Documente Academic
Documente Profesional
Documente Cultură
TABLE OF CONTENT
Page No.
1. Task 01
I.
II.
Page No.
1
2. Task 01
I.
II.
III.
3. Task 01
I.
II.
4. Task 01
I.
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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.
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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.
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?
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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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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
invitation to treat
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
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
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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(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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Scenario 01
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Ball
Company
10
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Table02:
c. Some amount of money has deposited their bank accounts to show their sincerity
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f.
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/-
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
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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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16
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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.
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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:
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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
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)
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
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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
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It carry some false information or facts either to the knowledge of the person making
it or without his knowledge;
f.
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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.
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.
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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.
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.
Type of misrepresentation
Liability
A.
If misrepresentation is fraudulent
B.
C. If
Reference
1.
2.
3.
4.
5.
6.
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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
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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.
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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.
a.
Prohibitory injunction- an order that something must not be done.
Mandatory injunction- an order that something must be done.
Discussion
Comparison of the facts of two cases
Scenario 02
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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.
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.
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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;
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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
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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.
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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
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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
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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.
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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.
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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
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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 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
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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
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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
http://en.wikipedia.org
http://wiki.answers.com
http://www.lawteacher.net
http://www.businessdictionary.com
http://tutor2u.net
44