ALL IN ONE CONTRACT LAW REVISION NOTES FOR FREE

CONTRACT REVISION

OFFER

An expression of willingness to enter into a contract. A valid offer:

• Must be certain – vague offers cannot be accepted.

Loftus v Robert (1902)

A offered to employ B “at a West End salary to be arranged”. It was held that there was no contract because of uncertainty.

• May be made to one person or to the world at large.

Carlill v Carbolic Smoke Ball Co (1893)

• The defendants issued an advertisement in which they offered to pay #100 to any person who used their smoke balls and then succumbed to influenza. Mrs Carlill saw the advertisement and used the smoke ball, but then immediately caught influenza. She sued for the #100. The defendants argued that it was not possible in English law to make an offer to the whole world. Held – an offer can be made to the whole world.

• Must be communicated by the offeror to the offeree – you cannot accept an offer you know nothing about.

R v Clarke (1927)

The Government of Western Australia publicly offered a reward ‘for such information as shall lead to the arrest and conviction of the person or persons who committed the murders’ of 2 police officers. The petitioner gave information that led to the arrest and conviction of those responsible for the murders, although he knew nothing of the offered reward. He brought a claim to recover the reward. His claim failed.

• Must be distinguished from an invitation to treat.

• Display of goods for sale: Fisher v Bell (1961)

A shopkeeper who displayed flick knives in his window and had sold them to customers was charged under the Restrictions of Offensive Weapons Act 1959, which made it an offence to “offer for sale” these articles.   He was found not guilty since the display of goods in a shop window is only an invitation to treat, not an offer. The offer is made by the customer, which the shopkeeper is free to accept or reject.

The display rule is the same for display of goods on supermarket shelves – Pharmaceutical Society of G.B. v Boots Cash Chemists Ltd (1953).

Exception: Lefkowitz case (American), but specific offer so not the same.

• Tenders:

A tender is an estimate given in response to a request. An invitation for tenders is an invitation to treat – it is not an offer to use the person quoting the lowest price. The offer comes from the person making the tender: Spencer v Harding (1870), which can then be accepted or rejected.

However, it was held in Harvela v Royal Trust of Canada that if the request is made to specified parties and it is stated that the contract will be awarded to the lowest or the highest bidder, then this will be binding a san implied unilateral offer.

Also, in Blackpool and Fylde Aero Club v Blackpool BC that if the request is addressed to specified parties, this amounts to a unilateral offer that consideration will be given to each tender which is properly submitted.

• Auction sales:

When an auctioneer invites bids he is making an invitation to treat – it is not an offer that the article will be sold to the highest bidder. The bid is the offer, which is then accepted by the fall of the hammer. Until the hammer falls, the bidder is free to retract his offer: Payne v Cave (1789). Similarly, the auctioneer can withdraw an item before he brings down his hammer.

However, in auctions where lots are offered “without reserve”, the auctioneer does make an offer that he will sell to the highest bidder: Warlow v Harrison (1859).   Apparently he makes a contract with each bidder that he will sell to him if his bid is the highest. The phrase “without reserve” constitutes a unilateral offer which can be accepted by turning up and submitting the highest bid.

Harris v Nickerson: a notice of auction is an invitation to treat.

• Timetables and passenger tickets:

The law is not altogether certain, but rail timetables have been held to be offers: Denton v G.N. Railway (1856).. The actual running of a bus has been held to be an offer, with acceptance taking place when the customer boards the bus: Wilkie v London Transport (1947).   Similarly, a taxi for hire is probably an offer, accepted by boarding.

• Advertisements:

These may be invitations to treat or offers, depending on the wording. Note the difference between so-called unilateral contracts and bilateral contracts Advertisements of bilateral contracts are usually invitations to treat, e.g. mail

order catalogues are invitations to treat; menus are probably invitations to treat. Advertisements offering goods for sale are invitations to treat.

Partridge v Crittenden (1968)

An advertisement which said ‘bramblefinch cocks and hens – 25s’ was held to be an invitation to treat. The court pointed out that, if the advertisement was treated as an offer, this could lead to many actions for breach of contract against the advertiser, as his stock of birds was limited. He could not have intended the advertisement to be an offer.

Advertisements of unilateral contracts on the other hand are offers. Therefore advertisements offering a reward for the return of lost or stolen property are offers – such advertisements are clearly made with the intention of being legally bound as no further bargaining is expected (Carlill).

TERMINATION OF OFFERS

An offer ceases to exist in the following circumstances:

1. Revocation. An offer was be revoked any time before acceptance, but it must be communicated to the offeree before acceptance to be valid, except in 3 circumstances:

• Where offers are made to the world at large, it is impossible for the offeror to know whether everyone who has heard of the offer has also heard of the revocation. Thus it will be a valid revocation if the offeror has taken reasonable steps to bring the revocation to the notice of the public.

• In the case of an organisation whose mail is received, opened, sorted and distributed in different offices, communication probably occurs when the letter is opened in the ordinary course of business or would have been so opened if the ordinary course of business was followed.

• Where communication does not occur because of the offeree’s conduct e.g. changing address without telling the offeror; receiving it but not reading it.

Note: Revocation of an offer need not be made by the offeror – provided it is received from a reliable source, it is a valid revocation.

2.     Death of either party before acceptance.

If the offeree knows of the offeror’s death, he cannot accept.

If the offeree does not know that the offeror had died, the offer continues in existence and can be accepted provided that the contract is capable of being carried out by the offeror’s personal representatives.

If the offeree dies before acceptance, the offer probably comes to an end.

3.     Failure of a condition to which the offer was made subject.

Financings Ltd v Stimson (1962)

HP of a car – condition implied that the car would be in substantially the same condition at acceptance as it was at time of offer. An offer which expressly states that it will cease on the occurrence of a condition cannot be accepted if such condition occurs.

• Lapse of time. If an offer is made for a definite period only, it will automatically come to an end at the end of that period if it has not been accepted. If no definite time is states, it will lapse after a reasonable time which will depend on the circumstances e.g. an offer to sell land will not lapse as quickly as an offer to sell perishable goods.

ACCEPTANCE

A final and unconditional agreement to the terms of an offer.

Acceptance must be communicated, either in writing, oral or inferred from conduct, according to the following rules:

1. Must be communicated by the offeree or by someone with his authority.

Powell v Lee (1908)

P applied for the headmastership of a school. He was interviewed and the managers passed a resolution appointing him, but did not make any arrangements for notifying him. One of the managers unauthorisedly told P he had been appointed. Later the managers changed their minds and appointed someone else. P sued for breach of contract but lost because there was no contract because there had not been a valid acceptance.

• Must be according to the method prescribed by the offeror, whether expressed or implied.

• The offeror cannot insist that silence constitutes acceptance, accept against offeror where offeror waives need to communicate acceptance.

Felthouse v Bindley

The plaintiff wrote to his nephew offering to buy a horse, and adding, ‘if I hear no more … I will take it that the horse is mine’. The nephew did not reply to this letter. Held – no contract. Acceptance had not been communicated to the offeror.

• Acceptance generally has to be received by the offeror to be effective. This is known as the receipt rule.

There are 3 exceptions:

1. In a unilateral contract where communication is expressly or impliedly waived (Carlill).

• Where a failure of communication is the fault of the offeror (Entores).

Lord Denning explained the rule by saying that an offeror cannot deny receipt of the acceptance if ‘it is his own fault that he did not get it. E.g. if the listener of the telephone does not catch the words of acceptance but nevertheless does not ask for them to be repeated.

Presumably this would be the same in the case of a fax being received but not read, although this is denied in The Brimnes case.

• The Postal Rule:

Where acceptance is by post, communication takes place as soon as the acceptance is posted Adams v Lindesll (1818). This is the case even if the letter is lost in the post.

Household Fire Insurance Co Ltd v Grant (1879)

The defendant offered to buy shares in the plaintiff’s company. A letter of allotment was posted to the defendant, but it never reached him. Held – the contract was completed when the letter was posted.

Limits to the postal rule:

• It must be reasonable to use the post, e.g. not when the offer was made by telephone or fax.

• Parties must not have excluded it, e.g. the offeror stipulates in his offer how acceptance is to be made.

• The letter must be properly addressed and stamped.

• It must not lead to manifest inconvenience – Holwell Securities v Hughes.

Note: the postal rule applies also to telegrams but not where transmission of the acceptance and its receipt by the offeror are instantaneous e.g. fax.

Instantaneous/electronic acceptance (fax)

Brinkibon Ltd v Stahag Stahl (1983) laid down that, during normal office hours, acceptance takes place when the message is printed out not when it is read. HL accepted that communication by teled may not always be instantaneous, e.g. when received at night or when the office is closed.

Lord Wilberforce said that there can be no universal rule to cover all cases, they must be resolved by reference to the intention of all the parties.

Counter-offer

Acceptance must conform to all the terms of an offer otherwise it is a rejection. Hyde v Wrench (1840)

W offered to sell a farm to H for £1,000. H said he would give £950. W refused this, so H then said he would pay £1,000. W refused to sell him the farm. H sued for specific performance, but failed because there was no contract. £950 was a counter-offer rejecting the original offer – which W could accept or reject.

However, a request for information is not a counter-offer, ie it does not destroy an offer: Stevenson, Jacques and Co v McLean (1880)

The claimants asked if they could take delivery over a 4 month period. It was held that this was not a counter-offer and therefore the original offer had not been destroyed.

The battle of the forms

The use of printed contract forms by one or both parties causes difficulties with the rule that acceptance must correspond with the offer, e.g. A makes an offer to B, asking for goods. B accepts on his “usual conditions”.   This would appear to be a counter-offer. But if A accepts the goods, there is a contract. Authority: Butler Machine Tool Co v Ex- Cell-O Corp (1979).

Where both parties deal on their own standard terms and there is some conflict, he who fires the last shot often wins. Authority: BRS v Arthur V Crutchley Ltd (1967).

CERTAINTY OF TERMS

It is for the parties to make their intentions clear. The courts will not enforce:

• Vague agreements Scammel v Ouston (1941)

The courts refused to enforce a sale stated to be made ‘on hire purchase terms’: neither the rate of interest, nor the period of repayment, nor the number of installments were stated.

• Incomplete agreements Walford v Miles (1992)

The courts refused enforce an ‘agreement to negotiate in good faith’ (in other words, an agreement to make an agreement)

However, the uncertainty may be cured by:

• a trade custom, where a word has a specific meaning;

• previous dealings between the parties whereby a word or phrase has acquired a specific meaning, for example ‘fair specification’ in Hillas v Arcos (1932);

• the contract itself, which provides a method for resolving an uncertainty.

CONSIDERATION

A benefit to one party or a detriment to the other.

A value consideration in the eyes of the law may consist of either some right, interest, profit or benefit to one party; or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other: Currie v Misa.

Consideration need not be adequate but must be sufficient, i.e. something that the law will recognize as being valid consideration.

Chappell & Co Ltd v Nestle Co Ltd

Chocolate wrapper case – ‘1s 6d each plus 3 chocolate wrappers’. The courts found the chocolate wrappers to be sufficient consideration.

The following are not sufficient consideration:

1. Intangible consideration (not real, of value) White v Bluett (1853)

A father lent money to his son and the son in return gave his father a promissory note by which he promised to repay the money. After the father’s death his executor sought to recover from the son the money that had not been repaid.

The son defended the claim on the basis that his father had promised to discharge him from his liability to repay provided that he stopped his practice of complaining about his father’s distribution of the estate. His defence failed – no sufficient consideration.

• Consideration which does not move from the Claimant.

Tweddle v Atkinson (1861)

Only a person who has provided consideration for a promise can enforce that promise.

• Consideration which is past.

Roscorla v Thomas (1842)

The defendant promised the plaintiff that a horse which had been bought by him was sound and free from vice. It was held that, since this promise was made after the sale had been completed, there was no consideration for it and it could not be enforced.

And

Re McArdle (1951)

Work done to the house before the promise was made so past consideration. Exceptions:

• the consideration for a bill of exchange (e.g. a cheque or a promissory note);

• where a debt has become statute barred – a written acknowledgement of the debt will revive it; and

• Where A has done something at the express or implied request of B – this is sufficient consideration to enforce a subsequent promise to pay: Lampleigh v Braithwaite (1615).

• Performance of an existing duty

• duty under a contract Stilk v Myrick (1809)

The captain promised the rest of the crew extra wages if they would sail the shop back home after two sailors had deserted. Held – the crew were already bound by their contract to meet the normal emergencies of the voyage and were doing no more than their original contractual duty in working the ship home.

However

Hartley v Ponsonby (1857)

Nearly half the crew deserted. This discharged the contracts of the remaining sailors as it was dangerous to sail the ship home with only half the crew.

Also

Scotson v Pegg (1861)

S had agreed to deliver a cargo of coal to X or to X’s order. X sold the cargo to P and instructed S to deliver it to P. P promised S that he would unload the coal at a certain rate, but failed to do so. S sued

and won – even though he was already bound to X contractually, the court held that S had given consideration for P’s promise.

• Duty imposed by law Collins v Godefroy (1831)

A promise to pay a fee to a witness who had been properly subpoenaed to attend a trial was held to have been made without consideration. The witness had a public duty to attend.

But

Glasbrook Bros v Glamorgan CC (1925)

The council, as police authority, on the insistence of a colliery owner, and in return for a promise of payment, provided protection over and above that required by law. Held – they had provided consideration for the promise to pay.

Part payment of a debt

Pinnel’s case (1602) – general rule

If you are bound to pay a certain sum of money, payment of a lesser sum does not discharge the debt, even though your creditor agrees to give up his claim on the rest.

Exceptions:

1. Where the debtor, at the creditor’s request, makes an earlier payment than the due debt.

• Where the method of payment is altered, at the creditor’s request, eg in a different place. But since 1965 the Ct of App. has held that lesser payment by cheque or other negotiable instrument is not a good discharge of the whole debt.

• Where some goods, however small, are delivered at the creditor’s request in addition to the lesser payment.

• Composition agreements: where a debtor reaches an agreement with his creditors to pay so much in the £ in full settlement of his debts, the creditors are all bound by that agreement and cannot sue for their balances.

• Where payment of a lesser sum by a third party is accepted by the creditor.

• Where the creditor’s claim is unliquidated or in dispute.

• Equitable estoppel (promissory estoppel). Even taking into account the above exceptions, the common law rule as established in Pinnel’s case is harsh, as can be seen from the case below (which confirmed the rule).

Foakes v Beer (1884)

Mrs B had a judgement debt against Dr F, who had not the money to pay it all at once. So they made an agreement that he would pay stated installments provided that she would not “take any proceedings whatever on the judgement”. Judgement debts bear interest, but this was not mentioned.   Dr F paid the instalments, but refused to pay the interest which Mrs B then demanded, Dr F relying on the agreement. Held: Dr F had given no consideration for the agreement and must therefore pay the interest.

However

Re Selectmove (1994)

The company had offered to pay its arrears by installments to the Inland Revenue who said that hey would let them know if this was acceptable. They heard nothing further, but paid some installments and then received a threat of being wound up if the full arrears were not paid immediately. The court followed Foakes and Beer.

Equity does not look kindly on a person who promises relief and then goes back on his word.

Hughes v Metropolitan Rly Co (1877)

H gave his lessee, M, 6 months notice to repair some houses in accordance with the lease. A month later, H started negotiations with M re purchase of the freehold. Relying on this, M did not do any repairs. 2 months later the negotiations were broken off. At the end of the 6 months, H sued for forfeiture of the lease. The Lords held that equity overrode the common law

– the opening of negotiations amounted to a promise not to enforce the strict terms of the lease. M had relied on this. The 6 months should run from breakdown of the negotiations.   Forfeiture of the lease was therefore refused; it would have been inequitable to have granted it.

The principle in the above case is referred to as ‘equitable estoppel’ or ‘promissory estoppel’.

If a promise, intended to be binding, and intended to be acted upon, is acted upon, then the court will not allow the promisor to go back on the promise.

This doctrine was resurrected by Ld Denning in Central London Property Trust Ltd v High Trees House Ltd (1947).

The owners of a block of flats had promised to accept reduced rents in 1939. There was not consideration for their promise, but Lord Denning nevertheless stated that he would estop them from recovering any arrears.

However, the doctrine of promissory estoppel is not so wide-ranging as it might appear:

1. It is “a shield and not a sword” (Birkett, L.J.), ie you can use it as a defence when sued, but you cannot use it to bring an action for breach of contract – Combe v Combe (1951) (above).

• There must be reliance by the debtor on the creditor’s promise. Though this does not mean that the debtor must have relied to his detriment, nor does he need to have acted differently.

• There must be inequity. The debtor will obtain no relief if no inequity is involved by the creditor going back on his word – D&C Builders v Rees [1966] 2 QB 617.

• The doctrine is suspensive, not extinctive. The doctrine of promissory estoppel does not discharge the debtor forever, it only suspends the duty to pay. Thus, if the creditor gives notice that he wants full payment, or the conditions which gave rise to the promise cease to exist, the duty to pay revives.

MISREPRESENTATION

Misrepresentation is a false statement of fact made by one party to another which is one of the reasons the person enters into the contract.

It may be “… a nod or a wink, or a shake of the head, or a smile… intended to induce [another] to believe the existence of a non-existent fact” Walters v Morgan

Must be distinguished from:

A mere puff – a statement so vague as to be without effect, e.g. in Dimmock v Hallett estate agents described some land as ‘fertile and improvable’ was held to be mere puff.

A statement of opinion – e.g. in Bisset v Wilkinson the vendor of a farm which had never been used as a sheep farm stated that in his judgement the farm would support 2,000 sheep.

Exception: if the person making the statement of opinion was in a position to know the true facts, he may be treated differently, e.g. in Smith v Land and House Property Corp the vendor of a hotel described it as ‘let to a most desirable tenant’, when the tenant had for a long time been in arrears with the rent. Held – misrep.

A statement of law – because the law is equally accessible to everyone it is up to individuals to check the law or seek advice if they are unsure about it.   Some say that a statement of law is actually a statement of opinion as to the law.

However: the recent decision in Kleinwort v Benson suggests that the courts may change their approach and hold that misrepresentations of pure law may be actionable in the future.

A statement of intention – not a misrep unless known to be untrue, e.g. in Edgington v Fitzmaurice the directors of a company issued a prospectus claiming that the money raised was to be used to improve the company’s buildings and to expand its business. Their real intention was to pay off the company’s debts. Held – fraudulent misrep.

Disclosure

Silence does not constitute misrepresentation, except in the following cases:

Partial revelation – where a person discloses a fact but does not give the whole picture, e.g. in Dimmock v Hallett where a vendor of land stated that farms were let, but omitted to say that the tenants had given notice to quit.

Change of circumstance – where circumstances have changed since a representation was made, the representor has a duty to correct the statement.

E.g. in With v O’Flanagan it was stated correctly that a medical practice was worth £2,000 a year but, by the time the practice changed hands, it was practically worthless.

Uberrimae fidei – some contracts have a duty of disclosure of any material facts whether or not these are asked for. E.g. in insurance contracts facts which would influence an insurer in deciding whether to accept a proposal or to fix the amount of a premium must be disclosed.

Fiduciary relationships – where one of the parties to a contract reposes trust and confidence in the other, the law imposes a duty of disclosure. Such relationships include solicitor and client, trustee and beneficiary, and doctor and patient. E.g. in Gordon v Gordon a division of property based on the proposition that the elder son was illegitimate was set aside upon proof that the younger son had concealed his knowledge of a private marriage ceremony solemnised before the birth of his brother.

Inducement

A misstatement is only a misrepresentation if it induces the person to whom it is made to enter into a contract.

If the party doesn’t rely on the misstatement, then it is not misrep. E.g. in Attwood v Small the vendor of a mine exaggerated the mine’s capacity. The buyers appointed expert agents to check this out, and they wrongly said the vendor’s statements were true. Held – because the buyers didn’t take the vendor’s word for it and sought independent advice, this did not amount to misrep by the vendor.

If the party doesn’t test the accuracy of a statement, it can still be misrep.

E.g. in Redgrave v Hurd a man was induced to buy a solicitor’s practice by a misstatement of its value. He was given an opportunity to examine its accounts but did not. Held to be an operative misrepresentation.

The misrep needn’t be the only reason the party entered the contract. E.g. in Edgington v Fitzmaurice (facts above) there were two reasons he entered the contract, the second not being a misrep.

Fraudulent (only CL)	Negligent	Innocent (only MA)
Dishonest	Honest but careless	Honest
Knowingly or with no regard to the truth or recklessly Key element is dishonesty so very high standard of proof Derry v Peek: the defendant tram company wrongly advertised in its brochure that it would employ steam power. However, they hadn’t received consent and the board of trade subsequently refused consent. Held to be negligent misrep. Important case as decided no damages for negligent misrep.	Common law: did not take reasonable care MA: no reasonable grounds to believe Hedley Byrne v Heller: the claimants suffered loss due to relying on favourable refs given by a bank which subsequently turned out to be wrong. HL held that the bank would have been liable had it not been for the in their ref. Important case as decided damages would now be available for negligent misrep.	Honest belief Sindall v Cambridgeshire CC: D innocently failed to tell of faulty sewer – land dropped in value
In all cases: where misrep is found the contract is rendered voidable.
Remedies:
Rescission (equity) enables both parties to be restored to their original positions. Limitations laid down in Car Universal Finance v Caldwell: Affirmation (final acceptance for better or worse) Long v Lloyd – the buyer of a lorry undertook a long journey after discovering serious defects in the lorry. Held: he had affirmed the contract. Lapse of time Leaf v International Galleries – the plaintiff bought a picture which the seller had innocently misrepresented to be by Constable. 5 years later, the plaintiff discovered that it was not by Constable and immediately sought to rescind the contract. Held: barred by lapse of time Impossibility of restitutionThird party rights affected NB: Under MA 1967 – can still be claimed where misrep subsequently became a term of the contract.
Common law damages (tort of deceit). Pre Hedley Byrne (1964) only available to fraudulent misrep, but now also available to negligent misrep. Difficult to prove: Heavy burden of proof on the mislead partyA ‘special relationship’ must exist These damages are assessed on the tortuous basis of reliance, e.g. the claimant is entitled to be put in the position he was in before the tort was committed.
	Statute Damages (MA 1967) Available for negligent or innocent misrep. Much easier to use: No need to prove ‘special relationship’Burden of proof on misrepresentor to show he had ‘reasonable grounds’
NB: the innocent party can choose to affirm (continue with) the contract in all cases

FRUSTRATION

Discharge: a contract is discharged when there are no outstanding obligations under it.

4 types of discharge:

• Performance (exactly as promised)
• Agreement (with consideration complete)
• Breach (discharges the innocent party from performing his side of the contract)
• Frustration

Frustration: situation where an event makes the contract impossible, illegal or fundamentally different.

History

Until the 19^th century the courts adhered to a theory of ‘absolute contracts’ – parties were absolutely bound to do what they had contracted to do, even if that proved to be impossible. It was said that if parties wished to evade liability because of some supervening event, they should have provided for it at the outset.

Paradine v Jane – a tenant was sued for rent even though he had been disposed of his land for 3 years.

Since then the doctrine has evolved to mitigate the harshness of the rule, starting with Taylor v Caldwell (below).

Frustration may occur in the following circumstances:

Death or incapacity

Condor v Baron Knights – a contract between a pop group and its drummer was held frustrated when the drummer became ill and was unable to fulfill the terms of the contract.

Also, a claim for unfair dismissal can sometimes be defeated by the defence of frustration where an employee has become permanently incapacitated or imprisoned for a long time.

Destruction of subject matter

Taylor v Caldwell – a contract to hire a music hall was held to be frustrated by the destruction of the music hall by fire.

However: the ‘subject matter’ must have been agreed by both parties.

Blackburn Bobbin v Allen – the contract was for the sale of ‘birch timber’ which the seller intended to obtain from Finland. Held: the contract was not frustrated when it became impossible to obtain timber from Finland. The subject matter of the contract was birch timber not Finnish birch timber.

Non-occurrence of event

Krell v Henry – the court held that a contract to hire a room overlooking the proposed route of the coronation procession was frustrated when the coronation was postponed. The purpose of the contract was to view the coronation, not merely to hire a room.

However:

Herne Bay Steamboat Co v Hutton – the court refused to hold that a contract to hire a boat to see the king review the fleet was frustrated when the review was cancelled; the fleet was still there and could be viewed – there was therefore no overall failure of the purpose of the contract.

Fundamental change of circumstances

Metropolitan Water Board v Dick Kerr – a contract had been formed in 1913 to build a reservoir within six years. In 1915, the government ordered the work to be stopped and the plant sold. Held: the contract was frustrated.

However:

Cricklewood Property & Investment Trust Ltd v Leighton’s Investment Trust Ltd – a plot of land was let in 1936 for 99 years, the lessee having the intention to build shops on the land. The war broke out and the government subsequently passed regulations restricting such development until after the war. Held – no frustration as the restrictions applied for a comparatively short period of the 99-year lease so not a fundamental change of circumstances. Note: the Law Lords were divided in opinion as to whether Lease could be frustrated.

And then:

National Carriers v Panalpina – a street which gave the only access to a warehouse was closed for 18 months. The lease was for 10 years.   Held: the least was not frustrated.   But the House of Lords declared that, in principle, a lease could potentially be frustrated.

Illegality

Avery v Bowden – a contract to supply goods to Russia was frustrated when the Crimean War broke out. It had become an illegal contract – trading with the enemy.

There will be no frustration in the following circumstances:

Frustration contemplated by the parties

Amalgamated Investment & Property Co v John Walker & sons – the possibility that a building could be listed was foreseen by the plaintiff who had inquired about the matter beforehand. A failure to obtain planning permission was also foreseeable and was a normal risk for property developers. Held: contract not frustrated.

Force majeure

Channel Island Ferries v Sealink UK Ltd – the clause stated “a party shall not be liable in the event of a non-fulfillment of any obligation arising under this contract by reason of Act of God … or any accident or incident of any nature beyond the control of the relevant party”.

However:

• Clause will be interpreted narrowly – Met Water Board (above) – clause referred to ‘delays’ was held to refer only to ordinary delays, not delays caused by government decree.
• Clause will not in any case be applied to cover trading with an enemy.
• Clause cannot cover subsequent illegality – the contract will be frustrated.

Self-induced frustration

The Superservant Two – one of two barges owned by the defendants and used to transport oil rigs was sunk.   They were therefore unable to fulfill their contract to transport an oil rig belonging to the plaintiff as their other barge (Superservant One) was already allocated to other contracts. Held – contract not frustrated. The defendants had anther barge available, but chose not to allocate it to the contract with the plaintiffs.

Note: good case to illustrate the courts’ reluctance to apply frustration. Also:

Shepherd v Jerrom – the claimant claimed unfair dismissal when his apprenticeship contract was terminated because he was in prison. Held: a sentence long enough to produce a substantial break in the apprenticeship was a frustrating event. Contract discharged so there was no dismissal.

On the grounds of inconvenience, increase in expense, loss of profit etc

Davis Contracts Ltd v Fareham UDC – the contractors had agreed to build a council estate at a fixed price.   Due to strikes, bad weather and shortages of labour and materials, there were considerable delays and the houses could only be built at a substantial loss. Held: contract not frustrated.

The effect of frustration:

Finding frustration automatically discharges the contract from the date of the frustration.

Before 1943 this meant that the ‘loss lay where it fell’ – money already paid could not be recovered and money payable remained payable.

Chandler v Webster – the hirer had to pay all of the sum due for the hire of a room to view the coronation despite the court holding the contract frustrated by the cancellation of the contract.

That decision was overruled by the House of Lords in…

The Fibrosa case – held: where there was a total failure of consideration, any money paid or payable in advance would be returned to the claimant.

Still no satisfactory decision, until…

The Law Reform (Frustrated Contracts) Act 1974

Section 1(2) provides:

• Money paid before frustration may be recovered even where there is only a partial failure of consideration.
• Money payable before frustration ceases to be payable.
• A party who has incurred expenses before frustration may be awarded expenses – but only up to the limit of the sums paid or payable to him before frustration.

Section 1(3) provides:

• A party who has obtained a valuable benefit before frustration may be ordered to pay a just sum for it – whether or not money was paid or was payable before frustration.