. These terms implied by law are referred to as “implied terms”. If a contract is wholly in writing, the terms may be contained in more than one document. If the one document expressly refers to another, then that other document, as far as the reference extends, is incorporated into the contract. Where written words have been used and also spoken words, it is sometimes a great problem to decide whether the written words constitute the whole of the contract. Parties may say or write all kinds of things in the negotiations leading up to the contract and the court has to decide which statements are contractual terms and which are mere representations inducing the contract but forming no part of it. It is important to be able to decide whether a statement is a contractual term or not. It is a question of intention of the parties and the test is an objective one. That is, would a reasonable person have taken the statement to be meant as a contractual term? That, of course, depends upon what exactly was said or written and upon the circumstances surrounding the transaction. See the case of Schawel v Reade, (1913); the buyer of a horse was about to examine it when the seller said, “You need not look for anything. The horse is perfectly sound. If there was anything the matter with the horse, I should tell you.” The buyer, relying on these statements, bought the horse without examination. The House of Lords held that the statement was a warranty; that is, it was a term of the contract. In the case of Bannerman v White, (1861); an intending buyer of hops asked whether sulphur had been used in their cultivation and that he wouldn’t even bother to ask the price if sulphur had been used. The negotiations, thereupon, proceeded and resulted in a contract of sale. It was later discovered that sulphur had been used in the cultivation of a portion of the hops, that is, in 5 acres out of 300. The buyer, when sued for the price, claimed that he was justified in refusing to observe the contract. The buyer argued that the whole interview was one transaction; that he had declared the importance he attached to his inquiry and that the seller must have known that if sulphur had been used, there could be no further question of the purchase of the horse. The seller, on the other hand, argued that the conversation was merely preliminary to and not part of the contract. It was held that the seller’s assurance that sulphur had not been used was a term of the contract and this will be so even if it conflicts with a previous written statement. If a contract contains more than one term, it may happen that the terms are not all of much importance. The more important terms are referred to as conditions and the less important ones, warranties. Breach of a condition gives the victim the right to treat the contract as at an end since it would be unjust to force him to accept something which differed in an important way from that which he contracted for. The victim, however, is not bound to treat the contract as at an end. He has the option to affirm the contract and in either event, he may claim damages. Breach of a warranty does not entitle the victim the right to treat the contract as at an end but only to claim damages because a minor breach can be adequately remedied by money payment.

Implied Terms of a Contract

There is a general presumption that the parties have expressed, orally or in writing, every material term which they intend should govern the contract. But there are circumstances where terms which have not been expressed by the parties are inferred by law. An implied term is binding to the same extent as an expressed term. A term may be implied in a contract to give effect to the presumed intentions of the parties which have not been expressed in the contract or such terms may be implied by statute. In order to discover the unexpressed intention of the parties, the courts may take notice of trade customs, conduct of the parties or the need to give business efficacy to a contract. However, where the parties have made unambiguous, expressed provisions in their contract, the court will not imply a term to the contrary. It has long been settled that in commercial agreements or transactions, extrinsic evidence of custom and usage is admissible to be added to written contracts in matters with respect to which they are silent. The same rule has been applied to contracts in other transactions in life in which known usages have been established and prevail and this has been done upon the principle of presumption that in such transactions, the parties did not mean to express in writing, the whole of the contract by which they intended to be bound but prefer to contract with reference to those known usages. For the court to imply a term, it is not enough that the term should be reasonable; it must be both obvious and necessary. So, if while the parties were negotiating, an officious bystander were to suggest some expressed provisions to be included in their agreement, the parties would respond by saying, “Oh, of course.” In the case of Gardner v Coutts and Co., (1967); X, in 1948, sold freehold property (land) to Y. By a written contract with Y made on the day following the sale, X agreed that Y and her successors should have the option of buying the adjoining property which X retained if X at any time during his life, wished to sell it. In 1958, the plaintiff was the successor entitled to Y. In 1963, X conveyed the adjoining property to his sister by way of gift without giving the plaintiff the option to purchase. In 1965, X died and the plaintiff now sued the executors for breach of contract. The written contract between X and Y contained no term providing expressly for the event of X given as opposed to selling the property to a third person. The court implied in the contract, that X’s promise should cover a gift as well as a sale. The judge stated that if somebody had said to him, “You have not expressly catered for the possibility of your wanting to give away the property.”, he would undoubtedly have said, “Oh, of course that is implied. What goes for a contemplated sale must go for a contemplated gift.” A term may be implied by reason of the conduct of the parties. Eg. Where a customer selects goods from the shelves of a self service store and presents them at the cashier’s desk and the cashier strikes the price in her machine and the customer immediately pays the price, there is a contract. There is an expressed term as to the price. That is, the sum of the price on the labels of the selected items. The remaining terms being implied by the conduct of the parties.

Implied Terms by Statute

Certain statutes provide for the implication of terms in the contract. These statutorily implied terms will operate irrespective of the intention of the parties except if there is a valid exclusion clause. Examples of statutorily implied terms are to be found in a number of sections of the Sale of Goods Act, 1893. The Sale of Goods Act provides for the implication of certain very important undertakings by the seller in contracts of sale of goods. So S.12 of the Sale of Goods Act provides for the implication of 3 terms as to title to the goods. Namely,

(1) A condition that the seller has the right to sell the goods (with condition that the contract can be set aside. So where Peter sells stolen property, there is no contract of sale because you cannot sell that which you do not have).

(2) A warranty that the buyer will enjoy quiet possession.

(3) A warranty that the goods will be free from any undisclosed encumbrance. Any term purporting to exempt from any of these implied terms in any contract of sale of goods will be void. See S.55 (3) of the Sale of Goods Act. In the case of Rowland v Divall, (1923); After a buyer had used a motorcar for four months, the police put it away because it had been stolen before it came to the seller’s possession. The buyer sought to recover the full price on the ground that consideration had wholly failed. It was held by the CA that there was a breach of the implied condition arising under S.12 of the Sale of Goods Act. The seller had no title and the buyer therefore received nothing from him. There was a complete failure of consideration and so the full purchase price was recoverable. The fact that the buyer had enjoyed the use of the car for four months was not a benefit conferred by the seller under the contract. S.13 of the Sale of Goods Act provides that where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with their description. The strictness of this rule can be illustrated by the case of Remorre and Co.v Landawer and Co. , (1921); the terms of a contract for the sale of tin pears provided that the goods were to be packed in cases containing 30 tins each. When the buyers inspected the tendered consignment, they found that about half the cases contained 24 tins each. The remainder contained 30 tins each. The buyer rejected all the cases. It was held by the CA that it was part of the contract description of goods that there should be 30 tins to a case and that, accordingly, the sellers were in breach of the implied condition of S.13 of the act. By S.30(3), the buyer was entitled to neglect the entire consignment. By S.14(2) of the Sale of Goods Act, where the seller sells goods in the course of a business, there is an implied condition that the goods supplied under the contract are of merchantable quality but there is no such condition as regards defects specifically drawn to the buyer’s attention before the contract was made or if the buyer examined the goods before the contract is made as regards defects which that examination ought to reveal. In the case of Wilson v Ricket, Cockrel and Co., (1954); W bought from the defendant, a coal merchant, a ton of coal. When part of the consignment was being burnt in a coal pot, there was an explosion which caused damage to W’s goods in the room. The explosive substance was not the coal but some foreign matter which was mixed with the coal. W claimed damages under S.14

(2) of the Sale of Goods Act. It was held by the CA that there was a breach of the implied condition of merchantable quality under S.14 (2). In the case of Wren v Holt, (1903); the buyer bought a glass of beer in a public house and later became ill because the beer was contaminated with arsenic. It was held that there was a breach of the implied condition as to merchantable quality under S.14 (2).

S.14(3) provides that if the buyer makes known to the seller any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose. There is, however, no implied condition as to fitness or purpose where the circumstances show that the buyer does not rely on the seller’s skill or judgement nor where the sale is private. That is, not in the course of a business. Where goods have a self evident purpose, for example, a hot water bottle or a pair of underpants, the purpose for which the goods are being bought is made known to the seller by implication. In the “hot water bottle case” of Priest v Last , (1903); There was a retail sale of a hot water bottle. The bottle burst and injured the buyer’s wife. The buyer brought an action to recover damages for medical expenses incurred. It was held that the seller was in breach of the implied condition as to fitness for purpose; the purpose being self evidenced in the case of goods of this kind. Finally, S.15 of the Sale of Goods Act provides that in the case of a contract of sale by sample, there are the following further implied conditions - (A) That the bulk will correspond with the sample in quality. (B) That the buyer will have a reasonable opportunity of comparing the bulk with the sample. (C) That the goods will be free from any defect rendering them unmerchantable, which would not be apparent on reasonable examination of the sample.

Exemption Clauses in Contract

An exemption clause is a term in a contract which seeks to exempt one of the parties from liability in certain events. They may also seek to limit a party’s liability. An exemption clause may be a perfectly legitimate device in contracts between parties of equal bargaining power. But where the parties are unequal, such a clause may work injustice. It is particularly so in standard form contracts i.e. Airline tickets, laundry receipts etc. They usually arise where there is a monopoly or a strong trade association. Thus, if you intend to travel by plane, you have quite a choice of airline tickets. You may do your booking but you will find that regardless of your choice of airlines, the terms which you will find in the small print of your airline ticket are the same. Other fields in which standard exemption clauses operate are carriage of goods, insurance and laundry. A party seeking to rely on an exemption clause must show that (A) It was a term of the contract. (B) That, properly construed, it covers the loss of damage which has occurred. Even if the party can prove both factors above, the clause may fail for one or more of several possible reasons. An exemption clause may become a term of a contract by signature or by notice. If a person signs a contractual document, he is bound by its terms including any exemption clause it may contain. The liability here is greater than when one party is trying to exempt the other by just notice. In the case of L’Estrange v Graucob (F) Limited, (1934); the plaintiff, a café proprietress bought an automatic machine from the defendants on terms contained in a document described as “Sales agreement” and including a number of clauses in legible but regrettably small print. She signed the document without reading. The machine did not work properly. The CA held that she was bound by these terms and no question of notice arose. The defendants were protected by a clause which excluded their liability. In the words of Scrutton L.J., “In cases in which the contract is contained in a railway ticket or other unsigned documents, it is necessary to prove that an alleged party was aware or ought to have been aware of its terms and conditions. These cases have no application when the documents have been signed. When a document containing contractual terms is signed, then in the absence of the fraud or misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not. If the contractual document is not signed, the question of notice arises. Suppose the exemption clause is printed on the document which is handed to one party by the other or is posted up in the shop or a booking hall such as a railway booking hall. In such a case, the clause will only be incorporated into the contract so as to become a term of the contract if reasonable steps are taken to bring it to the notice of the party affected. Whether steps taken are reasonable depends on 3 factors - (A) The nature of the document - The exemption clause will only be effective if contained in a document which is part of the contract. If the person concerned knew that the document was intended to form part of the contract, he is bound. If he did not know, then the test is whether a reasonable person would have taken the document to be a contractual document as distinct from a mere receipt, for example. In the case of Chapelton v Barry Urban District Council, (1940); the plaintiff hired two deck chairs from a pile kept by the defendant’s council on their beach. The chairs were stacked near a notice which read “Hire of chairs - 2D per session for three hours”. The plaintiff obtained 2 tickets from the chair attendant which he put in his pocket without reading. One of the chairs collapsed when he sat on it and the plaintiff sustained an injury. He sued the council. The council relied on a provision printed on the ticket excluding liability for any damage arising from the hire of a chair. The CA held that the defendants were liable. No reasonable man would assume that the ticket was anything but a receipt for the money. The notice on the beach was an offer which the plaintiff accepted when he took the chair and the notice contained no statement limiting the liability of the council. In the case of McCutheon v David MacBrayan Ltd, (1964); the defendants owned steamers operating between the Scottish mainland and the islands. The plaintiffs asked a Mr.McSporran to arrange for the plaintiff’s car to be shipped to the mainland. Mr.McSporran called at the defendant’s office and made an aural contract on the plaintiff’s behalf for the carriage of the car. On the voyage, through the defendant’s negligence, both ship and car were sank. The plaintiff sued the defendants for the value of the car. The defendants pleaded terms excluding liability for negligence contained in 27 paragraphs of small print displayed both outside and inside their office. The terms were also printed on a risk note which customers were usually asked to sign. On this occasion, the defendants omitted to ask Mr.McSporran to sign the risk note. All they did was to give him when he had paid in advance, the cost of carriage, a receipt saying, “All goods were “carried” subject to the conditions set out in the notices.” The House of Lords gave judgment for the plaintiff. Whether he nor Mr.McSporran had read the words on the notices or the receipt and there was, in truth, no contractual document at all. The risk was not presented to Mr.McSporran and the receipt was given only after the aural contract had been concluded. (B) The degree of notice given - The guiding principle can be deduced from the case of Parker v Southeastern Railway, (1872), a CA decision; the plaintiff left a bag in a railway cloakroom. He paid 2 pence for a ticket. On the front of the ticket were a number, a date, the opening times of the office and the words, “see back”. On the back of the ticket was a clause among others stating, “The company will not be responsible for any purchase exceeding the value of 10 Pounds”. The plaintiff, later that day, presented his ticket but his bag could not be found. He claimed 24 Pounds 10 shillings as the value of his bag. The company pleaded the exemption clause, claiming that the passenger was bound by terms stated on the cloakroom ticket, of which he was ignorant. 3 questions were posed - (A) Did the plaintiff know that there was printing on the ticket? In this instance, he did. (B) Did he know that the ticket contained or referred to conditions? In this instance, he did not know. (C) Had the defendants done what was sufficient to draw the plaintiff’s attention to the relevant conditions? In this instance, the condition was designed to exempt the defendants from liability for personal injury caused to the customer. So wide an exception was, in the context, unusual and required an unusually explicit warning. Such warning, the defendants had not given and they could not escape liability for the plaintiff’s injury. The CA held that it was not enough to show merely that the plaintiff knew that there was writing on the ticket for the writing might not have been intended to have contractual effect. Most of these cases turn on such matters as what was said and done when the contract was entered into, what was on the front of the ticket, what was on the back of the ticket or was the ticket folded? Was the clause obliterated by a date stamp or was the clause buried in a mass of advertisements? Sometimes, however, the decision point lies in earlier dealings between the parties. In the case of Spurling v Bradshaw, (1956), a CA decision; the defendant had dealt, for many years, with the plaintiffs, who were warehouse men. The defendant delivered to the plaintiffs’ warehouse for storage, 8 barrels of orange juice. On this occasion, he received a document several days after the deposit, acknowledging the receipt of the barrels and referring on its face to clauses printed on the back. One such clause exempted the plaintiff from “from any loss or damage occasioned by the negligence, wrongful act or default” of themselves or their servants. When the defendant came to collect the barrels, they were found to be empty. He refused to pay the storage charges. The plaintiff sued him and he counter-claimed for negligence. The plaintiffs sought to rely on the exemption clause. The defendant argued that it was ineffective because it had been sent to him after the contract had come into existence. He admitted that in previous dealings, he had often received a similar document though he had never bothered to read it. On that footing, he was held to be bound by the exemption clause. (C) A third point to consider whether reasonable steps were taken to bring the exemption clause to the notice of the party affected is the time the notice was given. An exemption clause becomes a term of the contract only if notice of it is given before or at the time of contracting. In the case of Olley v Marlboro Court Ltd, (1949), a CA decision; a husband and wife arrived at a hotel as guests and paid for a week’s board and residence in advance. They went up to the bedroom allotted to them and on one of its walls was a notice that “the proprietors will not hold themselves responsible for articles lost or stolen unless handed to the management for safe custody.” The wife then closed the self locking door of the bedroom, went downstairs and hung the key on the board in the reception office. In her absence, the key was wrongfully taken by a 3rd party who opened the bedroom door and stole her furs. The defendants sought to incorporate the notice in the contract but the court of appeal held that the contract was completed before the guests went up to their room and that no subsequent notice could affect their right. The plaintiff did not see and could not have seen the exemption clause until later. That is, after the contract was made. The notice was simply not part of the contract. From the above case, it is important to determine when the contract was made. In the case of a railway or coach ticket, which is taken at a booking office, it has been held that the request of the passenger for a ticket is an invitation to make an offer. The clerks handing out the ticket is an offer and the passenger’s paying of the fare, is an acceptance.

If a party seeking to rely on an exemption clause has misrepresented the extent of the clause, the clause will not be binding. In the case of Curtis v Chemical Cleaning & Dying Co., (1951); the plaintiff took to the defendant’s shop, a white sateen wedding dress trimmed with beads and sequins for cleaning. The shop assistant gave her a document headed “receipt” and requested her to sign the receipt. The plaintiff asked the purport of the signature on the document and the assistant replied that it exempted the defendants from certain risks and in the present instance, from the risk of damage to the beads and sequins on the dress. The plaintiff then signed a document containing a clause “that the company is not liable for any damage however caused.” When the dress was returned, it was stained and in an action by the plaintiff for damages, the defendants relied on this exemption clause. The CA held that the defence must fail. The clause gave no protection to the company because of their misrepresentation as to its extent. The assistant, innocently, had misrepresented the effects of the document and the defendants were prevented from insisting on the drastic terms of the exemption clause. The plaintiff was entitled to assume, as the defendants had assured her, that she was running the risk only of damage to the beads and sequins.

If there is any doubt as to the meaning and scope of an exemption clause, the ambiguity will be resolved against the party who has inserted it and who is now relying on it. As he seeks to protect himself against liability to which he would otherwise be subject, it is for him to prove that his words clearly describe the contingency that has in fact arisen. Thus, it may happen that apart from the contract, he may find himself in a situation where the law casts upon him not only a duty of care but also some form of strict liability. In such a case, unless the language of the contract clearly covers both types of obligation, he will be taken to have excluded only the strict liability. Eg. In the case of a common carrier of goods who holds himself out as prepared to carry goods to any person. In addition to his liability for negligence, such a person by virtue of his calling is strictly responsible for the safety of the goods entrusted to him unless the damage is caused by an act of God, enemy action and inherent defect in the goods themselves or the fault of the consignor. If, however, a clause which purports to exclude his liability does not clearly refer to negligence, it will be construed by the courts as limited in its effect to the peculiarly difficult duties cast upon him by the nature of his work. In the case of White v John Warrick and Co.Ltd, (1953); the plaintiff hired a tradesman’s cycle from the defendants. While he was riding it, the cycle tilted forwards and he was injured. The contract of hire stated that “nothing in this agreement shall render the owners liable for any personal injury.” If this term had not been inserted into the agreement, the defendants might have been liable on two grounds -

(1) In the tort of negligence.

(2) In the contract for supplying a defective cycle. It was held that as the term was ambiguous, it served only to exclude the defendant’s contractual duty. They might still be liable for the tort of negligence.

Even if the exclusion clause is an integral part of the contract and even if the language used is apt to meet the situation that has in fact occurred, it may be used only by the contracting party. No stranger to the contract may seek a shelter to its protection. In the case of Adler v Dickson, (1954); the plaintiff was a 1st class passenger on the Peninsula and Oriental Steam Navigation Company’s vessel called Himalaya. Her ticket was a lengthy printed document containing terms exempting the company from liability. There was a general clause that “passengers are carried at passengers entire risk” and a particular clause that “the company will not be responsible for any injury whatsoever to the person of any passenger arising from or occasioned by the negligence of the company’s servants.” While the plaintiff was mounting a gangway, it moved and fell and she was thrown onto the wharf from a height of 16 feet and sustained serious injuries. She brought an action for negligence, not against the company but against the master and boatswain of the ship. The CA held that while the exemption clauses protected the company from liability, they could not protect anyone else. The master and boatswain were not parties to the contract and could not claim its advantages.

Formalities Required For the Formation of a Contract

The point has been made that contracts can be made quite informally. That is, it need not be in writing but may be made orally. However, a few contracts require certain formalities. In other words, certain people can produce a sufficient note or memorandum of agreement. The note must be signed by the defendant or his agent. What is required is sufficient note or memorandum of the contract and not that the entire contract itself must be in writing. The important contracts which are required to be evidenced in writing are...

(1) Contracts of guarantee.

(2) Contracts for the sale or other disposition of land or any interest in land.

What Amounts To a Contract of Guarantee?

A contract of guarantee is made where one party, the guarantor, promises to answer for the debt, default or miscarriage of another person. The expressions debt, default or miscarriage are taken from S.4 of the Statute of Frauds Act, 1677 and covers the guarantee of a contractual liability or a liability in tort. In most cases, however, the liability guaranteed is a contractual debt. There are necessarily 3 parties in any contract of guarantee. Namely... (A) The principal creditor. (B) The principal debtor. (C) The guarantor. So, where G guarantees D’s debt to C, there is a three cornered relationship in which 3 collateral contracts may be distinguished.

(1) As between C and D - there is a contract out of which the guaranteed debt arises.

(2) As between G and C - there is a contract by which G makes himself secondarily liable to pay D’s debt. G promises that he will pay D’s debt in the event of C’s default.

(3) As between D and G - there is always a contract by which D indemnifies G. So if G pays C according to the guarantee, then D will be liable to G.

This contract is always implied if it is not expressed between the parties. It is the contract between the guarantor and the principal creditor which includes the promise to answer for the debt, default or miscarriage of an offer. A typical example is the guarantee of a bank overdraft; that is, a loan from a bank to a customer. If Salamata’s father undertakes to Salamata’s commercial bank that he will pay off Salamata’s overdraft if Salamata fails to do so when requested, the father is guaranteeing Salamata’s overdraft. In this case, the primary debtor is Salamata. The father will be liable only if Salamata does not pay and the commercial bank is the creditor. The father makes his promise to the commercial bank, the creditor. It is important to distinguish a contract of guarantee from a contract of indemnity which is not covered by the Statute of Frauds, 1677. There are the following points of difference - (A) A guarantor makes himself secondarily liable. (B) A person given an indemnity implies himself primarily liable. So, in our example between Salamata, her father and the commercial bank, if the father had made his promise to Salamata, the debtor, by saying, “Now, look daughter, if you can’t pay the bank when the time comes, I will.”, that is not a guarantee within the Statutes of Frauds; it amounts to an indemnity. Similarly, if the father promises the commercial bank to pay off Salamata’s overdraft on request, that also is not a guarantee but an indemnity and is not within the Statutes of Frauds because such a promise is not a promise to answer for the debt of another. It is a promise to pay a debt which the promisor is adopting as his own. The vast majority of guarantees are given in respect of contractual liabilities but it has been held that the word “miscarriage” in the Statute of Frauds is apt to include liability in tort. In the case of Kirkham v Martter, (1819); the defendant’s son had, without the plaintiff’s permission, ridden the plaintiff’s horse and killed him and was therefore guilty of a tort against the plaintiff. The plaintiff threatened to sue him and in consequence of his threat, the defendant orally promised the plaintiff to pay him the agreed value of the horse if the plaintiff would drop his action. The defendant, when sued on this promise, pleaded the Statute of Frauds and the plaintiff argued that the statute applied only where the liability guaranteed arose out of a preexisting debt. The argument was rejected. According to Abbott C.J., “...the word “miscarriage” has not the same meaning as the words “debt” or “default”. The words of the statute were not confined to cases of contract and as the son had been guilty of a tort, the father’s undertaking was a promise to answer for the miscarriage of another person.” It would seem, therefore, that the guarantee in the case of a contractual liability is covered by the word “debt” and perhaps by that of “default” in quota and the guarantee of a tortuous liability by the word “miscarriage”.

2) S.4 of the Statute of Frauds originally covered contracts for the disposition of interests in land but this part of the section was repealed and replaced by S.40 of the Law of Real Property Act, 1925. “No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the agreement upon which such action is brought or some memorandum or note thereof is in writing and signed by the party to be charged therewith or by some other person thereunto by him lawfully authorized.” Contracts to which S.40 applies will include those for the sale, lease and mortgage of land. Therefore, any contract of guarantee or any contract for the sale or other disposition of the land or any interest in land which is not itself in writing, must be evidenced by sufficient note or memorandum failing which, the agreement will be unenforceable. The following points are to be noted - (A) The memorandum need not be in any special form. It may consist of more than one document provided there is evidence to connect them. The memorandum may have been made at any time after the contract was made. (B) The memorandum must be signed by the defendant or his agent. (C) In order that there is a sufficient memorandum, there must be a signed admission that there was a contract and a signed admission of what that contract was. If a memorandum is expressed to be subject to contract, it does not satisfy the requirement of S.40 because such a memorandum does not contain any recognition or admission of the existence of a contract. (D) The memorandum must contain the material terms of the agreement.

These include

1) The names of the parties or a sufficient description of them in the note.

2) The subject matter of the agreement. Eg. In the case of a lease, the address of the premises, the duration of the lease and the rent to be paid. Where the defendant pleads the statute and the plaintiff cannot produce in evidence a sufficient note or memorandum, no action may be brought for damages at common law. The position is that the contract is unenforceable so the provisions in S.4 of the Statute of Frauds and S.40 of the Property Act are only procedural and not substantive. In the case of Thomas v Brown, (1876); the parties made an aural agreement for the sale of land under which the purchaser paid a deposit to the vendor. The purchaser then decided not to go on with the transaction and brought an action to recover the deposit. The action failed because the seller, while he could not have sued on the contract, could use it to justify the retention of the deposit. It follows that in the absence of a note or memorandum, the contract may be pleaded by way of defence. Eg. By the vendor who seeks to retain the deposit paid by the purchaser who refused to complete the contract. The procedural nature of the statutory provisions also means that the documentary evidence need not be made at the same time with the contract. If an action has to be brought, you have to show the document required at the time of the contract. It matters not if the document was made later. If there’s no evidence, there’s no action under common law, as above mentioned.

Equity

In equity, the question arises whether in the absence of a note or memorandum, a party may obtain a decree of specific performance of the contract for the disposition of an interest in land. The court of equity has sought to remedy the injustice that might be caused where the defendant pleads the statute and yet, by his conduct, plainly has admitted the existence of the contract. In cases where the defendant has allowed or induced the plaintiff to perform any act towards the execution of the contract, the court of equity would dispense of the evidence required by the statute and accept evidence of the act of part performance in its place. Statutory effect was given to the doctrine of part performance by S.40 (2) of the Law of Real Property Act, 1925 which provides that S.40 (1) does not affect the law relating to part performance. In explaining the doctrine of part performance in the case of Steadman v. Steadman, (1976); Lord Reid stated, inter alia, “If one party to an agreement stands bye and lets the other party incur expenses or prejudice his position on the faith of the agreement being valid, he will not then be allowed to turn around and assert that the agreement is unenforceable. That would be fraudulent on his part and it has become proverbial that courts of equity will not permit the statute to be made an instrument of fraud.” An oral agreement for the settlement of a matrimonial dispute provided that the wife should surrender her interest in the matrimonial house to the husband for 1500 Pounds and that the husband should pay the wife 100 Pounds as part of the arrears of maintenance due to her. The husband made this payment and the House of Lords held that together with other acts done by the husband, for example the preparation on his behalf of an instrument of transfer of the house, the payment was sufficient part performance to enable him to enforce the agreement. So, it is settled that where the plaintiff has introduced evidence of a sufficient act of part performance, the court will then admit oral evidence to prove the exact terms of the contract. There remains to be determined the question “What kind of act is required to invoke the doctrine of past performance?” because it is clear that not all acts done towards the execution of a contract will be admitted in equity as constituting past performance. The courts have approved and applied the following tests “the true principal of the operation of acts of past performance seems only to require that the acts in question be such as must be referred to some contracts and may be referred to the alleged one that they prove the existence of such contracts and are consistent with the contract alleged.” This is illustrated by a few cases... Dickinson v. Barrow, (1904); there was an oral contract for the sale of a house to be built by the vendor. The purchaser made frequent visits to the building site and made suggestions for alterations and improvements as the work progressed. The vendor complied with these suggestions but when the house was finished, the purchaser refused to buy it. It was held that the act of the vendor constituted sufficient part performance and so the purchaser must specifically perform her side of the agreement. Rawlinson v. Ames, (1925); the defendant agreed orally to lease a flat from the plaintiff for 21 years. The plaintiff agreed to make alterations whose executions the defendant supervised and the defendant later suggested further changes which the plaintiff completed. The defendant then changed her mind and refused to take the flat. A decree of specific performance was pronounced against her. The plaintiff would never have carried out the alterations in question unless such a contract as was alleged had in fact been made. Wakeham v. Mackenzie, (1968); X’s wife died when he was 72 years old. The plaintiff, a widow aged 67, lived near him in a council flat and had long been a friend of both X and his wife. In November 1964, X agreed orally with the plaintiff that if she would move into his house, look after it and him, and pay for her own share of food and coal, he would, in his will, leave her the house and its contents. The plaintiff, thereupon, gave up her flat and moved into X’s house. She looked after X and the house and paid her share of food and coal until X died in 1966. X left her nothing in his will. She asked for specific performance of the oral contract. It was held that the act of past performance, in this case, the giving up of the plaintiff’s house, the moving into a new house, the acts which the plaintiff performed in looking after the deceased and looking after the house and the putting of 2 Pounds a week into the common-pot, clearly raise an equity in her. They were explicable only by reference to some contract and were consistent with the particular contract which the plaintiff alleged. The plaintiff was therefore entitled to a decree of specific performance.

Basma v. Weekes and 3 Others, (1950-56); the respondents agreed to sell 2 houses to an agent known by the respondents to be acting on the plaintiff’s behalf. The document containing the agreement signed by the 3 respondents mentioned that they agreed to sell the premises to Mr. C.B.Rogers-Wright without any mention that he was acting as agent for the appellant. The purchase price was duly paid by Mr. Rogers-Wright. The 3 respondents then sold the house to a fourth respondent and the appellant was refunded the agreed purchase price by the 3 respondents. The appellant instituted proceedings for specific performance of the agreement of sale. In the Supreme Court, now the High Court, the court found that the respondents had knowledge of the fact that the purchaser was acting as agent for the appellant and therefore the agreement of sale was sufficient memorandum under the Statutes of Frauds and gave judgment for the appellant. The 3 respondents appealed to WACA who allowed the appeal on the grounds that the agreement of sale was not a sufficient memorandum to enable the plaintiff to sue on the contract since it ought to have contained the name of the plaintiff either as principal or in some other way to identify him. However, the Privy Council was satisfied that the terms of the agreement were such that Mr. Rogers-Wright was contractually bound and therefore, the agreement satisfies the Statute of Frauds. So, Mr. Rogers-Wright could have sued on the agreement and if he can sue, then so can his principal, the appellant. The appeal was allowed by the Privy Council and the order of the court of first instance, restored. Newman v. Walker, (1967-68); the plaintiff and the defendant owned adjacent pieces of land at Kissy road. The defendant built a wall and a cess-pit on the plaintiff’s land. It was agreed orally that the defendant would pull down the wall and the plaintiff would sell him the part of the land encroached upon which was occupied by the cess-pit for 190 Leones. The defendant did nothing for over nine months. The plaintiff wrote, threatening legal action if the defendant failed to remove the wall and restored the whole of the land. The defendant pleaded the oral agreement by the plaintiff to sell the land to him and counter claimed for specific performance of the agreement. The plaintiff pleaded the Statute of Frauds. The Supreme Court, then the High Court, found that the plaintiff must have been aware of the defendant’s entry into possession of the portion of the land encroached upon and held that this entry was an act of part performance antecedent to the oral agreement that the plaintiff would sell the land occupied by the cess-pit to the defendant. It was held that the plaintiff should convey the portion of the land encroached upon to the defendant for the agreed price. On appeal, the CA held that the doctrine of specific performance is never evoked for an act done before the contract itself is made; it would be putting the cart before the horse. The appeal was therefore allowed and the judgement of the court below, set aside.

Look at the case of Walsh v. Lonsdale.

Illegal Contracts

The law may refuse to give full effect to a contract on the ground of illegality. That is, because the contract involves the commission of a legal wrong or is in some way contrary to public policy. This is expressed by the Latin maxim ex turpi causa non oritur actio meaning ‘no action arises from a base cause’. RE Mahmoud, (1921); “In my view, the court is bound once it knows that the contract is illegal, to take the objection and to refuse to enforce the contract whether its knowledge comes from the statement of the party who was guilty of the illegality or whether it comes from outside sources. The court does not sit to enforce illegal contracts.” The above quotation accords with Lord Mansfield’s statement in the case of Holman v. Johnson; “The principle of public policy is this - ex dolo malo non oritur actio meaning ‘no man will lend its aid to a man who founds his case of action upon an immoral or an illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa or the transgression of a positive law of the country, there the court says he has no right to be assisted. It is upon that ground that the court goes; not for the sake of the defendant but because they will not lend their aid to such a plaintiff.” Illegal contracts may be broadly classified into 2 groups -

1) Contracts involving the commission of a legal wrong.

2) Contracts contrary to public policy.

Contracts involving the commission of a legal wrong These may take a variety of forms such as -

1) A contract to commit a crime.

2) A contract to defraud revenue.

3) Contracts with a sexually immoral element.

4) Contracts leading to corruption in public life.

5) Contracts which interfere with the cause of justice.

A Contract to Commit A Crime

A contract is illegal if the mere making of it is a legal wrong. A contract to finance another person’s litigation in return for a share in the proceeds is the crime of champerty and so such a contract will be illegal. Accordingly, a client cannot validly promise to remunerate his solicitor by a contingency fee payable only if the litigation in which the solicitor is engaged ends in the client’s favor. Similarly, an agreement to stifle a prosecution for treason is illegal as it amounts to compounding the crime. A contract for the deliberate commission of a crime is illegal. See Bigos v. Boustead, (1951); A, in contravention of the Exchange Control Act, 1947, agreed to supply B with the equivalent of 150 Dollars in Italian currency. B, as security for his promise to repay the loan, deposited a share certificate with A. A failed to supply any Italian currency and B sued him for recovery of the certificate. It was held that a contract to evade the exchange control legislation was illegal. A contract is illegal as formed if its very creation is prohibited, as for example, where one of the parties has neglected to take out a license required by statute. In such a case it is void ab initio meaning void ‘from the very beginning’. It is a complete nullity under which neither party can acquire rights whether there is an intention to break the law or not. In Bostel Bros. Ltd v. Hurlock, (1949); it was held that a contract to evade building finance regulation was illegal. In Beckley v. Evans, (1963); the magistrate submitted 2 points for the consideration of the Supreme Court, now the High Court. Namely,

1) Where the parties agree that in consideration of both refraining from reporting an accident in breach of the provisions of S.47 of the Road Traffic Act, Cap 132 of the Laws of Sierra Leone, in which it was agreed that one party will pay for the repairing of the other’s car whether such an agreement was illegal and void ab initio.

2) Can the injured party or the party considering himself the injured party abandon his illegal agreement and propose to sue on his original cause of action? The court stated that it was necessary to consider whether the legislation was intended merely to inflict a penalty on the defaulting party for the benefit of the revenue or whether it is for the protection of the public. The court held that it was for the public good and therefore, if any contract is entered into for its avoidance, such a contract is illegal and void and no action will be maintainable under it. Further, having secured an agreement to rule out court action by the police which is against public policy, the court cannot support an action for the party’s benefit with reference to the original accident.

Refer to Habib v. Attorney General, (1957-60); the appellant, a licensed dealer in diamonds, handed his license and diamonds to his brother-in-law called Ajami who was not licensed and sent him to Kenema to sell the diamonds. Ajami was caught and prosecuted. The appellant gave evidence for the defence and admitted giving the diamonds to Ajami. Ajami was convicted. The magistrate found that the appellant was the owner of the diamonds and ordered that they be returned to him. The Attorney General appealed against this order and the case was remitted to the magistrate’s court for determination of the ownership of the diamonds. After taking fresh evidence, the magistrate found that the appellant had contravened S.12 (8) of the Alluvial Diamond Mining Ordinance, 1956, under which he holds a dealer’s license in 3 ways - A) Handing over his license to Ajami. B) Failing to comply with the terms of his license. C) Aided and abetted Ajami in the commission of an offence against the ordinance. The ordinance does not provide for employing an agent though it provides for a manager for a licensed miner and an agent for a licensed exporter. The inference is therefore that a licensed dealer’s servant cannot deal in diamonds even on his master’s behalf. So, the appellant contravened the ordinance in handing the diamonds to Ajami and the court should not lend its aid. S.18 (3) prohibits an unlicensed person from dealing in alluvial diamonds and breach of this section amounts to a felony under S.24. The magistrate ordered that the diamonds be forfeited to the government under S.62 of the ordinance. If the consideration or the purpose of the contract is criminal or amounts to a tort, the contract is illegal. See Beresford v. Royal Insurance Co. Ltd., (1937); A man shot himself a few minutes before his life insurance policy expired. His personal representatives claimed on the policy. It was held that it will be against public policy to allow a man to benefit by committing a crime. The sum therefore insured, was not recoverable.

A Contract to Defraud Revenue

A contract which is designed to defraud the revenue or a local authority is illegal. There is a clear infringement of the doctrine of public policy if it is apparent either directly from the terms of the contract or indirectly from other circumstances that the design of one or both of the parties is to defraud the revenue whether national or local. See Miller v. Karlinski, (1945); the terms of the contract of employment were that the employee should receive a salary of 10 Pounds weekly and repayment of his expenses but that he should be entitled to include in his expense account, the amount of income tax due in respect of his weekly salary. In an action brought by him to recover 10 weekly arrears of salary and 21 Pounds 2 shillings and 8 pence for expenses, it was divulged that about 17 Pounds of this latter sum represented his liability for income tax. It was held that the contract was illegal since it constituted a fraud upon the revenue. No action lay to recover even arrears of salary, for in such a case, the legal stipulation is not severable from the lawful agreement to pay the salary. Napier v. National Business Agency Ltd., (1951); N was employed by a company at a salary plus 6 Pounds per week for expenses. As both parties knew, N’s expenses were never more than 1 Pound a week. The company dismissed N summarily and he claimed his salary for the period in lieu of notice. It was held by the CA that the part of the agreement relating to the expenses was tax evasion and illegal. The rest of the agreement was tainted with illegality and accordingly, unenforceable.

Contracts with a Sexually Immoral Element

A contract is illegal for immorality as follows - (A) Where the consideration is an act of sexual immorality. For example, an agreement for future illicit cohabitation. It must be noted that an agreement with respect to past illicit cohabitation, no further immorality is contemplated except that the consideration is past consideration and so is unenforceable unless made under seal. (B) Where the purpose of the contract is the furtherance of sexual immorality and both parties are aware of this, the contract is illegal. Pierce v. Brooks, (1866); the plaintiffs agreed to supply the defendant with a new miniature Brougham on hire. The purchase money should be paid by installments during a period that was not to exceed 12 months. The defendant was a prostitute and she undoubtedly intended to use the carriage as a lure to hesitant clients. One of the two plaintiffs was aware of her mode of life but there was no direct evidence that either of them knew of the use to which she intended to put the carriage. The jury, however, found that the purpose of the woman was to use the carriage as part of her display to attract men and that the plaintiffs were aware of her design. On this finding, Brammell J. Gave judgement for the defendant in an action brought against her to recover a sum due under the contract. The Court of Exchequer Chamber was satisfied on the evidence that the plaintiffs were not only aware but were even guilty of some complicity in her provocative scheme.

Contracts Leading To Corruption in Public Life

A Contract is illegal which tends to corruption in the administration of the affairs of the nation. For example, buying, selling or procuring of public offices. Blachford v. Preston, (1799); Story J. Said “It is obvious that such contracts must have a material influence to diminish the respectability, responsibility and purity of public officers and to introduce a system of official patronage, corruption and deceit wholly at war with the public interest.” Contracts involving the bribery of officials or attempts to buy state honors are illegal. Such contracts are void even though no crime has been committed. In the case of Parkinson v. College of Ambulance Ltd. And Harrison, (1925); the secretary of the defendant’s charity fraudulently represented to the plaintiff that the charity was in a position to divert the fountain of honor in his direction and to procure him, at least a Knighthood if he would make an adequate donation. After a certain amount of bargaining, the plaintiff paid 3,000 Pounds to the charity and undertook to do more when the Knighthood was forthcoming. He did not, however, receive any honor and he sued for the return of the money as had and received to his use. It was held that the action must fail. The transaction was manifestly illegal to the knowledge of the plaintiff. He could sue neither for the money had and received nor for the recovery of damages nor could he repudiate the contract and regain his money on the plea that the transaction was executing.

Contracts Which Interfere With the Cause of Justice

Any contract which tends to pervert the cause of justice is illegal and void. Therefore, a contract not to prosecute, that is, to prevent proceedings already instituted from running their normal course or to compromise in criminal proceedings is illegal and void even though the prosecutor derives no gain, financial or otherwise, and even though the agreement secures the very object from which the proceedings were taken. But this principle applies only when the offence in question is a matter of public concern. If the offence is not of this nature but is one in which the injured party has a chance between a civil and a criminal remedy, example in the case of a libel or assault, a compromise is lawful and enforceable. McGregor v. McGregor, (1882); it was held that a husband and wife who had taken out cross-summonses for assault could validly compromise than by a separation agreement. The question whether the offence was of a public concern arose in the case of Keir v. Leeman, (1846); A commenced a prosecution for riot and assault against 7 defendants who had assaulted and ejected a sheriff’s officer and his assistants while they were levying an execution in respect of a judgement debt due to A. Before the trial began, X & Y agreed to pay to A the amount of the debt together with costs in consideration that A would not proceed with the prosecution. A, accordingly, gave no evidence against the defendants and he consented with the leave of the judge, to a verdict of not guilty being entered. X & Y, when sued upon the agreement, pleaded that it was an unlawful compromise and therefore, void. This plea prevailed.

Consequences of Illegality

The general rule is that no action can be brought by a party to an illegal contract. ex turpi causa oritur non actio meaning ‘no action arises from a base cause’... The following points should be noted - (A) No action will lie for the recovery of money paid or property transferred under an illegal contract. See the case of Parkinson v. College of Ambulance Ltd. And Harrison , (1925). (B) No action will lie for the breach of an illegal contract. See Pierce v. Brooks. See also Beresford v. Royal Insurance Co.Ltd. (C) Where parts of an illegal contract would have been lawful by itself, the court will not sever the good from the bad. The whole contract becomes tainted with illegality. See Napier v. National Business Agency Ltd. (D) Any contract which is collateral to an illegal contract is also tainted with illegality and is treated as being illegal even though it would have been lawful by itself. The rule clearly applies where the parties to the collateral contract are the same as to the original illegal contract.

Therefore, if A gives B a promissory note in respect of money due from A to B under an illegal contract, the promissory note is also illegal and so as unenforceable as the original contract. But, where a contract between A & B is illegal, a related contract between B & C will only be illegal if C knew of the illegality in the first contract; that is, between A & B. Therefore, if B borrows money from C to pay what he owes to A on an illegal contract, C will not be able to sue on the contract of the loan if he knew that his loan was to be used to pay an illegal debt. On the other hand, if C did not know that his money was to be used in this way, he will be able to sue for the money lent.

Exceptions to the General Rule

A party to an illegal contract may sue to recover money paid or property transferred as follows... (A) Where the parties are not in pari delicto or they are ‘not equally at fault’, then the innocent party may recover. This circumstance may arise in 2 ways...

1) Where the contract is prohibited by statute in order to protect the class of persons to which the plaintiff belongs.

2) Where a party has been induced to enter an illegal contract by fraudulent misrepresentation or where an ignorant man enters an illegal contract under the influence of a clever man. See the case of Hughes v. Liverpool Victoria Legal Friendly Society, (1916-17); H was induced by the fraudulent misrepresentation of an insurance agent to enter an illegal contract of life insurance. H sought to recover the premiums paid. It was held by the CA that the parties were not in pari delicto and the premiums were therefore recoverable.

(B) Where no substantial part of the illegal act has been performed, a party who is truly repentant may recover. In this way, the law encourages repentance. But a party seeking to take advantage of this rule must show that his repentance is genuine and that he’s not repudiating the contract for mere reasons of convenience. Refer to Bigos v. Boustead (1951); where it was held that a contract to evade the exchange control legislation was illegal added to the fact that he had not repented of the illegal purpose of the contract.

(C) Where a contract is apparently lawful in its actual formation but there’s an illegal purpose known to one party and not to the other, the innocent party may recover. But a contract which is lawful on the face of it will be treated as illegal if both parties knew of the illegal purpose. See Pierce v. Brooks; where on the face of it, there was nothing illegal in hiring a coach to the lady but both parties knew the reason why the coach was needed.

(D) Where the party to an illegal contract is able to frame his action so as not to depend on the contract, he may succeed in recovering his property. See Bow Makers Ltd. v. Barnet Instrument Ltd., (1945); CA decision; one Smith sold machine tools to the plaintiffs. The sale was illegal since it contravened an order made by the Minister of Supply under the Defence of the Realm Regulations. The plaintiff delivered the tools to the defendants under 3 separate hire purchase agreements which were assumed by the CA to be themselves illegal. The defendants, after paying only a few of the installments due under the contract, sold the tools delivered under the first and third agreements and refused the demand of the plaintiffs to redeliver those that were the subject matter of the second agreement. The owners successfully claimed damages for the conversion of all the goods.

A hirer under a hire purchase agreement has a special property in the goods which he loses if he sells the goods. So, the plaintiffs in suing in respect of the goods which had been sold, were not relying on the contract of hire purchase. They were simply asserting their rights in respect of goods owned by them.

Discharge of Contracts

Every contractual obligation gives rise to a corresponding contractual right. Thus, where the obligation of one party is discharged, the corresponding right of the other party is extinguished. When all the obligations which arose under a contract are discharged and all the rights are thus extinguished, the contract is said to be discharged. A contract may be discharged in any of the following ways - (A) By Performance. (B) By Agreement. (C) By acceptance of a breach of the contract. (D) By Frustration.

(A) Discharge by Performance A contractual obligation is discharged by a complete performance of the undertaking. The promisee is entitled to the benefit of complete performance exactly according to the promisor’s undertaking. Where the promisor is unable or unwilling to give more than partial performance, the general rule is that there is no discharge. The practical effect of this rule is that where a contract provides for payment by one party after performance by the other, no action to recover payment may be maintained until the performance is complete, nor will an action for a proportional payment be available on the basis of the quantum meruit. Cutter v. Powell, (1797); the defendant agreed to pay Cutter 30 Guineas provided that he proceeded, continued and did his duty as second mate in a vessel sailing from Jamaica to Liverpool. The voyage began on August 2nd and Cutter died on September 20th when the ship was 19 days short of Liverpool. It was held that his widow could not recover anything for the work he had done. According to the express terms of the contract, the sum was payable only on completion of the whole voyage. A term to the effect that proportional payment should be made in case of partial performance could not be implied. The plaintiff could therefore not succeed in her claim on a quantum meruit. In the case of Sumpter v. Hedges, (1898); the plaintiff, who had agreed to erect on the defendant’s land, 2 houses and stables for 565 Pounds, did part of the work to the value of 333 Pounds and then abandoned the contract. The defendant himself completed the buildings. H refused to pay S anything and S brought an action to recover on a quantum meruit. It was held by the CA that the claim must fail because where there is a contract to do certain work for a lump sum, the person who is to do the work cannot sue for the lump sum until he has completed that which he had agreed. The plaintiff’s claim to recover something on a quantum meruit fails because he showed no evidence of a fresh contract by which the defendant agreed to pay for the work that had been done.

Exceptions to the General Rule

1) Severable Contracts - Where the parties are deemed to have intended their contracts to be divided into 2 or more separate contracts, then each separate contract is discharged separately. For example, where there is a contract for the delivery of goods by installment, payment is due from the buyer upon the delivery of each installment. The buyer cannot defer payment until all installments have been delivered unless there is a term of the contract to that effect. The question as to whether a contract is severable or entire depends upon the intention of the parties.

2) Substantial Performance - According to the doctrine of substantial performance, a promisor who has substantially done what he promised to do can sue on the contract. His right to sue will be subject to a claim for damages by the promisee in respect of that part of the contract remaining unperformed. Dakin and Co. v. Lee, (1916); there was a contract by which a builder undertook to carry out substantial repairs to a building. He completed the entire contract work but some of it was carried out carelessly and with bad workmanship. The owner of the building refused to pay the balance on the contract, contending that there was no liability because the contractor’s performance was not complete. The builder sued to recover the balance due. The CA held that the builder was entitled to recover the balance of the contract price less the value of the defective work. In the case of Hoenig v. Isaacs, (1952); the plaintiff agreed to redecorate and furnish the defendant’s flat for 750 Pounds. The defendant complained of the faulty design and bad workmanship and paid 400 Pounds. The plaintiff sued for the balance of 350 Pounds. The court found that there were defects in the furniture and assessed the cost of putting them right at 55 Pounds. The court held that the plaintiff had made substantial performance and that he was entitled to the contract price less the cost of making good the defect which was 55 Pounds.

3) Prevention of Performance - Where a party is prevented from completing his undertaking because of some act or omission of the other party, it will be unjust to apply the rule of complete performance as in the case of Cutter v. Powell. In these circumstances, the party who has been prevented from performance, may sue either for damages or on a quantum meruit.

4) Tender of Performance - In an action for breach of contract, it is a good defence for the defendant to prove that he tendered performance; that he offered to perform his side of the contract and that the plaintiff refused to accept it. In these circumstances, the defendant is discharged from all liability under the contract. The rule, therefore, is that a tender of performance is equivalent to performance. In the case of Startup v. Macdonald, (1843); The plaintiff agreed to sell 10 tons of oil to the defendant and to deliver it to him “within the last 14 days in March”, payment in cash to be made at the expiration of that time. Delivery was tendered at 8:30 PM on March 31st, a Saturday, but the defendant refused to accept or to pay for the goods owing to the lateness of the hour. It was held that the tender of the oil was, in the circumstances, equivalent to performance and that the plaintiffs were entitled to recover damages for non-acceptance. The following points should be noted - (A) The tender of performance must be exactly in accordance with the terms of the contract. (B) Where the tender of performance took the form of an offer to make a money payment, the amount tender must have been the exact amount due and in the currency of the country and the defence of the tender must be accompanied by payment into court of the amount due.

(B) Discharge by Agreement What has been created by agreement may be extinguished by agreement. Discharge by agreement may occur in either of 2 ways -

(1) By a subsequent binding contract between the parties.

(2) By the operation of one of the terms of the contract itself. In its simplest form, discharge by agreement occurs where A promises to give up his right under the contract in return for a promise by B to give up his right. In that case, the contract is at an end. Alternatively, the parties may add to this discharge of the old contract, new promises which constitute a new contract. For example, suppose B has agreed to sell to A, a tape recorder but before delivery, they agree that B sell to A not a tape recorder but a record player. Where this happens, it is normally by means of an expressed agreement. For example, where B agreed to sell to A, a dozen bottles of red wine. In the event B delivers a dozen bottles of wine of which 6 are red and 6 are white and A accepts the dozen bottles so delivered, it means that the first contract is discharged by agreement and a new contract comes into existence. Discharge by agreement may also arise out of a term in the contract itself. Most important example is where the contract contains a provision for notice to be given. This is commonly the case in a contract of employment. If the provision as to notice is complied with, the contract is discharged by agreement. If one of the other parties purports to end the contract without complying with the provision as to notice, that is a breach of the contract.

C Discharge by Acceptance of Breach

Breach of a contract occurs where a party fails to perform his contractual obligation or where he repudiates his obligations expressly or impliedly without justification. A breach of contract entitles the innocent party to maintain an action for damages against the party in breach and in certain circumstances, he may treat the contract as repudiated by the party in breach and refuse further performance. In other words, breach by one party may enable the other party to become discharged from further liability. A contract is not discharged by breach when the innocent party elects to treat the breach as a repudiation of the contract. Also, repudiation takes place only where the breach goes to the root of the contract. There must be a fundamental breach. A breach is of this nature if, having regard to the contract as a whole, the promise that has been violated is of major as distinct from minor importance. Where the breach does not go to the root of the contract, the party not in breach is not entitled to treat the contract as repudiated and his remedy is only in damages.

Discharge by Frustration

Formerly, the law took the view that contractual obligations were absolute, meaning that if a person undertook by contract to do something, he was absolutely bound to do it. If subsequent events made it impossible for him to do it, he was in breach of his contract and was liable in damages to the other party. Nevertheless, starting with the case of Taylor v. Caldwell, (1863); a substantive and particular doctrine has gradually been evolved by the courts which mitigates the rigor of the old rule by providing that if the further fulfillment of the contract is brought to an abrupt stop by some irresistible and extraneous pause for which neither party is responsible, the contract shall terminate forthwith and the parties be discharged. A had agreed to give B the use of a music hall on certain specified days for the purpose of holding concerts. The hall was accidentally destroyed by fire 6 days before the contract date and B claimed damages for breach of the agreement. Discharging the contract, Blackburn J. gave judgment for the defendant. His reasoning was that a contract is not to be construed as absolute if the parties must from the beginning have known that its fulfillment depended upon the continued existence of some particular thing and therefore must have realized that this continuing existence was the foundation of the bargain. In such a case, he said, the contract “is subject to an implied condition that the parties shall be excused in case, before breach, performance becomes impossible from the perishing of the thing without default of the contractor.” Had the parties anticipated and considered what might have happened as has happened, they would have said, “If that happens, it is all over between us.” In implying such a term, “the law is only doing what the parties really, though subconsciously, meant to do themselves. From the above case, derived the Doctrine of Frustration, under which, the parties to a contract are excused for the performance of their obligations if some event occurs during the currency of the contract without the fault of either party which makes further performance impossible or illegal or which makes it radically different from what was originally undertaken.

The Doctrine of Frustration

1) Impossible - A contract may be impossible in 3 ways – (A) If the subject matter is destroyed. This was illustrated by the case of Taylor v. Caldwell. The contract related to the music hall and the surrounding gardens and though only the music hall was destroyed, that was enough to frustrate the contract because the object of the contract was rendered impossible so total destruction of the subject matter is not, as a rule, necessary. (B) A personal contract is ended by frustration if either party dies. This is true of a contract of service and apprenticeship. (C) A contract is frustrated if a thing or person required for its performance ceases to be available for that purpose. Thus, a contract for the sale of goods may be discharged if the goods are requisitioned, for example, by the government and similarly, a contract service may be discharged if one of the parties becomes ill or is imprisoned or is called up for military service. Even temporary unavailability may discharge a contract if the interruption is such as to make performance after it substantially different from what was originally undertaken. In the case of Pousard v. Spiers and Pond, (1876); the plaintiff’s wife contracted to sing a part in an opera, the first night of which was announced for November 28th. On November 23rd, she was taken ill. The defendants engaged another artist for the part. On December 4th, having recovered, the plaintiff’s wife offered to take part but the defendants refused. In an action brought by the plaintiff, it was held that the contract was discharged and the defendants were not liable. They had to make a decision in difficult circumstances. The illness was serious and might have gone on for some time.

2) Illegality – A contract is discharged by frustration if during the currency of the contract, further performance becomes illegal. A clear example of this is a contract is frustrated if legislation is passed after the contract was made which renders it illegal. Eg. Where the outbreak of war means that further performance of a contract would amount to trading with the enemy.

3) An event may occur which makes performance radically different from what was originally undertaken. This is best illustrated by a series of cases usually referred to as the Coronation Cases which arose out of the postponement of the coronation of King Edward VII. These cases established that a contract may be frustrated though it does not become impossible or illegal if it becomes futile. One of these cases is Krell v. Henry, (1903); a CA decision. Henry had a room in Pall Mall for the days of which the coronation procession of Edward VII was due to take place. Both parties understood that the object of letting was to watch the procession from the windows of the room but this was not stated in the contract. The King’s illness caused the procession to be postponed. Henry could still have come and sat in the room but it would have been futile. The CA held that the contract was frustrated, holding that the Doctrine of Frustration can apply where a state of things essential to the contract fails to be in existence.

The following points have to be considered in discussing the Doctrine of Frustration –

1) The doctrine applies only where the frustrating event comes about without the fault of either party. In other words, a party cannot rely on self induced frustration. In the case of Maritime National Fish Ltd. v. Ocean Trawlers Ltd., (1935); a Privy Council decision. The appellants hired from the respondents, a steam trawler called the St. Cuthbert which was useless for fishing unless it was fitted with an otter trawl. To the knowledge of both parties, it was a statutory offence to use an otter trawl except under license from the Canadian Minister of Fisheries. Later, the appellants, who had 4 other ships of their own, applied for 5 licenses but were granted only 3. In naming the ships to which these licenses should apply, they excluded the trawler St. Cuthbert, chartered from the respondents. The appellants contended that they were not liable for the hire due under the charter since performance had been frustrated by the refusal of the minister to grant the full number of licenses. The Privy Council refused to regard this fact as sufficient to bring the case within the doctrine for “the essence of frustration is that it should not be due to the acts or election of the party” and here, it was the appellants themselves who had chosen to defeat the common object of the adventure. The rule that a party cannot claim to be discharged by a frustrating event for which he is himself responsible does not require him to prove affirmatively, that the event occurred without his fault. The onus of proving that the alleged frustration was self induced lies on the party who asserts that it was. Joseph Constantine Steamship Line Ltd. v. Imperial Smelting Corporation Ltd., (1942); on the day before a chartered ship was due to load her cargo, an explosion of such violence occurred in her auxiliary boiler that the performance of the charter party became impossible. The cause of the explosion could not be definitely ascertained but only one of three possible reasons would have imputed negligence on the ship owner. The HL held that since the charterers were unable to prove that the explosion was caused by the fault of the owners, the defence of frustration succeeded and the contract was discharged.

2) Sometimes, a contract lays down what are to be the rights and duties of the parties if some misfortune such as unavailable delay should occur. If the contractual provision, therefore, covers the event which has occurred, then the provision will govern the rights and duties of the parties and the general law of frustration is excluded. If the provision in the contract does not cover the event which has occurred, then the law of frustration may apply.

3) If the event which is alleged to have frustrated the contract was foreseen or should have been foreseen by one party but not by the other, that party cannot rely on frustration. See the case of Walton Harvey and Co. Ltd. v. Walker and Homfrays Ltd., (1931); CA decision; A granted to B, the right to display an advertisement on A’s hotel for 7 years. Within the 7 years, the local authority compulsorily acquired and demolished the hotel. The contract was held not to be frustrated. A knew and B did not know that there was a risk of compulsory acquisition. A was held liable in damages.

4) It has been held that the doctrine of frustration does not apply to leases. This is based on the fact that a lease is more than a contract in that it creates an interest in land. Whatever happens, the land will always be there. See the case of London and Northern Estates Co. v. Schlesinger, (1916); it was held that the lease of a flat was not terminated by the fact that the tenant had become an alien enemy and therefore prohibited from residing on the premises. In the case of Redmond v. Dainton, (1920); a building was very seriously damaged by a bomb. The tenant remained liable on his covenant to pay rent and his covenant to repair the property. The question of frustration relating to leases has been contested in the House of Lords and 2 cases illustrate this. In one case, the HL was divided but in the other, a definite decision was taken. In the case of Cricklewood Property and Investment Ltd. v. Leighton’s Investment Trust Ltd., (1945); HL decision; In May of 1936, a building lease was made to the lessees for a term of 99 years. Before any buildings had been erected, the war of 1939 broke out and restrictions imposed by the government made it impossible for the lessees to erect the shops that they had covenanted to erect. In an action brought against them for the recovery of rent, they pleaded that the lease was frustrated. It was held unanimously by the HL that the doctrine of frustration, even if capable of application to a lease, did not apply in the instant case. When the restrictions were imposed, the lease still had 90 years to run and so the interruption was not likely to last for more than a small proportion of the term. The court was divided on the general question of whether frustration could ever apply to a lease. Two said that it could and two said that it could not. The fifth law lord expressed no opinion on the point. However, in the case of National Carriers Limited v. Panalpina, (1981); the HL was unanimously of the view that the doctrine of frustration could apply to a lease. The appellants leased a warehouse from the respondents for a term of 10 years. After 5 years, the local authority closed the street giving the only access to the warehouse. It was envisaged by the local authority that the street would reopen in 2 years time. Its closure prevented the appellant from using the warehouse for the only purpose contemplated by the lessee, namely, as a warehouse. And so, they stopped paying rent. The respondents brought an action against the appellants, claiming payment of 2 installments done under the lease. The appellants contended that they were not liable to pay the rent because the lease was frustrated by the closure of the street giving access to the warehouse. Judgment was given for the respondents on the grounds that the doctrine of frustration could not apply to a lease. The appellants appealed and the HL held that the doctrine of frustration was capable of applying to an executed lease of land so as to bring the lease to an end if a frustrating event occurred during the currency of the term. Such event was where no substantial use permitted by the lease and in the contemplation of the parties, remained possible to the lessee. However, the court held that although the appellants would have lost 2 out of the 10 years use of the warehouse, the closure of access to the warehouse was not sufficiently grave to amount to a frustrating event since there would be a further 3 years of the lease remaining after the access was established. So, by this case, we see that the doctrine of frustration is applicable to leases.

Effects of Frustration

Where a contract is terminated by frustration, the parties are under no liability for obligations which would otherwise have accrued after the frustrating event took place. The contract is terminated at that point in time. It is, however, rendered void by the frustration. Accordingly, at common law, obligations which accrued before the frustrating event are not affected and money paid before the frustrating event can be recovered where there has been a complete failure of consideration. Fibrosa v. Fairbairn, (1943); Fairbairn agreed in July, 1939 to make a machinery for Fibrosa, a Polish company, for 4,800 Pounds of which 1600 Pounds was payable in advance. In fact, Fibrosa paid 1,000 Pounds only. On September 3rd, war was declared and on 22nd September, the place of delivery in Poland was occupied by the Germans; the contract was, therefore, frustrated. Fibrosa, by their London agents, sued to recover back the 1,000 Pounds. They won, with the HL holding that there was a total failure of consideration. However, it is to be noted that payment would only be recovered back where the failure of consideration was total as in the case of Wincup v. Hewes, (1971); the plaintiff apprenticed his son to a watchmaker for six years at a premium of 25 Pounds. After one year, the watchmaker died. The plaintiff failed to recover back any part of the premium since the failure of consideration was total.

Remedies for Breach of Contract

There is a breach of contract where a party fails to perform his contractual obligations or where he repudiates his obligations expressly or by implication. Where a party repudiates his contractual obligation before the time of performance, a right of action will immediately accrue to the other contracting party. Repudiation before performance is due is known as Anticipatory Breach. An anticipatory breach may arise from an expressed or implied repudiation of the contractual obligation. For example, if A has contracted to sell a piece of land to B and he, A, subsequently contracts to sell the same piece of land to C, there is an implied repudiation of A’s obligation to B. But suppose A had said to B, “I shall not convey that piece of land to you according to our agreement”, that would be an expressed repudiation.

Where there is a wrongful repudiation by one party which is not accepted by the other party, the contract survives, and the rights of the innocent party are preserved. There is no duty on the innocent party to vary the terms of the contract and he can accordingly carry out his own obligations under the contract, after the wrongful repudiation, and then sue on the contract for the other party’s breach.

See the case of White and Carter v. McGregor, (1962); the plaintiffs were advertising agents who supplied local authorities with litter bins on which they attached plates carrying advertisements. The defendant engaged the plaintiffs to advertise his garage in this way for three years. Later the same day, the defendant cancelled the order. The plaintiffs refused to accept this repudiation as a discharge of a contract. Although they knew that the defendant did not wish it, they prepared advertisement plates, attached them to the litter bins and displayed them for 3 years. At the end of the 3 years, the plaintiffs sued for the full contract price. The HL, by a 6+majority of 3 to 2, upheld their claim. This case illustrates the principle that a party to a contract, has an election; whether to accept repudiation or not. There are various remedies for breach of contract. The appropriate remedy in any case will depend on the subject matter of the contract as well as the nature of the breach. In certain circumstances, there may be a number of remedies available, either together or in the alternative. In all cases, the plaintiff must indicate the remedies that he desires. He may sue for - A) Unliquidated damages. B) Liquidated damages. C) On a quantum meruit. D) A reasonable price for goods where the price is not determined in accordance with S.8 (1) of the Sale of Goods Act. E) A decree of Specific Performance and D) For an injunction to restrain the breach of contract.

A) Unliquidated Damages - Where the plaintiff claims damages for breach of contract, it is the function of the court to assess the money value of the loss suffered and to award this sum as damages. The object of damages is not to punish the contract breaker, but to give compensation to the injured party. Unliquidated damages may be

1) Substantial Damages - Money compensation intended to put the plaintiff in the position he would have enjoyed, had the contract been performed.

2) Nominal Damages - The sum awarded in a small token, where there has been an infringement of a contractual right, but no actual loss has been suffered.

3) Exemplary Damages - The sum awarded is far greater than the pecuniary loss suffered by the plaintiff. Eg. A trader can recover for loss of reputation caused by the wrongful refusal of his bank, to honor his checks. Similarly an actor can recover for loss of the chance to enhance his reputation, if for example, he is engaged to appear in a play and then not given a part. In assessing the loss suffered by an injured party for which damages should be awarded, the court will consider the following questions –

(a) Was the loss caused by the breach?

(b) Is any part of this loss to remote in terms of possession for the breach to be the proper subject of compensation?

(c) Could the loss have been mitigated in any way by any reasonable act on the part of the injured party?

Under the principle of Remoteness of Damages, it is not just or practicable to award damages for every consequence, however unusual, which may flow from a breach of contract. The dividing line between damage which should be compensated for and damage which is too remote to be compensated for was laid down in the case of Hadley v. Baxendale, (1841); the plaintiffs, mill owners at Gloucester, engaged the defendant carrier to take a broken mill shaft to Greenwich, as a pattern for a new one. The defendant promised to deliver it at Greenwich the next day. Owing to his neglect, the mill shaft was delayed in transit. The plaintiffs claimed damages for loss of profit, arising from the fact that the mill was stopped for longer than it need have been, which in turn arose from the delay in transit. All that the carrier knew was that the article to be carried was a broken shaft of a mill and that the plaintiffs were millers of that mill. The court’s holding was “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such a breach of contract, should, as may fairly and reasonably be considered, either arising naturally i.e. according to the usual course of things from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.” The above statement has been known as The Rule in Harding v. Baxendale. Applying this rule to the facts of that case, the court held that the carrier was not liable for loss of profit. The loss did not arise according to the usual course of things because, in many cases, the absence of a shaft would not cause a stoppage at the mill because, for example, the mill owner might have another shaft in reserve and the special circumstances that the mill could not restart until the shaft came back was not known to the defendant and so could not reasonably be supposed to have been in the contemplation of both parties.

The Duty to Mitigate the Loss – There is a general principle that where a breach has occurred, the injured party must take all reasonable steps to mitigate the loss occasioned by the breach. Therefore, a buyer faced with the seller’s refusal to deliver the goods due on eg. On the 15th of July, must go into the market at once to buy replacement goods. If he waits unreasonably, until the 15th of July, and the market price has risen, he will not receive in damages, the difference between the contract price and the July 15th price, but only the difference between the market price and the 15th of July price. Similarly, a servant wrongfully dismissed, must mitigate his loss, by accepting a reasonable offer of other employment. The onus, of course, lies with the defendant to prove if he can, that the plaintiff has neglected an opportunity to mitigate his loss.

B) Liquidated Damages - Where contracting parties make a genuine pre-assessment of the loss that would flow from any particular breach and stipulate accordingly in their contract, that this sum shall be payable in the event of a breach, the sum payable is called Liquidated Damages. Where the sum inserted in the clause is intended as a punishment on the contract breaker and is not connected with the amount of loss which would be contemplated by the parties at the time of contracting, the sum is then a penalty. Whereas, a liquidated damages clause is binding on the parties, a penalty clause is not. With a liquidated damages clause, in the event of a breach, the sum fixed and no more or no less can be claimed. No action for unliquidated damages is allowed. A penalty clause is void.

C) & D) Quantum Meruit – A party can claim on a quantum meruit where the contract makes no provision for remuneration. Therefore, if a contract for the sale of goods does not fix a price, the buyer must pay a reasonable price. This is an expressed section of the Sale of Goods Act, but it only declares the common law position. A quantum meruit may also arise in other circumstances at common law. For example, where there is an expressed or implied contract to render services but no agreement as to remuneration was reached, a reasonable remuneration is payable. The court decides what is ‘reasonable’. The reasonable remuneration is considered the quantum meruit.

E) Specific Performance – It is an equitable remedy issued by the court to the defendant, requiring him to carry out his undertaking exactly according to the terms of the contract. The remedy is available only where there is no adequate remedy at common law. It is not in all cases that monetary compensation suits the situation. If A contracts to buy a home facing the sea from B, damages could be awarded to A if B fails to sell A the house contracted for, but this will be inadequate because what A really wanted was a house facing the sea. Generally, this means that specific performance is available only where the payment of a sum would not be an adequate remedy. Specific performance is, therefore, an appropriate remedy in cases of a breach of contract in cases for the sale or lease of land or breach of contract for the sale of something not available at the market. Since the decree is granted at the discretion of the court, the court will refuse to grant this remedy in certain circumstances. For example –

1) The court will take into account the conduct of the parties – he who comes to equity must come with clean hands.

2) The action must be brought with reasonable promptness; delay defeats equity.

3) Specific performance may not be granted where it would cause undue hardship on the defendant.

4) Specific performance will not be granted for breach of contract of a personal service. For example, if A grants B with employment and B refuses to go on with service, much as A will be able to get damages, the court cannot impose specific performance on B to work.

5) Specific performance will not be awarded for breach of contract which is not binding on both parties. Therefore, where a contract is voidable at the option of one party, he will not get specific performance against the order. This rule is of particular importance in infants’ voidable contracts.

F) Injunction – An injunction is a decree by the court ordering a person to do or not to do a certain act. In the law of contract, it can be used to restrain a person from committing a breach of contract. It will not be granted if its effect will be to compel the defendant to do something which he could not have been ordered to do by a decree of specific performance. In the case of Page One Records Ltd. v. Britton, (1968); the plaintiffs applied for an injunction to restrain a pop group from engaging as their manager, anyone other than the first plaintiff. The injunction was refused on the grounds that, to grant it would, in effect, compel the pop group to continue to employ the first plaintiff. An injunction, though, may be granted restraining the breach of a negative undertaking in a personal service contract, if its effect is merely to encourage and not to compel the defendant to perform a positive service. In the case of Warner Bros. Pictures Inc. v. Nelson, (1937); a film actress professionally known as Betty Davis, agreed to act for the plaintiff for a fixed period, during which she undertook not to act for any third party, nor to engage in any other occupation without the plaintiff’s written consent. The court granted an injunction restraining her from acting for third parties. This would not compel her to act for the plaintiffs because she could earn a living by doing other work. It is clear from the above case, that a promise which restricts a person’s liberty to carry on his trade or profession, during the contract of service, as distinct from after the termination of the service, is not caught by the doctrine of Restraint of Trade. Consequently, a defendant like Betty Davis, cannot defend by arguing that the restraint is unreasonable.