Contract 2

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Contract 2
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  1. Paradine v Jane
    General rule on contractual obligations re frustration

    Contractual obligations are absolute. A party must perform his contractual obligations. If he does not, he will generally be in breach of contract.
  2. Taylor v Caldwell
    Events that may cause frustration; unavailability of a specific thing vital to the contract

    In this case the claimants hired a music hall from the defendants for a few days for the purpose of giving a series of concerts. Before the date of the fi rst concert, the music hall was destroyed by fi re and the concerts could not take place. Neither party to the contract was at fault. The contract was discharged by frustration.

    Blackburn J justified the decision by saying that the existence of the music hall was essential for the fulfilment of the contract. He thought that there was an implied condition in the contract that the parties would be excused if performance became impossible because, without the fault of the parties, the music hall perished.
  3. Condor v Barron Knights
    Events that may cause frustration; unavailability of a specific person vital to the contract

    • Adrummer with a pop group was taken ill and was capable of working for only three or four nights a week whereas the group had engagements for seven nights a week. The contract was frustrated as the drummer was not capable of performing the contract in the way intended.
  4. Morgan v Manser
    Events that may cause frustration; unavailability of a specific person vital to the contract

    A music-hall artist, 'Cheerful Charlie Chester’, was called up for military service so the contract could not be performed as intended.
  5. Krell v Henry
    Events that may cause frustration; non-occurrence of a fundamental event

    The rooms were hired for the purposes of seeing the Royal procession. Vaughan Williams LJ thought the coronation procession and the relative position of the rooms was regarded by both parties as the basis of the contract.

    If someone hires a cab to go to Epsom for the Derby, Vaughan Williams LJ did not think that the happening of the race was the foundation of the contract with the cab man. The cab had no special qualifications which led to the selection of that cab for this particular occasion. Any other cab would have done as well. By contrast, in Krell v Henry the rooms did have a special qualification which led to their selection. They gave a good view of the route of the procession.

    Neither party in Krell v Henry was in breach of contract because the contract was frustrated. The postponement of the coronation procession frustrated the contract because the foundation of the contract was not just to hire rooms but to hire rooms in order to view the procession and this was not possible.
  6. Herne Bay Steamboat v Hutton
    Events that may cause frustration; non-occurrence of a fundamental event

    The purpose was to see the royal review and to cruise round the fleet for a day.

    The contract was not frustrated by the cancellation of the royal review because the happening of the royal review was not the foundation of the contract.

    One view is that Krell v Henry can be distinguished from Herne Bay Steamboat Co v Hutton on the basis that in Krell v Henry the cancellation of the procession meant that the foundation or basis of the contract could not be accomplished. The purpose was not just to hire rooms but to hire rooms in order to see the procession. (This was apparent from the terms of the contract. The room was hired out by the day; the night was not included in the hire.) By contrast, in Herne Bay Steamboat Co v Hutton, the defendant’s motive in entering into the contract may well have been to see the review, but this was not the foundation of the contract. In addition, Stirling LJ emphasised that a cruise round the fleet was still possible.  

    Also, Hutton was engaged in a business venture, Henry was not, and this may explain the different attitudes of the court.
  7. Metrpolitan Water Board v Dick Kerr
    Events that may cause frustration; government intervention & delay

    The government ordered Dick Kerr to stop work so that the men and equipment could be used in the war effort. The government order could last as long as the war lasted and no one knew how long this would be. Dick Kerr claimed that the government order brought the contract to an end.

    Lord Finlay LC thought that the contract was frustrated because it was not a short and temporary stoppage. The whole character of the contract could be revolutionised by indefinite delay.

    The contract, if resumed, would be radically different from the contract the parties had originally made.

    Delay

    Also there was a clause in the contract dealing with the possibility of an extension of time in the case of delay. However, the court decided that it was meant to cover temporary delays and not an interruption of such character and duration that it fundamentally changed the conditions of the contract.

    The delay was such that the contract, if resumed, would be radically different from the contract the parties had originally made.
  8. Tsakiroglou
    Events that may cause frustration; delay

    the sellers agreed to ship groundnuts from Port Sudan to Hamburg. At the time of the contract, the parties assumed that the shipment would be via the Suez Canal, although the route was not specified in the contract. The closure of the Canal meant that the goods had to be shipped via the Cape of Good Hope. The sellers claimed that the contract was frustrated.

    The House of Lords found that the contract was not frustrated. The contract had become more difficult and expensive for the sellers, but the contract could still be performed (as no route had been specified) and had not become radically different.
  9. Davis Contractors v Fareham UDC
    Events that may cause frustration; delay

    Davis Contractors agreed to build 78 houses within a period of eight months for Fareham UDC. Davis Contractors experienced a number of diffi culties, mainly caused by shortages of labour and materials. The contract took over 22 months to complete. Davis Contractors argued that the contract had been frustrated and that they should be entitled to be paid a reasonable sum for work done after the frustrating event. (If the contract was frustrated then the contractors would not be liable for breach of contract for taking longer than specified to fi nish the houses.)

    The House of Lords held that the contract was not frustrated.

    Lord Radcliffe said that it is not hardship or inconvenience or material loss which brings the principle of frustration into play. There must also be such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for, ie the performance of the contract must become radically different.

    The other reason given by Lord Radcliffe as to why the contract should not be  frustrated was the fact that the parties could have foreseen the cause of the delay.  He said that the possibility of enough labour and materials not being available was before their eyes and could have been the subject of special contractual stipulation.
  10. Fibrosa
    Events that may cause frustration; illegality

    The respondent (an English company) had agreed to manufacture machinery for the appellant (a Polish company) and to deliver to Poland. Before the manufacture had been completed, the German army occupied Poland.

    The House of Lords held that the contract was frustrated.
  11. Maritime Fish v Ocean Trawlers
    Restrictions on frustration; the frustrating event must be beyond the control of the parties

    The claimants hired a trawler from the defendants. Both parties knew that the trawler could only be used with an otter trawl and that a licence was needed for this.

    The claimants had four other trawlers and applied for five licences. They were only granted three licences. They could have used one for the trawler they had hired from the defendants but decided not to do so. The court decided that the contract was not frustrated as it was the claimants’ own election which had caused the problem.
  12. The Super Servant Two
    Restrictions on frustration; the frustrating event must be beyond the control of the parties

     The defendants had contracted to transport the claimant’s drilling rig using either Super Servant One or Super Servant Two. They had intended to use Super Servant Two and entered into other contracts involving Super Servant One. When Super Servant Two sank they claimed that the contract was frustrated. The court did not accept this. There was self-induced frustration because the defendants’ decision to use Super Servant One for other contracts had made the performance of their contract with the claimant impossible. The impossibility of performance resulted from their own act and the choice they had made. They could not treat the contract as frustrated and at an end.

    The decision that it was self-induced frustration can be criticised on the basis that the defendants did not have a genuine choice about the allocation of Super Servant One. The sinking of the other transporter left the defendants with only Super Servant One and Super Servant One could not be allocated to all the contracts the defendants had made. Performance of some of these contracts had been made impossible by the sinking of Super Servant Two, regardless of how Super Servant One was allocated.

    Bingham LJ thought that the contract would have been frustrated if the contract had provided for carriage by Super Servant Two with no alternative vessel and Super Servant Two had been lost without fault.
  13. Constantine Steamship Line v Imperial Smelting Corporation
    Restrictions on frustration; self-induced frustration

    if one party alleges that the other party has caused the frustrating event then it seems that the burden of proving fault is on the party alleging it
  14. Panalpina
    Frustration and leases of land

    The factors which are relevant in determining whether a lease has been frustrated are the length of the lease and how long the party will be deprived of the use of the property.

    In Panalpina the House of Lords decided that the lease was not frustrated.  Although by the time access to the warehouse was restored the appellants would have lost two out of ten years’ use of the warehouse and their business would have been severely disrupted, the closure of access to the warehouse was not sufficiently grave to amount to a frustrating event since there would be a further three years of the lease remaining after the access was re-established.
  15. Dick Bentley v Harold Smith
    Term or representation?

    If the maker of the statement has the greater skill or knowledge, then the statement is more likely to be a term.
  16. Oscar Chess v Williams
    Term or representation?

    If the recipient of the statement has the greater skill or knowledge, then the statement is more likely to be only a representation.
  17. Routeledge v McKay
    Term or representation?

    If an oral statement is repeated in a written contract, then it will usually be a term. If not, it is more likely to be a representation.

    Also, the longer the lapse of time between the statement and the contract, the more likely it is that the statement is just a representation.
  18. Birch v Paramount Estates
    Term or representation?

    Even if an oral statement is not written into the contract, the court may decide that the contract is partly in writing and partly oral.
  19. Bannerman v White
    Term or representation?

    If the recipient of the statement made it clear that the statement was of vital importance, it is more likely to be a term.
  20. Ecay v Godefroy
    Term or representation?

    If the maker of the statement asked the other to verify it, then the statement is more likely to be a representation.
  21. Schawel v Reade
    Term or representation?

    If the maker of the statement tells the other not to bother checking it out, this points to the statement being a term.
  22. Spice Girls v Aprilia
    False statement?

    A false statement may be oral, in writing or by conduct.

    It was found that by participating in the filming of a TV commercial the Spice Girls represented they did not know or have reasonable grounds to believe that any members intended to leave. This was untrue. Their participation amounted to a misrep by conduct.
  23. Hamilton and others v Allied Comecq
    False statement?

    The general rule is that silence will not amount to a misrep.
  24. Curtis v Chemical Cleaning and Dying
    False statement?

    Exception to the rule that silence will not amount to a misrep. It may amount to a misrep if there has been a half truth.

    Was the statement one of the factors which induced the party to enter the contract?

    Contrast with Peekay International. Customer relied on an oral representation about an exclusion clause. The customer did not know about the trade so he was entitled to rely on the oral representation (unlike Peekay)
  25. With v O' Flanagan
    False statement?

    Exception to the rule that silence will not amount to a misrep.


    Where a statement of fact is true when it is made but a change of circumstances occurs before the contract is formed which makes the statement untrue, failure to disclose the change in circumstances may amount to a misrep.
  26. Smith v Land and House Property Corporation
    Statement of fact, opinion or intention?

    The seller of the house described the tenant as 'desirable' despite knowing he was in arrears. The seller was in possession of the true facts so it was held this could not be his opinion.
  27. Bisset v Wilkinson
    Statement of fact, opinion or intention?

    A statement of opinion will not be a misrep. The seller of a farm incorrectly suggested the farm could sustain 2,000 sheep. However, the seller had never farmed sheep before and both parties knew this. It was the seller's honest opinion.
  28. Edgington v Fitzmaurice
    Statement of fact, opinion or intention?

    A statement of intention may amount to a misrep if it can be shown the intention was never held.

    The directors of a company said the purpose of borrowing money was to expand the company's business. In fact, the loan was needed to pay the company's debts. The company had made a false statement about their minds.


    Was the statement one of the factors which induced the party to enter the contract?

    Statement does not have to the only reason why a party enters a contract, provided it did encourage that party to do so.
  29. Attwood v Small
    Was the statement one of the factors which induced the party to enter the contract?

    If C did not rely on the statement at all (eg relied solely on an expert's view) then the claim will fail.
  30. Redgrave v Hurd
    Was the statement one of the factors which induced the party to enter the contract?

    The fact that a party is given the opportunity to discover the truth does not prevent the statement being a misrep.
  31. Peekay Intermark
    Was the statement one of the factors which induced the party to enter the contract?

    Experience businessmen should check written terms before signing. It was found that the bank had not misrepresented the written contract itself, though a prior false statement had been made.

    The businessman was not entitled to rely on the previous oral representation having not bothered to read the contract terms.
  32. Car and Universal Finance Co Ltd v Caldwell
    Implied rescission

    Contacting the police and reporting a car stolen (that had been purchased with a bad cheque) was found to impliedly rescind the contract.
  33. Leaf v International Galleries
    Bars to rescission (undue delay)

    Buyer of painting found out it was fake after 5yrs but Lord Denning said he had a chance to inspect the painting shortly after buying it and his right to reject goods for breach of condition under SofGA had been barred. He could not rescind the contract.
  34. Erlanger v New Sombrero Phosphate
    Bars to rescission (impossible to return to original position)

    Where it is possible for a party to substantially restore goods or property to the other, Restoration does not have to exact.

    A contract for the purchase of a mine was rescinded even though the mine had been worked ad was therefore not in the same state as when it had been purchased. Profits that had been made using the mine were also returned.
  35. Crystal Palace v Ian Dowie
    If it is practically impossible to put the parties back in their original position, the will act as a bar to rescission.

    Ian Dowie could not return to Palace because he was already managing Charlton Athletic. He could not carry out two positions of employment.
  36. Whittington v Seale-Hayne
    Bars to rescission (indemnity)

    If C is unable to claim damages, they may claim indemnity for any costs they were forced to pay before the contract was rescinded.
  37. s2(2) Misrepresentation Act 1967
    Damages in lieu of rescission

    Court can award damages in lieu of rescission, but only if misrep was non-fraudulent and if none of the bars to rescission apply.

    A court is only likely to exercise its discretion where a false statement was about a minor matter and it would be unjust to rescind the contract.
  38. Derry v Peek
    Fraudulent misrepresentation?

    The onus is on the innocent party to prove fraudulent misrep.

    Was the false rep made knowingly or without the belief in its truth, or recklessly, careless as to whether it is true or false
  39. East v Maurer
    Damages for fraudulent misrepresentation

    CofA held that damages for loss of profits could be recovered using tortious principles (ie profit would have made had the misrep and contract not been made)
  40. s2(1) Misrepresentation Act 1967
    Damages can only be claimed against the other contracting party.
  41. Howard Marine & Dredging v Ogden
    Burden of proof to establish innocent misrep

    Once it has been established that a misrep occurred and C relied on it in signing a contract he will be be able to claim damages, unless D can prove that he had reasonable grounds to believe and did honestly believe up to the time the contract was made the facts represented were true.

    Therefore, the burden of proof is on the party that made the misstatement.

    However, this can be very difficult to establish. An honest belief that the statement is true is not sufficient in itself, the belief must also be reasonable.

    In this case, D had made an inaccurate statement about a barge's storage capacity, yet all he had to do was check the ship's documents.
  42. Royscott Trust v Rogerson
    s2(1) Misrepresentation Act 1967 damages

    Damages under s2(1) should be awarded in the same way as damages for fraudulent misrep in the tort of deceit.
  43. Barton v Armstrong
    Duress- physical threats

    Threat of physical force need not be the only reason why an innocent person entered a contract (in this case selling shares) provided it was 'a' reason.
  44. Carillion Construction v Felix
    1) Has there been illegitimate pressure?

    Dyson J said that when determining whether or not there has been illegitimate pressure, the court will take into account:

    - Whether there has been actual or threatened breach of contract

    - Whether the person allegedly exerting the pressure acting in good or bad faith

    - Whether the victim had any realistic practical alternative but to submit to the pressure

    - Whether the victim protested at the time

    - Whether he affirmed and sought to rely on the contract.

    Dyson emphasised that illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.

    2) Was the practical effect that there is compulsion on, or lack of practical choice for, the victim?

    3) Was the illegitimate pressure a significant cause inducing the victim to enter the contract?
  45. Atlas Express v Kafco
    Commercial pressure or economic duress?

    This case provides an example of where the court may draw the line between everyday commercial pressure and economic duress. Kafco were desperate to retain a contract with Woolworths which would have been seriously jeopordised if Atlas had followed through with their threat to breach the contract if they were not paid more. It was found that the agreement to pay Atlas more was obtained by illegitimate pressure and Kafco had no practical alternative but to agree.

    Duress can be used as a defence

    As in this case, it is sometimes prudent for the victim to refuse to may the variation amount and wait for the other party to enforce payments in the courts (ie use duress as a defence)
  46. The Atlantic Baron
    Bars to rescission (duress)

    Rescission may barred by affirmation or undue delay.

    8 month delay in claiming duress was evidence of implied affirmation.

    Also, when payment of the variation amount was made, the pressure had lifted and the threat therefore no longer existed. They should have just not paid.

    Therefore, it is important to ascertain whether the victim was actually under pressure at the time the payment of the variation was made.
  47. Daniel v Drew
    Proving actual undue influence

    Proving D used undue influence might be difficult to do as it is often one person’s word against another’s, ie the evidence of the innocent party against that of the influencing party.

    One case in which the evidence of the innocent party (supported by a witness) was  Daniel v Drew. Mrs Drew was an elderly lady who intensely disliked confrontation and was afraid of her nephew and the prospect of going to court. So when he told her to sign the contract under the threat of taking court action, she had felt unable to refuse
  48. RBS v Etridge (No 2)
    Presumed undue influence; undue influence and third parties

    For undue influence to be presumed, there must be

    a) a relationship of trust and confidence; and

    b) the transaction must be one that calls for an explanation.

    Facts

    The wife argued that the bank had constructive notice of her husband’s undue influence and so should not get possession of the house. This argument failed because the solicitor acting for Mrs Etridge had confirmed to the bank, in the event falsely, that he had advised her about the content and effect of the charge. The bank was entitled to rely on the solicitor’s confirmation and there were no further steps that the bank could reasonably have been required to take.

    Constructive notice

    The House of Lords confirmed that if the creditor had actual or constructive notice of the debtor’s undue influence then the security contract obtained as a result would be voidable.

    The House of Lords also stated that a creditor will have constructive notice if:

    a) it ought to have been put ‘on inquiry’; and

    b) did not take reasonable steps to ensure that the surety was aware of the implications of what she was signing.

    The House of Lords discussed the circumstances in which a creditor would be put ‘on inquiry’ and the sort of reasonable steps it should take to protect itself where it had been put on inquiry about the risk of undue influence.

    - put on inquiry

    Bank should be regarded as put on inquiry in every case where the relationship between a surety and debtor is non-commercial (except where money is being advanced to husband and wide jointly- CIBC Mortgages)

    - Reasonable steps

    The bank can satisfy the requirement to take reasonable steps if it insists that the wife attend a private meeting with a representative of the bank at which she is:

    • - told of the extent of her liability as surety;
    • - warned of the risk she is running; and
    • - urged to take independent legal advice.

    Alternatively, Lord Nicholls said that banks ought not to be compelled to have a meeting with the surety and it is not unreasonable for the banks to prefer that the task is undertaken by an independent legal adviser. Therefore, a letter of confirmation from a solicitor should suffice (as in Etridge)
  49. Tate v Williamson
    Presumed undue influence; relationships of trust and confidence

    In this case the defendant became financial adviser to an extravagant Oxford undergraduate who was being pressed by creditors. Having recommended the sale of the undergraduate’s estate, the defendant offered to buy it himself for £7,000 without disclosing that it was in fact worth double that amount. The offer was accepted and the conveyance executed. The sale was later set aside as the defendant had wrongfully exploited, to his own advantage, the commanding position in which he knew he stood. The undergraduate had taken his advice without questioning it.
  50. O'Sullivan v Management Agency
    Presumed undue influence; relationships of trust and confidence

    Here the relationship of trust and confidence was between Gilbert O’Sullivan, a young, unknown singer/songwriter, and his manager.
  51. CIBC Mortgages v Pitt
    • Husband wanted to borrow to finance share dealings. He persuaded his wife to sign a mortgage over the matrimonial home as
    • security for the borrowing. The wife was able to prove actual undue influence. The bank to whom mortgage given thought it was a loan for the joint benefit of husband and wife.

    The transaction on its face did not seem to the manifest disadvantage of the wife, because the stated purpose was to purchase a holiday home, the bank was not put on enquiry and therefore could not be fixed with constructive notice.
  52. Credit Lyonnais v Burch
    Presumed undue influence; constructive notice; did bank take reasonable steps to inform surety of risk?

    The transaction was so disadvantageous to the employee that the bank should not have proceeded unless and until the bank had explained to her the full extent of the business’s borrowing and its overdraft limit. Nor should it have done so until the employee had actually received independent legal advice. Thus, the security was unenforceable against her.

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