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TABLE OF CONTENT
Page No.
1. Task 01
I.

Analyze the offer and acceptance as the main essentials of

valid contract and discuss the given scenario 1 with the
support of Carlill V. Carbolic Smoke Ball Company (1.1)

II.

Discuss Freedom of Contract and the equality of

bargaining power as two main assumption of the law of
contract in the light of given Scenario 1 (1.3)

Page No.
1

2. Task 01
I.

Discuss the application of the exemption clauses to the

given Scenario 2 with the support of Photo Production Ltd.
v. Securicor Transport Ltd. (1980, H.L.) (2.1)

II.

Discuss in details the different types of misrepresentation

and the effects of the liabilities of the parties of a contract.
(2.3)

III.

Analyze and apply the principles of remedies to the given

Scenario 2 and advise how the security company may
escape from liabilities. (2.5)

3. Task 01
I.

II.

Identify how the contract has been breached in a given

scenario 3. (3.1)
Discuss in details how you may take legal action against
Sajeev for the breach of contract. Support your answer with
the discussion of remedies and advice what kind of
remedies can be claimed by Textiles against Sajeev. (3.2)

4. Task 01
I.

Consider that the factory had been totally burnt because of

fire in the given scenario and apply the principles of
frustration to the given scenario 3 and prepare your own
conclusion with the support of consequences of the
frustration and the decided cases. (4.1)

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1.1 Analyze the offer and acceptance as the main essentials of

valid contract and discuss the given scenario 1 with the support
of Carlill V. Carbolic Smoke Ball Company
Scenario-1
Mr. Mahela and Mr. Sanath are the Directors of the company named Shinelight and its
factory is situated in Galle. Washing powder is the main production of his company. The said
directors have decided to promote their business island wide. They advertised in the news
papers and other electronic media that Whoever use our washing powder and having
damage their cloths will be rewarded Rs. 100,000/- to show our sincerely we reserved Sum
of Rs.1, 000,000/- from our bank account.
Mr. Murali aware of the said advertisement and he purchased washing powder from the said
company dealer. His wife used the said washing powder for the washing her husbands
office uniforms and found the clothes have loss their original colours.
Then Mr. Murali wrote a letter and demanding the reward sum of Rs.100, 000/- in terms of
their advertisement. The Shinelight Company refused to pay the reward since it is only
advertisement

Introduction
A contract is a promise to do something or to refrain from doing something and that promise
is enforceable by law.1 The making of a contract requires the mutual consent of two or more
parties, where one of them normally makes an offer and the other accept it. If one of the
parties fails to keep their promise, the other is entitled to relief at law against that person,
usually damages or monetary compensation.
There are seven essential of a valid contract.

1. Agreement- consists of an offer and an acceptance of that offer.

2. Consideration- consideration is exchanging valuable things. Each party must receive

something of value. Simply it is the price paid by one party for the other partys
promise.

3. Intention- parties must intend to produce legal consequences of their agreement. In

the case of failure performance which undertaken by the agreement, he or she must
be answerable for that failure in law. Not all agreements produce legal effects.
Intention is not what they had in mind when concluding the contract, but whether
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reasonable person would draw the conclusion from their words and actions that they
want to be legally bound. 2 Intention can show expressly or impliedly.

4. Form-form can be written, verbal or conduct

5. Capacity- The law attempts to protect minors, children under age eighteen, and
people who lack the mental capacity, such as insane and intoxicated people, from
being taken advantage of. Therefore usually they consider as parties without
capacity to enter into a contracts.

6. Genuineness of consent- intention of both parties when contract was they entered
into the contract.

7. Legality- the purpose or objective of the agreement must be legal and should obey
the public policy.

Contract is an agreement entered into by two or more parties with the serious intention of
creating a legal obligation or obligations. 3 Therefore a meeting of the minds is the most
important aspect in forming of a contract. In some cases the court can infer contract terms if
they determine that there was a contract. The two key items are the Who and What.4

Who - Who had entered into the contract? (The names of the parties)

What- What are the obligations of the parties? How much? When? And what is the
price?

Offer and Acceptance

According to Lord Mackay "An offer is an expression by one person or group of persons, or
by agents on his behalf, made to another, of his willingness to be bound to a contract with
that other on terms certain or capable of being rendered certain." 5 When an offer maid by
offeror to offeree, the offeror express his willingness there to enter into contract according to
terms in his offer without further negotiations. The offeree agrees terms of agreement.
Legal person have freedom of contract and bargaining power. Because of freedom of
contract people can bind by obligations as they wish. This lead to have a negotiation before
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come to an agreement. Negotiation is using the right of the parties to discuss about the
contract. At the negotiation either party can make an offer. Party who made offer is called as
the offeror. Offeror create obligation himself when he make an offer. But before offeree
accepts the offer offeror can revoke his offer. In Payne v Cave (1789)6 the defendant made
the highest bid at an auction sale, but he withdrew his bid before the fall of the auctioneer's
hammer. It was held that he was not bound to purchase the goods. He was entitled to
withdraw his offer at any time before the auctioneer signified acceptance by knocking down
the hammer Invitation to treat is not an offer.
Some commercial activities are not considered as offers, they are invitations to treat. They
invite others to make offers. A shopkeeper displayed a flick knife with a price tag in the
window which was prohibited to sell under The Restriction of Offensive Weapons Act 1959.
The shopkeeper was prosecuted.. Lord Parker CJ stated: "It is perfectly clear that according
to the ordinary law of contract the display of an article with a price on it in a shop window is
merely an invitation to treat. It is in no sense an offer for sale the acceptance of which
constitutes a contract."( Fisher v Bell (1960))7
There are few results that an offer would end up;
1. Offer become accepted
2. Offer become rejected
3. Offer become revoke
4. Offer become lapses
The party who receive the offer is called as the offeree. Offeree has two options when he
receives an offer. Either he can accept it or reject it. Or there is option for him, make a
counter offer.
E.g. in a selling of a car, seller ask the buyer to make an offer. It is invitation. Then the buyer
becomes the offeror
Offer is a distinct proposal. And the acceptance must be qualified. When the other party
accept it entirely it lead for binding contract. Anyway at negotiation there should be meeting
of minds. In a battle of forms court might cancel the contract. Because it is not a contract it is
a counter offer. Because if there is not an entire acceptance or accept partially it would not
lead to a contract. In Gibson v MCC (1979) 8 Lord Denning said that one must look at the
correspondence as a whole and the conduct of the parties to see if they have come to an
agreement.
In Trentham v Luxfer (1993) 9 Plaintiff built industrial units and subcontracted the windows
to defendant. The work was done and paid for it. Plaintiff then claimed damages from
defendant because of defects in the windows. He argued that there was no matching offer
and acceptance and so no contract. The Court said that there though there was no written,
formal contract was irrelevant; a contract could be concluded by conduct. Plainly the parties
intended to enter into a contract, the exchanges between them and the carrying out of
instructions in those exchanges, all supported his argument that there was a course of
dealing between the parties which amounted to a valid, working contract. Steyn LJ pointed
out that:
(a) The courts take an objective approach to deciding if a contract has been made.
(b) In the vast majority of cases a matching offer and acceptance will create a contract,
but this is not necessary for a contract based on performance.
It is very important to know;
1. Acknowledgement is not acceptance;
2. Intention is not acceptance; and
3. Alternative proposal is not acceptance.
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Simply contract is a result of offer acceptance and consideration.

Offer

Acceptance

consideration

Contract

There are many commercial transaction occur in modern society. Most of them end up with
binding contracts. Therefore it is very important to identify their offers, acceptance and the
nature of offer. (Table 01)

Commercial
transaction

Whether offer or
invitation to treat

Offer

Acceptance

invitation to treat

Made by bidder

Accept
by
auctioneer

2. Display goods for

sale

invitation to treat

Customer make an Shopkeeper accept

offer to buy by by accepting the
carrying goods to cash
the cash desk

3. Advertisement
without reward

invitation to treat

Reader made an
offer after reading it

Advertiser
may
accept it after further
bargaining

4. Advertisement
with rewards

offer

Unilateral
offer
made by advertiser

Reader accept it by
following the terms of
it

1. Auction sale

the

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5. Tender notice

Invitation to treat

Offeror made the

offer to tender board

tender board accept

it

the
to
car

offer

Unilateral
offer
made by car park
owner

Driver accept
driving in

7. Timetables
and
passenger tickets

offer

Transport
companies
made
offer by issuing

Passengers
by buying

8. Sales of shares

invitation to treat

Members of public Companies

accept
made
offer
by by issuing shares to
applying for shares
them

9. Negotiation for a
sale of land

invitation to treat

Buyer
offer

6. Notice
at
entrance
automatic
park

made

the

by

accept

Seller accept it

Table 01

Discussion
Facts of the case Carlill V. Carbolic Smoke Ball Company 10
The Carbolic Smoke Ball Company produced "smoke balls", which was claimed to be a cure
for influenza and a number of other diseases. To promote the Company they published

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advertisements (Figure 01) in the Pall Mall Gazette and other newspapers on November 13,
1891

100 reward will be paid by the Carbolic Smoke Ball Company to any person who
contracts the increasing epidemic influenza colds, or any disease caused by taking cold,
after having used the ball three times daily for two weeks, according to the printed
directions supplied with each ball.
1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the
matter.
During the last epidemic of influenza many thousand carbolic smoke balls were sold as
preventives against this disease, and in no ascertained case was the disease contracted
by those using the carbolic smoke ball.
One carbolic smoke ball will last a family several months, making it the cheapest remedy
in the world at the price, 10s. post free. The ball can be refilled at a cost of 5s.
Address: Carbolic Smoke Ball Company,
27, Princes Street,

Figure 01
They claimed that it would pay 100 to anyone who got sick with influenza after using its
product according to the instructions set out in the advertisement.
Mrs. Carlill saw the advertisement, bought it and used three times daily for nearly two
months until she contracted the flu on January 17, 1892. She claimed 100 from the
company. The Company ignored two letters from her husband, who was a solicitor. On a
third request, they replied with an letter that if it is used properly the company had complete
confidence in the smoke ball's efficacy, but "to protect themselves against all fraudulent
claims" they would need her to come to their office to use the ball each day and be checked
by the secretary. Mrs. Carlill brought a claim to court. The barristers representing her argued
that the advertisement and her reliance on it was a contract between her and the company,
and so they ought to pay. The company argued it was not a serious contract

Judgment
The Carbolic Smoke Ball Company argument was that it was just an advertisement, and
paper advertisement is not an offer it is just invitation to treat. But that was loss at Queen's
Bench and the company appealed on the ground Mrs. Carlill did not communicate her
acceptance. The Court of Appeal rejected the company's arguments and accepted that there
was a fully binding contract and Mrs. Carlill was entitle for 100.

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Judges gave reasons for their judgments;

(1) That the advert was a unilateral offer to all the world;
(2) That satisfying conditions for using the smoke ball constituted acceptance of the
offer;
(3) That purchasing or merely using the smoke ball constituted good consideration,
because it was a distinct detriment incurred at the behest of the company and,
furthermore, more people buying smoke balls by relying on the advert was a clear
benefit to Carbolic;
(4) That the company's claim that 1000 was deposited at the Alliance Bank showed the
serious intention to be legally bound.
Lord Justice Lindley said in his judgment In point of law this advertisement is an offer to pay
100. to anybody who will perform these conditions, and the performance of the conditions is
the acceptance of the offer. Therefore this paper advertisement is not an invitation to treat
as does by many other advertisements. It is a clearly an offer.

He further said They are offers to anybody who performs the conditions named in the
advertisement, and anybody who does perform the condition accepts the offer. The
acceptance is performing the condition what they ask to do in there. Here Mrs. Carlill had
accepted their offer by consuming carbolic smoke balls.

So there was a legally binding contract between Mrs. Carlill and the Carbolic Smoke Ball
Company. That was the ground where Mrs. Carlill was entitled for a remedy.
The Scenario 01 shows very similar facts with the case of Carlill V. Carbolic Smoke Ball
Company.

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Comparison of the facts of Carlill V. Carbolic Smoke Ball Company

and Scenario 01

Scenario 01

Carbolic Smoke Ball Company

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Shinelight Company produced Washing

powder.

The Carbolic Smoke

produced "smoke balls"

They have decided to promote their

business island wide. They advertised in
the news papers and other electronic
media

To promote the Company they published

advertisements in the Pall Mall Gazette and
other newspapers

Whoever use our washing powder and

having damage their cloths will be
rewarded Rs. 100,000/- to show our
sincerely we reserved Sum of Rs. 1,
000,000/- from our bank account.

Ball

Company

100 reward will be paid by the Carbolic

Smoke Ball Company to any person who
contracts the increasing epidemic influenza
colds, or any disease caused by taking cold,
after having used the ball three times daily
for two weeks, according to the printed
directions supplied with each ball.
1000 is deposited with the Alliance
Bank, Regent Street, showing our sincerity
in the matter.

Mr. Murali aware of the said

advertisement
and he purchased
washing powder from the said company
dealer. His wife used the said washing
powder for the washing her husbands
office uniforms

Mrs. Carlill saw the advertisement, bought it

and used three times daily for nearly two
months until she contracted

and found the clothes have loss their

original colours.
Then Mr. Murali wrote a letter and
demanding the reward sum of Rs.100,
000/- in terms of their advertisement.

And she got sick with influenza after using

its product according to the instructions set
out in the advertisement.
Then Mr. Carlill wrote a letter and
demanding the reward sum of 100 reward
in terms of their advertisement.

The Shinelight Company refused to pay

the reward since it is only advertisement

The Carbolic Smoke Ball Company refused

to pay the reward since it is only
advertisement

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Table02:

In both advertisements there are very similar facts;

a. Both parties have capacity to enter into contract

b. Promise is given to offer a reward

c. Some amount of money has deposited their bank accounts to show their sincerity
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d. plaintiff had accepted defendant offer

e. plaintiff had undergone damage by using products

f.

Therefore this is a valid contract.

In the given scenario 1 Shinelight company advertised on a news paper to promote their
business, the Washing powder production. A paper advertisement is normally only intend to
be an invitation to treat. 11 It is not an offer. Lord parker said When one is dealing with
advertisements and circulars, unless they indeed come from manufacturers, there is
business sense in their being construed as invitations to treat and not offers for sale
(Partridge v Crittenden [1968]12 )
But in Carlill v Carbolic Smoke Ball Company, where it was held that the defendants, has
made an offer to the whole world and were contractually obliged to pay the promised reward
to whoever accepted it by performing the requested acts.
In the case of Carlill v Carbolic Smoke Ball Co, when referring to the contrast of an offer'
and an invitation to treat' Bowen LJ said:
It is not like cases in which you offer to negotiate, or you issue advertisements that you
have got stock of books to sell, or houses to let, in which case there is no offer to be bound
by any contract. Such advertisements are offers to negotiate- offers to receive offersoffers to chaffer
Therefore it is clear an expression of willingness to contract on specified terms, made with
the intention that it is to become binding as soon as it accepted by the person to whom it is
addressed.13

Conclusion
Here the contract between Mr. Murali and Shinelight Company has become a valid contract
because it has fulfilled all the necessary requirements to be a valid contract.

By comparing both cases Mr. Murali can sue against the Shinelight company on the same
grounds as Carlill v. Carbolic smoke balls and he is entitle for reward of Rs. 100,000/-.

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The advertisement with a Rs. 100,000/- reward which published on news papers and
electronic Medias was the offer of the Shinelight Company.

To further show their sincerity they have reserved sum of Rs. 1,000,000/- from their bank
account. This shows clearly the intention of the Shinelight Company to be bound by a
contract.

Mr. Murali used their washing powder, and that was the acceptance.

Therefore Mr. Murali has entered clearly into a contract with the Shinelight Company.

After using he found that his office uniforms has damaged by loosing original colours.
According to the conditions of the agreement he can ask for the promised reward from
Shinelight Company.

He can go before the court for asking a remedy on the basis the company has breached the
agreed by refusing the reward him Rs.100, 000/-

Hence Mrs. Murali is entitling for Rs.100, 000/- reward.

.

Reference
1. REQUIREMENTS OF A VALID CONTRACT, Michael H. Wald, Wald & Associates
2. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505 , English Language Book Society/Stevens & Sons, 14th Edition, Ch 1
p4
3. http://en.wikipedia.org/wiki/Contract on 2011 July 20
4. http://wiki.answers.com/Q/What_are_the_requirements_for_a_valid_contract
5. Contract Law Text Cases and Materials, Ewan Mckendrick, ISBN 978-0-19-920801-2,
Oxford University Press Inc., 3rd Edition
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6. Payne v Cave (1789) 3 TR 148
7. Fisher v Bell (1960) 1 QB 394
8. Gibson v Manchester City Council [1979] UKHL 6
9. Trentham v Archital Luxfer Ltd [1993] 1 Lloyd's Rep.25
10. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
11. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505 , English Language Book Society/Stevens & Sons, 14th Edition, Ch 2
p 10
12. Partridge v Crittenden [1968] 1 WLR 1204
13. http://www.lawteacher.net/contract-law/essays/contract-agreement-consideration.php

1.3 Discuss Freedom of Contract and the equality of bargaining

power as two main assumption of the law of contract in the light
of given Scenario 1
Introduction
Law of contract develops in England pre 1900. It has introduced laissez-faire economic
environment. There are two underlying common law principles;
1. Freedom of Contract; and
2. Equality of bargaining power.
Therefore Courts reluctant to interfere unless duress or illegality involve in the process.

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1. Freedom of Contract
Contract is an agreement between two or more parties that will be enforced by the law. The
parties should have bona fide over their agreement to be legally binding. Both parties
negotiate about terms of contract before come to a final agreement. Each party should
present their offer to match with their own requirements. But other party can accept the offer,
reject the offer or sometimes counter offer. If the offer accepts entirely it become contract.
This is simply the freedom of contract. Freedom of contract ensures laissez-faire economics
and is a cornerstone of free market libertarianism.1
Joseph Lochner was a baker in New York. In 1902 he was fined for violating a state law
limiting the number of hours his employees could work. He sued the government on the
grounds that he was denied his right to due process Lochner claimed that he had the right
to freely contract with his employees and that the state had unfairly interfered with that right.
(Lochner v. New York2) There Justice Peckham wrote " no state shall deprive any person
of life, liberty, or property without due process of law. The right to purchase or to sell labor is
part of the liberty..."
Roscoe Pound In his Liberty of Contract (1909) wrote that, freedom of contract laws were
struck down by State and Federal Supreme Courts by laying out case after case, where
labor rights were. He argued the courts' were simply wrong from the standpoint of common
law and even from that of a sane individualism 3. Pound lamented that the legacy of such
academic and artificial judicial rulings for liberty of contract engendered a lost respect for
the courts, but predicted a bright future for labor legislation.4
In West Coast Hotel Co. v. Parrish5, stated his opinion by Chief Justice Hughes, ruled
that the Constitution permitted the restriction of liberty of contract by state law where such
restriction protected the community, health and safety or vulnerable groups
In Muller v. Oregon6 the issue was shortening the working hours of women, and the
progressives being happy with the outcome. But equal-rights feminists were against this
because it worked so heavily on the separation of the sexes into two stereotyped genderroles and restricted women's financial independence. They argued that the governmental
interest in public welfare outweighed the freedom of contract.
According to Sir Guenter if a contract remains generally true it must subject to a number of
important qualifications
a. often concerned with the objective appearance rather than the actual fact, of the
agreement
b. contracting parties are normally expected to observe certain standards of behavior
C the contract in relation to the scope of the principle of freedom of contract 7
Both parties should aware about the actual duties what their going to be bound by. Law is
concern about objective appearance of the terms but not the subjective. After they entered
into the contract spontaneously created some obligations and duties. The parties of a
contract are always not in equal strength. Therefore freedom of contract always ensures the
protection of weaker party. The freedom principle point out that parties are going to bind by
the contract only with their consent is not due to any constraint. 8
Law of contract should balance two contempting objectives. Contract law should not restrict
legitimate exercise of a persons freedom to enter into contract as he wishes. Same time law
must ensure that contract is the product of best use of that freedom.9
Freedom of contract can be restricted on two grounds,
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a. by the requirement of good faith and fair dealing

b. by the mandatory rules of the government
In Suisse Atlantique v. N.V. Rotterdamsche Kolen Centrale10 Lord Reid stated that
there was no rule restricting the general principle of English law that parties are free to
contract as they may see fit

2. Equality of bargaining power

Both parties should have equal and fair alternatives not more and better than the other
party. This is called as Equality of bargaining power.
But if one party has extra benefit over the bargaining that is unfair. As an example, a
contract between a big company, and an ordinary customer, the parties have unequal
bargaining power, so the stronger party might be able to take advantage of the weaker party.
The ordinary customer is in no position to start negotiating with the sales assistant. The law
is doing its best to level the playing field here. If a stronger party is trying to rely on an
exemption clause, they have to show that the other party agreed to it at the time the
agreement was made. The Unfair Contract Terms Act 1977, the main provisions of
equaling bargaining power of contractual parties:
a. A party cant exclude liability for personal injury or death which results from your
negligence.
b. Exemption clauses have to be reasonable. If the court thinks the term is
unreasonable, that term will be void.
c. A party cant exclude liability for defective goods supplied to a consumer
These provisions have made a fair ground for bargaining. Contracts cant be altered
unilaterally or without the consent of the other party. The Act further say that the term must
be a fair and reasonable one to be included having regard to the circumstances which were,
or ought reasonably to have been, known to or in the contemplation of the parties when the
contract was made. 11
Businesses often use pre-printed, standard form contracts that specify the terms of the
business issuing it. E.g. Sales agreement might have the standard contract terms printed on
the back. If someone buys a book from Bookzone.lk, customer can read the companys
terms, but theyre not open to negotiation. In commercial sense a business cant be
expected to conduct negotiations with each of its customers and form a special contract for
each of them. But these standard documents are often difficult for customers to understand.
Therefore they end up being bound by terms of contract which are they didnt know existed.
So if a company puts an exclusion clause in its standard contract the customer will not have
any option unless bind by it. Because no equal bargaining power exist there. But it is not
possible for them, because the Unfair Terms in Consumer Contracts Regulations 1999,
which protect consumers from unfair standard terms in contracts. If the courts think a term is
unfair, then its not binding on the consumer. A contractual term which has not been
individually negotiated shall be regarded as unfair if, contrary to the requirement of good
faith, it causes a significant imbalance in the parties rights and obligations arising under the
contract, to the detriment of the consumer. 12

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According to McCutcheon v David MacBrayne13 terms exclude clauses may be
incorporated into a contract if course of dealings between the parties were "regular and
consistent". This means it is usually depends on the facts, however, the courts have
indicated that equality of bargaining power between the parties may be taken into account.

Discussion
Freedom of contract is the freedom of individuals and corporations to form contracts without
government restrictions.14 But there are two counter arguments about this. Some say
contract forming should be free from government interference. According to theme
government should respect the freedom of people to enter into contracts. But some opposed
this. They say that government should bring out some restrictions over Liberty of Contract for
the wellbeing of the majority. If people are given total freedom for contract weaker party will
suffer in the case of inequality of bargaining power. This argument highlighted in series of
US cases Lochner v. New York, West Coast Hotel Co. v. Parrish and Muller v. Oregon.
Some authors like Roscoe Pound directly critiqued the role of court in freedom of contract.
Anyway government has intervened into this context by introducing some statutory
provisions such as Unfair Contract Terms Act 1977 and Unfair Terms in Consumer
Contracts Regulations 1999. Because of the duty of the government is protecting the rights
of majority, not minority.
The major problem in the formation of a contract is the equality of bargaining power.
Because of it is very difficult to find the parties with equal strength in contract, unless both
parties are recognized companies. Therefore the court and the government are taking the
maximum effort to balance the context and prevent one party gaining better benefit over the
other.
In the given scenario 1 Shinelight company advertised on a news paper to promote their
business. The two parties are involve her are Shinelight company and Mr. Murali. Both
Shinelight Company and Mr. Murali have freedom of contract. But the problem is their
bargaining power. Do they have equal bargaining power? According their capabilities
Shinelight Company has greater strength than Mr. Murali. Here Mr. Murali represents the
weaker party of the contract. He is one of the readers of the news paper, but according to my
point of view he represents the rights of whole community of news paper readers.
Advertisement is just an invitation to treat. But according to the Carlill V. Carbolic Smoke
Ball Company it is very clear if an advertisement state any reward it shows the willingness
of advertiser to be bound by the law. Therefore it is treated as an offer. This shows very good
attempt of law to equalize the strength of unequal parties where they have very limited
chance for negotiate. On the other hand this enhances the reliability and faith of consumers
about advertisements. Same time it further protect the rights of community by ensuring that
venders cannot mislead them by untruth information.
Here the Freedom of Contract and Equality of bargaining power of both parties become
equal by this rule of common law.

Conclusion
Freedom of Contract and Equality of bargaining power are most important concepts in
formation of contracts.
These two factors facilitate a forming fair contract at end.
But these concept merely difficult to enforce, because of the strength of contractual parties
are widely differ in most circumstances.
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Therefore contractual parties always diverse as a weaker party and stronger party, which wo
The court and government should intervene and they have done appreciatory work to
empower these concepts in fair manner.
Both Common law and governmental statutes provide framework of law to prevent the abuse
of these concepts by the contractual parties.
Still the law needs further review on these aspects of law.

Reference

4.

1. http://en.wikipedia.org/wiki/Freedom_of_contract on 2011 July 20

2. Lochner v. new York 198 U.S. 45 1905
3. Liberty of Contract, 18 Yale Law Journal 454 (1909), Roscoe Pound, p482
Ibid, pp 486-87
5. West Coast Hotel Co. v. Parrish, 300 U.S.379 (1937)
6. Muller v. Oregon, 208 U.S. 412 (1908)
7. The Law of Contract, Sir Guenter Treitel, ISBN 0406972680, Sweet & Maxwell , 12th
edition, 2007
8. The principles of European contract law and Dutch law, ISBN 90-411-174-90, Danny
buich, Kluwer law international, Ch 1, p32
9. The Modern Law Review, Edited By: Hugh Collins, SSN: 1468-2230
10. Suisse Atlantique v. N.V. Rotterdamsche Kolen Centrale [1967] 1 A.C. 361
11. S. 11 Unfair Contract Terms Act 1977
12. Unfair Terms in Consumer Contracts Regulations 1999
13. McCutcheon v David Mac Brayne Ltd [1964] UKHL 4
14. http://en.wikipedia.org/wiki/Freedom_of_contract

2.1 Discuss the application of the exemption clauses to the

given Scenario 2 with the support of Photo Production Ltd. v.
Securicor Transport Ltd. (1980, H.L.)
Scenario 2:
Abi & Ali Manufacturers Ltd is one of the leading companies in garments industry and they
owned a factory. They entered into a contract with defendants. A security company whereby
the defendants were to provide a visiting patrol at night at weekends. One Tuesday night the
duty patrol, they noted a small fire inside the factory. The fire got out of control and the
factory and its stock worth together $200,000 were completely destroyed. The Abi & Ali
Manufacturers Ltd sued the security company. The defendants relied on an exemption
clause in the contract. Which provided under no circumstances shall be responsible for any
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injurious act or default by any employee of unless such act or default could have been
foreseen and avoided by the exercise of due diligence on of as his employer.

Introduction
Exemption (Exclusion) clauses
Exemption clauses are clauses by which the party, who proposed the contract, seeks to
obtain exemption from some or all liabilities imposed on him by the common law or seek to
restrict their liabilities. These are terms which parties include in a contract to exclude or limit
their liability. 1 It follows from the doctrine of freedom of contract. These clauses are being
controlled by the statutory interventions of;
a.
Unfair Contract Terms Act 1977
b.
Supply of Goods and Service Act 1982 and
c.
Carriage of Goods by Sea Act 1971
d.
Unfair Terms in Consumer Contracts Regulations 1999
By these acts they have prohibited and have restricted certain exemption clauses especially
in consumer transactions.

The courts are much not preferred the exemption clauses. Court will allow a party to escape
from its liability under an exemption clause only if the words of the clause are perfectly clear,
effective and precise. There are three methods of incorporation an exemption clause to a
contract:
a. Incorporation by signature:

If the clause is written on a document and the document has been signed by all
parties, then it is part of the contract. (L'Estrange v Graucob)2 If not been signed,
any exception clause contains will only be incorporated if the party relying on the
clause can show that he took reasonable steps to bring it to the attention of the other
party before the contract was made. In a contradiction, that party can not say the
other person had to read the clause or understood it. It is not even necessary to
show that the attention of that person was actually drawn to it. The party trying to rely
on the clause needs to take reasonable steps to bring it to the attention of the
reasonable person. (Reasonable man test)

b. Incorporation by notice:

Parker v SE Railway3 was provided the general rule of Incorporation exemption

clause by notice. But the person relying on it should take reasonable steps to draw
the attention of the other party. Thornton v. Shoe Lane Parking4 indicated that the
wider the clause, the more the party relying on it. They should have done enough
effort bring it to the other parties' attention. The notice must be given before formation
of the contract (Olley v Marlborough) 5
c.

Incorporation by previous course of dealings:

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If course of dealings between the parties were "regular and consistent" some terms
may be incorporated into a contract. (McCutcheon v David MacBrayne Ltd) 6
Usually this depends on the facts.
When there is a signed agreement which contain an exemption clause to exclude from some
obligations the offeree cannot plead ignorance of the terms the offer. The proprietress of a
cafe bought an automatic cigarette machine for her cafe from the defendant and signed a
sales agreement, in very small print, without reading it. The agreement contains an
exemption clause saying that "any express or implied condition, statement or warranty is
hereby excluded The machine failed to work properly. In an action for breach of warranty
the defendants were held to be protected by the clause. Here Scrutton LJ said:
"When a document containing contractual terms is signed, then, in the absence of fraud, or, I
will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether
he has read the document or not."
(LEstrange v Graucob [1934]) 7

A party can not introduce new exemption clauses unilaterally after the contract is made. The
plaintiff booked a room in defendants hotel. A stranger gained entrance into her room and
stole her mink coat. There was a notice on the bathroom door which stated that "the
proprietors will not hold themselves responsible for articles lost or stolen unless handed to
the manageress for safe custody." The court of Appeal held the defendant was liable. The
contract was made at reception desk and the notice on the bathroom door was not
incorporated in it: Olley v Marlborough8. In Chapelton v. Barry9 similarly an attempt to
incorporate a new exemption clause in a receipt given after the contract form squashed by
the court says in this was not binding on plaintiff. Thornton entered his car into defendants
automatic car park when light turned green after bought a ticket, and was injured due to an
accident occurred. He sued. Defendant pleaded that the ticket contained subject to the
conditions of issue as displayed on the premises. Those conditions displayed inside,
contained an exemption clause excluding liability of personal injury. But the court of Appeal
held that exemption clause not protects the defendant. Lord Denning said;
1. The ticket was only a receipt which could not alter the terms of contract.
2. Defendant had failed sufficiently to bring the notice of limitation of liability (Thornton v. Shoe
Lane Parking Ltd. (1971)10)
The plaintiff took a wedding dress to be cleaned by the defendants. She signed a piece of
paper headed 'Receipt' after being told by the assistant that it exempted the cleaners from
liability for damage to beads and sequins. The receipt in fact contained a clause excluding
liability "for any damage howsoever arising". When the dress was returned it was badly
stained. It was held that the cleaners could not escape liability for damage to the material of
the dress by relying on the exemption clause because its scope had been misrepresented by
the defendant's assistant. (Curtis v Chemical Cleaning Co (1951)11)

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The plaintiff deposited a bag in a cloak-room at the defendants' railway station. He received
a paper ticket which read 'See back'. On the other side were printed several clauses
including "The company will not be responsible for any package exceeding the value of 10."
The plaintiff presented his ticket on the same day, but his bag could not be found. He
claimed 24 10s. as the value of his bag, and the company pleaded the limitation clause in
defense. In the Court of Appeal, Mellish LJ gave the following opinion:
a. If the person receiving the ticket did not see or know that there was any writing on the

ticket, he is not bound by the conditions;

b. If he knew there was writing, and knew or believed that the writing contained

conditions, then he is bound by the conditions;

If he knew there was writing on the ticket, but did not know or believe that the writing
contained conditions, nevertheless he would be bound, if the delivering of the ticket
to him in such a manner that he could see there was writing upon it, was reasonable
notice that the writing contained conditions.
(Parker v South Eastern Railway (1877)12)
c.

The plaintiff who could not read gave her niece the money to buy an excursion ticket. On the
face of the ticket was printed "Excursion, For Conditions see back"; and on the back, "Issued
subject to the conditions and regulations in the company's time-tables and notices and
excursion and other bills." The conditions provided that excursion ticket holders should have
no right of action against the company in respect of any injury, however caused. The plaintiff
stepped out of a train before it reached the platform and was injured. The trial judge left to
the jury the question whether the defendants had taken reasonable steps to bring the
conditions to the notice of the plaintiff. The jury found that they had not but the judge,
nevertheless, entered judgment for the defendants. The Court of Appeal held that the judge
was right. The Court thought that the verdict of the jury was probably based on the fact that
the passenger had to make a considerable search to find the conditions; but that was no
answer. Lord Hanworth MR said that anyone who took the ticket was conscious that there
were some conditions and it was obvious that the company did not provide for the price of an
excursion ticket what it provided for the usual fare. Having regard to the condition of
education in this country, it was irrelevant that the plaintiff could not read. (Thompson
v LMS Railway(1930)13)

Facts of the case Photo Production Ltd. v.Securicor Transport Ltd.

14

Photo Productions Ltd sued Securicor Transport Ltd after Securicor's employee, Mr.
Musgrove, started a fire at Photo Production's factory to warm him while at work and
accidentally burnt it down, costing 615,000. Securicor argued that an exclusion clause in its
contract meant they were not liable, as it said "under no circumstances be responsible for
any injurious act or default by any employee unless such act or default could have been
foreseen and avoided by the exercise of due diligence on the part of [Securicor]." Photo
Productions argued that the clause could not apply under the doctrine of fundamental

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breach, that the breach of the contract went to the root of the contract and invalidated the
whole agreement, and extinguished the exclusion clause.
There are three major types of exemption clauses; 16
a. True exclusion clause:

The clauses have a potential to breach of contract. These are constructed in such a
way it only includes reasonable care to perform duties on one of the parties.

b. Limitation clause:

The clauses limit the amount that can be claimed for a breach of contract, regardless
of the actual loss of the innocent party.
c.

Time limitation:
The clause states that an action for a claim must be commenced within a certain
period of time. Otherwise the cause of action becomes extinguished.

Discussion

In the case of Photo Production Ltd. v. Securicor Transport Ltd., securicor argued that an
exclusion clause in its contract meant they were not liable for the damage. Their exemption
clause was "under no circumstances be responsible for any injurious act or default by any
employee unless such act or default could have been foreseen and avoided by the
exercise of due diligence on the part of." The Securicor Transport Ltd excludes their liability
stating that they had taken the maximum effort to prevent the fire though they failed.
According to the clause they are not liable injurious act or default by any employee unless
they foreseen it and avoided by the exercise.

But the issue was whether they can or can not make such exemption clause without
amounting to fundamental breach. In Court of Appeal Lord Denning held that the doctrine of
fundamental breach did apply, and that Securicor was liable. Lord Denning said if the
breach was fundamental then the exclusion clause would be invalid There he followed his
own decision in Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd.16 In that case he
clearly said, ...affirms the long line of cases in this court that when one party has been guilty
of a fundamental breach of the contract ... and the other side accepts it, so that the contract
comes to an end ... then the guilty party cannot rely on an exception or limitation clause to
escape from his liability for the breach.

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Securicor appealed to the House of Lords. The House of Lords held that their exclusion
clause was effective and exempt it from liability for damage. Lord Diplock held that the
effectiveness of clauses was a question of construction of the contract. He noted that the
reports are full of cases in which what would appear to be very strained constructions have
been placed upon exclusion clauses But it was questioned the terms of the Unfair Contract
Terms Act 1977.

In the given scenario Abi & Ali Manufacturers enter into a contract with Ltd the security
company to provide a visiting patrol at night at weekends. Actual purpose of the contract was
to provide the security for their factory. But once they noted a small fire inside the factory
they were unable to prevent it. The Abi & Ali Manufacturers Ltd sued the security company.
The security company relied on an exemption clause in the contract. Which provided under
no circumstances shall be responsible for any injurious act or default by any employee of
unless such act or default could have been foreseen and avoided by the exercise of due
diligence on of as his employer.

Conclusion
According to the House of Lords decision for the Photo production case it is clears the
security company can escape from their liability under their exclusion clause.

Reference

1. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,

ISBN 0420450505, English Language Book Society/Stevens & Sons, 14th Edition, Ch
8 p 156
2. L'Estrange v Graucob Ltd [1934] 2 KB 394
3. Parker v South Eastern Railway [1877] 2 CPD 416
4. Thornton v. Shoe Lane Parking Ltd. [1971] 2 QB 163
5. Olley v Marlborough Court Hotel [1949] 1 KB 532
6. McCutcheon v David MacBrayne Ltd [1964] UKHL 4
7. L'Estrange v Graucob 2 KB 394
8. Olley v Marlborough Court [1949] 1 KB 532
9. Chapelton v. Barry Urban District Council [1940] 1 KB 532
10. Thornton v. Shoe Lane Parking Ltd. [1971] 2 Q.B. 163.
11. Curtis v Chemical Cleaning Co [1951] 1 KB 805
12. Parker v South Eastern Railway [1877] CPD 416
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13. Thompson v LMS Railway [1930] 1 KB 41
14. Photo Production Ltd. v. Securicor Transport Ltd. (1980, H.L.)
15. http://en.wikipedia.org/wiki/Exclusion_clause
16. Harbutt's "Plasticine" Ltd v Wayne Tank and Pump Co Ltd. [1970] 1 Q.B. 447, 467

2.3 Discuss in details the different types of misrepresentation

and the effects of the liabilities of the parties of a contract.
Introduction
Misrepresentation
Facts and statements which a party makes while negotiating with a view to including the
other party to enter into the contract and to conclude it is known as representation.
Misrepresentation is providing false facts or statements by one party, which stimulate the
other party enter into the contract. Here the other party should include contract base on
those misstatements. Misrepresentation can be expressed either by words or by conduct.
(Gordon v Selico (1986) 1) There can point out few characteristics of a misrepresentation;
a. It made before party conclude the contract;
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b. It must be a representation of material facts. It is not general opinion or of intention;

In Edgington v. Fitzmaurice2, Bowen L.J. showed the importance of proving
opinion as a fact, the state of a mans mind is a much a fact as the state of his
digestion
if the facts are not equally known by both parties statements made by specialists
have more weight to be a material fact rather than to be an opinion. (Esso
Petroleum Co Ltd v Mardon 3)
c. It made with the intention of induce other party to enter into contract;
A company underwriting a new share offering was contacted by a client and was
asked if the new company was "alright." The underwriter replied that "we are
bringing it out," from which the client implied a warranty. But the shares did not do
well, the client sued based on fraudulent misrepresentation. The court could not find
a collateral contract related to the character of the new company. The courts said
these contracts are very rare, will be interpreted strictly and one must show animus
contrahendi on the part of all parties to them. In order to succeed, the plaintiff must
prove fraudulent misrepresentation "or what is equivalent thereto, must be made
recklessly, not caring whether it be true or not." (Heilbut, Symons & Co. v.
buckleton [1913] 4)
d. It has not include into contract as a term and not a part of contract;
e.

It carry some false information or facts either to the knowledge of the person making
it or without his knowledge;

f.

Other party enters into the contract base on those misstatements.

There can be misrepresentations which are made by one of the contractual parties.
But if the other person enters into a contract without considering those
misrepresentations, upon his own skill and judgment, or upon his own inquiries and
investigations, he cannot take any legal action against the misrepresented party.

Two main types of misrepresentations can be identified;

1. Innocent misrepresentations- the party which is made misstatement honestly
believed it to be true. There are two types of innocent misrepresentations.
a) Innocent but negligent misrepresentations- The party who made the
representation had no reasonable ground to believe it to be true.
b) Innocent and not negligent misrepresentations- The party who made the
representation had reasonable ground to believe it to be true.
2. Fraudulent misrepresentations- the party which is made misstatement did not
honestly believe it to be true or knows it was false. There are four conditions that
must be proved before the court will accept fraudulent. 5

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a. that the representations complained of were made by the wrongdoer to the
victim before the contract;
b. that these representations were false in fact;
c. that the wrongdoer, when he made them, either knew that they were false or
made them recklessly without knowing whether they were false or true; and
d. that the victim was thereby induced to enter into the contract in question.

How to differentiate terms and misrepresentations?

Terms and representations should distinguish depend on the intention. The court decides
whether a statement is a term according to intention of the party which made the statement.
There court uses two tests; 2
A. General test (subjective test): Did the maker of the statement intend to guarantee
the truth of the statement?
Defendant sold a 1939 car to plaintiff, claiming it was 1948 model. The court held
that it was a mere representation where the purchaser may have had a better
knowledge than owner because he was a car dealer. (Oscar Chess v Williams
[1957]6). Mr. Smith bought a luxury car from a motor dealer, and at the negotiation
he stated that the car had done only 20,000 miles. But later discovered it was just
bellow 100,000 miles and sued defendant breach of contract. The Court held that
the statement was of a promissory nature, as the defendant was a motor car dealer
and thus in a much better position to know the state of the car. (Dick Bentley
Productions Ltd v Harold Smith (Motors) Ltd [1965]7). In both above cases the
court had used general test to decide whether the statement was a mere
representation or a term.
B.

Objective test (Reasonable man test): What would a reasonable third

person have understood the statement to mean?
In Ellul & Ellul v Oakes8 appellants claimed damages base on false statement in
an advertisement which was signed by the defendant. Court decide it on the ground;
what effect the statement would have on the mind of a reasonable person so as to
make him think that such a representation was contractual in its nature?. The court
held that it does not matter if he was innocent or not but, if he didnt behave as a
reasonable man, its function of the Court to hold him to his promises. It was
obviously within the knowledge of the defendant whether his property was severed
and the plaintiffs, who were ignorant of that fact, were justified in regarding the
statement as more than a mere, representation. Therefore it is a term. This is a
good example where the court had used objective test.

Discussion
Liabilities and remedies of misrepresentation
Today the laws which regulate misrepresentation are common law and statutory provisions.

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a. At common law use the rule in Hedley Byrne v. Heller and Peek v. Gurney
b. Misrepresentation Act 1967 is the statutory provision enacted today.
This act is very important for claimant seeking compensation for Misrepresentation.
It shows people, who allow claiming remedied for misrepresentation under the act,
A person who has entered into a contract after a misrepresentation has been made
to him, and
a. the misrepresentation has become a term of the contract; or
b. the contract has been performed;
or both, then, if otherwise he would be entitled to rescind the contract without alleging
fraud, he shall be so entitled, subject to the provisions of this Act. 9
By this all innocent misrepresentations is presumed to have been made negligently. It
has the shifted the burden of proof from the claimant to the defendant. Therefore the
defendant should show that he had good grounds to believe that representation to be
true. 10
The Act also has given powers to court, to award damages in misrepresentation
cases, where Rescission would not be available. Where a person has entered into a
contract after a misrepresentation . he would be entitled, .. to rescind the
contract, then, if it is claimed, in any proceedings arising out of the contract, that the
contract ought to be or has been rescinded, the court or arbitrator may declare the
contract subsisting and award damages in lieu of rescission, if of opinion that it would
be equitable to do so, having regard to the nature of the misrepresentation and the
loss that would be caused by it if the contract were upheld, as well as to the loss that
rescission would cause to the other party. 11
Misrepresentation act again shows avoidance of provision excluding liability for
misrepresentation;
If a contract contains a term which would exclude or restrict
a. any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
b. any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of
reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977;
and it is for those claiming that the term satisfies that requirement to show that it
does. 12
Therefore remedies available for a mislead party in misrepresentation can be categorized
according to the misrepresentation he had been subjected.
1.

remedies for fraudulent misrepresentation

a. claim for damages by the misled party if he has suffered a loss
b. Rescission of the contract by the misled party. Misrepresentation makes a contract
voidable to misled party at their option but not a ground for repudiating for guilty
party. Innocent party must communicate their rescission to other party.
c. refusal of the misled party to perform the contract
d. Misled party has always the right to affirm the contract, if he so wish.
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Innocent party can rescind the contract by communication and gain repossession. Norris
bought a car from Cadwell for a cheque. Later discovered it was a dishonored. As soon as
Cadwell came to know It he informed the police and the Automobile Association of the
fraudulent transaction. Norris sold it to x, then x sold it to y and y sold it to the plaintiffs. The
court held that contract was voidable of the fraudulent misrepresentation and the owner had
done everything he could in the circumstances to avoid the contract. (Car & Universal
Finance v Caldwell [1965]13). One can also sue for fraudulent misrepresentation in
a tort action.14
2.

c.
d.

3.

remedies for innocent but negligent misrepresentation

a. Claim for damages by the misled party is founded only under Misrepresentation Act
1967 15
b. Rescission of the contract by the misled party. Judges have discretionary power to
declare the contract as subsisting and award damages in lieu of rescission. Section
2(2) of Misrepresentation Act state that if of opinion that it would be equitable to do
so, having regard to the nature of the misrepresentation and the loss that would be
caused by it the contract were upheld, as well as to the loss that rescission would
cause to the other party
refusal of the misled party to perform the contract
Misled party has always the right to affirm the contract, if he so wish.
Plaintiff bought a lorry from the defendant which base on his advertisement and after a trial
run discovered all that was wrong with the vehicle. Two days later he found more faults and
reported to the defendant. Then, he paid some money for repair. Next day lorry broke down
on the way and asked for the return of his money. Plaintiff sued the defendant. Court of
Appeal held that though it was wrong, the defendant's representations had been made
honestly and the plaintiff was not entitled to rescission as he had finally accepted the lorry
before he had purported to rescind. The second journey amounted to affirmation of the
contract. (Long v Lloyd [1958] 16)
remedies for innocent and not negligent misrepresentation
a. Rescission of the contract by the misled party. Judges have discretionary power to
declare the contract as subsisting and award damages in lieu of rescission.
b. refusal of the misled party to perform the contract
c. affirmation of the contract
No right to claim damages. Judges have discretionary power to award damages in
lieu of rescission.
The plaintiff bought a painting. There was an innocent misrepresentation. He discovered it
five years later and claimed rescission immediately. The Court of Appeal held that the
plaintiff had lost his right to rescind. His only remedy after that length of time was for
damages only. But he had not claimed for damages before the court. (Leaf v International
Galleries [1950]17)
Defendant bought a mine on lease because of a misrepresentation and extracted minerals
since the date of contract. The court held that he cannot rescind after a considerable amount
of extraction. (Vigers v Pike (1842)18)

Conclusion

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Misrepresentation misleads one party of a contract. It has undue influence over formation of
contract as it is threaten the fairness of the contract.

Innocent but negligent Misrepresentation treated, and should be treated very equal manner
with fraudulent.

Liability of parties regarding Misrepresentation depends on the type of misrepresentation.

Anyway the remedies not merely depend on the type of misrepresentation, but the
circumstance and fact.

Type of misrepresentation

Liability

A.

If misrepresentation is fraudulent

Damages, Rescission, refusal to perform,

affirm contract

B.

If misrepresentation is innocent but

negligent

Damages, Rescission, refusal to perform,

affirm contract

C. If

misrepresentation is innocent and

not negligent

No right to claim damages, refusal to

perform, affirm contract

Reference

1.
2.
3.
4.
5.
6.

Gordon v Selico (1986) 18 HLR 219

Edgington v Fitzmaurice (1885) 29 Ch.D.483]
Esso Petroleum Co Ltd v Mardon [1976] 2 Lloyd's Rep 305
Heilbut, Symons & Co. v. buckleton [1913] A.C. 30
The Law of Contracts in Canada, Professor G. Fridman, 1994, p. 295,
Chess v Williams [1957]
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7. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965]
8. Ellul & Ellul v Oakes
9. S.1 Misrepresentation Act 1967
10. s.2 (1) Misrepresentation Act 1967
11. s.2 (2) Misrepresentation Act 1967
12. S.(3) Misrepresentation Act 1967
13. Car & Universal Finance v Caldwell [1965] 1 QB 525
14. http://en.wikipedia.org/wiki/Misrepresentation
15. s.2 (1). Misrepresentation Act 1967
16. Long v Lloyd [1958] 1 WLR 753
17. Leaf v International Galleries [1950] 2 KB 86
18. Vigers v Pike (1842) 8 CI&F 562

2.5 Analyze and apply the principles of remedies to the given

Scenario 2 and advise how the security company may
escape from liabilities.
Introduction
Fundamental breach
Fundamental breach is breaching the basement of the contract. The principle was created
by Lord Denning in Karsales (Harrow) Ltd. v. Wallis1:
However extensive an exemption clause might be it could not exclude liability in respect of
the breach of a fundamental term or of a fundamental breach (Karsales (Harrow) Ltd. v.
Wallis [1956]2).
It is treated as a rule of law. The court is not going to respect to the parties intention in a
case of fundamental breach. Fundamental breach terminates a contract. Here the exclusion
clause could not apply. The innocent party has the right to repudiate the whole of the
contract. Because of he had not received what he bargained for. Harbutts Plasticine Ltd.
v Wayne Tank & Pump Co. Ltd. [1970]3
UK enacted Unfair Contract Terms Act in 1977. It was dealt with the doctrine of
fundamental breach. This act invalidates certain kinds of exemption clauses in commercial
transactions. Same time it restricts the other exemption clauses and enhances the
requirement of reasonableness.
Harbutts Plasticine Ltd. v Wayne Tank & Pump Co. Ltd [1970] 4 A Factory destroyed by
fire because of a Defective system. Owner sues the manufacturer. Under the clause 15 of
their contract limited the defendants' liability to the amount of the contract price. (2, 330),
but the loss of plaintiff was of some 150,000. Judgment was given for the full amount of the
loss and clause 15 made inapplicable.
This decision was overrule in Photo Productions v. Securicor Ltd. [1980]5, there it
confirms that the term "fundamental breach" should only be used to describe breaches for
which the innocent party is entitled under the contract to elect to put an end to all primary
obligations of both parties remaining unperformed. There the question was whether an
exclusion clause applied when there was a fundamental breach of contract turned on the
construction of the whole contract?

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The parties are free to modify, limit or reject the content of their contract. Securicor had
breached an implied obligation to perform the service with proper attention for the safety and
security of the plaintiff's factory premises. The exclusion clause was clear and definite and
protected them from liability. A fundamental breach is failure to perform the primary
obligation which the other party gains substantially the whole benefit of the contract. Lord
Wilberforce here stated
The question whether, and to what extent, an exclusion clause is to be applied to a
fundamental breach, or a breach of a fundamental term, or indeed to any breach of contract,
is a matter of construction of the contract

Principles of remedies
A. Remedies available for any form of breach
In a contract contractual parties covenant to carry out absolute duty on their part of the
contract. If one of the parties fails to perform, it is called a breach of contract. Innocent party
of a contractual breach or repudiation entitle for few remedies,
1.

to refuse further performance of the contract

Non breached party can claim for rescinded as a remedy. Then have to restore all the
benefits received by the breached party. But if there any term contract that he need not
to do so he can escape this liability. (Dies v. British and International Mining Corpn.
[1939]6);
2.

to bring an action for damages

a.

Remoteness for what consequences of the breach is the defendant legally

responsible?
b.
The measure of damages the principles upon which the loss or damage is
evaluated or quantified in monetary terms.
3. to sue on a quantum meruit
4.

to sue specific performance 7

a. Damages provide an adequate remedy.
b. Where the order could cause undue hardship
c. Where the contract is of such a nature that constant supervision by the court would
be required, e.g., Ryan v Mutual Tontine Association8
d. Where an order of specific performance would be possible against one party to the
contract, but not the other.
e. Where the party seeking the order has acted unfairly or unconscionably. He is barred
by the maxim He who comes to Equity must come with clean hands.
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f.

Where the order is not sought promptly the claimant will be barred by the maxims
Delay defeats the Equities and Equity assists the vigilant but not the indolent.

5. To sue for an injunction: there are two types of them.

b.

a.
Prohibitory injunction- an order that something must not be done.
Mandatory injunction- an order that something must be done.

B. Remedies available for fundamental breach

In Photo Productions v. Securicor Ltd. [1980]9 Lord Diplock said,
An exemption clause is one which excludes or modifies an obligation, whether primary,
general secondary or anticipatory secondary, that would otherwise arise under the contract
by implication of law
Primary obligations - are those contained in the contract?
Secondary obligations- are those which arise automatically by law when a contract is
breached?
For a not serious breach if the outstanding primary obligations remain to be performed
the innocent party must continue to perform. There is a secondary obligation to the
breaching party to pay damages for the breach.
For a serious breach repudiation is elected by the innocent party the outstanding
primary obligations are all treated as being substituted for an anticipatory secondary
obligation to pay damages for all the obligations that would have fallen due in the future.

Discussion
Comparison of the facts of two cases
Scenario 02

Abi & Ali Manufacturers Ltd is one of the

leading companies in garments industry
and they owned a factory.

They entered into a contract with

defendants. A security company whereby
the defendants were to provide a visiting
patrol at night at weekends.

Photo Productions v. Securicor Ltd. [1980]

Photo Productions Ltd was one of the

leading companies in picture industry and
they owned a factory.

They entered into a contract with

defendants. A security company whereby the
defendants were to provide a visiting patrol
at night at weekends.
32

Module Name
One Tuesday night the duty patrol, they
noted a small fire inside the factory. The
fire got out of control and the factory and
its stock worth together $200,000 were
completely destroyed.

The Abi & Ali Manufacturers Ltd sued the

security company.

The defendants relied on an exemption

clause in the contract. Which provided
under no circumstances shall be
responsible for any injurious act or default
by any employee of unless such act or
default could have been foreseen and
avoided by the exercise of due diligence
on of as our employer.

One night During the duty patrol, Securicor's

employee, Mr. Musgrove, started a fire at
Photo Production's factory to warm himself
while at work and accidentally burnt it down,
costing 615,000.

The Photo Productions Ltd sued the security

company.

The defendants relied on an exemption

clause in the contract. Which provided
"under no circumstances be responsible for
any injurious act or default by any
employee unless such act or default could
have been foreseen and avoided by the
exercise of due diligence on the part of
[Securicor]."

Conclusion
1. A contract is not automatically discharged in a breach. This rule is applied even for a
fundamental breach.
2 If the breach is fundamental the innocent party has the right to elect:
a. Whether to assure the contract (i.e. continue their performance) and claim
damages, or
b. To repudiate the contract (i.e. treat their future obligation to perform as
discharged) and claim damages.
3 There for the consequences of a fundamental breach is prospective.

Reference
1.
2.
3.
4.
5.
6.
7.
8.
9.

Karsales (Harrow) Ltd. v. Wallis [1956] 1 W.L.R. 936 (C.A.)

ibid
Harbutts Plasticine Ltd. v Wayne Tank & Pump Co. Ltd. [1970] 1 Q.B. 447 (C.A.)
ibid
Photo Productions Ltd. v. Securicor Transport Ltd. (1980, H.L.)
Dies v. British and International Mining Co [1939] 1 KB 724. P
http://www.lawteacher.net/contract-law/cases/remedies-cases-2.php on 2011 July 28
Ryan v. Mutual Tontine Westminster Chambers Association [1893] 1 Ch 116.
Photo Production Ltd. v. Securicor Transport Ltd. (1980, H.L.)

33

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3.1 Identify how the contract has been breached in a given

scenario 3.
Scenario 3:
Sajeev is running garment which is manufacturing shirts in the city. Style textile was
interested to purchase shirts to their shop. During the negotiation Sajeev has sent the
samples to the Style textile for their approval. Style textile satisfied the sample and order for
supplying the similar 5000 shirts within 3 months. Consideration have been discussed and
finalized by them and Sajeev ask 10% of the total consideration as advance payment and
same was deposited to Sajeevs bank account by the Style textile. Later within agreed time
Sajeev has supplied only 3000 shirts and he sent a note to Style textile that he would supply
the balance within a month time. Further Style textiles manager checked the supplied shirts
and he found that the supplied shirts quality have not been similar with the sample sent by
Sajeev during the negotiation. Now the Style textile comes to you for legal consultation.

Introduction
Breach of contract is a legal cause of action in which a binding agreement or bargained-for
exchange is not honored by one or more of the parties to the contract by non-performance
or interference with the other party's performance. 1There are three ways of breach of a
contract. They are:
1. Fail to perform obligations in terms of the contract;
one party either fail or refuse to perform his duties still outstanding under the
contract. If refusal or failure amount to repudiation, other party can treat the contract
as discharge by breach. In a contract of sales of goods breach of any implied
condition set out in the Sales of goods Act 1979 allow the buyer to rescind the
contract.12
2. repudiate the contract before time for performance; An anticipatory breach is an
unequivocal indication that the party will not perform when performance is due, or a
situation in which future non-performance is inevitable. 3 A party may repudiate a
contract either;
34

Module Name

a. expressly;
Or
b. impliedly;
3. disabling himself from performing the contract.
A fundamental breach is a breach so fundamental that it allow the innocent party to
terminate performance of the contract. Lord Reid in Suisse Atlantique Societe 'Armement
Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale7 defined this as,
a well-known type of breach which entitles the innocent party to treat it as repudiatory and
to rescind the contract.
It is an implied term of every contract that neither party will do anything to render the contract
nugatory. 4 Breach of contract is a type of civil wrong.5
Contractual breach again can be divided into two groups as minor breach and major
(material) breach.

Discussion
In scenario 3 Sajeev and Style textile has entered into a contract. The terms they have
agreed can be identified as followings.
Sajeev should supply 5000 shirt to Style textile.
Those shirts should supply within 03 month period of time.
Quality of those 5000 shirt should be similar to the quality of the sample which
was received and accepted by Style textile during the negotiation.
But Sajeev has breached the contract by failing to perform obligations in terms of the
contract.
Sajeev has supplied only 3000 shirts within agreed time (03 month).
The quality of supplied 3000 shirts have not been similar with the sample sent by
Sajeev during the negotiation.

Conclusion
Therefore Style textile can sue against the Sajeev on the ground he has breached the terms
of the contract. They are entitling for a damages, rescission or both.

Reference
1. http://en.wikipedia.org/wiki/Breach_of_contract on 07-10-2011
2. remove
35

Module Name
3. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt.
Ltd., Vol 2 Ch 27 p 879
4. Ibid.
5. Learning the Law, Glanville Williams, ISBN: 0420463003, New Chapter Recycling
Inc. (Lakewood, WA, U.S.A.) Eleventh Edition, p. 9
6. Bettini v Gye (1876) QBD 183
7. Suisse Atlantique Societe d'Armament SA v NV Rotterdamsche Kolen Centrale [1967]
1 AC 361

3.2 Discuss in details how you may take legal action against
Sajeev for the breach of contract. Support your answer with the
discussion of remedies and advice what kind of remedies can
be claimed by Textiles against Sajeev.
Introduction
Breaches always entitle the innocent party to take a legal action against breached party. A
party to a contract may commit a breach of that contract,
1.

By failing to fulfill obligations contemplate to perform in the contract;

If breach occur because of is one party either fail or refuse to perform his duties still
outstanding under the contract. If refusal or failure amount to repudiation, other party
can treat the contract as discharge by breach. In Cort v. Ambergate Ry. (1851) 1 C
entered into a contract with Railway Company to supply railway chairs. After delivery
half of the agreed quantity railway company wanted stops the supply. Court held C
could bring an action at once without showing an actual delivery. In a contract of
sales of goods breach of any implied condition set out in the Sales of goods Act 1979
allow the buyer to rescind the contract. 2

2. Disabling himself from performing the contract;

A promisor who disables himself from performing the contract is guilty. Therefore the
party can treat the contract as discharged. In the case Omnium d Enterprises v.
Sutherland (1919) 3 X entered to a contract with Y to build a ship. After built X sold it
to Z. Court held Y was liable for damage.
3. By repudiating liability under contract before time for performance is due;
In an anticipatory breach like this the other party is not bound to wait until the actual
breach arrive, but may immediately treat the contract as discharged and sue for
damage. K promised F to marry her after his father die. Later K informed he will not
marry her after the death of his father. The farther was still living. But F sued him at
once for breach of promise. Court held that F entitle to do so on the ground
anticipatory breach :( Frost v. Knight4)
36

Module Name
When a contract is broken the remedies available for the innocent party may differ
depending on the circumstance. They are: 5
A. to refuse further performance of the contract;
B. to bring an action for damages;
The general principle on which damages for breach of contract is that, the sum of
money awarded should, as nearly possible be a sum which will put the breached
party in the position which he would have enjoyed if he had not sustained the wrong
for which the award of damages is made and it should include both actual loss and
loss of profit.10
Damages for contractual breach may be; 16
a. General (damnum commune), - These are ordinary damages,
Or
b. Special
(damnum
contemplated,

singulare). -These

are

damages

specially

In English law and Sri Lanka law the court will not interfere with the mode of
assessment adopted by the parties, unless the payment stipulated, is in reality
a penalty.17 But in Roman-Dutch law did not distinguish between, liquidated
damages and penalty. But the distinction have been adopted in Roman Dutch law
particularly with the South African case of Pearl Assurance Co. v. Union
Government (1934)18

C. to sue on a quantum meruit;

D. to sue for specific performance;
E. To sue for an injunction.
The remedies available for breach of contract can be categorized according to the
importance of the term of breach.
1. If it is a breach of a warranty of the contract, injured party entitle no right to rescind
but damages for the loss. Fletcher Moulton L. J. described it as,
obligation which, though it must be performed, is not so vital that a failure to perform
it goes to the substance of the contract.6
In a minor breach like this other party can only sue for actual damages. The P built
country residence for D and due to some oversight, installed some other brand of
plumbing pipes than the ones promised. Then D ordered P to replace all of them with
agreed brand. But court stated, We must weigh the purpose to be served, the desire
to be gratified, the excuse for deviation from the letter, the cruelty of enforced
adherence. According to the court the measure of the allowance is not the cost of
replacement, but the difference in value, which would be either nominal or nothing.
37

Module Name
Because P had performed the substantial part of the performance that he had
promise and the matter was only about minor valued term of the contract. (Jacob &
Young, Inc. v. Kent) 7
2. If it is a breach of a condition of the contract, injured party entitle for rescind the
contract and to claim damages for non performance. Fletcher Moulton L. J. defined
this as,
which goes so directly to the substance of the contract, or, in other words, is so
essential to its very nature, that its non-performance may fairly be considered by the
other party as a substantial failure to perform the contract at all.8
Major breach allows the other party to claim specific performance or collect
damages. In Dalkia Utilities Services Plc v Celtech International Limited (2006) 9
Dalkia was to design and build a heat and power plant to supply electricity and steam
to Celtechs paper mill. The contract was for a 15 year term and Celtech was obliged
to pay annual charges in 12 monthly installments. Dalkia had a contractual right to
terminate the contract for material breach on exercise of which Celtech was to pay a
sum of 3 million. Celtech failed to pay three installments and stated that it would
become insolvent if it continued to pay the charges. Consequently, Dalkia sought to
terminate the agreement for material breach.
In Sri Lanka present statutory provisions for claiming damages are No. 5 of 1852, Civil
Ordinance and Money Lending Ordinance. Transactions during commercial contract are
controlled by Sales of good Goods Ordinance.

Discussion
A contract of sale of goods is a contract whereby the seller transfers, the property in goods
to buyer for a money consideration called price. 11 Style textiles checked the sample, which
sent by Sajeev and made an order supplying the similar 5000 shirts within 3 months. So it is
clear that there was a contract of sale of goods between Style textile and Sajeev.
According to Sales of Goods Act 1979 it is the duty of seller to deliver the goods and of the
buyer to accept and pay for them, in accordance with the contract of the sale. 12 Unless
otherwise agreed, payment and delivery are concurrent conditions. 13 Sajeev had agreed to
supply the similar 5000 shirts within 3 months. Sajeev asked 10% of the total consideration
as advance payment and same was deposited to Sajeevs bank account by the Style textile.
Balance payment should make after the total quantity of goods (5000 shirts) supplied.
Sajeev has breached two agreed obligations of the contract. One is a minor breach and
other is a major breach.
1. 1st term is he has not supply the shits within agreed period. This breach of term can
be identified as a minor breach of the contract. Because delivery within agreed time
is a warranty of a contract. Delay delivery is a breach of warranty therefore gives rise
to a claim for damages, but not a right to reject the goods and treat the contract
repudiated.14
2. 2nd term is he has not supply shirts with agreed quality. This can be identified as a
major breach. Because quality of the shirts is a major issue. Because of that it can be
treated as a condition of the contract. A breach of condition gives rise to a right to
treat the contract as repudiated.15

Conclusion
38

Module Name
Firstly Style textile can claim damages on the ground Sajeev has not delivered goods within
agreed time.
Secondly Style textile can claim both rescission and damages on the ground Sajeev has not
supply the goods of agreed quality. Therefore Style textile can recover 10% advance
payment which was deposited to Sajeevs bank account. And further they can claim a
damage which they lose due to rescind.

Reference
1.
2.
3.
4.
5.

Cort v. Ambergate Ry. (1851) 17 Q.B.127

(ss.12-15) Sales of goods Act 1979
Omnium d Enterprises v. Sutherland (1919)1 K.B. 618
Frost v. Knight ( 1872) L.R. 7 Exch. 111
Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505, English Language Book Society/Stevens & Sons, 14th Edition, Ch 9 p
166
6. Wallis v. Pratt [1910]2 K.B. 1003 at 1012
7. Jacob & Young, Inc. v. Kent (1921) 230 N.Y. 239
8. Wallis v. Pratt [1910]2 K.B. 1003 at 1012
9. Dalkia Utilities Services Plc v- Celtech International Limited (2006) All ER (D) 203
10. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt. Ltd.,
Vol 2 Ch 28 p 888
11. (s.2(1)) Sales of Goods Act 1979
12. (s.27) Sales of Goods Act 1979
13. (s.28) Sales of Goods Act 1979
14. (s.11) Sales of Goods Act 1979
15. (s.61) Sales of Goods Act 1979
16. http://www.vakilno1.com/saarclaw/srilanka/lawofcontract/law_of_contract_in_sri_lanka.ht
m on 07-10-2011
17. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt. Ltd.,
Vol 2 Ch 28 pp 912-916
18. Pearl Assurance Co. v. Union Government, (1934) AD 560, 568 (Privy Council)

39

Module Name

4.2 Consider that the factory had been totally burnt because of
fire in the given scenario and apply the principles of frustration
to the given scenario 3 and prepare your own conclusion with
the support of consequences of the frustration and the decided
cases.
Introduction
Frustration is impossibility of performing a contract because of an unexpected turn of events.
Here the common object of the contract can no longer be achieved. Because the situation is
fundamentally different from the situation that parties contemplated when they enter into the
contract. On the ground of frustration engaged parties can end their contract.
In English and Roman-Dutch law Principle of frustration is approached in different manner. In
Roman-Dutch law it presume that the contract is subject to an implied condition that
impossibility operates as a discharge while English law accept it only if it can be shown that
parties had contracted on the basis of a condition that impossibility was to discharge. 1
Earlier in common law frustration was not recognized as an excuse for end a contract. In the
cases Paradine v Jane (1647)2 the land under lease to the defendant had been invaded by
Royalist forces. There the courts held that he was still under obligation to pay rent to the land
owner. Later in Taylor v Caldwell (1863)3 the doctrine of frustration was formally
recognized. This alleviates the potential harshness of previous court decisions.
There are circumstances where frustration of a contract can be occurring.
(1) Render its performance impossible;
a) Destruction of the subject matter; e.g. one party agree to sell a building to other
party, but then the building burns down by a fire.
In Nickoll and Knight V Ashton, Eldridge & Co. (1901)4 A sold a cargo of cotton
seed to N. The cargo was to be shipped by a specific ship in a named month. The
ship was so damaged by stranding before the time for shipping arrived. So A was
unable to load by the agreed time. The court held the agreement was discharged on
the ground destruction of the subject matter.

40

Module Name
b) The non-availability of a party: (e.g. - an accident, sickness or death of one of
the parties; or third-party interference) In Robinson v Davison (1870)5 a piano
player entered into a contract to play in a concert. He became ill prior to the concert,
therefore unable to play. The court was held that the contract to be frustrated.
(2) Render its performance illegal (Supervening illegality);
After the contract form new laws can be imposed by the government which is made illegal to
carry it out. In Avery v Bowden (1856)6, a ship had entered into a contract to transport
some cargo from Odessa. But because outbreak of Crimean War the government made it
illegal to load cargo at any enemy port. Therefore the ship couldnt perform its contract
without breaking the law. The contract was frustrated.
(3) The nature of the contractual obligations becomes significantly different from what was
agreed:
The non-occurrence of an event; e.g. - in Krell v Henry (1901) 7, the coronation procession
of King Edward VIII had to be cancelled at the last minute because the King was ill.
Defendant had hired a flat from the plaintiff to view the procession. After the cancellation he
refused to pay the days rent. The court held the contract frustrated in purpose by the
cancellation of the coronation procession.
But if the circumstance was foreseeable by one of the parties, frustration is
not acceptable as an excuse for non-performance or discharges of a contract. Same time
the supervening event must be beyond the control of both parties. Again it is not applicable
to certain types of contracts. (E.g. insurance policies).8
But it is very important frustration can not be pleaded merely because the performance of
the contract has become more difficult or more costly than expected, or will result in a loss
rather than the anticipated profit, or even has become impossible. 9 Thats a risk that parties
take when they enter into a contract. Lord Roskill stated that "[it is]..not lightly to be
invoked to relieve contracting parties of the normal consequences of imprudent bargains." 10
therefore the law is looking for some sort of physical impossibility. Harman L.J. said;
Frustration is a doctrine. very rarely relied upon with success. It is, in fact, a kind of last
ditch, and it is a conclusion which should be reached rarely and with reluctance 11
According to this it is very clear that law does consider the discharge of a contract by
frustration not as a rule, but as an exception.
Anyway sometimes the contract may have express terms which declare consequences of
particular circumstance. Those are called force majeure clauses.12
E.g. if there is a contract to import a cargo, the contract may have a force majeure clauses.
In the event of the shipment being damage at sea (has stated what the consequence is)
In those instances the principle of frustration would not be applied. But here the provision
should be complete and specific about what risk is being provided for.
In English law dispute on frustration of a contract is resolved by both common law and
statutory provisions [Law Reform (Frustrated Contracts) Act 1943]. Under this act,
payments can be recovered in full or in part, if court deems it equitable.

Discussion
Sajeev and Style textile had entered into a sales contract to supply 5000 shirts within 03
months. Sajeev has already supply 3000 shirts. Therefore it is an executory contract. The
objective of the contract has completed by halves. But now Sajeev has faced an unexpected
circumstance. His factory had totally burnt. He cannot supply the rest because there is no

41

Module Name
way to produce them. If Sajeev want to end the contract, frustration principal must apply.
He must prove there few elements with balance of probability. They are;
1.
2.
3.
4.

The burn of the factory should be a supervening event;

The burn of the factory should be an unforeseeable event by both parties;
The burn of the factory should lie beyond the control of both parties;
The impossibility of continuing the contract arose because of the burn of the factory
must be a physical impossibility.

The burn of the factory occurred after they entered into the contract; therefore it is a
supervening event. This was an unforeseeable event because no one can predict such.
Again this incidence burn was beyond the control of both parties. There was no way of
foresee the fire and take any step to prevent it. Because of the incidence was totally
unaware to them. Disruption of a specific object necessary for the performance of contract is
a circumstance where frustration can plead. 13 Here the factory is the main requirement of
Sajeev for carrying out his part of the contract, producing shirts. Without the factory the
contract has become impossible achieve its objective. If it is agreed that goods from a
specific source will be provided, the contract falls under Section 7 of the Sale of Goods
Act 1979 Where there is an agreement to sell specific goods and subsequently the goods,
without any fault on the part of the seller or buyer, perish before the risk passes to the buyer,
the agreement is avoided. Here the factory can be identified as a specific source. But again
even impossibility should be sufficient to accept it as an excuse. It must be a physical
impossibility. Here Sajeev has become impossible physically. Therefore this can be identified
as a circumstance where a contract gets frustrated.
Now the problem is he cannot supply the remaining 2000 shits within another month as he
extended the delivery date by a notice. Can this circumstance consider as a breach of
contract? In the case Taylor v Caldwell (1863) Taylor entered into a contract with Cadwell to
let use The Surrey Gardens and Music Hall. After the signing of the contract, the concert hall
was destroyed by fire. The destruction was without fault of either party and concert hall could
not be given on specified day. Here also the issue was Whether the loss suffered by
Plaintiffs, is recoverable from the Defendant? But the court held that the contract has
frustrated. Blackburn J. stated In a contract in which the performance depends on the
continued existence of a given person or thing, a condition is implied that the impossibility of
performance arising from the perishing of the person or thing shall excuse the performance
Therefore plaintiff wasnt entitling for damages.

Conclusion
At common law the contract is automatically brought to an end at the time of the frustrating
event is been proved. Here the sales contract between Sajeev and Style textile had
frustrated. Style textile also cannot claim any damage from Sajeev on the ground not
supplying the agreed quantity, remaining 2000 shirts.
The contract has already been performed half. Therefore become more complicated. Law
Reform (Frustrated Contract) Act 1943 sated that; All sums paid to any party in
pursuance of the contract before it is discharged are, in principle, recoverable. Sums
payable cease to be payable.14 Therefore;
If the supplied 3000 shirts accepted by the Style textile; Sajeev can receive his
balance payment. Because of Style textile has to pay for any benefit theyve
already received. Sajeev had been paid only 10% of the total payment by the
Style textile. But he has already delivered 3/5 of the order.
Or

42

Module Name
If Style textile rejects the received lot they are entitle to receive their advance
payment back. Because in a case of frustration pre-payment or deposit has
been made, the buyer can get that pre-payment back, minus any expenses
incurred by the seller.

Reference
1. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt. Ltd.,
Vol 1 Ch 26 p 788
2. Paradine v Jane (1647) Aleyn 26
3. Taylor v Caldwell (1863) 3 B & S 826
4. Nickoll and Knight V Ashton, Eldridge & Co. (1901) 2 K.B. 126
5. Robinson v Davison (1870-71) LR 6 Ex 269
6. Avery v Bowden (1856) 5 E & B 714
7. Krell v Henry (1903) 2 KB 740
8. http://www.businessdictionary.com/definition/frustration-of-contract.html on 07th Oct
2011.
9. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505 , English Language Book Society/Stevens & Sons, 14th Edition, Ch 8
p 156
10. Lord Roskill in Pioneer Shipping Ltd v BTP Tioxide Ltd (1982) AC 724, p. 752
11. Harman L.J. in Gaon (Albert D.) & Co. v. Societe Interprofessionelle des Oleagineux
Fludes Alimentaires (1960) 2 Q.B. 318, 370
12. http://tutor2u.net/law/notes/contract-frustration.html on 07th October 2011.
13. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505 , English Language Book Society/Stevens & Sons, 14th Edition, Ch 8
p 159
14. S.1(2) Law Reform (Frustrated Contract) Act 1943

43

Module Name

BIBLIOGRAPHY
Referred books
1. Charlesworths Mercantile Law, Clive M. Schmitthoff & David A. G. Sarre,
ISBN 0420450505 , English Language Book Society/Stevens & Sons, 14th Edition
2. Contract Law Text Cases and Materials, Ewan Mckendrick, ISBN 978-0-19-9208012, Oxford University Press Inc., 3rd Edition
3. Learning the Law, Glanville Williams, ISBN: 0420463003, New Chapter Recycling
Inc. (Lakewood, WA, U.S.A.) Eleventh Edition
4. The Law of Contract, Sir Guenter Treitel, ISBN 0406972680, Sweet & Maxwell , 12th
edition, 2007
5. The Modern Law Review, Edited By: Hugh Collins, SSN: 1468-2230
6. The principles of European contract law and Dutch law, ISBN 90-411-174-90, Danny
buich, Kluwer law international
7. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt.
Ltd., Vol 1
8. The Law of Contract, C.G.Weeramantry, ISBN 81-7504-016-5, Lawman (India) Pvt.
Ltd., Vol 2

Referred Articles and Journals

1. REQUIREMENTS OF A VALID CONTRACT, Michael H. Wald, Wald & Associates
2. Liberty of Contract, 18 Yale Law Journal 454 (1909), Roscoe Pound

Referred Web sites

1.
2.
3.
4.
5.

http://en.wikipedia.org
http://wiki.answers.com
http://www.lawteacher.net
http://www.businessdictionary.com
http://tutor2u.net

44