Contract Law Cases

Smith v Hughes

  • Hughes accidentally bought the wrong type of oats from Smith, who knew of this mistake but didn't correct him
  • No general duty of disclosure of material facts
  • Contract still valid
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Errington v Errington

  • Father promises that once his son paid his mortgage payments, he would give his son and daughter-in-law his house
  • Father died and the executors tried to sell the house off
  • Executors could take the house since there was no binding contract as the son hadn't paid the full mortgage
  • But secondary collateral contract was made since the act of paying had already begun so the offeror was bound to his contract
  • If they continued making the payments, they were entitled to stay
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Hyde v Wrench

  • Offeror offered to pay £1000 for some land
  • Offeree made counter-offer of £950
  • Offeror rejected this, so offeree tried to accept the original offer; they couldn't do so as the counter-offer nullified the original offer
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Felthouse v Bindley

  • "If I hear nothing further, I'll consider the horse mine"
  • Held as a contract cannot be made in this way, acceptance cannot be implied
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Butler Machine Tools v Ex-Cell-O

  • BMT sent an offer to ECO on BMT's standard T&Cs
  • ECO placed an order on ECO's standard T&Cs (different to BMTs); order including tear-off acknowledgement slip
  • BMT returned ECO's acknowledgement ("We accept the offer on ECO's terms") with a letter repeating some of BMT's terms
  • The court found that the buyer’s order was not an acceptance of the initial offer from the seller but a counter-offer which the sellers had accepted by returning the signature section of the buyer’s letter
  • On this basis, the court found that the contract was completed without the price variation clause and therefore the seller could not increase the cost of the tool
  • Formalist approach: contract on ECO’s terms following the ‘mirror image’ rule (ignoring the ‘equivocal’ side letter); the ‘last shot’ wins battle of forms
  •      -   The last party to put forward their terms with no response ‘wins'
  • Alternative (realist) approaches:
  •      -   Compromise: parties are bound by what they both agree and law supplies the rest (e.g. Lord Denning approach in Butler)
  •      -   No contract: rely on other areas of law to enforce payment (e.g. BSC v Cleveland Bridge Engineering)
  •      -   Look at conduct of parties: have parties acted as if the contract is on either A’s terms or B’s terms? (e.g. trial judge approach in Tekdata v Amphenol; overruled by Court of Appeal)
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Baird Textile Holdings v M&S

  • 30-year business relationship between Baird and M&S
  • No long term contract but a series of supply contract every year
  • M&S broke off relationship without warning and eventually Baird went out of business
  • Baird tried to sue M&S but lost, so argued for promissory estoppel
  • Promissory estoppel is a shield, not a sword, so could not be used in this case
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Balfour v Balfour

  • Husband worked overseas and promised to keep sending money to his wife but one day stop sending the payments
  • Wife sought to enforce the agreement
  • Held: the court said the agreement was purely social and domestic so therefore it was implied that the parties didn't intend to be legally bound
  • Husband's promise to pay an allowance to his wife was not legally enforceable, even if other requirements were made
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Glasbrook Bros v Glamorgan CC

  • Appellant promised to pay local police force to protect his mine from the striking miners
  • Refused to pay police after the strike was over as he claimed that it was the police's job to uphold law and order anyway
  • Level of policing was over and above what was expected of their usual duties
  • If promise does 'more' than performing an existing public duty, this may constitute good consideration
  • Therefore judgement held
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Williams v Roffey Bros

  • Roffey (main contractor) entered subcontract with Williams; Roffey realised that Williams would not finish work on time
  • A new agreement was made stating that Williams would be paid more for each completed flat
  • Williams wasn't paid enough so he left the site
  • CoA held that the contract modification was supported by consideration due to practical benefits that Roffey received
  • What were the benefits to Roffey from the arrangement?
  •      -   Avoiding the penalty clause in the main contract
  •      -   Avoiding the inconvenience and delay of finding an alternative carpenter
  •      -   Payment arrangements put on clearer footing
  •      -   No economic duress on part of carpenter
  •      -   Roffey benefitted from complete performance, not damages (which were liable to undercompensate)
  • Significance:
  •      -   New realist approach to consideration and contract modification?
  •      -   Recognition of importance of economic duress to deciding if contract modification is enforceable
  •      -   Unpopular and controversial decision, leaving law in confusion
  • Problems:
  •      -   Decision creates negative incentive effects amongst contractors
  •      -   Reflects commercial reality (realism) but makes law more uncertain (formalism); uncertain law promotes disputes
  •      -   Should contract law reflect contract practice?
  •      -   Decision is inconsistent with the ‘part-payment’ rule
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William Sindall v Cambs CC

  • Sale worth £5 million to Council
  • Cost to redirect sewer was £18,000 (loss by misrepresentation)
  • Sindall wanted to rescind because value of land had fallen to £2 million
  • Contract upheld
  • Court has a broad discretion to do what is equitable
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Shogun Finance v Hudson

  • Car dealer supplied car to fraudster on credit procures with stolen documents from 'Mr Patel'
  • F then sold car to Hudson (innocent third party)
  • Did finance company (claimant) contract 'face to face' with F on basis of documents with 'Mr Patel' (who did not consent to finance contract)?
  • House of Lords: The contract was in writing and the finance company intended to contract with 'Mr Patel', therefore 'contract' for credit was void
  • Mistake as to identity of the other party, so contract void from start
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Bell v Lever Bros

  • Lord Atkin stated that 3 categories of mistake were recognised:
  •      -   1. Mistaken identity
  •      -   2. Mistake as to the existence of the subject matter of the contract
  •      -   3. Mistake as to the quality of the subject matter
  • Mistake had to be of both parties
  • Had to be 'as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be"
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Great Peace Shipping v Tsavliris Salvage

  • "The following elements must be present if common mistake is to avoid a contract:
  •      -   (i) There must be a common assumption as to the existence of a state of affairs;
  •      -   (ii) There must be no warranty by either party that that state of affairs exists;
  •      -   (iii) The non-existence of the state of affairs must not attribute to the fault of either party;
  •      -   (iv) The non-existence of the state of affairs must render performance of the contract impossible;
  •      -   (v) The state of affair may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contract adventure is to be possible" (Lord Phillips)
  • Leaves doctrine of mistake to operate within very narrow confines
  • Mistake only deals with misapprehensions at the time the contract was concluded, but not with subsequent events (frustration of contract) 
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CTN Cash and Carry v Gallaher

  • Threat to exercise legitimate contractual rights (e.g. right to terminate agreement) is usually no significant
  • Gallaher issued lawful threat to withdraw credit facilities from CTN unless they paid for stolen consignment of goods
  • Demand for payment was mistaken but not made in bad faith
  • Possibility of lawful act duress not ruled out, but no duress on the facts, despite the real pressure exerted
  • Successful plea of lawful act duress likely to be unusual in commercial contract
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The Atlantic Baron

  • Shipbuilding contract: shipbuilder (D) demanded extra 10% on ship price when contract currency devalued by 10%
  • No legal justification for the demand of extra pay; claimant needed ship on time to honour a future contract with Shell
  • Recognised 'economic duress' and that money paid to D as a result could be recovered by claimant
  • But claimant delayed too long in seeking relief, therefore contract was 'affirmed'
  • NB: judge held that the modification was supported by consideration
  • Agreed to increase the price in June 1973
  • Court held that they were free of the duress by November 1974
  • Only sought to reclaim the money in July 1975
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Tam Tak Chuen

  • Lawful act duress may arise where:
  •      -   The threat is an abuse of the legal process
  •      -   The demand is not made bona fide
  •      -   The demand is unreasonable
  •      -   The threat is considered unconscionable in the light of all the circumstances
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Bank of Credit and Commerce International v Aboody

  • Class 1: Actual Undue Influence
  • Class 2: Presumed Undie Influence
  •      -   Class 2A: Certain relationships are recognised by law
  •      -   Class 2B: Other relationships giving rise to trust and confidence
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Lloyds Bank v Bundy

  • Relationship of influence between bank manager and client
  • Bundy's single asset is his farm
  • Son ran his own business
  • Bot father and son were customers of Lloyds bank
  • Son needed loan from bank but had no assets of his won for security
  • Father's farm was used for the son's loan
  • Latest loan was extensive; new bank manager visited father at far and brought him all the completed paperwork for him to sign
  • Son and daughter-in-law were also present at the farm
  • Father signs agreement without bank explaining the extent of the security that was being offered; if son's business failed, he would lose the farm
  • Court said this was a case of undue influence as the father was pressured to sign paperwork
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Royal Bank of Scotland v Etridge

  • Set out the current test for presumed undue influence
  • Transaction must be one which "calls for an explanation" or which is "not readily explicable by the relationship between the parties"
  • Relationship of trust and confidence + transaction which calls for explanation = rebuttable presumption of undue influence
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Couchman v Hill

  • Livestock sale of cattle at auctioneers
  • Auctioneer made statements about the health of the cattle
  • T&Cs took away liability of sellers
  • Court of Appeal held that contract was both written and oral, so auctioneer's description of the animals was part of the contract
  • Avoids parol evidence rule
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L'Estrange v Graucob

  • Facts:
  •      -   L'Estrange owned cafe in same town as restaurant
  •      -   She was approached by Graucob for the purpose of seller her a cigarette vending machine
  •      -   She buys machine for 850 shillings followed by 18 monthly instalments
  •      -   Exemption clause in small print of contract: "Any express or implied conditions, statements or warranties, statutory or otherwise, not stated herein, are hereby excluded"
  • Rule:
  •      -   When a document containing contractual terms is signed, the, in the absence of fraud, or... misrepresentation, the party signing is bound, and it is wholly immaterial whether he has read the document or not."
  • Judgement:
  •      -   Held: her signature was legally binding
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African Export-Import Bank v Shebah

  • Issue over whether or not the contract was in standard form
  • Includes various remedies in the contract which had been excluded
  • Right of set-off was excluded, therefore subject to a test of reasonableness
  • Consumers are entitled to a refund (money back)
  • Where is the line drawn between a standard form contract and a negotiated contract?
  •      -   Not essential for every term to be standard form
  •      -   Requirement that these terms are habitually used by one of the parties
  •      -   Possible to include negotiated terms into the written contract; if so, the contract remains a standard terms contract
  •      -   It "should be intended [the terms] to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation"
  •      -   Standard terms should be the starting point for negotiation 
  •      -   The standard terms were effectively untouched without material variation and therefore the terms were standard terms of business and s3 of the UCTA could be applied
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Chesterhall v Finney Lock Seeds

  • Farmer got seeds for crop from supplier
  • Suppliers sent seeds of wrong variety, so they didn't grow
  • Farmer sued supplier £250,000 for loss of profits
  • Suppleirs relied on standard form contract so argued that they would only pay £1000
  • Contract was entered into without any real negotiation
  • Loss of crops and profits was caused by negligence of suppliers
  • Sellers were in better position to ensure than the farmer, but they didn't
  • Sellers had previously had a few claims against them; on many occasions they had settled, so liability clause of only £1000 was unreasonable
  • House of Lords held that the limitation of liability was unreasonable and not binding
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The Moorcock

  • Established business efficacy test
  • Would the contract work (even if not terribly fairly) without the term?
  • Assume parties' intention was to make a working contract
  • If the contract makes business sense without the term, the court will not imply the term
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M&S v BNP Paribas

  • Lease between parties; rent payable in advance
  • M&S terminated early (perfectly legal)
  • Issue: 
  •      -   M&S sought refund of rent paid in advance but BNP refused since there was no express term in the contract
  •      -   M&S argued a term should be implied entitling them to a refund (fair and reasonable)
  • Rule:
  •      -   A term will not be implied in fact because it is fair and reasonable but only because it is strictly necessary to make the contract workable
  •      -   Officious bystander test: Would both parties have agreed to this term?
  • Application:
  •      -    Lease was detailed and contained other express terms - suggested deliberate omission
  • Conclusion:
  •      -   No term implied; no refund
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Arnold v Britton

  • 99-year leases for holiday chalets beginning in 1970s (rent + service charge)
  • How much was the service charge?
  • Landlord:
  •      -   £90 in year 1, and then always increasing by 10%
  •      -   By end of 99-year lease, service charge be over £1 million
  •      -   At time of litigation it was over £2500 per annum (literal interpretation)
  • Tenant:
  •      -   "Proportionate part of charges" was subject to a cap of £90 in year 1, £99 in year 2, £108.90 in year 3, etc. (purposive interpretation, which made commercial common sense)
  • In general, courts will stick to clear language of the contract
  • The language will be interpreted in the light of the facts and circumstances known to both sides at the time the contract was made
  • Court is more likely to adopt a non-literal interpretation if the contract is badly drafted
  • Court will not release a party from a regretted 'bad bargain'
  • Considerations of commercial common sense should not undermine the language of the contract
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Rainy Sky v Kookmin Bank

  • Rainy Sky: Shipowners buying a $33 million ship from a shipbuilding company, paying in instalments as construction progressed
  • Kookmin: Bank providing a refund guarantee in a bond, committing to refund the buyer if the ship was not built; shipbuilding contract said the right to refund would be triggered if shipbuilder became insolent
  • Shipbuilder became insolent
  • The court was asked as to the role of commercial common sense in the construction of a term in a contract which was open to alternative interpretations
  • Appeal held: Where there are ambiguities in drafting which produce a commercially absurd result, the court can prefer the construction consistent with commercial common sense
  • Rejected in Arnold v Britton
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Chartbrook v Persimmon

  • Chartbrook were landowners
  • Persimmon were property developers
  • Under the contract, Persimmon would sell the developed units and receive the proceeds but play Chartbrook an overage for each property sold based on an agreed formula
  • "23.4% of the price achieved for each Residential Unit in excess of the Minimum Guaranteed Residential Unit Value less the Costs and Incentives."
  • This amount would be paid by Persimmon to Chartbrook
  • Chartbrook calculated this to be around £4.5 million
  • Persimmon calculated this to be around £900,000
  • Court held that Persimmon's interpretation was correct
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Dunlop v Selfridge

  • Dunlop:
  •      -   Sale of tyres manufacturer to wholesaler
  •      -   Dealer would require retailers not to sell below a certain price
  • Selfridge (promisee):
  •      -   Resale of tyres wholesaler to retailer
  •      -   Selfridge breached the minimum price undertaking
  • The court held that Dunlop could not claim for damages as the contract was only between Selfridge and the dealer
  • "only a person who is a party to the contract can sue on it. [A right of action] can be conferred by way of property... but it cannot be conferred on a stranger to the contract"
  • Note: This is not a rule against multi-party contracts
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Beswick v Beswick

  • Peter (uncle) was in poor health and agreed to give his nephew (John) his business on the basis that the nephew employed him for the rest of his life and paid him for this
  • John also agreed to pay Peter's wife (Ruth) after Peter's death, but Ruth was not party to the agreement
  • After Peter died, John paid Ruth once but not again
  • Ruth brought an action against John claiming specific performance
  • The court granted her an order for specific performance for the payment owed by John as an administrator for Peter's estate
  • However, the court also found that Ruth could not claim under her personal capacity as she was only a third party to the contract and not party to the original agreement
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The Eurymedon

  • A: Owner of the goods
  • B: Carrier of the goods
  • C: Negligence Stevedore (person employed at dock to load/unload goods from ship)
  • Exclusion clause said B was to be regarded as C's agent and pass benefit of exclusion clause to them
  • Clause created unilateral contract between B and C, formed when C begins to unload
  • Clause must be for C's protection
  • Therefore C could be sued even though they were a third party to the contract
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Foakes v Beer

  • Facts:
  •      -   Beer loaned appellant Foakes £2090
  •      -   Foakes was unable to repay the loan
  •      -   Beer agreed not to take any action against him if he would sign an agreement promising to pay an initial sum of £500, followed by £150 twice yearly until the whole amount was paid back
  •      -   Foakes paid back the principle but not the interest so Beer sued him for the interest
  • Issue:
  •      -   Whether Beer was entitled to this interest, despite their agreement that Foakes didn't need to pay it
  • Judgement:
  •      -   House of Lords held that Beer's promise to not enforce the judgement was not binding as Foakes had not provided any consideration
  • Approved in Pinnell's case
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CLPT v High Trees House

  • If Representor Landlord:
  •      -   Makes a clear and unambiguous representation
  •      -   By words or conduct
  •      -   Regarding the past, present or future (e.g. that he will not enforce his strict rights under the contract agreed to accept £1250 per annum for the duration of the War)
  • And Representee Tenant:
  •      -   Relies on the statement by remaining in London and not spending his money in other ways 
  •      -   Behaves equitably (e.g. does not coerce representor into making the statement
  • Then:
  •      -   Representor is estopped from acting inconsistently with the representation
  •      -   Lord Denning: Promissory estoppel was not confined to promises to give debtors more time unless/until he gives reasonable notice of his wish to reassert his strict legal rights
  •      -   Lord Denning: They could recover full rent from the end of the war, but their rights to back-rent were extinguished
  • Note: Promise was limited to duration of War
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D&C Builders v Rees

  • If Representor (D&C Builders):
  •      -   Makes a clear and unambiguous representation
  •      -   By words or conduct
  •      -   Regarding the past, present or future (e.g. that he will not enforce his strict rights under the contract
  • And Representor (Rees):
  •      -   Relies on the statement (need not be to his detriment)
  •      -   Behaves equitably (e.g. does not coerce representor into making the statement [clean hands]; Rees knew they were at risk of bankruptcy and insisted on the reduction, which D&C eventually reluctantly agreed to)
  • Then:
  •      -   Representor is estopped from acting inconsistently with the representation
  •      -   Court held that agreement was invalid as there was no consideration in favour of D&C for reducing the amount owed by Rees
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Schuler v Wickman Machine Tool Sales

  • The contract granted Wickman sole selling rights for a particular kind of machinery manufactured by Schuler
  • The contract contained the following clause: "It shall be a condition of this agreement" that Wickman should send his representative to visit the six largest UK motor manufacturers at least once each week
  • Wickman failed to make the required visits
  • House of Lords held that Schuler was not entitled to terminate the contract
  • Looking at the contract as a whole, there was some ambiguity about whether or not the parties truly intended that any breach should entitle Schuler to terminating the contract  
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Bettini v Gye AND Poussard v Spiers

  • In both cases, the claimant was a singer who was unable to be present on the day in which the singer's presence was first required
  • In both cases, the defendants purported to terminate the contract

Bettini v Gye:

  • It was held that D could not terminate the contract 

Poussard v Spiers:

  • It was held that D could terminate the contract
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Arcos v Ronaasen

  • Buyers entered into contract used to purchase timber to be used in making cement barrels
  • Timber was described as being 1/2 inch thick
  • In breach of contract, the sellers delivered timber which was 9/16 inch thick
  • House of Lords held that the purchasers were entitled to reject the timber for breach of a condition, even though it was still perfectly suitable for making cement barrels
  • The decision was based on s13 of the Sales of Goods Act, which provides that where there is a contract for the sake of goods by description, there is an implied term that the goods will correspond with the description (1) and that the term is a condition (1A)
  • This is true even though the purchaser's actions were really only motivated by a desire to take advantage of a falling market and therefore acted in bad faith (i.e. the reason which they gave for exercising the right to terminate was not the 'real reason')
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Hong Kong Fir Shipping v KKK

  • The contract was a charter of a ship, the Hong Kong Fir, for a period of 24 months
  • The term in issue was the shipowner's promise that the ship was seaworthy
  • The ship was actually not seaworthy due to the defective state of the ship's engines and the inefficiency of the engine room staff
  • This resulted in 5 week's delay and a further 15 weeks to do repairs
  • It was held that the breach did not deprive the chartered of 'substantially the whole benefit' of the contract
  • They were therefore not entitled to terminate the charter
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The Hansa Nord

  • Similar case to Arcos v Ronaasen
  • Buyers of citrus pulp purported to reject the cargo on the ground that the shipment was not made in 'good condition'
  • The price for the cargo was £100,000
  • The buyers, acting through an agent, managed to repurchase it for £30,000
  • Court of Appeal applied Hong Kong Fir and concluded that the term which has been broken was an innominate term
  • The consequences of the breach were not sufficiently serious to give rise to a right to terminate 
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Bunge Corporation v Tradax Export

  • A contract for the sale of goods required the buyers to give the seller at least 15 consecutive days' notice of probable readiness of the vessel to be loaded
  • The buyers only gave 13 days' notice
  • The seller terminated the contract
  • House of Lords held that he was entitled to do so
  • The term was a condition and it was not necessary to consider what the effect of the particular breach might be
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White and Carter v McGregor

  • Claimants supplied local authorities with litter bins
  • They let advertising space on these litter bins
  • Defendants contracted to pay for the display of adverts, advertising their garage business for a period of 3 years
  • Later the same day, defendants  repudiated the contract, which had been concluded by their sales manager contrary to the wishes of the proprietor
  • Claimants refused to accept repudiation and displayed the adverts anyway
  • Defendants then brought an action for the contract price
  • House of Lords held that the claimants were entitled to recover the contract price
  • However, Lord Reid emphasised that a claim for the contract price was subject to qualifications:
  •      -   1. The innocent party cannot compel the party in breach to co-operate with her; where the innocent party cannot continue with performance without the co-operation of the party in breach, she will be compelled to accept the breach
  •      -   2. If it can be shown that a person has no legitimate interest in performing the contract rather than claiming damages, he ought not to be allowed to saddle the other party with an additional burden with no benefit to himself
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The Alaskan Trader

  • Owners of a ship time-chartered it to the charterers for a period of 2 years
  • After around 1 year the ship had an engine breakdown which needed repair
  • The charterers indicated that they had no further use for the ship
  • Nevertheless, the owners went ahead with the repairs which took some months
  • From April 1981 until the date of expiry in December 1981 they kept the ship at the charterer's disposal
  • The arbitrator held that the claimants had acted wholly unreasonable in refusing to accept the breach, which was upheld on appeal to Lloyd J
  • The liability of the defendants was in damages and not for the contract hire
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The Aquafaith

  • The vessel Aquafaith was chartered for a duration of 59 to 61 months
  • The charter included an express term by which the charterers promised not to redeliver the ship before the minimum period of 59 months had elapsed
  • The charterers said they would return the vessel after their voyage, which would be 94 days before the minimum period ran out
  • The owners did not accept the repudiation 
  • The owners commenced arbitration, seeking a declaration that they were entitled to refuse the premature redelivery of the vessel and that the charterers were liable for hire for the balance of the minimum period
  • The arbitrator concluded that the owners were not entitled to affirm the charter because they had no legitimate interest in holding the charterers to the charter
  • Cook J allowed the appeal against the arbitrator's decision, holding that the shipowner was entitled to affirm and claim the hire for the balance of the minimum period
  • The arbitrator had applied the wrong test when considering whether the shipowner had a legitimate interest in maintaining the charter
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Taylor v Caldwell

  • The claimants hired the Surrey Gardens and Music Hall from the defendants for the purposes of putting on a series of concerts
  • The Music Hall was destroyed in an accidental fire a few days before the first concert
  • The claimants sought damages for breach of contract to recover their advertising expenditure
  • Queen's Bench held that the defendants were not liable to pay damages
  • Both parties were excused because of impossibility to perform the contract
  • Defendants were therefore not in breach of contract
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Jackson v Union Marine Insurance

  • In November 1871, the claimant owner of a ship entered into a charterparty with a third-party charterer
  • The ship was required to process with 'all possible dispatch' from Liverpool to Newport, and there to load a cargo for carriage to San Francisco
  • The ship sailed on 2nd January 1872 but ran aground on her way to Newport
  • The ship was not fully repaired until the end of August 1872
  • On 15th February 1872, charterers had given up on the charter and chartered another ship
  • Claimant shipowner brought an action against its insurer (the defendant) for loss of freight
  • Claimant was entitled to recover under the insurance if the freight was lost by 'peril of the sea' but weren't entitled if it was lost for breach of contract
  • Court of Exchequer Chamber held that the freight had been lost by the peril of the sea and was therefore recovered under the insurance
  • There was no breach of contract, but the charterer had been excused by the non-availability of the ship which had made the intended early year shipment to San Francisco impossible
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Krell v Henry

  • The event was to be the coronation procession of King Edward VII
  • Defendant saw an announcement in the windows of the claimant's flat, saying that the claimant was willing to hire out his flat on the days of the coronation procession, namely the 26th and 27th of June
  • Defendant hired the flat for the two days (but not the nights)
  • Early in the morning of 24th of June, the procession was cancelled due to the King's illness
  • Defendant refused to pay the remaining balance of £50 and the claimant brought an action to recover it
  • Court of Appeal held that the principle of Taylor v Caldwell applied so the £50 did not have to be paid
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Tsakiroglou v Noblée Thorl

  • Seller in Port Sudan had agreed to ship goods (peanuts) to various European ports for a fixed price
  • The sellers had expected to be able to send the goods through the Suez Canal
  • However, because the Suez Canal was closed, the sellers had to send the goods around the Cape of Good Hope
  • House of Lords held that the contract was still capable of performance; the goods were not so perishable that they would not survive the journey around the Cape of Good Hope
  • The bargain had turned out to be a very bad one for the sellers, but this did not cause the contract to be frustrated
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The Super Servant Two

  • The defendants contracted to carry the claimants' rig from Japan to Rotterdam on either the Super Servant One or the Super Servant Two
  • The defendants intended to use Two, but that vessel sank before their contract with the claimants could be performed
  • However, by that time the defendants had already entered into other contracts and needed to use One to perform those contracts
  • The defendants, therefore, argued that their contract with the claimants was frustrated
  • This argument was rejected by the Court of Appeal
  • The defendant's inability to perform their contract with the claimants was the consequence of their own choice to perform the other contracts
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BP Exploration v Hunt

  • Defendant Hunt was the owner of an oil concession in Libya
  • He concluded a contract with BP under which BP would explore the concession for oil in return for a large share in profits
  • Pursuant to this agreement, BP paid about $200 million towards the development of the oil field
  • The exploration of the oil field was successful, oil was extracted from it, and the profits were divided between BP and Hunt, as stipulated in the contract
  • But then the Libyan government expropriated Hunt's concession, meaning that the contract was frustrated
  • Goff J had to decide how s1(3) of the Law Reform (Frustrated Contracts) Act should operate:
  •      -   He worked out the benefit received by Hunt (i.e. the end product of BP's services which was the enhancement in value of Hunt's concession)
  •      -   He then took account of the effect of the frustrating event
  • Therefore BP could recover around $35 million
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Ruxley Electronics v Forsyth

  • Claimants agreed to build a swimming pool for the defendant in his garden
  • It was agreed that the depth at the deep end of the pool would be 7'6"
  • When built, the pool was only 6'9"
  • The pool was still suitable for swimming and safe for diving
  • No difference in market value between the intended and the actual pool
  • To increase the depth of the pool to 7'9" would have cost £21,560
  • The defendant had no intention of rebuilding the pool
  • Court of Appeal allowed the appeal and awarded defendant £21,500 in damages
  • House of Lords overturned this decision
  • It was held that the defendant was not entitled to the cost of cure and restored the trial judge's award of £2500 (as loss of amenity was worth £2500)
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Chaplin v Hicks

  • The defendant was a theatre manager who organised a newspaper beauty competition
  • The prizes were 'theatrical engagements' for the 12 winners
  • At the first stage of the competition, 50 of the women were to be chosen by the readers of the newspaper on the basis of their printed photo
  • 6000 women entered the contest and the claimant was one of the final 50 to be interviewed
  • However, because of the defendant's breach of contract, she was not informed of the interview in time and was deprived of the opportunity to take part in the final selection process
  • The claimant sought damages for the loss of the chance of winning the competition
  • Court of Appeal awarded her £100 in damages for the loss of the chance to win
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Farley v Skinner

  • The claimant was considering buying a house 15 miles from Gatwick Airport
  • He engaged the defendant to survey the property and specifically asked him to investigate whether the property was affected by aircraft noise
  • After buying the property and moving in, the claimant discovered that many aircraft passed directly over the property
  • The resulting noise substantially affected the property and was "a confounded nuisance"
  • No financial loss 
  • Sought mental distress damages for the defendant's breach of contract because his enjoyment of the property was detrimentally affected
  • House of Lords restored the first instance judge's award of £10,000 for his mental distress
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The Mamola Challenger

  • Charterers, under a long-term charter-party, repudiated their contract even though the contract was a good one for them, with the charter rate being below the market rate
  • The owners accepted that repudiatory breach and thereby became able to trade the ship at the higher market rate
  • The owners nevertheless claimed substantial damages based on the expenses they had incurred in preparation of the original charterparty
  • The argument of reliance damages was rejected by Teare J and the appeal of the charterers was allowed
  • It was held that the reliance damages are not based on a separate principle from the protection of the expectation interest
  • The expectation interest is the only compensatory principle to be applied so that, as the owners' loss assessed according the expectation interest had been fully mitigated, there was no other loss to be compensated
  • The recovery of wasted expenditure is merely an indirect method, supported by a reverse burden of proof, of protecting the expectation interest
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The Golden Victory

  • This case concerned a 7-year charterparty made in December 1998
  • In 2001, the defendant charterers wrongfully repudiated the charterparty
  • In March 2003, the 2nd Gulf War broke out which, under a war clause in the charterparty, would have entitled the charterers to cancel the contract in any event and it was assumed that they would have done so
  • The claimant shipowners argued that they should be able to recover damages for the remaining 4 years of the charter
  • The defendant charterers argued that this would overcompensate the claimants
  • The question was therefore whether the shipowners' damages should be assessed as:
  •      -   The date of the breach, on the basis of the value of a 4-year remaining charterparty (ignoring the outbreak of the war); or
  •      -   The date of the trial, on the basis of a 15-month remaining charterparty (taking into account the outbreak of the war)
  • Court of Appeal decided that it was the second option that is an assessment as at the date of trial, which was upheld by the Court of Appeal
54 of 63

Hadley v Baxendale

  • Claimant's mill was brought to a standstill by a broken crank-shaft
  • Defendant's carriers agreed to carry the shaft to Greenwich to that it could be used as a pattern for the engineers to make a new crank-shaft
  • In breach of contract, the defendants delayed in delivering the crank-shaft
  • This resulted in the mill being unable to operate for 5 days longer than expected
  • Claimants sought to recover £300 for loss of profit during those 5 days
  • Court of Exchequer laid down a two-rule test of remoteness:
  • Loss is recoverable if:
  •      -   It 'arises naturally' from the breach of contract
  •      -   It may be reasonably be supposed to have been in the contemplation of the parties, at the time they made the contract, as the probable result of the breach of contract
  • Held that the loss of profit was too remote and therefore irrecoverable
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Victoria Laundry v Newman Industries

  • The claimants, launderers and dyers, decided to expand their business and contracted to buy a larger boiler from the defendants
  • The defendants knew that the claimants wanted a boiler for immediate use
  • In breach of contract, the defendants delivered the boiler 5 months late
  • The claimants sued for damages under 2 heads for their loss of profit:
  •      -   1. For 'ordinary loss of profit', they claimed £16 a week for the new customers they could have taken on
  •      -   2. For 'exceptional loss of profit', they claimed £262 a week for a highly lucrative contract with the Ministry of Supply that they would have taken on
  • Court of Appeal held that the defendants were liable for the ordinary loss of profits, not for the exceptional loss of profits on the highly lucrative contract with the Ministry of Supply
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The Achilleas

  • Under a time charter, the defendant charterers should have redelivered the ship to the claimant owners by 2nd May 2004
  • In breach of contract, they did not redeliver until 11th May
  • Claimant owners had entered into a follow-on charter under which they were bound to deliver the new ship to the new charterers by 8th May
  • When they were unable to do so as a result of the defendant's breach, the owners needed to renegotiate the follow-on charter
  • Due to fallen market rates, the owners agreed to reduce the daily rate of hire from $39,500 to $31,500
  • Defendants accepted they were liable for damages of the difference between the market rate and the charter rate for the 9-day overrun period; this amounted to around $158,000
  • However, the owners sought damages to cover the loss of $8,000 a day for the whole period of the follow-on charter; this amounted to around $1.4 million
  • House of Lord held that the owner's damages were limited to $158,000; the rest of the loss was too remote
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AG v Blake

  • In breach of the Official Secrets Act, Blake gave away information to the Soviet Union
  • In 1989 he entered into a contract with a publisher to publish his book, which included a description of his activities in the secret service
  • The publisher was to pay him £150,000 in royalties 
  • The Crown wished to prevent Blake from publishing his book
  • Regarding private law, it was claimed that in publishing the book without the Crown's consent, Blake had committed a breach of his contractual undertaking to the Crown, signed when he joined the secret service, that he would not publish, during or after his employment, any official information gained from his employment
  • The question therefore arose as to whether restitutionary damages could be awarded for this breach of contract
  • House of Lords held that, while the normal remedy for breach of contract is damages compensating for loss, an account of profits aimed at a disgorgement of the gains made from the breach of contract can, and here should be, awarded
  • Crown therefore entitled to an account of profits and to be paid a sum equal to that owed by the publisher to Blake
58 of 63

Makdessi

  • Concerned a commercial contract wherein the defendant (Makdessi) agreed to sell the claimant a majority interest in the advertising and marketing company which he had founded
  • After the sale, the defendant agreed not to compete with his old business and that, if he did, he would not be entitled to any further payments and that the claimant would acquire an option to buy his remaining shares at a price which disregarded goodwill
  • The defendant broke that non-competition provision
  • The claimant sought a declaration that the defendant was therefore not entitled to any further payments and was obliged to sell his shares to the claimant
  • Court of Appeal decided that the two clauses were non-enforceable as penalty clauses; they did not provide a genuine pre-estimate of loss but were designed to deter breach
  • Supreme Court overturned the decision of the Court of Appeal and held that the clauses were not penalties
59 of 63

ParkingEye

  • Concerned a consumer contract
  • The claimant, ParkingEye, ran a car park at a retail park
  • The defendant parked his car at this car park
  • Notices at the entrance and around the car park prominently said that there was a "2-hour max. stay" and that parking was free during that 2-hour period, but staying longer than 2 hours would lead to a "parking charge" of £85
  • The defendant stayed for nearly 3 hours and was charged £85 by the claimant
  • The defendant refused to pay, and the claimant brought proceedings to recover the £85
  • The defendant argued that he should not have to pay because the charge was a penalty
  • This argument failed and both the Court of Appeal and the Supreme Court dismissed the defendant's appeal
  • The charge was not a penalty and was therefore enforceable
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Price v Strange

  • The defendant was the head-lessee of some flats in a house
  • She agreed to grant the claimant a new underlease of his flat in return for the claimant's promise to carry out certain repairs to the house
  • The claimant did half the repairs, but the defendant refused to allow him to complete them
  • Instead, she had them done on her own expense and then refused to grant the underlease to the claimant
  • The claimant brought an action for specific performance of the promise to grant him the underlease
  • Court of Appeal held that mutuality was not a bar to specific performance in this case
  • Buckley LJ established the following test:
  •      -   "The court will not compel a defendant to perform his obligations specifically if it cannot at the same time ensure that any unperformed obligations of the plaintiff will be specifically performed"
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LauritzenCool v Lady Navigation

  • In 1998 the defendant owners chartered two ships to the claimant charterer under a time charter that was due to run until 2010
  • Following a dispute, the owners informed the charterers that they intended to pull out of the charterparty in respect of the two ships
  • On application of the charterers, Cooke J granted an injunction that the defendants would not employ the two ships in a manner inconsistent with the time charters, and would not fix the ships with any third party for employment until the expiry of the charters in 2010
  • Defendant owners appealed against this decision
  • Appeal dismissed; Court of Appeal held that there is no firm rule that an injunction cannot be granted where there is a contract of services, even if the practical effect of this would be that the defendants would continue to perform the charter
  • Injunctive relief remained a matter for the court's discretion
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Warner Bros Pictures v Nelson

  • Defendant Davis agreed that she would render her exclusive services as an actress to the claimant fil producers
  • This was a contract for one year, renewable annually at the claimants' option for a further 7 years
  • The contract also contained a negative stipulation that Davis would not, without the claimants' written consent, render any similar services to any other person
  • During the 2nd year of the agreement, Davis (in breach of this stipulation) entered into an agreement to appear for another film company
  • Claimant film producers sought an injunction to restrain Daivs from appearing for any other film company during the currency of the contract
  • This was granted (albeit limited to 3 years) on the ground that it did not constitute indirect specific performance of the obligation to perform as an actress for the claimants
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