1.

The nature of the Law of Contract:

A contract may be defined as a legally binding agreement between two or more parties for
performing or refraining from performing an act. In the words of Sir Frederick Pollock, it is a
promise or set of promises which the law will enforce. This contractual agreement will create
rights and obligations that may be enforced in the courts. The normal method of enforcement is
an action for damages for breach of contract, though in some cases the court may order
performance by the party in default.
CLASSIFICATION
Contracts may be classified as special or simple contract.
Special contracts
These are contracts made by deed. A deed is a written document that is signed, witnessed and
delivered. This type of contract usually includes the parties making the contract and a Justice of
the Peace or Notary Public. It is often used to convey some right or interest in land or to create a
legal obligation under a contract.
Simple contracts
These are the contracts that we are most often familiar with. They include the act of purchasing
petrol for our motor vehicles, purchasing food in our popular fast food restaurants, and even
purchasing a laptop. These are obligations that can be entered into orally, in writing or implied
by conduct of the parties.
You may also encounter the concepts bilateral and unilateral contracts throughout your studies.
This is yet another way of classifying contracts.
Bilateral contracts
In a bilateral contract both parties make promises. It can easily be described as a two-sided
exchange in nature. It is a contract where a promise by one party is exchanged for a promise by
the other. Each promise is deemed to be sufficient consideration and so the exchange of promises
is enough to render them both enforceable. An example of a bilateral contract could be where
Isaac promises to pay $2500 and Kimeisha, the washer lady, promises to wash his clothes on the
weekend.

Unilateral contracts
A unilateral contract is one one-sided in nature. It is one where one party promises to do
something in return for an act of the other party. Notice that there is no mutual promise from the
other contracting party. An example of a unilateral contract would be where Byron promises a
reward to anyone who will find his lost turtle. The essence of the unilateral contract is that only
one party, Byron, is bound to do anything. No one is bound to search for the lost turtle, but if
Carlton, having seen the offer, recovers the turtle and returns it, he is entitled to the reward.

2.

The legal rules governing formation of contracts:

Agreement(Offer and Acceptance)

OFFER
The intention to legally commit
An expression of willingness to contract made with the intention that it shall become binding on
the offeror as soon as the offeree accepts.
Storer v Manchester City Council, D sent C a letter stating, if you sign the agreement for sale, I
will send you the agreement signed on behalf of the council, C did as instructed. Before the council
(D) signed, their policy changed and they were unable to sign agreement to sell house. D claimed
the agreement had not been formed because they had not yet signed it. Held, D made the offer to
C and C accepted it within the conditions laid out. The council not signing the form was irrelevant,
the clear and precise offer had already been made and upon acceptance by C, the contract was
made. A contract is formed when there is, to all outward appearance, a contract. (Smith v Hughes).
Gibson v Manchester City Council, the council sent Gibson a document, stating they may be
prepared to sell the house to him. The House of Lords held that a contract had not been concluded
because the council had not made an offer capable of being accepted. It was noted that the words,
may be prepared to sell are fatal to an offer and there was never an offer available to be accepted.

NB// A valid offer must be communicated (i) Orally, (ii) In writing or (iii) by Conduct. [One of
three ways]
An Offer is distinct from invitation to treat:
Example of invitation to treat:
a) A Commencement of negotiation
Pharmaceutical society v Boots, the society argued that a drug sale was completed when
the customer took the item from the shelf. The court held this was an invitation to treat.
b) Supply of Information
Harvey v Facey, the telegram that was used to indicate the lowest selling price, was
regarded as a simple request of information, rather than capable of forming a definite offer.

c) A statement of Intention
Harris v Nickerson, the plaintiff claimed that advertisement constituted an offer and the
refusal constituted a breach of contract. Court held, advertisement did not constitute an
offer, rather was merely a declaration of intent.
d) Display of goods
The display of goods with a price ticket attached in a shop window or on a supermarket
shelf is not an offer to sell but an invitation for customers to make an offer to buy. See
Fisher v Bell,
Where goods are displayed in a shop together with a price label, such display is treated as
an invitation to treat by the seller, and not an offer. The offer is made when a customer
presents the item to the cashier together with payment. Acceptance occurs at the point the
cashier takes payment.
P.S.G.B v Boots chemists, they held that the display of goods was not an offer. Rather by placing
the goods into the basket, it was the customer that made the offer to buy the goods.
e) Auction, In an auction, the auctioneers call for bids is an invitation to treat, a request for
offers. The bids made by persons at the auction are offers, which the auctioneer can accept
or reject or reject as he chooses. Similarly, the bidder may retract his bid before it is
accepted.
Payne v Cove, Stands for the proposition that an auctioneers request for bids is not an
offer which can be accepted by the highest bidder. This case was qualified by Berry v
Davis, which it states that if the auction is advertised as being without a reserve price,
then the auctioneer is bound to sell to the highest bon a fide bidder.
f) Advertisements, Advertisements of good for sale are normally interpreted as invitations to
treat.
Patrige v Crittenden, it was noted that usually advertisements are treated as an invitation to
treat. Where there is no direct use of the words offer for sale. It was held that the
advertisement in question constituted in law an invitation to treat and not an offer to sell.

Exception
However, advertisement may be construed as offers if they are unilateral, i.e. open to all
the world to accept (i.e. offers for rewards).
Corlill v Carbolic Smoke Ball, The manufacturer advertised that the buyer who found
the five remedy did not wonk would be rewarded 100. The company was found to have
been bound by its advertisement, because all the essential contractual element was

present. The court of Appeal unanimously rejected the companys argument and held that
there was a fully binding contract. (1) the advert was a unilateral contract to the world,
(2) satisfying conditions for using the smoke ball constituted acceptance of the offer, (3)
purchasing/ merely using the smoke ball constituted good consideration if the companys
claim that 1000 was deposited at the bank showed the seniors intention to be bound.
g) Mere statement of price
Harvey v Facey, The Judicial Committee held that indication of lowest acceptance price
does not constitute an offer to sell, rather it is considered an invitation to treat.
Tenders
Harvela Investments Ltd v Royal Trust of Lonada, This concerns the validity of referential
bids in competitive tenders. Royal Trust Lo owned shares in a company and invited bids
for them. Harvela bid $2,175,000 and Leonard bid $2,100,000 or $101,000 in excess of
any offer. Expressed as a fixed monetary amount, whichever is higher. Royal Trust
accepted Leonards bid as being $2,276,000. Harvela sued for breach of contract saying a
referential bid was invalid.
The House of Lords succinctly and cogently summarized the reasons for referential
bids as follows:
The very essence of sealed competitive bidding is the fair compliance with which
not only the owner but the other bidders are entitled. To give effect to this bidding
practice in which the dollar amount of one bid was tied to bids of another would be
to recognize means whereby effective sealed competitive bidding could be wholly
frustrated. A submission by bids of others is invalid and unacceptable as in
consistent with and potentially destructive of the very bidding in which it is
submitted.
Blackpool & Fylde Aero Club v Blackpool Borough Council, This is a leading English
contract law case on the issue of an offer and acceptance in relation to call for bids. In it
the Court of Appeal decided that tenders and request for tender are accompanied by a
collateral contract implying that the requestor will inspect the bid.
Communication of the offer
There cannot be assent without knowledge of the offer.
R v Clarke, ( a case decided by the Australian high Court in law of contract). The
claimant wanted to compel the crown to pay a reward it had offered for information
leading to the conviction of a murderer. He told the police exclusively in order to clear
himself (given he was also under investigation). The judge interpreted evidence as to say
the claimant had forgotten about offer of the reward. Held, it was necessary to act in

reliance on an offer to accept it and therefore to create a contract. Here it was held that
the evidence showed that Mr Clarke was not acting on the offer.
Termination of an offer
An offer may be terminated in one of the following five ways:
1. Revocation- The offer may be revoked by the offeror at any time until it is
accepted. However, the revocation of the offer must be communicated to
the offeree(s). Unless and until the revocation is so communicated it is
ineffective.
Ryrne v Van Tienhover, It was ruled that an offer is only revoked by direct
communication with the offeree, and that the postal rule does not apply in
revocation; while simply pushing a letter counts as a valid acceptance, it
does not count as valid revocation.
The revocation need not be communicated by the offeror personally, it is sufficient if it is done
through a reliable third party. See.
Dickinson v Dodds, Dodds delivered a signed letter to Dickinson offering to sell his house,
leaving the offer open for the next two days. Mr Berry told Mr Dickinson that Dodds had offered
to sell the house to somebody else.
Held, it was clear that before there was any attempt of acceptance, he was well aware that
Dodds had changed his mind. It was impossible to say therefore that there was ever that
existence of the same state of mind between the two partners, which is essential in point of law
to the making of an argument.
Where an offer is made to the whole world, it appears that it may be revoked by taking
reasonable steps. See.
Shuey v United States, The secretary of War published an announcement in the public
newspaper offering a reward for information leading arrest of certain criminals. The president
issued an order revoking the offer which was published in a similar way. The claimant
discovered and identified one of the criminals, unaware of the notice of revocation. It was held
there was no contract. The offer had been revoked with the same notoriety as the original offer
and this was sufficient to cancel it for even those who had not read it.
Once the offeree has commenced performance of a unilateral offer, the offeror may not revoke
the offer. See.
Errington v Errington, Before the father died, he made a promise to his daughter-in-law and son
that he would transfer the title in their names; if they paid the mortgage. The daughter-in-law
began payments of the mortgage.

Held, the offeror cannot revoke unilateral offer, once the offeree had begun part
performance.
2. Laspe of Time- where an offer is stated to be open for a specific length of
time, then the offer automatically terminates when that time limit expires.
Where there is no express time limit, an offer is normally open for a
reasonable time. (Offard v Davies)
An offer maybe made subject to certain conditions, if the condition is not
satisfied the offer is not capable of being accepted. An offer may lapse
through:
i.
ii.
iii.

Passage of time: Financing Ltd v Stimson

Failure of a condition (Express or implied), Financing Ltd v
Stimson
Death: The offeree cannot accept an offer after notice of the
offerers death. If the offeree doesnt know of the offerors death
there is no personal element involved, then be may accept the
offer. (Bradbury v Morgan)

3. Rejection ( termination by the offeree)- A rejection may be either express

or implied i.e. A counter offer ( a verification of terms or a new term will
result in a counter offer)
Hyde v Wrench, Wrench offered to sell his farm to Hyde for 1,200 an
offer which Hyde decline. Another occasion, Wrench wrote to Hyde
offering to sell the farm for 1000, stating it to be the final offer and that
he would not alter from it. Hyde offered 950, Wrench refused to accept.
Hyde then agreed to buy the farm for 1000 but wrench refused.
Held, counter offer cancelled the original offer.
Brogden v Metropolitan Railway co, In signing a contract, the claimant
left blank certain aspects of it and said to be subject to arbitration for
difference that may arise. For a whole both of the partners acted according
to the terms of the agreement. But when a serious disagreement occurred,
the claimant said there had been no formal contract.
Held, the contract had arisen by the conduct of the partner. A mere mental
assent to the agreements term would not have been enough, but having
acted on the terms made it so. Lord Blackburn also held, that the onus of
showing that both partner had acted on the terms of an agreement which
had not been in due form, executed by either, lies upon the person alleging
such facts.
4. If a condition in the offer is not fulfilled, the offer terminates.
Financings Ltd v Stimson, held, there was an implied condition in the
offer that the subject matter of the offer would remain substantially in the
same condition it was at the time of the offer.

5. Death, if the offeror dies, the offer may lapse.

Bradbury v Morgan
Acceptance
Definition:
i.
ii.

Unconditional assent to the terms of the offer without qualifications.

A final and unqualified acceptance of the terms of an offer.
Felthouse v Bindley, After expressing an intention to buy a horse, the uncle wrote to his
nephew saying, If I hear no move about him, consider the horse mine. The nephew did not
respond.
Held, acceptance must be communicated clearly and cannot be imposed due to silence of
one of the partners. The uncle had no right to impose sale through silence whereby the
contract would fail by repudiation.
Acceptance by Conduct
Brogben v Metropolitan
Reliance on an offer
Williams v Carwardine, This case raises interesting questions about the necessity of reliance
on an offer in the formation of a contract (unilateral) Vs brother, D offered a reward of 20
for information leading to the discovery of the murderer. C gave information which lead to
conviction of two men (including the plaintiffs husband). She claimed the reward D refused
to pay. It was found that she knew about the reward, but that she did not gave information
specifically for the reward.
The trial judge noted that,
My opinion is that the motive is not material. The advertisement amounted to a general
promise or contract to pay the offered reward to any person who performed the condition
mentioned on it, namely, who gave the information. If the person knows about the thing and
does it, that is quite enough. We cannot go into the plaintiff motives. Held, she was entitled
to the reward.
Method of Acceptance
Manchester Diocesan Council v Commercial & General Investment, It was held that
although an offeror is entitled to insert an acceptance in a particular way, where a method of
acceptance is merely prescribed, any equally efficient method of acceptance will suffice. If
the offeror wants to be bound only if the offer is accepted in some particular way, he must
make this clear.

The following rules have been developed with regard to acceptance:

Counter Offers
A counter offer also amounts to a rejection of the original offer which cannot then be
subsequently accepted.
Hyde v Wrench
A counter offer should be distinguished from a mere request for information. See.
Stevenson v Mclean, It was held that the plaintiffs telegram was not a rejection of the offer
but a mere inquiry about whether the terms could be modified.
If A makes an offer on his standard document and B accepts on a document containing his
conflicting standard of terms, a contract will be made on Bs term if A acts upon Bs
communication, the situation is known as the battle of forms
Butler Machine Tool v Excell-O-Corp, The offer to sell machine on terms provided by B was
destroyed by the counter offer made by E. Therefore the price verification form was part of the
contract. The contract was concluded on Es terms since B signed the acknowledge slip
accepting those terms. Where there is a battle of forms, whereby each party submits their own
terms. The last shot rule applies where by the contract is concluded on the terms submitted by
party who is last to communicate those terms before the performance of the contract commences.
Conditional Acceptance
If the offeree puts a condition in the acceptance, then it will not be binding. But a request for
information does not destroy the offer.
Request for information
At the end the test will be- what was the intention of the offense (Stevenson v Mclean)
Tenders
A tender is an offer, the acceptance of which leads to the formation of a contract.
Communication of Acceptance
The general rule is that an acceptance must be communicated to the offeror until and unless
the acceptance is so communicated, no contract comes into existence.
Entores v Miles For East Corp, Lord Denning found that the regular postal rule did not apply
for instantaneous means of communication such as telex. Instead, acceptance occurs where the
message of acceptance is read. The postal rule does not apply to instantaneous communication

such as telephone or email. A contract is also formed when and where the medium of agreement
was received. When instantaneous method of communication is used it will take effect when and
where it is received.
Prolonged silence or inactivity may in some rear case amount to communication of
acceptance.
The Hannah Blumenthal
Instantaneous Termination
Tenex Steamship v The Brimnes, The plaintiff sent defendant, a telex to terminate the contract. It
was sent during the normal office hours, but the defendant did not see it until the next day.
It was held that the withdrawal telex was effective from the time it arrived not the time it
was read.
Note this was a case relating to withdrawals of offers not acceptance, but it is a useful
analogy.
Exceptions to the need for communication
a) Where the offer has warned the requirement of communication
Carlil v Carbolic Smoke Ball- Because it is a unilateral contract
b) The Postal Acceptance Rule
Adams v Lindsell, (First case on postal rule in which letter was misdirected by the
defendant)
It was held that there was a binding contract when the letter was posted by the postal
acceptance rule. In Henthorn v Fraser, that the court determined the precise timing of the
acceptance, that is the moment the letter of acceptance, is posted.
Household Five Insurance v Grant, Held, that there was a valid contract, because the rule
for the post is that acceptance is effective even if the letter never arrives (this aspect as
overruled in Holwell Securities v Hughes). He noted that if anyone can opt out of the rule
and that even if it sometimes causes hardship, it would cause even more hardship to not
have the rule. Once someone posts acceptance, he argued there is a meeting of minds, and
by doing that decisive act a contract should come into effect.
Henthorn v Fraser, The claimant received a note from the defendant with an offer to
purchase a certain property within 14 days. Claimant accepted via mail the next day. The
defendant withdraws the offer before receiving the acceptance, but after the acceptance
was posted.
Held, claimant was entitled to specific performance. Where the circumstances are
such that it must have been within the contemplation of the partner that according to the

ordinary usage of mankind, the post must be the means of communicating the acceptance
of an offer, the acceptance is complete as soon as it is posted.
Offer
This is an expression of willingness to a contract on specified terms without further
negotiations, so that it requires only acceptance for a binding agreement to be formed.
One must be able to differentiate an offer from all other statement which is made in the
course of negotiation, in particular an invitation to treat. As only an offer is capable of immediate
translation into a contract by the fact of acceptance.
Do not be thrown off by the way examiners label something, they may show you an invitation to
treat but then suggests that Tom has accepted Marys offer, when in fact all Mary has done was
put an advert selling her car, which as we all know is an invitation to treat. But the examiner may
call it an offer, but what you need to do is to identify and discuss what exactly it is.
In most cases you can distinguish between what is an offer and an invitation to treat. You
must look at whether the communication is sufficiently specific in terms of the main and force to
be capable of immediate acceptance and whether it is made with an intention to be bound upon
acceptance. The intention to be bound is determined objectively so you have to look at the
language used. Gibson v Manchester City Council, The House of Lords looked at the language
use of the correspondents to determine whether there was an intention to be bound. The House of
Lords held that the word maybe prepared to sell was not an offer but an invitation to treat. The
council was inviting the plaintiff to make an offer, and although he had made such offer his offer
had not been yet accepted, at the time of the policy change.
This is often contrast with Stoner v Manchester City Council, where the court said a binding
contract had been concluded as the language used namely; If you will sign the agreement and
return it to me, I will send you the agreement signed on behalf of the council. The court said the
councils intention to be bound was clearly evident and that was an offer.
The general rule in respect of advertisement, brochures and pricelist are that they amount to an
invitation to treat.
Exception to the General Rule
Where the advertisement is unilateral, then it binds itself to perform a stated promise upon
performance of the requested act, and as such the promise gives no commitment to perform but if
he does perform then the promisor will be bound. If you get a problem question you relate back
to Carlil v Carbolic Smoke Ball. In respect of a unilateral offer, although it was an advertisement
it was held to be an offer rather than an invitation to treat, not just because of its unilateral nature
but because it saw the deposit of funds into a bank which evidenced the companys willingness
to be bound or legally bound in the circumstance that someone caught influenza.
What if you are given a website situation? Well, the argument maybe that websites are the
electronic equivalent of displays, advertisements or catalogue. This would mean in general that
website would constitute an invitation to treat. So then if the website arguably constitutes an

invitation to treat.The offer will come from the customer at the check-out stage when the
customer clicks the relevant instruction to process the order.
Generally tenders are invitations to treat but under certain circumstances would constitute a valid
offer.
Communication of an Offer
An offer does not take effect unless communicated to the offeree. This may not be a straight
forward as it sounds. What you have to look at is whether they have used a scenario where the
person who is making the offer says I am about to post it. Please do not go down the route of
postal rule. If the person making the offer has to post it, it is no good until it has actually been
communicated to the offeree.
Revocation

Personal service contracts are revoked by death of the offeror.

Where an offer is being revoked by a third party he must be reliable (emphasis added)

Acceptance
How do we identify if an acceptance has occurred. The general principle is that to constitute
acceptance, the offerees unequivocal expression of intention and assent must be made in
response to an exactly matched terms of the offer, also the matching acceptance must be
communicated to the offeror. So there are two aspects to it (i) The fact of acceptance and (ii) The
fact of communication.
A Qualifying Cover Letter
What happens if you have sign the contract and send it back but you send a cover letter saying
this is what I intend or dont intend.
(Society of Lloyds v Twins), D said they did not accept a reconstruction and renewal agreement
which was offered to Lloyds name and that they could not be in breach of the agreement because
although they had completed the application form, they had put in a cover letter saying that they
would not be able to pay the some due from them under the settlement.
Held, there was an unconditional acceptance of the offer because there was a completed
application form, and the cover letter was separate and collateral and had nothing to do with the
contract itself.

Rule in relation to acceptance

The person accepting must know of the offer.
R v Clarke
Vs
Williams v Caradine, there is a suggestion that once the offeree did have knowledge of the offer
and accept it in response to that his motive for doing so is irrelevant. In Gibbson v proctor, at
first sight it appears to be at odds with the principle that there must be knowledge of the offer in
order to claim the reward. But in the decision it has been explained as turning on the particular
requirements of offer, which said that it require the particular information to be given to a
particular person. Although the information was given to another person at that time, when there
was no knowledge of the reward. The offeree had the necessary knowledge at the time when the
information reached the particular person. It stands for the proposition that you still need to have
knowledge of the offer in order to accept.
This case held that the advertisements of rewards for information leading to the arrest or
conviction of the perpetrator of crime, is treated as an offer as the intention to be bound is
inferred from the fact that no further bargaining is expected to result from them. In- section of
the case reveals that the party claiming the reward possessed full knowledge of the offer at the
relevant time in giving the information.
(As Opposed to Unilateral Contracts)
In bilateral contract, the general rule is that the offeror cannot wave the need for communication.
(Felthouse v Bindly), In the said case it was seen that silence will not amount to acceptance.
There might be a question whether it may be possible to retract a postal acceptance before it
reaches the offeror? In other words could the offeree post an acceptance, change his mind and
telephone the offeror to tell him he does not want to accept. There is no English case on this
point and you should say this, but there is a Scottish case, Dunmore v Alexander, it is a highly
obvious authority (emphasis added). Although it is sometimes cited in support of the conclusion
that it is possible to overtake a postal acceptance following Dunmore v Alexander, arguably you
can retract by quicker method but by the strict postal rule in English law, there is no retraction
once you have validly posted letter it will amount to an acceptance.
Instantaneous Method of Communication
Instantaneous method of communication can only take effect on receipt. Generally the onus is on
the communicator to get his message through. There are some instances where the actual
communication would be non-instantaneous even though they have use an instantaneous method.
(Brinkibon v Stahog) For all irregularities that may occur with the many warrants of
telecommunication such as: message not reaching the recipient immediately, message sent out of
office hours, or message may be sent at night with the intention or on the assumption that they
will be read at a later time and many other remark may occur. No universal rule can cover all
such cases; (1) they must be resolved by the intention of the parties, (2) by sound business

practice and (3) in some cases by a judgement where the risk should lie certain irregularity may
amount to instantaneous method of communication being treated as non-instantaneous method of
communication, this happens when a message is sent after 5:00pm, looking at the rules in turn
then. If you are communicating with another office, follows that the offeree would reasonably
expect the offeror to be monitoring the fax machine. I would expect communication to occur
when the message was received. Accordingly communication to that machine would be actual
communication. Equally messages would be at the risk of the recipient, if the recipient failed to
manned his telex/ fax machine.
What about Message left on Telephone Answering Machine
There is no case and you should argue by analogy. So if you apply the general principle of what
the offeree could expect, the conclusion might be that the message will not be communicated
until it is played back, since anyone leaving a message could reasonably assume that as the
machine is switched on the message will not be communicated immediately. Of course there is a
practical point to this that the person could be screening and be right there, but that aside what
you have to consider is if the person leaving the message is doing so in order to accept that he
really ought to consider that it will not be communicated to the person until it is played back. In
which case it will possibly fall into the non-instantaneous variety.
Emails
When you are looking at emails there may be a postal rule analogy, but the better approach seem
to be that it will be dealt with under the receipt rule. In that it would seem better to apply an
actual communication, because the sender will know if the message had not been sent and can
resend it. One has to consider has there been an offer?

Intention to create legal relations

N\B: Reformation
Regard must be given to the actual
Intention of the parties as approve to
Purely circumstances.
There is a presumption for commercial agreements that parties intended to be legally bound
(unless the parties expressly state that they do not want to be in which case the presumption
is rebutted).
On the other hand, many kinds of social and domestic agreements are unenforceable on the basis
of public policy(unless rebutted by evidence of the contrary).
Domestic\Social Agreements (4 cases)
Balfor vs Balfor
Using contract like terms, Mr. Balfor had agreed to give his wife a certain sum of money a month
as maintenance while he was living in Sri Lanka. Once he left they separated and Mr. Balfor
stopped payments. Mrs. Balfor brought an action against him to enforce payments
The court held: There was no enforceable agreements there was not enough evidence to suggest
that they were intended to be legally bounded by the promise.
Vs
Merritt vs Merritt
Notwithstanding the domestic context and although married, the couple were estranged at the time
the agreement was made. Therefore, any agreement between was made with the intention to create
legal relations (commercial agreement).
Jones vs Padavatton
An agreement whereby a mother bought a house in London for her daughter to rent whilst
attempting the bar examination. It was held not to be legally binding.
Parker vs Clarke
The defendants invited the plaintiffs to live with them. There was a detailed agreement about
household expenses and that the defendants would leave the plaintiffs a share of their property in
their will.
On the strength of their agreement, the plaintiffs sold their own home and lent money to their
daughter. It was held that there was an intention to create legal relations.
Simkins vs Pays
A woman, her granddaughter and a paying boarder all took part in a weekly competition organized
by a Sunday newspaper. The agreements over postage was informal and the entries were made in
the grandmothers name. One week they won 750 pounds. The paying boarder was derived a third
share by the two.

The court held: There was a legally binding agreement that any price should be derived between
all three.
Commercial Agreements
Rose & Frank vs Crompton Bros
A commercial agreement by which A appointed B to be its distributer in the USA expressly stated
that it was Not subjected to any legal jurisdiction in either country. A terminated the contract
they had without giving notice as required, and refused to deliver goods.
Held: Although this was clearly a business agreement which appeared to be a contract, the express
statements that there should be no legal consequences was enough to show that this was not
intended to be a contract.
Edwards vs Skyways
In a case involving an ex gratia payment. Megan J emphasized that there is a strong presumption
that commercial agreements are meant to be legally binding.
In which types of cases the burden of proof is on the person seeking to rebut the presumption.
Intention to create legal relation is judged is judged objectively through the use of being rebutted.
When one consider commercial agreements it is presumed that the parties intended to be legally
bound, unless there are clear words indicating the absence of a promise or that the parties intend
to be bound in honour only. In Jones vs Vernon it was held where a contract is binding in a honour
only or the honour clause is used this meant there was no contract.
N.B. The fact of a breakdown of the relationship takes agreement outside the scope of the domestic
agreement.
In Merrit vs Merrit Denning LJ said that its all together different when the parties are not living
in amity but are separated or about to separate they then bargain keenly, they do not rely on
honorable understanding, they want everything cut and dried .And it may safely be presumed that
they intend to create legal relations.
In order to rebut the presumption , against intention to create legal relations , it is unlikely that the
court will find any express statement of the parties to be conclusive since it is here that the policy
element of the doctrine is at its strongest. Not withstanding the policy driven position , the courts
have always been willing to find social/domestic agreements enforceable in certain cases. It is not
always easy to identify the evidence which cause the presumption to be rebutted , but factors such
as : 1) certainty of terms 2) seriousness and 3) reliance (all three can be seen in Parker vs Clarke).
Commercial Agreements
One may find a company who advertises may seek to reply on the absence of intention to create
legal relations, in order to avoid being held to be exact words of an advertisement.
In Batman vs Raptor Insurances (1886) the plaintiff had booked an holiday through a tour operator,
the tour operator was a member Raptor, the operator had become insolvent. The issue was whether
the raptor notice display on the tour operator premises amounted to a binding offer of protection,
so that the customers were entitled to be reimbursed the full cost of the holiday.
The court rejected the arguement that this promise was not allowed.

The majority said that the notice was intended to be binding and would be read by customers
constituting a binding offer which a customer could accept by booking a holiday with the tour
operator.
In Ford Motor company vs A.V.E.F.W The court faced the question of whether a collective
bargaining agreement between union and management was legally binding. it was clearly a
commercial matter and therefore it ought to have been legally binding. The burden of proof is on
layer on the union which sought to deny the contractual intention and the court found in the union's
favour. In doing so the court relied on evidence from the industrial relations expert, which was
general rather than relevant to the particular agreement and so the courts from a policy stand point
found that there was no contract in terms of intentions to create legal relations.
The problem with the area of law differences can exist in identifying the type of contract
(commercial/social) for the purposes of the application of presumptions
The difficulty is illustrated in Sadler vs Reynolds , in this case the claimant was a journalistic cub
professional ghost worker , who sought damages for breach of an alleged oral contract to ghost
write the autobiography of a well known business man , that the agreement had been made
following a number of meetings including one at at which their wives had been present , and the
claimant had been charged with securing a reputably publisher that the parties had agreed to share
proceedings and that he had came up with a number of ideas in writing this "agreement".
The evidence was that after an agreement had been advance with another writer for the writing
and publication of the autobiography. The judge considers that given the context and nature of the
party dealing this agreement fell somewhere between a transaction that was obviously commercial
and a social agreement. On the facts the judge considered that had the onus of establishing an
intention to create legal relation. Although this Ono's was heavy as in the case of a purely social
contract.
Interestingly in the case it was held that the claimant had discharge his burden of proof that there
was intention to create legal relations the defendant knew that the claimant was an experience
journalist and had been previously employed as an ghost worker , they had met to discuss the
possibility of the claimant ghost working his autobiography and plan to make money from the
transaction.
It means therefore that it is evident that in the case of a contract that is clearly commercial the
starting point will be the application of presumption in favour of an existence of an intention to be
legally bound and it seems difficult to justify the conclusion in Sadler vs Reynolds , that the
agreement was anything other than a commercial agreement for profit.

Consideration
Definition:

Consideration for a particular promise exist where some right, interest, profit or benefit occurs (or
will occur) to the promisor as a direct result of some forbearance, detriment, loss of responsibility
that has been given, suffered or undertaken by the promisee (Currie v Misa).
Key terms:
Promisor: the person who makes the offer or promise. (Benefits)
Promisee: the person carrying out the act to accept the promise/offer. (Forebears)
Consideration can be:
1. A benefit to one party or detriment to another.
2. The price paid for a promise.
3. The element of exchange.

Kinds of Consideration
Executory: a promise to do something in the future.
Executed: an act wholly performed at the time the contract is entered into.
Past Consideration: something already completed before the promise is made cannot amount to
consideration.
N.B The claimant is usually the promisee while the defendant is usually the promisor.
Past Consideration:
Roscorla v Thomas,
D sold a horse to P for 30. After sale he promises that the horse was free from lice, which turned
out not to be true. Held, P could not be sued on promise as he had already agreed to pay for the
horse when the promise was made.
Re McArdle, a promise was made to pay money in return for post services. Held, that his was past
consideration and therefore not valid.

EXCEPTION

Where a service is rendered at the request of the promisor, on the understanding that payment will
be made, a subsequent promise to pay a certain sum will be enforced provided that the payment
would be legally enforceable if it had been promised in advance.
Exception to Past Consideration
(1. If something is done in a business context and it is clearly understood by both sides that it will
be paid for, the past consideration will be valid. See Re Caseys Potents. )
Lampleigh v Braithwait,
After killing a man D asked C to do all he could for him to get pardon from the king. C did
this at great trouble and expense, when he claimed the amount promised, D said his actions
were past consideration. Held, C was entitled to his money, as he acted on his request and it
as clear at the time D asked him for help that he would be paid for his trouble.
Pao On v Lav Yiu Long [P.O V L.Y.L] (two first words not English)
The Privy Council laid down three conditions which must be satisfied to invoke the doctrine of
Lampleigh v Braithwait:
1. The act must have been done at the request of the promisor.
2. It must have been understood that a payment was to be made for the services when it was
requested.
3. The contract (had it been made in the normal way) must have been a legally enforceable
one.
Rules Governing Consideration
1) Consideration must move from the promisee
A promise is enforceable if it is supported by consideration from the promisee.
Tweddle v Atkinson,(use facts from second mention of the case).
Tweddle promised William Guy that he would pay a sum of money to his child vice versa. Upon
marriage of the two children of each other, however, Guy failed to pay the son of Tweddle, who
sued his executor for the amount promised.

Held, the son could not enforce the promise made to his father, as he himself did not give
consideration for it, it was his father who had done this instead.
Although consideration must move from the promisee, it does not necessary have to move to the
promisor. The promisee may provide consideration to a third party, if it is agreed at the time the
partier contracted (Bolton v Madden).
Din lop v Selfridge,
An act or forbearance of one party, or the promise thereof, is the party of which the promise of the
other is brought, and the promise thus given for value is enforceable.
2) Consideration need not be adequate
Adequacy is a question of fact. It need not equal in value the consideration provided by the other
party. It is for the parties themselves to make their own bargain:
Chappel Co. V Nestle Co,
It was held that even the most worthless item can be good consideration. A contracting party can
stipulate for what consideration he chooses.
Trifling consideration was held valid in De La Bere v Pearson.
3) Consideration must be sufficient
Suffi crency is a question of law. Consideration must have some vale in the eyes of the law.
Traditionally, the following have no value in the eyes of the law:
1) A promise to perform an existing public duty:

Collins v Godefroy,

Godefroy promised Collins a certain sum of money to come to court after he was suspended to
attend.
Held, Collins was bound to come to court anyways and that it was not good consideration
to do so.

If he does more than his duty, then there is consideration (Glasbrook Bros v
Glamorgan).

During a miners strike, James, manager, requested the police superintendent to provide extra
forces to protect the working men against strikers. The superintendent thought the men were
adequately protected, but on James insistence an additional 70 men were provided. The owners
were sent a bill for additional police men, which they refused to pay on grounds that the police
officers were only performing their legal duty to protect the public.
It was held that although police cannot accept extra money for doing their normal statutory
duty, when special services are required beyond the normal call of their duty, they are entitled to
be recompensed.
2) A promise to fulfil an existing duty owed to the same person:
In Stilk v Myrick [1809] performing an existing contracted duty was not good
consideration for a promise on a ship owned by Myrick for a monthly promising to do anything
needed in the voyage regardless of emergencies, (therefore not withstanding the emergencies that
arose, the men were under an existing duty as promised to do anything needed in the voyage).
After the ship decked two men deserted, and after failing to find replacement, the captain
promised the crew the wages of those two men divided between them if they fulfilled the duties
of the missing crewmen as well as their own. After returning home the captain refused to pay the
crew men the money he had promised them.
Their decision was argued on the basis of Harris v Watson, where it was decided that, no
action would lay at suit of a sailor on a promise of a captain to pay him extra wages, in
consideration of his doing more than the ordinary share of duty in navigating the ship; and his
lordship said, that if such a promise could be enforced, sailors would in many cases suffer a
ship to sink unless the captain would accede to any entrouogent demand they might think
proper to make.
Hartley v Ponsonby, (36-19-5)
A ship left England for Bombay with a crew of 36. By the time it arrived, only 19 remained
of whom only 5 were able seamen. The captain promised the remaining able seamen an extra
40 for completing the voyage. It was held that the seamen had provided good consideration
as what they were now being asked to do was different to what they had agreed to do when
there was a full crew.

Commentators
Modern commentators say that the decision by the judge not to award the money to the plaintiff
was based at least partly on public policy; should he have done so it would have create a precedent
that would risk new members blackmailing captains into giving them more money. It is accepted
that the decision would be likely to be different should it have been made in modern times; because
of the doctrine of economic divers it would be difficult for such blackmail to be enforced in court.
In Hartley v Ponsonby, where it was ruled that although Stilk v Myrick, was still valid, they would
be due the money if the situation created by the desertion of the crew changed their duties to an
extent that they would not be bound to continue under the existing contract. Another (albeit
controversial) exception is in Williams v Roffey Bros & Nicholls, in varying a contract, the court
will be quick to find consideration if practical benefits are given from one party to another.
Exception to the Rule in Stilk v Myrick
In Williams v Roffey Bros & Nicholls, Roffey Bros was contracted by Shepherds Bush Housing
Association to refurbish 27 flats. They subcontracted carpentry to Williams for 20,000 payable
in installments. Some work was done and 16,200 was paid. Then Williams ran into financial
difficulty because the price was too low. Roffey Bros was going to be liable under the late penality
clause for completion, so they promised an extra 575 per flat for on time completion. Williams
did eight flats and stop because he only got 1500. Williams claimed sum promised.
Held, Williams had provided good consideration even though he was merely performing a
pre-existing duty. The concept of economic divers provided on answer to Stulks old problem. The
test for understanding whether a contract would legitimately be varied was set out as follow:
i)

If A has a contract with D for work.

ii)

Before it is done, A has reason to believe B may not be able to complete

iii)

A promises B more to finish on time

iv)

A obtain is practice a benefit, or obviates a disbenefit from giving the promise.

v)

There is no an economic diver or fraud. Then practical benefit constitutes good

consideration.

In commenting on the earlier case of Stilk v Myrick Glidewell LJ said, It is not in my view
surprising that the principle enunciated in relation to the rigours of seafaring life during the

Napoleonic wars should be subjected during the succeeding 180 years to a process of refinement
and limitation in its application to present day.
Russell LJ said, The courts nowadays should be more prepared to find [considerations]
existence so as to reflect the intention of the parties to the contract.
b) A request to avoid part-payment of a debt.
The basic rule is that payment of a smaller. Sum will not discharge the duty to pay the high sum:
Pinnels case,
It was opened that a part payment of a debt could not extinguish the obligation to pay the whole.
The rule is that payment of a lesser sum on the day in satisfaction of a greater cannot be any
satisfaction for the whole; it appears to the judges that by no possibility, a lesser sum can be a
satisfaction to the plaintiff for a greater sum. The rule is obiter dicta.
Application
Foakes v Beer,
Is a controversial application of the per-existing duty rule and a leading case from the House of
Lords on the legal concept of consideration. It establishes the role that prevents parties from
discharging an obligation by part performance, affirming Pinnels case. Beer agreed that she would
not take any action against Foakes for the amount owed if he would sign an agreement promising
to pay an initial sum of 500 and pay 150 duress yearly until the whole agreement was paid back.
Foakes was having financial difficulty, and so Beer waived any interest on the amount owed.
Foakes made the payment as agreed without any interest.
The House of Lords held ruling in favour of Beer. The reasoning behind their judgement
was that though the agreement did not contemplate the interest owed, it could still be implied in
an enforceable agreement. However, the promise to pay a debt was deemed not to be sufficient
consideration as there was no additional benefit moving from Foakes to Beer that was not already
owed to her. Even where the creditor promise that he would not sue for money owed, he may still
sue where there was part payment of debt.
Consideration is really the bargaining element of a contract, e.g. if A agrees to paint the room and
B promises to pay 300. The law of contract only enforces reciprocal agreements. If you want to

make a gift then you have to draft a deed or covenant but for simple contract you do need
consideration.
In Re McArdle, when the repairs and decorations were carried out without request and after this
compensation was offered that was a gift. These are exceptions however, to the past consideration
rule.
Exception to Past Consideration rule where:
i)

Services rendered for an implied promise of payment are an exception (Lampleigh v

Braithwait)

ii)

Equally if you are looking at a commercial content, where for example you ask a
window cleaner to clean your windows, you are expected to pay. So if no price is
mentioned and you take your car to the garage and leave it, it may be that the court will
construe that given the commercial context a reasonable price maybe payable.

Consideration must move from the promisee

Only a person who has provided consideration can enforce the contract (Dunlop v Selfridge). For
sufficiency of consideration the doctrine of caveat emptor- let the buyer beware. May apply, the
courts will not inquire into the adequacy of the consideration.
One has to consider what has no value in the eyes of the law:
Where there is a public duty
If a promise is intended to be bonding the courts may not allow the promisor to go back on his
promise. The doctrines of promissory estoppel under certain circumstances will estoppel a
promisor from going back on his promise to accept a smaller sum in discharge of a larger sum.
(London Property Trust v High Trees)
The purpose of this lecture will be to describe:
i)

What consideration is.

ii)

Types of consideration.

iii)

The proposition that consideration has to move from the promisee.

iv)

Sufficiency of consideration & insufficiency of consideration.

v)

Role of consideration in bringing a contract to an end.

Emphasis should be also placed on the Dunlop v Selfridge as it highlights the bargaining elements
of consideration.
Past Consideration is where the promise is totally independent of the act and the promise comes
after the act. Thus is described as bad consideration because it lacks bargaining power. See
Roscorla v Thomas, if such a claim was brought today it would go under the Sale of Goods Act,
where defective goods are returned.
Note when looking at past consideration, it is not so much the chronology of the promise and the
act but, the independence of the promise from the act, and thats why when you consider the
common law exception, you can see that the exceptions are an attempt to bring together into one
transaction the promise of payment or benefit and the act. One way this can happen is when there
is an initial request for service or act (Lampleigh v Braithwait). In the said case because the service
was asked for they (promise & act) were treated as a single transaction.
The value of consideration is always thought to be material. In Bolton v Madden, Lord Blackburn
said the adequacy of the consideration is a matter for the parties to consider and you do that at the
time of making the agreement, and it is not for the court to decide at-a-later date whether that
should be enforced or not.
Promise to perform an existing public duty
Word v Byham; The Father of the child promised to pay the mother provided that she could prove
the child was well looked after and happy. The mother claimed.
Held, the mother was entitled to sum promised as she had acted over and above public duty of just
feeding, maintaining and clothing the child she had to demonstrate that child was happy.
In Williams v Roffey Bros & Nicholls, there are a number of requirements that need to be
performed. First of all you need to look at the nature of the contract, it seem like the principle in
Williams only apply where there is a contract to supply goods or supply services in return for
payment. Note also it was the main contractor who invited the work so there could be argument of
economic duress. The court refused to extend the principle laid down within Williams v Roffey in
the context of contract other than contract for the supply of goods or services (Re Select move
Ltd). Although consideration is often spoken of as an important ingredient for the formation of a
contract, it can also be viewed as an ingredient in bringing a contract to an end. This is sometimes

referred to as accord and satisfaction. Accord is the agreement and Satisfaction is the consideration,
but it operates in a negative way. Example, A is contracted to work Y for 3 years. At the end of
the first year both parties are sick of each other/ having disagreement. A decides he want to work
somewhere else and Y promise not to pay. This is a negative consideration and will bring the
contract to an end.
Part Payment of Debts
If A owes B 50 and B accepts 25 in full satisfaction on the due date, there is nothing to prevent
B from claiming the balance at a later date, since there is no consideration proceeding from A to
enforce the promise of B to accept part-payment. This is because he is already bound to pay the
full amount, an agreement based on the same principle as Stilk v Myrick (existing duty).
In Pinnels case, Cole owed Pinnel 8.50 which was due on 11 November. At Pinnels request
Cole paid 5.11 on 1 October, which Pinnel accepted in full settlement of the debt. Pinnel sued
Cole for the amount owed.
It was held that part-payment in itself was not good consideration. However, it was also held that
agreement to accept part-payment would be binding if the debtor, at the creditors request provided
some fresh consideration. Consideration might be provided if the creditor agrees to accept:
i)

Part-payment on an earlier date than the due date (i.e. as in Pinnels case itself) of the
creditors request.

ii)

Chattel instead of money (a horse, hawk or robe maybe more beneficial than money) D
& C Builders v Rees

iii)

Part-payment in a different place from that originally specified.

In Foakes v Beer, despite the harshness of the rule in Pinnels case, it was affirmed by the House
of Lords and still represents the law.
Exceptions to the Rule
Apart from the exceptions to the rule mentioned in Pinnels case itself, there are two other at
common law and one exception in equity.

a) Part payment of the debt by a third party

A promise to accept a smaller sum in full satisfaction will be binding on a creditor where the part
payment is made by a third party on the condition that the debtor is released from the obligation
to pay the full amount see Punamchand V Temple. A father paid a smaller sum to a money
lender to pay his sons debts, which the money lender accepted in full settlement. Later the
money lender sued for the balance. It was held that part payment was valid consideration.
b) Composition Agreements
The rule does not apply to composition agreements. This is an agreement between a debtor and
group of creditors, under which the creditors agree to accept a percentage of their debts in full
settlement. Despite the absence of consideration the court will not allow an individual creditor to
sue the debtor for the balance (Wood v Roberts). The reason usually advance for this rule is that
to allow an individual creditor to claim the balance would amount to a fraud on the other creditor
who had all agreed to the percentage.
c) Promising Estoppel
The principal source is in the dicta of Denning J, in London Property Trust v High Trees. The
equitable doctrine provides a means of making a promise binding, in certain circumstances, in
the absence of consideration. The principle is that if someone (promisor) makes a promise, which
another person acts on, the promisor is estopped from going back on his promise, even though
the other person did not provide consideration (in so far as t is inequitable to do so). The creditor
will be barred from his legal rights where it is inequitable for him to enforce it.
Consideration must move from the promisee
Notes given for the same appear to be sufficient, and given the volume it appears to be highly
unlikely that a question would be based solely on the same rule

Capacity (minors, insane persons).

In general all natural persons have full legal personality, and therefore, contractual capacity; that
is, they are fully capable of entering into contractual relations with other persons. However, certain
classes of natural persons lack full contractual capacity: minors, drunken persons, insane persons
and illiterates.
Minors
The age of adulthood or majority, 18 years, is set by legation, and is the age at which natural
persons generally become legally capable of entering into contracts. Minors thus generally lack
contractual capacity; however, in some circumstances, contracts made or purported to be entered
into by minors are binding; the validity and enforceability of such contracts are governed by
common law principles as amended by legislations.
Under general common law principles, contracts entered into by minors can be grouped into three
categories, as follows:
A. Contract render void by statute (Jamaica is primarily governed by common law principles);
B. Contract voidable at common law; and
C. Contract binding on the minor

Voidable Contacts.
Voidable contract contracts are contracts which remain binding on the minor unless he repudiates
them before becoming an adult, or within a reasonable period of time after attaining the age
adulthood. This category of contract is limited to those under which the minor acquires and interest
in something permanent in nature, that is, out of which arise continuing obligations that are binding
on a minor e.g. leases of land, partnership agreements, and agreement to take shares not fully paid
up.

Note, what is a reasonable time will depend on the circumstances of the case. In Edwards
v Carter, it was held that repudiation by a minor of a covenant in a marriage settlement four and a
half years after the minor had attained majority was unreasonably late and therefore ineffective.
Until minors decide to repudiate, he is fully liable to perform his obligations under the
contract. Thus, for instance, a minor who takes a lease property, including covenants to pay rent,
and a minor who takes up shares in a company is liable to pay calls on shares. Following
repudiation it is clear that minor ceases to be liable for future obligations under the contract, such
as rent due after the date, but there is some doubt as to whether he is liable to satisfy existing
obligations, such as payment of rent falling due before the repudiation.1 It seems the better view
is that minor is bound by obligations accruing before repudiation. Thus, in Blake v Concannon, it
was held that a minor who repudiated a tenancy on attaining his majority, having occupied the
premises for several months, was liable to pay a years rent, accruing while he was in possession.
Where a minor repudiates a contract, he may recover any money paid or property
transferred, but only where there has been total failure of consideration. The test for total failure
of consideration is not whether the minor received any real advantage from the contract, but
whether he had obtained the very consideration which he had bargained for. In Steinberg v Scala,
a minor applied for and was allotted shares in a company; she received no dividends, and the value
of the shares remained low. 18 months after allotment, while she was still a minor, she was
repudiated the contract and sought to recover the amount she had paid on allotment and on the first
call. It was held that that she could not recover the money; there had been no total failure of
consideration, since, by allotting the shares to her, the company had done all that it had bargained
to do under the agreement.
Contracts binding on Minors
A minor is fully bound if he enters into a contract for necessaries. Necessaries are defined by the
sale of goods legislation as goods suitable to the condition in the life of such [minor] and to his
actual requirements at the time of sale and delivery. Furthermore, where necessaries are sold and
delivered to a [minor] he must pay a reasonable price therefor.2

th

See Cheshire, Fifoot and Furmston, Law of contract, 13 edn, p 448.

2
S 3 Sale of Goods Act (Jamaica)

Case law is instructive in fleshing out the meaning of the term necessaries. These include not
only necessaries but also such essentials as:
i)

Board and lodging;

ii)

Medical care (Peters v Fleming);

iii)

Legal advice (Helps v Clayton);

iv)

Food and clothing for minors wife or children (Chapple v Cooper); and

v)

Instruction in art or trade, or intellectual, moral and religious training may also be
deemed necessary, since the proper cultivation of the mind is as expedient as the
support of the body.

Goods which are merely luxury are always excluded but luxurious articles of utility are in some
cases allowed. The question of necessity or otherwise is a mixed question both law and fact.
For a minor to be liable for necessaries, the onus is on the seller to prove not only that the items
sold minors were suitable to his station in life but also that he was not adequately supplied with
goods of that nature at the time of the sale. In Nash v Inman, where a tailor brought an action
against a Cambridge undergraduate (a minor) to recover 122, being the price of eleven (11) fancy
waistcoats supplied to him. The action was dismissed on the ground that the defendant was
sufficiently supplied with clothes suitable to his position. Therefore the seller of the necessary
acted at his own peril.
Even where a contract with a minor concerns the sale or supply of necessaries, it will be
avoided if it contain harsh or onerous terms which are disadvantageous to the minor; as in Fawcett
v Smethurst, where a car rental agreement provided that the minor was to be absolutely liable for
damage to the vehicle, whether or not it was caused by his fault or neglect.
Beneficial Contracts of service
Minors are bound by beneficial contracts of service, that is contracts under which minor obtains
education or training for a trade or profession. The contract in order to be valid, must be an
employment or apprenticeship contracts, or at least must be analogous to such contracts. Contracts
under this heading are binding on the minor only if they are proved to be substantially for his
benefit. However, other types of contract will not be binding on the minor merely because they are
beneficial to the minor. It is well established that trading is not binding on a minor, however
beneficial it may be for him. The case of Mercantile Union Guarantee Corporation Ltd v Ball, is

instructive on this point, where a haulage contractor (a minor) was held not to be liable to pay
installments under a hire-purchase agreement in respect of a vehicle which he had hired for use in
his business. Also in Cowern v Nield, where a minor, contracted to sell and deliver a consignment
of hay, but failed to deliver, it was held that he was not liable to repay the price to the buyer.

Mentally Disorder Persons

Under the sale of goods legislation, a mentally disordered person is bound by contracts for
necessaries.3 As in the case of minors, the definition of necessaries is set by the legislation as
goods which are suitable (a) to the condition in life of the mentally incapable, and (b) to the actual
requirement of at the time of sale and delivery. A mentally disordered person must pay a reasonable
price, for necessary good provided under a contract which he purported to make.
As in the case of minors, the liability to pay is quasi-contractual, so that it arises only where the
goods are actually delivered to the mentally disordered person. There must have been some
element of consent on the part of the mentally disordered person, since the seller cannot force the
goods on him and then claim payment.
In the case of non-necessary goods, the mentally disordered person is bound by his contracts unless
he can show:
(i)

That, owing to his mental condition, he did not understand what he was doing (Boughton
v Knight), and

(ii)

That the other party was aware of his incapacity (Molton v Camroux).

Lord Escher MR articulated the rule as follows:

When a person enters into a contract, and afterwards alleges that he was so insane at the time he
did not know what he was doing, and proves the allegation, the contract is as binding on him in
every respect, whether it is was executory or executed, as if he had been sane when he made it,
unless he can prove further that the person with whom he had contracted knew him to be so
insane as to not be capable of understanding what he was about.
Contracts made by a mentally disorder person during a lucid interval, and those made before but
ratified during a lucid interval, are binding on him (Hall v Warren).

3

S 3 Sale of Goods Act (Jamaica)

The rule governing capacity of the mentally ill may, by analogy, be applied to the senile or
to persons suffering from mental infirmity. In Wiltshire v Cain, the plaintiff brought an action
for specific performance of an agreement for the sale of land. Counsel for the defendant, an elderly
gentleman, argued inter alia that at the time of making the agreement and for at least one year prior
to thereto, the defendant was suffering from a general loss of memory, metal debility and senile
decay and was incapable of understanding the meaning and the effect of the agreement. It was
further argued that the plaintiff was aware of his mental infirmity at the time of the agreement.
Field CJ commented:
A person may become of unsound mind because he has lost the ability of reason by disease, grief
or accident. Where a person in such condition can be shown not to have understood, because of
his mental condition, what he was doing and further, that the other party was aware of this
incapacity, then any contract, other than contract for necessaries, made by such a person is not
binding on him.
Drunken persons
Under the sale of goods legislation, a drunken person is bound to pay a reasonable price for
necessaries sold to him.4 Where a person enters into a contract in such a state of intoxication that
he did not understand what he was doing, and the other party was aware of that fact, the contract
is voidable at the drunkards option, but may be ratified later when the intoxication ceases.
Illiterates
At common law, the defence of non est factum (it is not [my] deed) may be available to an
illiterate person who signs a document under a fundamental mistake as to its nature or the
consent.

S 3 Sale of Goods Act (Jamaica)

3.

The doctrine of privity of contract:

1.

The Privity of Contract Doctrine

The privity of contract doctrine dictates that only persons who are parties to a contract are entitled
to take action to enforce it. A person who stands to gain a benefit from the contract (a third party
beneficiary) is not entitled to take any enforcement action if he or she is denied the promised
benefit.
Example:
A promises B, for consideration moving from B, to pay C $ 100.
Here A and B are parties to the contract privy to the contract and can sue each other if there is
a breach by the other. C is not a party to the contract and cannot sue A if A fails to pay C the sum
of $ 100.
A classic authority for the doctrine is Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co [1915] AC
847, where at 853, Viscount Haldane said:
My Lords, in the law of England certain principles are fundamental. One is that only
a person who was party to a contract can sue on it. Our law knows nothing of a jus
quaesitum tertio [third party right of action] arising by way of contract.
See also Coulls v Bagots Executor & Trustee Co Ltd (1967) 119 CLR 460, at 478, per Barwick
CJ.
2.

Privity and its Relationship to the Doctrine of Consideration

When looking at the doctrine of consideration we observed the rule that consideration must move
from a promisee, or, in other words, that only a person who has provided consideration can enforce
a promise. In the above example one could have argued that C could not sue on the basis that C
had not provided any consideration for As promise to pay C the sum of $ 100.
This raises the question of whether there is a distinction between the privity and consideration
rules. This question has generated considerable discussion in academic circles and there is a
division of opinion between those who say the rules are in fact one rule differently expressed and
those who argue that the two rules are distinct.
In the cases, the relatively scant references to the question tend to support the two separate rules
approach.

See Coulls v Bagots Executor, at 478, Barwick CJ and, at 494, per Windeyer J; Trident General
Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, at 115-116, Mason CJ, Wilson J
and at 164, per Toohey J.
3.

Remedies Against a Promisor in Breach of Obligations to a Third Party

Here we are concerned with the remedies that can be pursued against a promisor who is in breach
of his or her obligations to a third party. In our example above, who can sue A, and what remedies
are available?
Because C is a third party and not privy to the contract, C has no right of action against A.
However, B as the promisee under the contract and a party to the contract can sue A. Two possible
remedies arise, namely, damages at common law and specific performance in equity.
Can C require B to sue A? See Coulls, at 502, per Windeyer J.
(a)

Damages at Common Law

Because the remedy of common law damages for breach of contract will always be granted to a
plaintiff, B will always succeed. However, the critical issue is the measure of damages that will be
recovered.
Critical to an understanding of the position of B in this context is the basic principle for the
assessment of damages for breach of contract. As will be explored in more detail in the lectures on
remedies, damages seeks to compensate the plaintiff for the loss suffered as a result of the breach.
If no loss is suffered then a nominal (or token) award of damages is made in favour of the plaintiff.
If real loss is suffered, an award of substantial damages is made in favour of the plaintiff.
In our example it is likely to be the case that the measure of damages to be recovered by B would
be nominal because B suffers no loss as a result of the breach by A. Put another way, Bs position
is the same irrespective of whether or not A pays the sum of $ 100 to C. In special circumstances
it may be that B will suffer a real loss, in which case substantial damages which reflect the value
of Bs loss not Cs loss - will be awarded. See Coulls, at 501-502, where Windeyer J.
Because in most cases the measure of damages recovered will be nominal, there is little reason for
B to pursue common law damages.
The fact that B cannot sue to recover as damages the measure of Cs loss from As breach of
contract was recently confirmed by four members of the House of Lords in Alfred McAlpine
Construction Ltd v Panatown Ltd [2001] 1 AC 518, at 522, 563, 575 and 580. The fifth Law Lord,
Lord Goff was, at 538-539, 544, more skeptical, suggesting that it was an extraordinary defect
in the law that B should have no remedy for common law damages against A.

(b)

Specific Performance in Equity

Unlike common law damages, specific performance will not always be granted to a plaintiff upon
proof of a breach of contract. There are various grounds upon which a court will refuse specific
performance. A particularly important one in the present context is that the remedy will be refused
if common law damages would be an adequate remedy. The critical decision in this respect is
Beswick v Beswick [1968] AC 58. From this case set out:
See also Coulls, at 503, per Windeyer J.
4.

General Law Exceptions to the Doctrine of Privity

There are a number of general law principles which enable a third party, such as C in our example,
to overcome the doctrine of privity. Because they rely upon establishing the elements of other
established legal doctrines and institutions, they are not true exceptions. Rather they constitute
means of circumventing the doctrine of privity because these other legal principles apply on the
facts of the given case. Some of the key exceptions are discussed below.
(a)

Agency

The rule here is that if one of the contracting parties contracts as an agent, then either the agent or
the principal, but not both, can sue to enforce the contract. In our example, if B is Cs agent then
either B or C can enforce the contract against A. In these cases it is immaterial as to whether A
knew that B was Cs agent.
A particular situation where agency principles arise is with contracts for the carriage of goods.
Typically the situation will be where a carrier includes in the contract an exclusion clause and the
exclusion clause is expressed to be for the benefit of not only the carrier but third parties that might
be engaged by the carrier for the purpose of transporting the goods. A common example in the
cases is in shipping contracts, where the third party is the stevedore who unloads the goods at the
port of destination.
In such cases, can the stevedore rely on the benefit of the exclusion clause when the stevedore
causes damage to the goods? See elements that have to be satisfied in Midland Silicones Ltd v
Scruttons [1962] AC 446, at 474, per Lord Reid.
Originally these principles were only applied to contracts for carriage of goods by sea. However,
they have been applied to road carriage cases: Life Savers (Australasia) Pty Ltd v Frigmobile Pty
Ltd [1983] 1 NSWLR 431. Presumably they would also apply to contracts for carriage of goods
by rail or air.
It may even be the case that these principles could apply to exclusion clauses in any context where
it is intended to extend their protection to third parties.

An illustration of the application of the principles is in New Zealand Shipping Co v A M

Satterthwaite & Co Ltd (The Eurymedon) [1975] AC 154. From this case set out:
In relation to the contract between the owner of the goods and the third party Lord Millet went on
to say, at 853:
Such a contract cannot properly be characterised as a contract of carriage. It is rather
a contract of exemption which is ancillary or collateral to other contractual
arrangements which were necessary to achieve the carriage of the goods on the chosen
vessel.
(b)

Trusts

The law of trusts can enable a third party beneficiary to initiate action that will enforce the
promisors obligation. Using the above example, if B had contracted with A in the capacity of
trustee for C, C as beneficiary under the trust has enforceable rights. These rights arise because the
law of trusts gives a beneficiary certain rights against a trustee.
In the context of privity, if C is a beneficiary under a trust, C can bring an action against B, the
trustee, that has the effect of compelling B to sue A for breach of contract. In formal procedural
terms C sues in an action in which B and A are joined as defendants.
The use of trust law here does not give rise, in the strict sense, to an exception to the doctrine of
privity. In conceptual terms, the action against A is pursued by B, albeit at Cs insistence.
For the trust relationship to arise 2 points need to be examined.
First, for a trust to exist their must be property that is held on trust. There can be no trust without
a trustee holding property on trust for the beneficiary. The law a trusts has a broad and flexible
definition of property. In this case the property is the promise made by the promisor. In other
words, the contract between A and B, it is the promise made by A to B that is held on trust by B
for C.
Second, for the trust to arise in this context, it must be established that there is an intention, at the
time of the contract between A and B, that B was contracting in the capacity of trustee. On intention
in this context see Trident, at 149, per Deane J.
In ascertaining whether the intention is present, a court will look to the language in the contract,
the nature of the transaction and relevant circumstances attending the relationship between the
parties: Winterton Constructions v Hambros at 370. Certain types of contracts may be more readily
amenable to finding a trust intention than others.
Could a trust be found in the context of Trident? See Trident at 148, per Deane and at 155-157,
per Dawson J. What were the reasons why Deane J found in favour of McNiece Bros on the basis
of trusts but Dawson J did not?

When the trust exception is pursued and B sues for damages, the measure of damages that is
recovered reflect the loss to C, the beneficiary of the trust. The damages that are recovered are held
by B on trust for C: Lloyds v Harper (1880) LR 16 ChD 290; Eslea Holdings Ltd v Butts (1986)
6 NSWLR 175.
(c)

Estoppel

Following the decision in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, a third
party may be able to seek relief against a promisor on the basis of promissory estoppel principles.
To succeed the third party would need to establish the elements of promissory estoppel. See
Trident, at 145, per Deane J.
In Trident, Mason CJ, Wilson J, at 123-124, were of the view that it was likely that estoppel could
be established on the facts of the case, but it was not necessary for them to determine the issue on
the basis that they had decided the case on other grounds.
(d)

Unjust Enrichment

When we examine the remedy of quantum meruit later in this course, we shall see that the principle
of unjust enrichment is the principle that underpins the remedy. The essence of the principle is that
it requires a defendant to make fair and just restitution derived at the expense of a plaintiff: Pavey
& Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256-257, per Deane J.
In Trident, Deane J, at 145-146, indicated that the principle could possibly be the basis for a third
party to seek relief. However, it was Gaudron J, especially at 176, in Trident who based her
decision in favour of McNiece Bros on the basis of the principle of unjust enrichment.
The action based upon unjust enrichment is not based on the contract but independent of it.
However, usually it will correspond in content and duration with the promisors obligation.

4.

The legal rules governing contractual terms:

The terms of a contract are its content, and they define the rights and obligations arising from the
contract. Contractual terms may be expressed or implied.
Express terms are those specifically laid down by the contract, and they consist of express oral or
written statement made by the parties.
Implied terms are those which are not specified in the contract but which are implied either (i) by
statute, or (ii) by custom, or (iii) by the court.
Express Terms
A contract may be (i) purely written, (ii) purely oral (iii) partly written and partly oral. Generally,
no formality is required for a term, whether oral or in writing (or partly orally or partly in writing),
to form part of a contract.
If the terms of a contract are in dispute, a court will determine what terms were decided on by the
parties. In respect of oral contracts, precise evidence may be required in order to clarify exactly
what the terms of the agreement were, as the dispute may turn on very fine details.
Proof of terms
Oral Contracts- Terms and representation
Statements made by parties can be categorized as (i) promises or (2) mere representations. Except
in the case of simplest transactions, there will generally be a period of negotiation before the final
terms of the contract are agreed. Promises (sometimes called warranties) made during
negotiations and not withdraw will generally form part of an oral contract and are therefore
binding. An action for damages will lie for breach of these terms.
However, there are some statements (often referred to as mere puffs) which cannot be
relied upon as terms of the contract because they are imprecise or were not meant to be taken
laterally. The courts must determine the category into which the statement fits.
The distinction between each type of statement is important as, on the one hand, the breach of
promise (which is a binding term) gives rise to the usual remedies for breach of contract (that is,
damages or recession). On the other hand failure to conform to a mere representation, though in

some circumstances giving the right to rescind the contract, will not be remediable by damages
unless the representation was deliberately false (fraudulent), or made negligently in which case
actions in tort for damages will lie.
Since the question of whether a statement is a contractual term (warranty) or mere representation
is a question of law, and not fact, the issue is one for the court to decide.
In making the determination the court will take various factors into account, including:
1) Importance of the truth of the statement (Bannerman v White).
2) The length of time which had passed between the making of the statement and the final
agreement (Routledge v McKay).
3) Whether the party making the statement was better placed than the recipient of the
statement to better verify the truth (Dick v Harold).
4) Whether the contractual terms are later put in the written agreement (Heilbut, Symons v
Buckleton)
5) The key factor in determining whether a statement is term is was laid down in Heilbut,
Symonds v Buckleton, the test is whether there is evidence of an intention (animus
contrahendi [intention to conclude]) by one party or both parties that there should be
contractual liability in respect of accuracy of statement.
In Oschar Chess Ltd v Williams, a car sales man sold a second hand car to a purchaser, in the
honest belief, based on reasonable grounds, that it was a 1948 model. This belief was based on the
fact that the date of the car included in vehicle registration book was 1948. It was held that in
producing the registration book, the sales man did not intend himself so as to warrant the accuracy
of the statement that was in the book.
By contrast, in Dick v Harold, a car sales man sold a car on the basis that milometer
showing that the vehicle had driven 20,000 miles, when in fact it had driven 100,000 miles. It was
held to have warranted the truth of the statement, thereby binding himself contractually.
Thus a statement will only be a term of the contract if the party making intended make himself
contractually liable for truth of the statement; the court will also consider the totality of the
evidence.5

5

Note- the effect of a warranty which only gives right to damages; while breach of a vital condition can terminate
the contract.

Lord Denning per Oschar Chess Ltd v Williams, noted in part,

the best expressed ruling of Lord Holt, was it intended as a warranty
or not? In applying Lord Holts test, some misunderstanding has arisen
as to the word intended. It is sometimes supposed that the tribunal must
look into the minds of the parties to see what they themselves intended.
This is a mistake. Lord Moulton made is quite clear that, The intention
of the parties can only be deduced from the totality of the evidence. The
question of whether a warranty was intended depends on the conduct of
the parties, on their words and behavior, rather than on their thoughts. If
an intelligent bystander would reasonably infer that a warranty was
intended would suffice.
Written Contracts
In the case of a written contract it is the duty of the court to interpret their terms. This is a matter
of law for the court,6 the court will not be obligated to incorporate into its interpretation, for
example, concessions made by the parties about the meaning of the contract (Bahamas
International Trust Co Ltd v Threadgold).
Signature
It is a fundamental principle that parties are bound by the content of the written contract and cannot
seek to amend or add to its terms after the fact. Once an agreement is signed, a party cannot use
the fact that he or she did not read the terms, as to avoid liability under the contract. In LEstrange
v Graucob Ltd, the plaintiff purchased a slot machine, in so doing he signed an order form, and it
contained fined prints. Upon delivery of the machine the plaintiff found that it was not functioning
properly and brought an action on the said basis.
The court held that since the plaintiff had signed the agreement, the disputed term was valid. It
was immaterial that the plaintiff had not read the terms.
Notably, following the decision in Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd, where a contract contains particularly onerous or unusual terms printed terms,
the party seeking to enforce such terms must prove that they were brought to the other partys
attention.

6

Bentsen v Taylor, Sons & Co

Parole Evidence Rule

There is a presumption that the written document contains all the terms of the contract, but the
presumption is rebuttable evidence that the parties did not intend the written document to be
exclusive, but wished it to be read in conjunction with oral statements. This is known as the parole
evidence rule. The rule has been described in the following terms:
It is firmly established rule that parole evidence cannot be admitted to add
to, vary or contradict a deed or other written instrument parole evidence
will not be admitted to prove that some particular term, which has been
verbally agreed upon, had been omitted (by design or otherwise) from a
written instrument constituting a valid and operative contract.
The essence of the rule is that it prevents a party from adducing evidence which is extrinsic to a
written contract. In Hawrish v Bank of Montreal, a lawyer acting for a company agreed to
guarantee all present and future debts of the client company, up to 6,000. The lawyer later
adduced evidence to show that the parties intended for guarantee to apply to an overdraft facility
of the company, and not all of its debts. It was held that the lawyers evidence was inadmissible.
Parole evidence is also admissible where, a signed document makes reference to another
document, they will both be read together (Elias v George Sahely & Co). Where it is found that
the presumption in parole evidence rule has been rebutted, terms which are extrinsic to the written
contract, will be deemed to have been included in the written agreement. This is called
rectification. Rectification is also available to amend a written contract where it was executed
under a common mistake.
Collateral Contracts,
Collateral contracts are secondary contracts which are enforceable as independent agreements,
separately from a primary contract. They tend to invoked and enforce promises made in exchange
for the entry into the primary contract.
In Shanklin Pier v Detel Products Ltd, where A (painter) contracted with B (employer and seller)
to paint a pier, and B induced A to choose a paint made by B, it was held that there were two
contracts. In addition to the contract with which B agreed to paint the pier, there was a collateral

contract A agreed to use Bs paint, in exchange for a guarantee that the paint was suitable for the
pain job.
Conditions
A condition is a term in a contract which the parties regarded as essential, in respect of which one
party promises to perform an obligation, or promises the accuracy of a statement. In the event of a
breach of a condition, the innocent party is entitled to rescind the contract, treating himself as
discharged from further performance. This is so, even if the innocent party has not suffered any
loss because of the breach. The innocent party may also affirm the contract if he so chooses. In
addition to the right to rescind or affirm the contract, the innocent party may in either case claim
damages for any losses suffered.
In Locke (JR) v Bellingdon Limited, The Barbados court of Appeal held that failure by the
plaintiff, Locke, to pay a deposit for the purchase of commercial property, amounted to a
repudiatory breach entitling the defendants to treat the contract as being at an end.
Simmons CJ stated the courts ruling and explained the decision as follows:
Repudiation is a drastic action which should only be held to arise in clear cases
of a refusal to perform contractual obligations, where the matter goes to the root
of the contract. In considering whether there has been repudiation of a contract
by one party, which is a question of fact, it is necessary to examine that partys
conduct as a whole and ask the question: does the conduct indicate an intention
to refuse performance of the contract or abandon the contract? Clearly the
conduct of the repudiating party must be judged objectively. The guiding principle
is enunciated by Lord Coleridge CJ in Freeth v Burr. The Lord Chief Justice said,
and it is still law: In cases of this sort, where the question is whether the one
party is set free by the acts or the conduct of the one do or do not amount to an
intimation of an intention to abandon and all together to refuse performance of
the contract.
It is all a matter of construction. The court must construe the language of the contract and
the circumstances of the case to see whether there was renunciation of the contract- the
entire circumstances of the case must be looked at.

For conduct to be characterized as repudiatory, the breach or threatened breach must go to the root
or core of the contract and it follows that a threatened or anticipatory breach will amount to
repudiation if it relates to a fundamental term going to the root or core of the contract.
On appeal, in order to determine whether the deposit was a fundamental term going to the root of
the contract, the starting point must surely be to assess the nature of the deposit. It seems to us
that a deposit is the security for the completion of the contract and a guarantee for performance. If
that is so, it would seem axiomatic that it is an essential stipulation going the root of the contract
and a breach of it would entitle the innocent party to treat the contract as at an end.
In Woodar Investments Development Ltd v Wimpey Construction UK Ltd, the plaintiffs agreed to
sell 14 acres of land to the defendants. The completion date was set at 2 months after the granting
of planning permission or another fix date, which ever was earlier. The market became
unfavourable to the defendants and they sought to rescind the agreement which was a right allowed
for by the agreement but in circumstances did not exist. The defendants honestly believed that they
were entitled to rescind. The plaintiffs claimed that the conduct of the defendants amounted to
repudiation. The House of Lords held that the defendants conduct did not amount to repudiatory
breach because a party who took action relying simply on the terms of the contract in question and
not manifesting by his conduct an ulterior intention to abandon it was not to be treated as
repudiating it.
Woodar in fact shows the kind of good faith conduct that does not amount to repudiation. In that
case there was no finding of fact as to repudiation. What the parties did was to bring an action for
the interpretation of contract.
Stipulation as to time are not ordinarily construed so as to make time of the essence, and so breach
of contractual deadline will not generally be a fundamental breach.7 However, where time is
specified in the contract, as being of the essence,8 or where the court considers that the parties
must have intended time to be of the essence, such a failure to meet a deadline will amount to a
fundamental breach.
A party making a contract may serve notice making time of the essence after entering into a
contract, where the other party is in default. However, he cannot do so if he himself is also in
default. In Chaital v Ramlal (Privy Council), M, the vendor in a contract for the sale of land, could

7
8

Sale of Goods Act (Jamaica)

Steadman v Drunkle

not serve notice on the prospective purchaser, R, because he was in default of an obligation to
supply R with certain information.
Types of conditions:
Five (5) types of conditionsv Promissory conditions
v Contingent conditions
v Condition Precedent
v Conditions subsequent
v Conditions to be satisfied concurrently
1) Promissory conditions. A condition may be promissory in the sense that it is a promise by
one party to perform (or procure the performance) of an obligation. Failure to do so will entitle
the innocent party to treat the contract as being at an end and, if he suffers loss, to sue for
damages for such loss.
2) Contingent Conditions. Contingent conditions may be contrasted with promissory conditions.
These are obligations which do not arise until the occurrence of a particular event. Until that
event has taken place, the obligation of one or all the parties will remain suspended (Trans
Trust SPRL v Danubian).
3) Condition precedent. Generally, a condition precedent is a condition, the fulfillment of which
is required in order for the agreement to come into effect.
Where a condition precedent fails to be satisfied, (1), it may suspend the parties rights and
obligations under the agreement;9 (2), one party may be bound to unilaterally to perform an
obligation, subject to a condition, although the agreement is not yet bilaterally binding on until

Pym v Campbell (1856) 6 E & B 370

the condition is satisfied;10 (3), the contract may become binding, but rights and obligations
under the contract are suspended until a specifies condition is met.
The parties are at liberty to draft (or, if oral, to finalize) their agreement to provide that a
condition precedent has a particular effect. For example they may wish for ancillary obligation
under the agreement to be effective notwithstanding the transaction contemplated by the
agreement cannot proceed for failure to satisfy a condition precedent. Typical examples of this
type of provision are confidentiality provision and further assurance clauses.
4) Condition Subsequent. A contract that becomes immediately binding on agreement of the
final terms may provide for (1) termination of the agreement (or termination of some or all the
terms of the agreement), or (2) the ability of the parties to treat the agreement as being at an
end, if certain conditions are met, or fail to be met, after the contract has come into effect.
These provisions are conditions subsequent.
In Head v Tattersall, thus, where X agreed to buy a horse from Y, it was a term of the contract that
the horse had been in Bicester Hunt, and if this condition turned out to be untrue, X would have
until a specified day to return the horse. It was found after completion of the contract and delivery
of the horse that the horse had not in fact been in the Bicester Hunt and it was held that X was
entitled to return the horse and recover the purchase price. This was so notwithstanding that the
horse had sustained injury while in Xs possession (through the fault of X).
5) Conditions to be satisfied concurrently. Concurrent conditions are conditions which are to
be performed at the same time or conditions each of which is dependent on the other. An
example of concurrent conditions is to be found in contracts for the sale of goods, where (1)
the delivery of goods and (2) the payment of those goods are concurrent conditions.

Warranties
The word warranty is used in a wide variety of circumstances, including in the context of proof of
terms, where it is intended to connote a binding contractual term (which is generally contrasted

10

Smith v Butler [1990] 1 QB 694

with a mere representation which is non-binding). On the other hand the word warranty in its
technical sense relate to the classification of terms rather than proof. It is used to distinguished one
binding term (warranties) from another (conditions or intermediate terms).
The essential feature of a term is that it is a subsidiary, non-essential term, breach of which
only gives rise to an action for damages by the innocent party. In insurance law, warranty
sometimes means an essential term. Breach of warranty entitles the innocent party to damages only
(Hong Kong Fir Shipping Co Ltd v Kawasaki Kaisha Ltd).
Intermediate (Innominate) terms
Where there was a breach, the strict classification of conditions and warranties would allow a nondefaulting party to treat the contract as being at an end, even where the party had not suffered any
significant losses, this was perceived as an abuse of the classification.
The court therefore developed a more flexible approach to the classification of terms,
encouraging performance11 by limiting the circumstances in which a non-defaulting party can treat
the contract as at an end.
Unless specifically agreed by the parties or determined by legislation, breach of an
intermediate term entitles the innocent party to treat the contract as being at an end only if the
breach has caused the innocent party to be substantially deprived of the whole benefit intended for
him under the contract.
Principles in applying the classification of terms
Sale of Goods legislation defines certain implied terms as either conditions or warranties.12 The
parties may also designate a term as a condition (or a condition precedent), warranty or
intermediate term. Where they do so, this designation will generally be respected by the court. For
example, in the case of a breach of a condition, that breach, however small, will give rise to a right
to repudiate, unless such a construction produces a result so unreasonable that the parties could
not have intended it, and if there is some other possible and reasonable construction.

11
12

Cehave NV v Bremer [1976] QB 44

S 11

Exemption and Limitation Clauses

An exemption or exclusion clause is an express contractual term which seeks to exclude or limit
contractual or tortuous liability of one of the parties under the contract. The exclusion of or
limitation on liability can relate to exclusion of terms implied by the court, by statute or by custom
or to statements made during negation or before entry into the agreement.
The common law rules governing exemptions clauses are governed below.

Standard form Agreements

Exemption clauses are often found in standard form contracts, such as contracts made subject to
the printed terms drawn up by one of the parties. Examples include the conditions of carriage in
airline tickets, or terms and conditions in mobile phone contracts. Standard form contracts are
increasingly common, and the average person may enter into these contracts without ever having
negotiated these terms.
From a consumers perspective in particular, he is rarely in a position to negotiate, question
or vary these terms.
Typical examples of exclusion clauses in contracts for the sale of goods are clauses excluding all
sales and conditions and warranties, whether express or implied, and excluding liability for
misrepresentation.
Limitation clauses are clauses which cap the liability of a party with reference to a set monetary
limit or a formula for determining a set monetary limit (for example, Party As liability shall not
exceed $1000, or Party As liability shall not exceed the purchase price).
Exemption clauses must be part of a contract.
Sufficiency of notice
In the case of signed contracts, parties will generally be bound on the basis that they are deemed
to have understood and agreed to those terms on signature.

Where a party signs a contractual document containing an exemption clause, the clause
is binding on the signatory whether or not he read it and understood it (Parker v South Eastern
Railway).
In case of exemption clauses which are not part of a signed document, the essential
ingredient for the clause to be binding is notice. Only if the party had notice of a term can it be
said they agreed to it.
Principles governing what constitutes valid notice:
v The question of timing of notice of an exemption clause is important in determining
whether it can be said to be incorporated into the contract between the parties.
v An exemption clause is not binding unless it was brought to the attention of the other party
before the contract was made.
Thus, an exemption clause printed on a receipt for money will not be will not be valid as a receipt
is not a contractual document (Chapelton v Barry).
Similarly, in Olley v Marlborough Court, P arrived at a hotel and filled out the usual forms
at the reception desk, paying for a weeks stay. On reaching the bedroom, P say a notice on the
wall stating that the hotel would not be liable for articles lost or stolen unless handed to the manager
for safekeeping. Ps fur coat was stolen, and P sued the hotel, which sought to rely on the clause
to be exempted from liability. The question to be decided was whether the defendant hotel, was
protected by notice in the plaintiffs bedroom.
It was held that the hotel could not rely on the clause, as it was not brought to Ps notice
until after the contract had been made at the reception desk. Denning LJ, noted in part:
The first question is whether that notice formed part of the contract. People who
rely on a contract to exempt themselves from their common law liability must
prove that contract strictly. Not only must the terms of the contract be clearly
proved, but also intention to create legal relations- intention to be legally boundmust also be clearly proved. The best way of proving it is by: i) a written document
signed by the party to be bound. Ii) Another way is by handing him, before or at
the time of the contract, a written notice specifying certain terms and making it
clear to him and making it clear to him that the contract is in those terms. Iii) A

prominent public notice which is plain for him to see when he makes the contract
would, no doubt have the same effect, but nothing short of one of these three ways
will suffice.
It is also settled that where a similar exemption clause has been included in previous dealings
between the parties, the clause will be binding, since the party against whom the clause was
inserted would be deemed to have had notice of it (Spurling v Bradshaw).
Types of Exemption clause:
1) Liability for negligence
An exemption clause purporting to exempt liability for negligence must be adequate. In
Olley v Marlborough Court, reaffirms this principle and demonstrates that even where a
clause purporting to exempt the defendant from liability for negligence has been brought
to the parties attention, the exemption clause must be sufficiently clear on the face of the
contract.
2) Liability for misrepresentation.
Where seeking to rely on an exemption clause has misrepresented the meaning or the extent
of the clause, then it will not be binding on the representee.
3) Unreasonable Clause
Standard form contracts containing terms which are non-negotiable are increasing
common. As a general rule, where a contract contains terms that are unusually
unreasonable or burdensome to perform, special steps must be taken to bring those terms
to the notice of the party who did not draft those terms (Interfoto Pictures Library Ltd v
Stiletto).

Interpretation of Exemption clauses.

1) Unequal bargaining power.
In cases of unusual bargaining power, where one party indicate the terms to another, the
courts have tended to curtail the exclusion of the liability wherever possible, except where
to do so would clearly violate accepted principles of contractual interpretation.
In Boyack & McKenzie Ltd v Lock Joint American, D subcontracted work P for road
reinstalment. There was inclusion of an exemption clause in the agreement to the effect
that D could stop, suspend or delay work related to acts or orders if government. D later
performed the road reinstalment work himself depriving P of the opportunity and profit of
the same.
Held, Ds interpretation of the contract was incorrect, if the defendant wanted the
clause to have the purported effect, it should have used clear and precise language; in the
absence of such language D will be held liable for breach of contract. The court
disapproved of the defendants attempt to rely on the exemption clause, particularly
because of the balance of the bargaining power lay distinctly in its favour. Rees J said,
In situation as these the court have the courts have tended to set their faces against the
exclusion of liability, and so far as rule of construction allow, to confine the operation of
exemption clauses within the narrowest limits.
2) The fundamental breach doctrine and exemption clauses.
The current position is that a party may be deprived of the benefit of an exemption clause
only where that was the intention of the parties. The essence of the principle is that where
the defaulting party committed a breach which is arguably within the scope the scope of an
exemption clause, the question of liability or otherwise of that party for the breach will be
a question of the interpretation of the contract. This is so, even where the breach is
fundamental in nature. The parties are free to agree that liability for a breach (whether
fundamental or otherwise) may be absolved under an exemption clause.
By the same token, the court in interpreting a contract may find that the parties
could not have intended that a defaulting party should be absolved from liability by virtue
of an exemption clause.

In Photo Production Ltd v Securicor, Lord Diplock drew a distinction between (1)
primary obligations (such as terms of a contract) and (2) secondary obligations (such as
liability to pay damages for breach). He held that the parties to a contract are free determine
their primary obligations in order to fix their secondary obligations, and that therefore they
can choose to govern their liability after termination. On this basis, it is for the parties to
determine whether an exemption clause operates to relieve a party of liability for
fundamental or non-fundamental breaches.
Apply these principles, three questions are helpful in determining whether a defaulting
party can rely on an exemption clause to exonerate him from liability for breach (whether
fundamental or otherwise).
i)

Did the parties intend to be bound by an exception clause?

ii)

Is the clause effective? was it properly incorporated into the contract and are the
terms reasonably clear and precise?

iii)

Do the terms of the exemption clause as drafted cover the breach or fundamental
breach in question. Or is the breach so serious and so fundamental that the parties
could not have intended for the clause to exempt the parties for the breach?

In Bevad Ltd v Oman Ltd, the Jamaican Court of Appeal held that the vendor in a contract for the
sale of land could not rely on an exemption clause purporting to exclude all conditions, warranties
and representations, whether implied or express, on account of the fact that he had fraudulently
misrepresented that planning permission for the development of land had been obtained, when it
had not.
Similarly, where X bought a second-hand truck from Y under a hire purchase agreement
which contained a clause all warranties and conditions as to fitness or road worthiness, and the
truck turned out to be completely unroadworthy, Y could not rely on an exemption clause as he
had committed a fundamental breach in supplying a useless vehicle.

3) Contra proferentem rule (where ambiguous interpretation against draftsman)

Exemption clauses are construed strictly against the party who inserted them. Thus in Ammar
& Azar Ltd v Brinks Jamaica Ltd, the Jamaican Supreme Court held that such limitation as a
party seeks to rely on must be clearly and unambiguously stated in the contract relied on.

Implied terms
In addition to terms which are expressed by the parties orally or in writing, the law will, in some
instances, imply into a contract terms which were not expressly included as a part of the agreement.
These terms will be derived from (1) statute, (2) customs or (3) implied by the court. In deciding
what terms are to be implied, the court will take into consideration what the parties must have
meant to agree, taking into consideration both the commercial purpose and the circumstances of
the agreement. Terms will generally not be implied where they have been excluded by the express
terms of the agreement. This is captured by the phrase expressum facit cessare tacitum (what is
expressed makes what is implied silent) - the implied meaning need not be adopted when a clear
meaning is provided..
Terms implied by statute
In some cases statutory provisions will deem terms to be implied into certain types of contract to
protect parties who ostensibly lack equal bargaining powers e.g. purchasers and employees.
Examples of these contracts relating to the sale of goods, hire purchase and employment.
Importantly, these terms will not be implied where to do so would violate or contradict the express
terms of agreement (Cf Johnstone v Bloomsbury). For this reason commercial contracts often
exclude any such implied terms.
Terms implied by custom
Terms may be implied where there is a defined and general custom of a locality or usage of a
particular trade. Such custom or usage must be notorious, certain and reasonable and must not be
inconsistent with any statute. In Hutton v Warren, an outgoing tenant was entitled to rely on local

custom that he should be paid a reasonable allowance for labour and material expanded on the land
even though the lease contained no express term to that effect.
Also, in Produce Brokers Co ltd v Olympia Oil and Cake Co Ltd, the house of lards held that,
where an agreement referred all dispute arising from [the] contract to arbitration, the arbitral
panel was correct in considering custom when making it award.
A custom or usage may be excluded by the parties either expressly or impliedly; thus, terms
will not be implied by reason of custom or usage where to do so would contradict one or more of
the express terms of the contract.

Terms implied by the court.

Terms necessary to achieve business efficacy:
The Moorcock Principle
Where parties by inadvertence or by incompetent drafting, fail to incorporate into a contract terms
which they certainly would have included had they addressed their minds properly to the drafting
of the contract, the court may imply such terms in order to give business efficacy to the
transaction. This principle was laid down by Bowen LJ in the Moorcock.
Implied Duty of Good Faith or Fair dealing
In the recent Belizean case, Bella Vista Development Co Ltd v AG, it was suggested that in some
circumstance, the court would be willing to imply a duty of good faith or fair dealing. This case
concerned a termination for convenience clause in favour of the government. Such clauses
purport to allow the beneficiary of the clause to terminate the agreement without cause. The clause
in question read as follow:
59.4 Notwithstanding the above, the contracting agency may terminate the contract for
convenience at anytime.
The general election in Belize was held in 2008, and the government changed hands. The new
government then served notice on the claimant that it was terminating the contract. The claimant
sued the government for breach of contract. The claimant argued inter alia that, that there were

legal limits on the defendants ability to terminate, and also that in so doing he must have acted in
good faith.
Legall J held and confirmed that such a duty was implied in the termination for the
convenience clauses, but noted that such the burden of proof lies in the party asserting bad faith,
and that the claimant had failed to discharge this burden. Further, there is a presumption of good
faith. Legall J noted in part, that:
On the authorities, it is safe to come to the conclusion that bad faith, unfair
dealings, an abuse of contracting discretion, and an attempt to acquire better
bargain from another source, are limitations legally placed on the use of
convenience clause. These cases clearly show that although there is a right to
terminate a contract without a cause, under a convenience clause, that right is
subject to the rule not to act in bad faith or in abuse of discretion, or in an attempt
to get a better bargain from another source.
The convenience clause is subject to limitations of acting in good faith, fair dealing
or without an abuse of discretion. These terms are implied in the contract. There
is a very heavy burden on the part of the claimant to prove bad faith, and on the
faiths they have failed to satisfy this burden.
It remains to be seen whether the Caribbean Courts will follow the approach in Bella Vista
Development, and find in favour of a general implied duty of good faith, even where the express
contractual terms provide for termination without a cause.
The Officious Bystander test
The Court will also imply terms into a contract where it is obvious that both of the parties must
have intended for the term to form part of the agreement. The test was described in Shirlaw v
Southern Foundries Ltd, in the following terms:
Prima facie that which in any contract is left to be implied and need not be
expressed is something so obvious that it goes without saying; so that if, while the
parties were making their bargain, an officious bystander were to suggest some
express provision for it in the agreement, they would testily suppress him with a
common, oh, of course.13

13

Basanta-Henry v National Commercial Bank Jamaica Ltd (2004) Supreme Court, Jamaica No E-132 of 2002

5.

Misrepresentation:

A Misrepresentation is a false statement of fact made by one party to another, which, whilst not
being a term of the contract induces the other party to enter into the contract.
The effect of an actionable misrepresentation is to make the contract voidable, giving the
innocent party the right to rescind the contract and/or claim damages.
The elements of Misrepresentation are:
(i)

False statement of Fact

(ii)

Induce another party to enter into the contract

1. False statement of Fact

An actionable misrepresentation must be a false statement of fact, not opinion or future

intention or law.
(a) Statement of opinion
A false statement of opinion is not a misrepresentation of fact. In Bisset v Wilkinson, a
statement made about the farming capacity of a parcel of land was not a
misrepresentation of fact but merely an opinion.
However, where the person giving the statement was in a position to know that the
true facts and it can be proved that he could not reasonably have held such a view as a
result, then his opinion will be treated as a statement of fact (Smith v Land & House
Property Corp).
Some expressions of opinion are mere puffs. Thus in Dimmock v Hallet, the description
of the land as fertile and improvable was held not to constitute a misrepresentation.
(b) Statement As to future
A false statement by a person as to what he will do in the future is not a
misrepresentation and will not be binding on the person unless the statement is
incorporated into the contract.

However, if a person knows that his promise, which has induced another to a contract,
will not in fact be carried out then will be liable (Esso Petroleum V Mardon).
(c) Statement of Law
A false statement of law is not actionable misrepresentation because everyone is
presumed to know the law. However, the distinction between the fact and law is not
simple (Solle v Butcher).
(d) Silence
Generally, silence is not a misrepresentation. The effect of the maxim caveat emptor is
that the other party has no duty to disclose problems voluntarily. If one party is
labouring under a misapprehension there is no duty on the other party to correct it
(Smith v Hughes).
However, there are three fundamental exceptions to this rule:
(i)

Half Truths
The representor must not misleadingly tell only part of the truth. Thus, a
statement that does not present the whole truth may be regarded as a
misrepresentation (Nottingham Brick v Butler).

(ii)

Statement which becomes false.

Where a statement was true when it was made out but due to a change of
circumstances has become false by the time it was acted upon, there is a duty
to disclose the truth (OFlanagan).

(iii)

Contracts Uberrimae Fidei

Contracts uberrimae fidei (contract of utmost good faith) impose of duty of
disclosure of all material facts because one party is in a strong position to know
the truth. Example, contracts of insurance and family settlements. A material
fact is something which would have induced a reasonable person into making
the contract. If one party fails to do this, the contract may be avoided (Lambert
v Co-operative Insurance Society). Where there is a fiduciary relationship
between the parties to a contract a duty of disclosure will arise, e.g. solicitor
and client, bank manager and client, trustee and beneficiary.

(e) Other Representations

The term statement is not to be interpreted too literally:
(i)

In Gordon v Selico, it was held that painting over a dry rot, immediately prior
to the sale of the property was fraudulent misrepresentation.

(ii)

In Marylebone Property v Payne, the use of a photo graph taken from the air,
printed with arrows (misleadingly) indicating the extent of the land boundaries,
was to convey a statement of fact (which amounted to actionable
misrepresentation).

2. Misrepresentation must have induced the contract.

The false statement must have induced the representee to enter into the contract. The requirements
here are that:
a) The representation must have been material and;
b) It must have been relied on.
(i)

Materiality (importance)
The misrepresentation must be material, in the sense that it would have induced a
reasonable person to enter into the contract. However, the rule is not strictly objective.
In Museprime Properties v Adhill Properties, it was noted that, any misrepresentation
which induces a person to enter into a contract should be a ground for recession of that
contract. If the misrepresentation would have induced a reasonable person to enter into
the contract, then the court will presume that the representee was so induced, and the
onus will be on the representor to know that the representee did not rely on the
representation, either wholly or in part. If however, the representation would not have
been induced a reasonable person into the contract, the onus will be on the representee
to show that the representation induced him to act as he did.

(ii)

Reliance
The representee must have relied on the representation. There will be no reliance if the
representee was unaware (Horsfall v Thomas).

There will be no reliance if the representee does not rely on the representation but on
his own judgment or investigation (Attwood v Small). (NB. The rule does not apply
where the representation was fraudulent and the representee was asked to check the
accuracy of the statement (Pearson v Dublin Corp)).
There will be reliance even if the representee is given an opportunity to discover the
truth but does not take the offer up. The representation will still be considered an
inducement (Redgrave v Hurd).
There will be reliance even if the misrepresentation was not the only inducement for
the representee to enter into the contract (Edgington v Fitzmaurice).
3. Types of Misrepresentation
Once the misrepresentation has been established it is necessary to consider what type of
misrepresentation has been made. There are three types of misrepresentation: i) Fraudulent ii)
negligent and wholly innocent. The importance of the distinction lies in the remedies available for
each type.
(i)

Fraudulent Misrepresentation
In Derry v Peek, as a false statement that is made:
i.

Knowingly, or

ii.

Without beliefs in its truth, or

iii.

Recklessly, careless as to whether it is true or false.

Therefore, if someone makes a statement which they honest believe is true, then it
cannot be fraudulent. The burden of proof is on the plaintiff- he who asserts fraud
must prove it. Tactically it may be difficult to prove fraud, in light of the
requirements in Derry v Peek.
The remedy is recession (subject to exceptions to be discussed later) and in damages
in tort of deceit.
(ii)

Negligent Misrepresentation
This is a false statement made by a person who has reasonable grounds for believing
it to be true. There are two possible ways to claim common law and statute.
Negligent Misrepresentation at common law.

The house of Lords held in certain circumstances damages may be recovered in tort
of negligent misstatement causing financial loss: (Hedley Byrne v Heller). The
principle of said case was later refined in Caparo v Dickman [NB. The four
elements to be satisfied in the lecture on Negligence].
Remedies: recent case-law has shown that the remedies available in fraud unless
the representor discharges the burden of proof. In particular, damages will be base
on the tort of deceit rather than the tort of negligence.
(iii)

Wholly honest misrepresentation. This is a false statement which the person make
honest believing it to be true:
The remedy is either:
a. Recession with an indemnity, or
b. Damages in lieu of recession

4. Remedies for Misrepresentation

Once an actionable misrepresentation has been establish it is then necessary to consider the
remedies available to the misrepresentee.
(A) Recession
Recession i.e setting aside the contract, is it possible in all cases of misrepresentation.
The main aim of recession is to put the parties back in their original position, as though
the contract had not been made. The injured party may rescind the contract by giving
notice to the representor. However, this is not always necessary as any act indicating
repudiation e.g. notifying the authorities, may suffice (Car & Universal Finance v
Caldwell).
Bars to recession:
Recession is an equitable remedy and is only available at the discretion of the court.
The injured party may lose his right to rescind in the following circumstances:
(i)

Affirmation of the contract.

The injured party will affirm the contract if, with full knowledge of the
misrepresentation and of their right to rescind, they expressly state that they do

intend to continue with the contract, or if they do an act from which the intention
may be implied (Long v Lloyd).
Note that in Peyman v Lanjani, the court of appeal held that the plaintiff had
not lost his right to rescind. As he did not know that he had such a right, he
could not be said to have elected to affirm the contract.
(ii)

Lapse of time
If the injured party does not take an action to rescind within a reasonable time,
the right will be lost. Where the representation is fraudulent, time run from the
time the fraud was, or with reasonable diligence could have been discovered.
In the case of non-fraudulent misrepresentation, time runs from the date of the
contract, not the date of discovery of misrepresentation (Leaf v International
Galleries)

(iii)

Restitution in integrum impossible

The injured party will lose the right to rescind if substantial restoration is
impossible, i.e. if the parties cannot be restored to their original position (Vigers
v Pike).
Precise restoration is not required and the remedy is still available if substantial
restoration is possible. Thus, deterioration in the value or condition of a
property is not a bar to a recession (Armstrong v Jackson).

(iv)

Third party acquires rights.

If

third party acquires rights in property, in good faith and for value, the

misrepresentee will lose their right to rescind (Phillips v Brooks).

Thus if A obtains goods form B by Misrepresentation and sells them to C, who
takes in good faith, B cannot later rescind when he discover misrepresentation
in order to recover goods from C.
(B) Indemnity
An order of recession may be accompanied by the court ordering an indemnity. This is
money payment by the representor in respect of expenses necessarily created in

complying with the terms of the contract and is different from damages (Whittington v
Seale).

(C) Damages
(1) The injured party may claim damages for fraudulent misrepresentation in the tort
of deceit. The purpose of damages is to restore the victim to the position he
occupied before the representation was made. The test of remoteness in deceit is
that the injured party may recover for all direct loss incurred as a result of the
fraudulent misrepresentation regardless of foreseeability (Doyle v Olby).
Moreover, damages may include lost opportunity cost, e.g. loss of profit.

6.

Discharge:

Discharge of Contracts
A contract can be discharged by four methods:
v Performance
v Agreement
v Frustration
v Breach
1. Discharge by performance.

Performance must be complete

The general rule is that a promisor is not discharged from his contractual obligation unless he has
completely and precisely performed the exact thing he has agreed to do. Where he has only
partially carried out his obligations, there is no discharge. For instance, if a seller delivers to the
buyer less than the agreed quantity of goods, the buyer may reject all together. The converse is
also true, where the seller delivers more than the agreed quantity, the buyer may reject the whole
consignment, and cannot be required to select the correct quantity from the bulk delivered.14 Also,
failure by a party to observe a time speculation may entitle the other party to repudiate the
agreement. Thus in Union Eagle Ltd v Achievement Ltd, where a contract for the sale of a flat
required the purchase price to be tendered by 5pm on a certain day, and the purchaser tendered
it at 5:10 pm, it was held by the Privy Council that the vendor was entitled to repudiate the
agreement and retain the deposit paid by the purchaser.
Further, a party who has only partially performed his obligations cannot recover anything
from the work done. Thus for example, a building contractor who has agreed to construct a house
for a lump sum, and who abandons the work after erecting 80 per cent of the building, is not
entitled to any remuneration,15 unless the contract provides otherwise. In the leading case of Cutter
v Powell, here, D agreed to pay Cutter 30 guineas provided that he proceeded, continued and did
his duty as second mate on a ship sailing from Jamaica to Liverpool to England. The voyage began
on the 2 August. Cutter died on 20 September, 19 days before the ship arrived at Liverpool. An
action by Cutters widow failed, as cutter had not complete performed his obligations under the
contract.
Exceptions to the rule of complete performance:
1) Divisible (severable) contracts or obligations

14
15

See c 30(2), sale of Goods Act (Jamaica)

Sumpter v Hedges [1898] 1 QB 673

Where the parties intended their contract to be divided into two or more separate parts, each part
is a separate contract which can be discharged separately; for example, where there is an agreement
for the delivery of goods by installments, payment is due from the buyer upon delivery of each
installment, and the buyer is not entitled to defer payment until delivery of all installments, unless
the contract provides otherwise.
Similarly, in the Jamaican case of Madden v PC Reynolds, it was held that in a building contract,
where the work and services to be performed by the contractor are itemized, the terms of the
contract may show that each service is to be paid for when performed. Such a divisible contract is
to be distinguished from an entire contract, which is:
One in which complete performance by one party is a precondition to liability of the other
party. Under such a contract the condition is usually a lump sum which is payable upon complete
performance by the other party. A partial performance of an entire contract by a party will normally
entitle him to nothing, because the payment is not due under the contract, nor is any sum for the
value of his partial performance due, since the court has no power to apportion the consideration.
2) Prevention of performance
Where a party is prevented from completing his part of a bargain by some act or omission of the
other party, he may recover payment for the work he has done on a quantum meruit (what one has
earned) basis, or alternatively he may sue the other party for breach of contract. In Planche v
Colburn, P agreed t write a book for D, to be published in a series called The Juvenile Library,
payment of 100 on completion and, after about half of the book had been written, D abandoned
the series, it was held that P could recover 50 as a reasonable remuneration on a quantum meruit.
3) Substantial performance
Rigorous application of the rule in Cutter v Powell, might lead to great injustice if, for instance, in
a building contract, a relatively minor defect of workmanship on the part of the contractor entitle
the building owner to refuse to make any payment. To avoid such an unfair result the courts have
developed the doctrine of substantial performance, which is that of the contract had been
substantially, though not completely or precisely performed, the injured party is not discharged
from his obligation to pay, though he will be able to counterclaim for damages to remedy any
defects.
In Dakin v Lee, where C contracts for a lump sum to decorate Os house with three coats of paint
throughout, but in one of the room only two coasts are used, C is entitle to be paid the contract
price, but O can counter claim for compensation sufficient to make good the deficient performance.
This principle has been applied in numerous Caribbean cases in the context of building contracts.
A clear example is seen in Broomes v Morgan, where C agreed to build a house for D. The building
was completed and D went into possession, but he complained of certain defects and refused to
pay the balance of the agreed price for building work. Held, there was evidence that there were
defects in the wall, roofs and floors and doors and windows, and that these defects were as a result
of poor craftsman ship. Nevertheless, he agreed that the work had been substantially performed
and that the claimant was entitled to the contract price less the estimated cost of remedying the
defects, however since this cost exceeded the balance owing under the contract, Cs claim was
dismissed.

4) Acceptance of partial performance

Where the claimant has only partially fulfilled his obligation under the contract, it may be possible
to infer from the circumstance a fresh agreement that payment should be made for work already
done or goods already supplied. In the case of sale of goods, the legislation provides that where
a seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them, but if the buyer accepts the goods so delivered, he must pay for them at the contract
rate.
A case that is demonstrative of the principle of fresh agreement is, Charles Gibbs Martin Foster
Partnership v Dewar, C sued D for fee of preparing architectural drawings relating to an office in
Kingston. Before the drawing was completed, one of the Cs partner, on learning that D was having
difficulty in raising finance, advised him to request suspension of drawing and D did so. C sent a
bill for the work done at that stage. D argued that C had no right to payment until after the plans
had been completed. Held, inter alia, that when D advised C to stop work, albeit at the suggestion
of C, a new contract came into being and D was required to pay an amount to satisfy C for the
amount of work performed by them.
Defence: Tender of Performance
In an action for breach of contract, it is a good defence for the defendant to show that he tendered
performance, i.e that that he offered to perform his obligations and that the claimant refused to
accept such performance; a further consequence of a refusal of a tender of performance is that the
tenderer will be discharged from his obligation and may himself sue the other party for damages.
In order for the tender to discharge, the tender must conform exactly to the terms of the contract.
Where the tender is of money payment, the creditors refusal to accept does not discharge
the tenderer from his obligation to pay debt; he must remain ready and willing to pay it and, if sued
by the creditor he must pay the money in court.

2. Discharge by Agreement

A contractual obligation may be discharged by a subsequent binding agreement between the

parties. The following methods are available: (i) recession; (ii) release by deed (iii) accord and
satisfaction; (iv) variation; and (v) waiver.
Recession
Where a contract is executory on both sides, viz, where neither party has performed his
undertaking, the contract may be rescinded by mutual agreement. It may rescind the obligations
ab initio or only those unperformed depending on the agreement. The consideration for discharge
is the abandonment by each party of his right to performance. Contracts by deed and contracts
evidenced by writing may be rescinded (as with all other contracts) by simple writing or orally.
A contract may be rescinded where the terms of the contract are varied or amended by the parties
to such an extent that the court will imply a substitution of a new contract for the original one.

Release by deed
The obligation to perform a contract may be released by deed, which takes effect without the need
for consideration.

Accord and satisfaction

Where the agreement to whom an obligation is owed agrees to accept from the other something
different in place of the former obligation, there is accord and satisfaction. Accord is the
agreement to accept the substituted obligation; satisfaction is the substituted obligation, that is,
the consideration for the release from former obligation. In the words of Srutton LJ;
Accord and satisfaction is the purchase of a release from an obligation by means of any
valuable consideration, not being the actual performance of the obligation itself. Accord is the
obligation by which the obligation is discharged. Satisfaction is the consideration which makes the
agreement operative.
Satisfaction may be executory (may consist of a promise to do something different from the
original obligation) or executed (actual performance of something different). Where there is accord
and satisfaction the, the promisor is discharged from his obligation and cannot be sued in respect
of the same.
Variation
A contract can be varied by the parties introducing new terms, without intending to rescind the
contract or substitute a new one; however the distinction between a variation and a recession is not
clear cut, and it a question of construction as to the intention of the parties. Whereas a recession
may be written or oral in any case, a variation of a contract required to be evidenced in writing can
be varied only in writing.
A useful test in ascertaining the intention of the parties is whether or not there is any executory
clauses in the second arrangement as would enable you to sue upon that alone if the first
[agreement] did not exist. If there are such clauses it may be regarded as a case of recession and
if not, as a variation.
Since variation involves an alteration of the contractual obligations of the parties, it must be
supported by consideration from both sides, whether by way of assumption of fresh obligations or
additional detriments, but it is well settled that the mere performance of an existing obligations is
not accord and satisfaction.
Waiver
Where one party to a contract agrees, at the request of the other, not to insist on certain of his strict
rights under the agreement, he is said to waive those rights. Waiver does not amount to variation
and the contract itself remains unaffected. For example, where one party orally request the other
for an extension of time for the completion of a building or for the delivery of goods. Unlike in
case of variation, a waiver of contractual stipulation does not in any case need to be in writing,16
and will be effective although unsupported by consideration.17
The effect of a waiver may be (a) to abrogate a partys right (b) to merely suspend it. This
distinction is illustrated in two Nigerian cases. In the first, English Exporters Ltd v Ayanda, E

16
17

Levey and Co v Goldberg [1922] 1 KB 688

Bruner v Moore [1904] 1 Ch 305

agreed to ship goods from the United Kingdom to Lagos in January, but the goods did not reach
until March. The evidence showed that A had never complained about the lateness of the arrival
of the goods, and he had in fact acquiesced in the postponement of delivery to two later dates. It
was held that A by his conduct, had waived his right to repudiate the goods on the grounds of late
arrival, nor could he sue E for damages for breach of contract.
On the other hand, in the case of Enavharo v Edosomwa, D agreed to complete the construction
of a building by a certain date, but failed to complete on time. C did not treat this as a breach but
continued to urge D to complete as soon as possible. D subsequently abandoned the work, and C
sued for breach of contract. It was held that the waiver by C had only suspended his rights under
the contract and did not abrogate them, so that he had a good cause of action against D for breach
when D abandoned the contract.

3. Discharge by Frustration

The basic rule at common law is that a party is not discharged from his contractual obligations,
merely because owing to some uncertain event, the contract has become more burdensome, or
even impossible to perform. Contractual obligations are absolute, and if a party wishes to protect
himself against possible subsequent difficulties in performing them, he should stipulate expressly
for that that protection in the contract.
Under the doctrine of frustration, however, a number of exceptions to the strict rule have
been developed; though the courts have shown themselves to be reluctant to expand the doctrine,
so that its scope it restricted,18 and there are relatively few cases in which the plea of frustration
has been successful.
In the leading case of National Carriers Ltd v Panalpina (Northern) Ltd, Lord Simon described
the doctrine as thus:
Frustration of a contract takes place when there supervenes an event (without the
fault of either party and for which the contract makes no sufficient provision) which
so significantly changes the nature (not merely expense or onerousness) of the
outstanding contractual rights or obligations from what the parties could have
contemplated at the time of its execution, that it would be unjust to hold them to the
literal sense of its stipulation in the new circumstances; in such a case the law
declares both parties to be discharged from further performance.
A contract can be discharged on the ground of frustration only if the following elements
are satisfied:
(i)
The contract does not contain an absolute undertaking, express or implied,
which precludes frustration.
(ii)

Due to some unforeseen event, the fundamental purpose of the contract has
become frustrated, that it, made impossible to perform, so that any attempted
performance would amount to something quite different from that contemplated
by the parties, when they enter into the contract. It is not sufficient merely that

18

Davies Contractor Ltd v Fareham UDC [1956] 2 ALL ER 145

the subsequent event has made to contract more difficult or expensive to

perform.19
(iii)

The frustrating event could not have been contemplated by the parties at the
time the contract was made.20

(iv)

The frustrating event was not self induced, that is brought about by the default
of the party pleading frustration

Juridical basis of frustration

In the well know case of Taylor v Caldwell, D agreed to permit C to use a music hall for
four days for the purpose of staging a series of concerts. After making the agreement but
before the date of the first concert, the hall was destroyed by fire, without the fault of either
party. Held, the contract was discharged if performance became impossible through the
perishing of the subject-matter of the contract.
Frustrating events
There is no finite list of events that can give rise to frustration, but the following types of
circumstances have arisen in case law.
Physical destruction of the subject-matter of the contract
The destruction by fire of a music hall in Taylor v Caldwell, is a clear example of this type
of frustrating event. Similarly, under the sale of Goods legislation, where a contract for the
sale of goods has been made and, before the risk has passed to the buyer and without any
fault on the part of either party, the goods have perished, the contract is avoided.21
In the recent Barbadian case of Hulse v Knights Ltd, D entered into a contract with C to
produce an album. In pursuance of the agreement the claimant delivered to the plaintiff,
inter alia, a digital audio tape (DAT) and a cassette master. While the item was in the
possession of D, fire destroyed the DAT, but not the cassette master. Held, the contract was
not frustrated by the destruction of the DAT, an item essential for the production of the
music album, because it was technically possible to reproduce a new DAT from the cassette
master.
Death or incapacity of a party to a contract involving personal services
Where a party to a contract involving the performance of personal services dies or is
incapacitated, the contract will be discharged and both parties discharged from their
personal obligations; as, for example, where an eminent pianist took ill before a recital,22

19

Id. 5
See Clacken v Causwell (2010) Supreme Court, Jamaica, 1834 of 2008 unreported [carilaw JM 2010 SC 101] per
Sykes J.
21
Section 8, Sale of Goods Act (Jamaica)
22
Robinson Davison (1971) LR 6 Ex 269
20

and where an employee suffered a heart attack and, according to medical evidence would
be unable to work again.23
Non-occurrence of an expected event
This type of situation is illustrated by the coronation cases, in Krell v Henry, where rooms
had been hired overlooking the route of the anticipated procession for the coronation of
King Edward VII in London. When owing to sudden illness of the king, the procession was
cancelled, the hirers of the rooms claimed that the hire contracts had been frustrated and
that they were entitled to be discharged from their obligation to pay the hire fees. Held,
contracts were indeed frustrated and the hirers were discharged from their obligations; the
foundation of the hire agreement was the purpose of viewing the possession, and it
cancellation had removed that foundation.
Building contracts
Where in the course of a building or construction contract, an unexpected event, such as an
industrial action, shortage of labour or material, or damaging accident, causes a delay in
the completion of the work and consequent financial loss to either party, it can be argued
that the contract had been frustrated. In the leading case of Davies Contractors Ltd v
Fareham UDC, C contracted to build 78 houses for D for a fix lump sum of 94,000,
completion expected within 8 months. Owing to the shortage of skilled labour and certain
material, the contract took 22 months to be completed and the cost increase to 115,000.
C claimed that the contract was frustrated and that they were entitled to claim on a quantum
meruit for the actual cost of completion.
The House of Lords rejected the claim. The fact that the contract had become more
onerous or more expensive for one party did not justify discharge for the contract; rather it
can be shown that, without the fault of either party, the contractual obligation had become
incapable of being performed because the circumstances in which the performance is called
for is radically different from that which was undertaken by the initial agreement.
On the other hand, in Metropolitan water Board v Dick, Kerr and Co Ltd, it was held that
there was frustration of a contract to construct a reservoir within sex years, where, two
years after the commencement of the construction, the Minister of Munitions, under
statutory powers, ordered cessation of the work and removal of the contractor plant. The
House of Lords took the view that the effect of the Ministers action was that the contract
if resumed after the interruption, would be fundamentally different in character from that
originally contemplated by the parties.
Change in Law or Government
Where a contract, which was initially valid, is render illegal by a change in the law or
fundamentally affected by government intervention, it will be frustrated, at least where the
change had the effect of striking at the root of the contract, rather than merely suspending
or hindering it operations.

23

Notcutt v Universal Equipment Co (London) Ltd [1986] 1 WLR 641

In Couttes Ltd v Barclay Bank plc, C and D signed an agreement in which C acquired an
option to purchase all the shares in S Ltd (a company which owned all the shares in B co)
for a certain price. The option was exercisable with 45 day of signing the contract, also
within the period and before the option was exercisable, C would have to apply for approval
of the Minister of Finance- the minster had 21 days to do so, failing which he would be
deemed to have waived his right to an approval. C applied for permission and not having
received the response within 21 days he went ahead and exercised the option. Some 30
months later the Minister revoked B Cos license under a new legislation. C claimed a
refund paid for shares, contending that the option agreement had been frustrated by the
action of the minister. Held, there had been no frustration of the option agreement. When
the minister was deemed to have waived his requirement for approval, the contract between
the parties was at that moment completely performed. The obligations between on both C
and D were both satisfied and the parties had received all they bargained for.
Frustration must not be self-induced
If the alleged frustration is brought about by the conduct or election of one of the parties,
that party cannot plead frustration as, in Lord Sumners words, reliance cannot be placed
on self induced frustration.24
In the classic example is Maritime National Fish v Ocean Trawlers, The claimant owned
five fishing vessels one of which was chartered to the defendants. The fishing vessels were
all fitted with otter trawler nets. New legislation was introduced requiring licences to be
held by those using otter trawl nets. The claimant applied for five licences but was only
granted three. He had to name which vessels the licence would be used on. He named his
own vessels and excluded the vessel which the defendant was using. This meant that the
defendant was unable to use the vessel for fishing. The claimant sued the defendant for the
price of hire.
Hel: the contract was not frustrated since the claimant had chosen to keep the three licences
granted for himself rather than using one to fulfill his contractual obligation. He had
therefore induced the frustrating event and was therefore in breach of contract.
Frustration of leases and contracts for the sale of land
The application of the doctrine of frustration to leases is a problematic one. The orthodox
view was that frustration could never apply to a lease because a lease is not merely a
contract but create a interest in land which, once vested in the lessee, cannot be divested
except according to the principles of landlord and tenant law.
Traditionally there was held to be no frustration under lease agreement where:
v Wartime legislation prevented building (Cricklewood Property and Investment
trust Ltd v Leightons Invest Trust Ltd)
v Building on the land was destroyed by fire (Matthew v Curling)
v Property was destroyed by bomb (Redmond v Dainton)

24

Bank Line Ltd v A Capel and Co [1919] AC 435, at 452

v Where property is requisitioned is requisitioned by the government (Eyre v

Johnson)

However, more recently, in National Carriers Ltd v Panalpina (Northern) Ltd, the House
of Lords accepted that a lease could be frustrated not only by physical catastrophe, such as
where some vast convulsion of nature swallow up the property all together, or buried it in
depths of the sea, but also by a supervening event so far beyond contemplation of the
parties that it would be unjust to enforce the lease. On the facts of the said case, in which
in there was 10-years lease of a warehouse. It was held there was no frustration and rent
remained payable by the tenant when the local authority closed the only access road to the
warehouse, rendering it unusable for 10 months, though a longer interruption might have
frustrated the lease.
In E Johnson & Co Ltd v NSR Ltd, per Lord Jauncey, who noted in part:
On the conclusion of a contract for the sale of land, the risk passes to the purchaser.
It will be presumed, in the absence of specific provision to the contrary, the purchaser has
agreed to accept the normal risks incidental to land ownership. The risk of interference
with land-owning rights by the crown or statutory authorities is always present. The land
may be needed for construction of a road way or airport, restriction may be imposed by
planning legislation, or the peace and quiet which the owner had hoped to enjoy destroyed
by noisy local development.
Effects of frustration
When a frustrating event occurs, the contract is brought to an end forthwith, without more
and automatically,25 so there can be no liability in damages for acts or omissions occurring
after the date of frustration. It begins a valid contract but cease to have effect on the
occurrence of a frustrating event. Thus in the coronation case of Krell v Henry, since the
procession had been cancelled a few hours before the rent became due, it was held that the
rent could not be recovered. The principle is that, after the frustrating event, the loss lies
where it falls, could cause hardship. In Chandler v Webster, a room overlooking the
procession route had been let for 141, payable immediately. The tenant had paid 100,
with 41 outstanding, when the procession was cancelled. It was held that the tenant not
only could not recover 100 but remain liable to pay the balance of 141.
The rule in Chandler was disapproved by the House of Lords in Fibrosa Spolka
Akcyjna v Fairbairn Lawson Combe Barbour Ltd, Where it was held that money handed
over in fulfillment of a contract which was subsequently frustrated could be recovered in a
quasi-contract, on the ground of total failure of consideration, notwithstanding that the
contract was not voided ab initio.
However, the law was still unsatisfactory, to cure these defects the Law reform (Frustrated
Contracts) Ac, 1943 was enacted in England, and almost identical legislation had been
passed in a number of Commonwealth Caribbean jurisdictions including Jamaica.
The effect of the Act is as follow:

25

Hirji Mulji v Cheong Yiu Steamship Co [1926] AC 497, at 505, per Lord Sumner.

(i)

Money payable before the frustrating event ceases to be payable

(ii)

Money paid before the frustrating event is recoverable, whether or not there is
total failure of consideration

(iii)

Any expense incurred by the party to whom money was paid or payable in
performing the contract may be set off against the money to be repaid, at the
discretion of the court; and

(iv)

Where one party has obtained a valuable benefit under the contract, the other
party may, at the courts discretion, recover a sum equivalent to the benefit.

See the Law reform (Frustrated Contracts) of Jamaica

4. Discharge by breach

Breach of contract always entitles the innocent party to sue for damages for breach; but he
will not be entitled to treat the contract as discharged from his obligations unless the guilty
party has either (a)repudiated the contract, or (b) been guilty of a fundamental breach. In
either of these two instances, the innocent party is entitled to regard himself as discharged
from further liability to perform his obligations towards the guilty party, in which case the
guilty party will also be discharged, though remaining liable to pay damages.
Repudiation
Where one party to a contract shows, by words or conduct, that he has no intention of
carrying out his side of the bargain, he is said to repudiate the agreement. Repudiation
may either by express (e.g. writing a letter or spoken words) or implied (by virtue of the
circumstance). If implied repudiation is relied upon, there must be sufficient proof of an
intention to renounce the contract. In the words of Devlin J:
A renunciation can be made either by words or by conduct, provided it clearly
made. It is often said that the party renunciating must evince an intention not to
go on with the contract. The intention can be evince by either words or by conduct.
The test of whether an intention is sufficiently evinced by conduct is whether the
party renunciating has acted in such a way as to lead a reasonable person to the
conclusion to the conclusion that he does not intend to fulfill his part of the contract.
On the other hand, a mere refusal or omission of one of the contracting parties to do
something which he ought to do will not amount to repudiation there must be an
absolute, unequivocal and axiomatic refusal to perform his part of the contract.26 In Mersey
Steel and Iron Co v Naylor, Benzon & Co, M and N were in a contractual relationship,
whereby, M would provide a certain amount of oil at a specified rate. Before payment for
the deliveries became due, a petition was presented for the winding up of M. N therefore
refused to make any payment, erroneously believing that in view of the petition, they ought
not to do so without an order from the court. House of Lords held, Ns conduct did not
amount to repudiation as there was not unequivocal refusal to perform duties. The principle

26

Freeth v Burr (1874) LR 9 CP 208, at 214, per Keating.

in Coggins v Garage and Rolling Doors, the principle here is that one the defendants
maintained his readiness to perform his obligations there will be no repudiation.

Anticipatory breach
Where a party to a contract, before the date fixed for performance, makes it clear to the
other (innocent party) that he does not intend to carry out his obligations under the
agreement, there is said to be anticipatory breach, amounting to repudiation and the
innocent party may regard himself as discharged and sue for damages for breach.27
One the innocent party has, C, has accepted the anticipatory breach of the other, D, cannot
later withdraw his renunciation expressly or by tendering performance on the due date. On
the other hand, if C refuses to accept Ds repudiation and insist on performance by D, the
contract will remain in existence.
Repudiation during performance of a contract
A repudiation which occurs during the performance of a contract will entitle the innocent
party to sue immediately for damages and to be release from all contractual obligations. In
Cort v Ambergate Railways Co, C contracted to supply A with a quantity of railway chairs
at a certain price and at specified times. After C had delivered about half of the chairs, A
informed C that he would not be required anymore and requested C to stop further delivery.
C sued for breach, pleading that it had been ready and willing to supply more chairs, but
had been prevented from doing so by As conduct. Held, Cs claim succeeded; it was not
necessary for C to have actually tendered the chairs.
Failure of performance
Where one party to a contract commits a fundamental breach (that is, a breach which goes
to the root of the contract and which has the effect of depriving the innocent party of the
main object of the agreement), the latter may repudiate the contract, in which case he will
be discharged from his obligations, or he may elect to affirm the contract, in which case
the contract will remain in force.
Independent and Interdependent Obligations
Not every breach by a contracting party will bring about a discharge. First, where the
obligations of each party are independent of one another, a breach by one party will not
affect the obligations of the other, which will continue to be binding. A notable instance of
an independent obligation is the obligation of the tenant to pay the landlord rent under the
lease. His obligation to pay rent is independent of any obligation on the part of landlord to
repair the premise, so that the latters obligation to repair premises doesnt entitle the tenant
to withhold payment of rent.

27

Frost v Knight (1872) LR Exch 111, at 114, per Cockburn CJ.

On the other hand, many other contractual obligations are treated as interdependent, so that
the obligation of each party to carry out his part of the bargain is dependent or conditional
on the other party being ready and willing to perform his obligations. For instance in the
sale of goods, delivery by the seller and payment by the buyer are usually regarded as
simultaneous obligations, and indeed the sale of goods.
Divisible contracts
Where the obligations under the contract are divisible (for example in the case of sale of
goods, where the seller contracts to deliver the goods in installments at specified times, and
the buyer agrees to pay for each installment on delivery), breach of one or more segments
of the contract (for example, short delivery of one or more installments) may not entitle the
innocent party to be discharged, though it will entitle him to sue for damages for breach.
Fundamental breach
Breach of a condition in a contract, such as condition as to the title, fitness for purpose and
merchantability in a contract for the sale of goods, will entitle the innocent party to rescind
the contract and recover the purchase price, since the condition is regarded as a term of
fundamental importance.
Similarly, breach of a term which is not a condition but which is regarded as an important
one, will entitle the innocent party to rescind. So long as it is shown that the breach goes
to the root of the contract, or is fundamental,28 affecting the very substance of the contract.
Put another way, the right of discharge depends on the answer this question: does the
breach go so far to the root of the contract as to entitle the injured party to say, I have lost
all I cared to obtain in this contract: further performance cannot make good the prior
fault29
Consequence of Breach
Where the innocent party treats the contract as discharged
Where the innocent party treats the contract as discharged by the other repudiation or
fundamental breach, he is released from further performance of the contract. The guilty
party will be liable for damages for breach and any other breaches occurring before the
discharge, but he too will be absolved from further performance of the contract. Although
both parties are absolved from future performance, any rights which has been acquired
unconditionally under the agreement are unaffected.30 Thus, for example, in a building
contract where the contractors work is to be paid in installments, the latter can sue for any
installments due but unpaid at the time of the discharge, whether it was the owner or the
building owner or contractor that was in breach; similarly, an employee who is dismissed
for breach of his contract of employment can recover any unpaid wages due to him at the
date of dismissal.

28

Photo production Ltd v Securicor Transport Ltd, [1980] AC 827, at 849

th
Ansons Law of Contract, 29 edn (2010), p 523
30
McDonald v Danny Lascelles Ltd [1933] 48 CLR 457
29

Where C (innocent party) decides to treat the contract as discharged, he is said to accept
Ds repudiation, and he must make his acceptance known to D, otherwise the contract will
be regarded as being in force (Sookraj v Samaroo).
NB. An unaccepted repudiation is of no value to anybody.

Where the innocent party treats the contract as still in force

Where the innocent party elects not to accept the other partys repudiation or decide to
affirm the contract, notwithstanding the others fundamental breach, the effect is that the
contract remains in force for both parties. In addition, each party retains the right to sue for
past and future breaches and, in particular, the innocent party can recover damages for the
others repudiation and breach of which he complains. Thus, where S delivered to B goods
of wrong size and of inferior standard to that specified in the contract, and B accepted
delivery and later resold the goods, B was taken to have treated the contract as still in force,
but he was entitled then to sue for damages for the breach.
Another, somewhat controversial, consequence of the principle that following the
affirmation by the innocent party, the contract remains in force, in the case of an
anticipatory breach, the innocent party may ignore the repudiation, proceed to complete his
performance of the contract, and then sue for the contract price (White and Carter (council)
Ltd v McGregor).

7.

Effects of illegality on a contract:

ILLEGALITY
According to McKendrick in Contract Law, illegal contracts come in different shapes and sizes.
Some involve gross immorality or a calculated attempt to break the law, while others involve
innocent infringement of regulatory legislation. A contract to rob a bank has little in common
with a contract which is performed by one of the parties in such a way that a statutory
instrument is innocently infringed. There are many different types of illegality. We will look at
these and their effect on a contract.
TYPES OF ILLEGALITY
A contract to commit murder is an example of a common law illegality and statutory illegality
includes for example a situation where the operator of a business venture requires a licence to
operate same but does not have a licence. This latter group will include: doctors, pharmacists,
restaurant operators, hairdressers, etc. There is a further distinction between contracts which are
illegal as formed such as a contract to engage in prostitution or murder and contracts which are
legal as formed but illegal as performed such as a contract to take passengers in a taxi being
performed by a taxi man without a licence to operate in that capacity.
Generally, an illegal contract will not be enforced by the court and neither will they facilitate the
recovery of benefits received by an illegal contract. The attitude of the court can be explained as
listed: to discourage persons from engaging in such conduct to penalise wrongdoers to preserve
the dignity of the court to support public policy
Contracts that are illegal as formed
A contract may be void ab initio. That is, it is illegal as formed and the illegality exists from the
beginning of the contract.
A statute, for example, may expressly prohibit a certain type of contract. See Re Mahmoud &
Ispahani (1921) and Mohamed v. Alaga & Co (A Firm) (2000). In such instances, where the
contract is void, the issue is whether or not a party who is innocent of wrong doing can recover a
benefit conferred by the contract. With reference to the above decided cases, the result is that
sometimes the benefit can be recovered, whilst in other cases it cannot.

In Re Mahmoud & Ispahani, Lord Atkin did not allow the plaintiff to enforce a contract which
was expressly prohibited by statute. However, in Mohamed v Alaga & Co, the Court of Appeal
found that while any contract to introduce refugees was prohibited by legislation, it might be
possible to recover on a quantum meruit basis for the translation services provided in relation to
the refugees. Translation services were not covered by the legislation and public policy would
not be offended by allowing such a recovery.
Contracts that are illegal as performed
The birth of a contract may be legal, that is, legal in its formation but illegal as to how it is
performed. An example of this can be seen in St. Johns Shipping Corporation v. Joseph Rank
Ltd. (1957). A contract for the carrying of goods by sea was lawful in its formation but was
performed illegally when the ship-owner overloaded his ship in carrying the goods. The
overloading was a statutory offence and the master of the ship was prosecuted and fined for this
offence. The court held that the ship owner was entitled to the recover the monies owed for the
freight.
Common Law Illegality
Common law illegality concerns cases involved in the commission of a legal wrong. These
include for example, the contract to commit murder (Alexander v Rayson) and (Beresford v
Royal Exchange Assurance). There are cases also that involve contracts contrary to public
policy (Pearce v Brooks). It is always difficult to define public policy because of its constantly
changing nature. As a result, it is difficult to determine whether or not a contract offends it. It
therefore means that older precedents must be treated with great care. The contract in Pearce v
Brooks (1866) to supply a carriage to the defendant for use in her trade as a prostitute could now
be a difficult decision since public policy is somewhat divided on the feelings towards
prostitution.
Courts have found that public policy can be offended in such a way as to make the contract
illegal in a number of different areas. Thus, a contract which is contrary to good public morals
may be illegal. See Pearce v Brooks and Franco v Bolton (1797). At one point in time, contracts
between cohabiting couples who were not married were contrary to public policy. The attitude of
society has now changed since even legislation has now accommodated decisions of unmarried,
cohabiting couples.

Franco v Bolton involved payment by a man to a woman to become his mistress. A contract
which was found to be illegal. Contracts to promote sexual immorality are now less likely to be
found to be illegal due to the changing public views of immorality.
Contracts which are found to be prejudicial to family life are affected by illegality (Lowe v
Peers) and (Hermann v Charlesworth). Thus contracts in which there was an agreement to
restrain the freedom to marry, or some agreements to separate are illegal. In addition, Courts are
particularly suspicious of agreement to oust the jurisdiction or authority of the court.
Contracts which tend to injure the State in its relations with other States is another area in which
contracts have offended public morals. A contract with an alien enemy is illegal in time of war
and contracts which contemplate hostile action to a friendly foreign country are also illegal.
THE EFFECTS OF ILLEGALITY
A contract may have both legal and illegal terms. Where this exists and it is possible to remove
an illegal term or an illegal part of a term, the court will do so and leave the remainder of the
contract binding.
The court will generally not enforce an illegal contract, but it may be able to provide an injured
party with a remedy in some other manner. In Strongman v. Sincock (1955) the plaintiffs were
unable to sue on the contract, but the court allowed them to recover the value of work done on
the basis of the breach of a collateral warranty. In Shelley v. Paddock the injured innocent party
was allowed damages for a fraudulent misrepresentation.
There is also the issue of whether a party can be permitted to recover a benefit conferred upon
the other party to an illegal contract. Again, the general rule is that courts will not permit
recovery under an illegal contract (Holman v Johnson) but there are cases which illustrate
methods by which recovery may be allowed. For example, where the parties are equally guilty,
the public policy considerations in preventing illegal contracts may be outweighed by the desire
to prevent the other party from retaining a benefit which constitutes an unjust enrichment. Thus
in Kiriri Cottons v. Dewani the innocent party to an illegal contract was able to recover the
money paid pursuant to the illegal contract. The party was innocent in the sense that he was
unaware that the contract was illegal.
There is also the possibility where the innocent party has been allowed to recover a benefit when
he withdraws from the contract before the illegality has been committed. See Taylor v Bowers
(1876) Kearley v. Thomson (1890) and Tribe v. Tribe (1996).