Contract articles


Contract law

'The law of contract maybe provisionally described as that branch of the law which determines the circumstances in which a promise shall be legally binding on the person making it.'- Ansons Law of Contract. 'A contract is an agreement giving rise to obligations which are enforced or recognised by the law. The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. 

Carlill- was recognised as a unilateral contract as there was a clear promised backed up with money. This became an offer to anyone who performs the conditions in the advert. No need to notify the acceptance of the offer as it was not asked for. As the offer was accepted and fulfilled Carbolic had to pay Carlill. 

What are the functions of contract law? 1) to be a vehicle through which planned exchanges can be made. Societies require methods of ordering existence so that such cooperation as deemed necessary may take place. The role of planning embraces the need people have to project reliable courses of action into the future. 2) to mould these planned exchanges to the particular society the law serves and to make applicable principles that regulate the contractual relationship. Contract law will reflect the policitcal and economic philosophy of the country. 3) places restraints on contracting behaviour, shapes the type of obligations that are created and limits the means and extent to which parties may enforce their agreement. 

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Contract law

4) contract law facilitates voluntary exchanges by ensuring the enforceability and security of the original deal. 

5) welfare maximisation theorists see contract law merely as the means to the proper end of maximising total welfare (happiness or efficiency).

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Offer and acceptance-

  • Objectivity prevails, that is that what the reasonable man would imply from the dealings goes. Offerees subjective intentions are irrelevant. 
  • An auctioneers request for bids is an invitation to treat. The bid is the offer that the auctioneer can accept or reject. Acceptance occurs at the fall of the hammer and that any bidder may withdraw his bid before that time. 
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J Poole, Textbook on contract- consideration means an act or promise given in exchange for the promise. A promise without consideration is unenforceable. Consideration need not be adequate but must be sufficient. The courts will not examine whether what has been given in exchange is of equivilant value but some acts or promises are not regarded as being in good consideration- eg past consideration. Once something of value can be shown the court makes no inquiry into whether the thing offered is a genuine equivilant to the promise made. Sufficiency- something of value in the eyes of the law. In Chappel this was chocolate bar wrappers. The test for this in a court of law is that anything may be of sufficient value to amount to consideration if the part recieving it regards it at the time as sufficient inducement to give his return promise. This is a factual test. 

N Andrews: contract law: consideration must have an element of detriment and benefit, although the claimant need not show both. 4 ways: 1) detriment suffered by the claimant. 2) the claimant confers a benefit on the defendant or a third party. 3) a conjunction of benefit and detriment. 4) exchange of promises, each promise is the price given for the others counter promise. Economic value of consideration does not need to be equivilant to what has been promised, it just needs to have some value, doesnt need to a be a fair exchange- eg pepper corn example. Gratuitous promise is not enforceable as the element of consideration is missing. Needs to be of monetary value.

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Past consideration

Poole, Contract Law textbook- Pao On v Lau Yiu Long- the defendants request a promise from the plaintiff that the plaintiff will retain their shares for a year. The request is coupled with an understanding that the defendants were to give the plaintiffs some form of protection against a fall in the value of those shares in this period. Plaintiffs make the promise to retain the shares for one year. The defendants give the indemnity promise fixing exact protection. In relation to the defendants promise to give an indemnity the plaintiffs promise is not past consideration. Consideration= the companies reputation and financial standing of Lao and the price for this was the indemnity was good consideration. 

N. Andrews- contract law- X can enforce Y's promise in respect of X's earlier performance, if X expected to be rewarded in some way, Y requested X's performance, Y later promised to reward X or if X had made an initial agreement to perfrom in reimbursement by Y that exchange of promises would not have been contrary to public policy. 

Where a contract exists on the basis of an act followed by a promise, the courts will not enforce such a promise. In such cases the consideration is past. Easily explained by the theory of exchange since the act is not given in exchange for the promise. Shown in Roscorla v Thomas and Re McCardle. The performance of the act becomes consideration for the promise. 

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Pao On v Lau Yiu Long- definition of the conditions for the operation of exceptions- the act must have been done at the promisors request, the parties must have understood the act was to remunerated either by payment or the conferment of some other benefit, and payment or the conferment of a benefit must have been legally enforceable had it been promised in advance. 

N Andews Contract Law-  how has consideration been modified by Williams v Roffey Bros? Any single practical benefit will provide consideration. They had given nothing in return for the promise of extra payment other than their performance already under the contract. Promise held enforceable as: relaxation of the strictness of the rules to identify consideration in the absense of evidence of duress. The necessary consideration in a commercial case can be constituted by the factual (practical) benefit to the promisor if the promisor was in fact induced to make the promise by the benefit he percieved himself to be recieving. Performance of a duty owed to a third party may be consideration for a contract with a separate promisor, no consideration is required for the modification of an existing contract provided there is evidence of the intention that the alteration it legally binding. 

J Poole- CoA in Williams held that consideration to support an alteration promise would exist where the factual benefits arose to the promisor from the making of the alteration promise. CoA had to decide whether the promise to pay more money to achieve performance

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under an existing contract was enforceable despite the fact that the plaintiff had apparently given nothing additional for his promise. Willing to find consideration in the subjective (factual) benefit to the promisor arising from making the promise. Detriment was not required. So the consideration is these cases goes with Pollocks defintion 'the price for which the promise of the other is bought.' CoA considered that consideration could be found in the form of practical benefit arising to the promisor from making the promise despite the fact that the promisee had done no more than he was contractually bound to do under the terms of the existing contract. Applies to alteration promises to pay more money, so that if there is a factual benefit to the promisor arising from the promise consideration to support that alteration promise can be found.

M Chen Wisheart 'Consideration, practical benefit and the emporers new clothes' 1995-  Roffey effect practical benefit into the defintion of consideration. Practical benefit into consideration 'practically alters the sense of the word'- Earl of Selbourn. Roffey clearly overturns the pre existing duty rule that Stilck v Myrick made authority. There must still be consideration but it needs not comprise anything additional to the obligations owed under the existing contract. Advantages regarded as practical benefit- 1) increase chance of performance already due. Glidewells test for this is that the promisor must have 'reason to doubt whether the promisee, will or will not be able to complete his side of the bagain' 2) practical benefit as chance of consequential benefit. Used in Roffey to designate the chance of obtaining benefits

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additional to that expressly stipulated in the existing contract. Economic duress is said to rest on the finding of an unlawful threat which gives the other party no practicable alternative but agree to variation and so vitates the latters consent to that variation. 

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Promissory estoppel

J Poole; textbook on contract law- estoppel is intended to prevent injustice arising out of the kind of situation where one party agrees to forgo his strict legal rights under the contract, and this induces the other party to rely on this position but the first party then goes back on the arrangement and seeks to enforce his strict rights. Eg B has relied on A's promise to accept £8 in full satisfaction for £10 debt and has spent the £2 balance but A is now seeking to enforce the original contract terms and reclaim the £2 balance saying that any promise to forgo the balance didnt have fresh consideration from B. There is in the name of equity a doctrine that makes certain promises enforceable despite the lack of consideration. In High Trees Denning suggested in obiter that where the conditions of promissory estoppel were satisfied the creditor could not go back on a promise to accept less where it would be inequitable to do so despite the absense of consideration to support the promise. Requirements for it to operate- 1) clear and unequivocal representation that strict rights will not be enforced. Lord Hailsham said 'the meaning is to exclude far fetched or strained but still possible, interpretations, while insisting on sufficient precision and freedom from ambiguity to ensure that the representation will be reasonably understood in the particular sense required.' Lord Pearson, may need to have 'at least as much precision as would be needed for the variation of the contract.' 2) doctrine operates as a defence and not as a cause of action. Only used to prevent someone going back on a promise and insisting on enforcement of their strict rights. Denning said 'shouldnt be stretched too far.' 

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Can be used by a claimant in support of a cause of action which has an independent distinction. Promissory estoppel only applies in the context of alteration of promises and does not do away with the need to establish consideration to support formation of promises. Roskill LJ: 'it would be wrong to extend the doctrine of estoppel whatever its precise limits at the present day, to the extent of abolishing in this backhanded way the doctrine of consideration.' 3) reliance and the fact that it must be inequitable to go back on the promise. Depends on some act of reliance by the promisee before it operates. Was formulated so as to require the promisee to have altered his position in reliance of the promise. Denning sees this as meaning the 'promisee must have been led to act differently from what he otherwise would have done.' The existence of the reliance tends to confirm that the promise was made and taken seriously. There is nothing inequitable about not enforcing such a promise when the promise was obtained by duress. Doctrine operates to suspend legal rights and not to extinguish them. The suspensory nature of estoppel means that in cases involving single debt obligations the operation of estoppel merely gives the debtor more time to pay the balance. The context may indicate the strict contractual rights cannot be revived. Unlikely to happen unless the context demands it. 

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E McKendrick Contract Law- shield not a sword. Estoppel by representation- basic principle is that a person who makes a representation of existing fact which induces the other party to act to his detriment in reliance on the representation will not be permitted subsequently to act inconsistently with that representation. The representation must be one of fact and doesnt apply to representations of intention. Is a defence. Waiver and variation- seen in cases where the parties want to modify or abandon an existing contract. Consideration applies to this. Where both parties get a benefit there is consideration. Effect may be given to a promise to forego rights under the doctrine of waiver. Has been subsumed within the doctrine of estoppel. Promissory estoppel: where, by words or conduct, a person makes an unambigous representation as to his future conduct, intending the representation to be relied on and to affect the legal relations between the parties, and the representee alters his position in reliance of it, the representor will be unable to act inconsistently with the representation if by doing so the representee would be prejudiced. 

Estoppel by convention- effect of this may create a cause of action. Defined in Algamated Investment v Texas Commerce Bank: when the parties have acted in their transaction upon the agreed assumption that a given set of facts is to be accepted between them as true, then as regards that transaction each will be estopped against the other from questioning the truth of the statement of facts so assumed. But from this case the general view is that estoppel

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by convention cant create a cause of action. Promissory estoppel is a cause of action if 1) a representation or assurance made to the claimant relation to the acquisition of an interest in property, typically land 2) reliance on that representation or assurance by claimant. 3) detriment to the claimant in consequence of his reliance on that representation or assurance. 

Chen Wishart Contract Law- Estoppel is a mechanism for enforcing consistency- Cooke. The reliance is necessary for detrimental reliance- the promisee will be worse off than he was before the promise was made. 

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Undue influence and duress

McKendrick Contract Law- duress renders a contract voidable rather than void. 2 step test arising from Pao On v Lau Yui Long- 1) coercion of the will that vitates consent/no other realistic choice. 2) the pressure or the threat must be illegitimate. Illegitimacy- a threat of the law doesnt normally constitute duress. If a legal process is used for an improper purpose it will become illegitimate but this is normally undue influence. Victim bears the onus of the proof and needs to prove it was illegitimate. 

There must be no other realistic choice than to agree: intentional submission to the inevitable. In Universe Tankships. Illegitimate pressure or threat: it is a question of fact if something amounts to pressure or not. In DSND Subsea Dyson J said 'illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining.' There is a category of law act duress: eg where lawful demands can amount to illegitimate pressure but this is not well defined with good case law. Good faith on the part of the person making the threat would appear to be an ingredient in the conclusion that there is no duress where the threat is legitimate. 

The remedy of duress will be lost unless the victim ensures it takes action to protest at the time, or shortly there after and seeks to reopen the issue. In North Ocean Shipping Co it was decided that 8 months was too late and once there had been a performance...

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the victim will have to take almost immediate action to avoid constructive affirmation of the contract. This will be different though if the duress is continuing. It was noted by Mance J that the ingredients for establishing a claim in duress were 'minimum ingredients, not ingredients which, if present would inevitably lead to liability. 

Duress of the person: In Barton it was said that it sufficed that if proved the threats were 'a' reason which induced it into the contract. The threats did not have to be 'the' reason or the 'predominant' reason or the 'clinching' reason. Sometimes there is a more exact requirement where it must have been a 'significant' cause of the claimants decision to enter into the contract. A greater wrong hence why only need a cause. 

Duress of goods: theres an authority to support the proposition that money paid to release goods which had been unlawfully detained could be recovered (Astley v Reynolds). Test for duress of goods is unknown but likely to be that of economic duress.

Economic duress: the vital question became whether the pressure applied by the defendant was legitimate. Had to consider the postition of the victim but only for the purpose of establishing whether or not there was a sufficient causal link between the pressure applied by the defendant and the decision of the claimant to enter the contract. 

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Undue influence and duress

Dyson J said in DSDN Subsea- 'the ingredients of actionable duress are that the must be pressure a) whos practical effect is that there is compulsion on, or a lack of practical choice for the victim, b) which is illegitmate and c) whcih is a significant cuase inducing the claimant to enter into the contract. A party who is slow to act in making a claim of duress is likely to be held to have affirmed the contract.

Undue influence- is an equitable doctrine that provides relief from contracts entered into under improper pressure. It is based on taking advantage of a relationship and the focus therefore rests on seeking to explain 'why' the complainant acted the way they did. Focuses on the complainant rather than the actions of the alleged influencer, even whether the influencer was conscious of any wrong doing. It is a question of fact so case law has little precenditial value. The law governing undue influence is concerned with evidence and burdens of proof. Only makes the contract voidable so the victim must then bring a claim for rescission. The right to rescission may be lost when too must time has passed eg Allcard v Skinner who waited 6 years. There may be proof of constructive affirmation.

Presumed undue influence- 2 classes- 1) where presumption of undue influence arose automatically and 2) where on the facts the relationship was such that the presumption applied. After Etridge it was shown that the presumption of influence is rebuttable if the relationship

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Undue influence

is outside the protected class, but irrebuttable where the relationship was protected. There must be a relationship of trust and confidence between the parties, there must be something about the transaction 'that calls for explanation' and whether the presumption has been rebutted eg size, nature or context. This can be shown by showing it was the 'exercise of free and independent will' which can be shown by independent advice on the knowledge and facts. Access to third party advice plays a huge part in undue influence, but not duress. In some relationships the conclusion of influence may arise automatically but needs to be established in others. If established the victim may have it set aside. Manifest disadvantage had been held to be a necessary ingredient of presumed undue influence by the HoL in National Westminster Bank.

Requirements for the evidential presumption of undue influence after Etridge were set out in Turkey v Awadh. 1) determine whether the facts raise the presumption of undue influence. a) it requires the existence of either a protected relationship or required facts to show there was a relationship of trust and influence. b) the transaction then has to be shown it cant be explained by reference to the ordinary motives by which people are acustomed to act. 2) it was necessary to consider whether the defendant could rebut the presumption by establishing there was no abuse of trust. Protected relationships: Dr and Patient, Solicitor and client, parent and child, spiritual leader and follower and financee and finance. Not husband and wife or bank and customer.

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Undue influence

Post Etridge change is to move away from 'mainfest disadvantage' and toward focusing on the transaction and the nature of the relationship as to whether there is reason for explanation. Mainfest disadvantage is not a requirement and the courts will need to move away from previous discussion in the case law that centered on advantages and disadvantages of the transaction. Rebuttal will require the defendant to show that the complainant was not infact induced to enter throught the defendents undue influence, but rather entered into it freely and fully aware of the situation. Normally shown by the victim getting independent advice and choosing to go ahead. May still not be inclusive. 

Lord Nicholls- actual undue influence in terms of 'improper pressure or coercion' so that there was 'much overlap with the principle of duress'. Lord Hobhouse however said it was broader and that it was 'an equitable wrong' which typically consisted of some 'express conduct overbearing the other parties will.' Exercised in a way of an overt act where as in presumed influence it is 'exercised less directly and its existence is infered from a consideration of the facts relating to the transaction under consideration and the relationship of the parties to that transaction.' 

Actual undue influence- similar to duress as it arises from illegimate pressure and abuse exerted by one party over another. Lord Nicholls- 'overt acts of improper pressure or coercion such as 

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Undue influence

unlawful threats.' It is clear from his speech in Etridge that it will not be easy to establish undue influence in the context of husband and wife relationships but that misrepresentations of fact will suffice for a claim. 

Third party undue influence- if affected by the undue influence of a third party the contract can be voidable. Can be used with wives in relation to banks and loans. The husbands undue influence must be established before any question of the lender being affected can arise. If the bank suspects this they should take reasonable steps to find that the wife had entered freely and with full knowledge (often done by meeting the wife alone.) In Etridge it was said that 'a bank is put on enquiry when ever a wife offers to stand surety for her husbands debts.' The bank only needs to take steps to satisfy itself that hte practical implications of the transaction have been explained to the wife and can rely on confirmation from a solicitor that this has been done. The bank is not expected to have any knowledge of the advice given by the solicitor and the solicitor is not accountable to the bank for any information given to the wife. If advice were deficient in any respect the wife would need to seek redress from the socilitor by means of negligent advice. 

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What elements are required for a claim of duress? According to Diplock and Scarman there are 2 elements 1) lack of consent/coercion of will and 2) the legitimacy of the pressure exerted. The courts have rejected this idea though. 

Maybe a lack of reasonable alternatives. What matters is not the lack of reasonable alternatives but the role of the party in exerting the pressure in reducing these alternatives. The reasonableness or otherwise of the alternatives should not have a freestanding role as a separate ingredient in any test developed by the courts.

In R v Attorney General of England Lord Hoffmann identified two elements of the wrong of duress. First- 'pressure amounting to compulsion of the will of the victim and the second was the illegitmacy of the pressure.' The illegitimacy must be examined in 'two aspects' namely the 'nature of the pressure and the nature of the demand the pressure is applied to support.' 

Is the test for causation for duress to the person the same as that for economic duress? No the test is not the same. For duress to the person the duress must be a cause to enter the contract. For economic duress it must be a significant or substantial reason. The difference is justified as making personal threats is a much better reason to enter a contact than threats to your possessions. Fear not proved in economic so need better reason to have entered.

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Terms and exemption clauses

The effect of signature on a contract- McKendrick- a party is in general bound by his signature and the terms. This is still true even if they havent read the terms. A party who doesnt want to be bound by the terms shouldnt sign. In general the law doesnt allow you to sign the document and then claim that he is not bound by the terms as he has not read them. L'Estrange had 3 notable points: 1) the CoA recognised the rule that a person is bound by his signature is not absolute. Two execptions were acknowledged: an exception arises if the party signing the document can invoke the defence of 'non est factum'. Has narrow confines and basically allows a party to deny the document he has signed is his deed, on the basis he was unable to, through no fault of his own to have any understanding of the document. Lack of understanding can be because of 'defective education, illness and innate capacity.' (Saunders v Anglia Building Society). The second arises where the person is induced to sign the document as the result of a misrepresentation. In Curtis v Chemical Cleaning the claim was allowed due to the misrepresentation. A third exception is that the document must have been a document which purports to have contractual effect, not an administrative document, such as a time sheet. The latter just gives effect to part of a contract that has been concluded. Whether something is a contractual document must be reached in light of all facts and circumstances. 

2) the Unfair Contract Terms Act 1977 would now regulate the validity of exclusion clauses found in contracts. If L'Estrange was decided today it would be likely she wouldve won. 

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3) concerned with the objective approach adopted by the courts when seeking to ascertain whether or not the parties have reached an agreement. Exceptions to the rule currently recognised are in narrow scope. The answer for this lies in the signifcance that is attached to a signature. Atiyah says 'a signature is and is widely recognised even by the general public as a formal device and its value would be greatly reduced if it could not be treated as conclusive ground of contractual liability at least in all ordinary circumstances.' Provides measure of certainty and is frequently relied upon by third parties. New technologies may challenge this perspective, is an electronic signature the same? English courts preferable approach would be to adhere to the rule with its exceptions and give courts greater power to deal with unreasonable terms, which are the real problem in these contracts. 

J Poole- Scrutton in L'estrange 'when a document containing contractual terms is signed, then, in the absense of fraud or misrepresentation, the party signing it is bound and it is wholly immaterial whether he has read the document or not.' Moore Bick in Peekay International 'nonetheless it is a rule that is concerned with the content of the agreement rather than its validity. Accordingly the contract may be rescinded if one party has been induced to enter into by fraud or misrepresentation.' The signed document must be one that is intended for contractual obligations. In Grogan v Robin Meredith Plant Hire signing a time sheet containing clauses could amount to a binding variation of the contract terms as this was not

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Parole evidence rule

a document that might be expected to contain such clauses. Signatures also include electronic signatures under s7 of Electronic Communications Act 2000. 

Parole Evidence Rule: McKendrick- the rule is where the parties intend that the written document shall contain all the terms of their contract and it is not possible to lead evidence for the purpose of adding to, varying, subtracting from or contradicting the terms contained in the document. It is an evidential rule. An alternative view is that the rule does not rest on the intention of both parties but consists of a presumption, made by the court that a document looks like the whole contract is in fact, the whole contract so it is not possible to lead evidence for the purpose of adding to, varying or contradicting the terms contained in the written document. The effect of the rule is to exclude evidence or to cause the judge to ignore evidence if given. The rule can only be applied when 'the writing is intended by the parties as a contractual document which is to contain all the terms of their agreement.' Because a contract can be made orally and in writing, just because a document is made doesnt mean it excludes oral terms if both parties agreed to them. There has been a drift towards the admissibility of evidence and the desirability of leaving it to the court to evalute its significance. There has been a commercial reaction, due to the uncertainty it may cause. 

Entire agreement clause: to shut out evidence that the parole evidence rule probably would 

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have excluded in the past. Evidence that is now admissible as a matter of law is sought to be excluded from judicial consideration by contractual stipulation. The Law Commission state that such provisions cannot have 'conclusive effect.' Mordern courts have taken a more benevolent approach towards the construction of entire agreement clauses so that they have the effect of preventing a party from leading evidence of terms other than those contained in the written contract. The drafting of these clauses is a matter of great difficulty and time and expense that is devoted to commercial parties in drafting such clauses may suggest that the relaxation of the parol evidence rule that has taken place over the last 100 years might not have been a desirable development. Parole evidence rule is to prevent fraud and preserve value of written word. 

Exceptions to the rule: evidence is admissible to prove a custom (Hutton v Warren), to show that the contract was invalid on the grounds of misrepresentation, to show that the document should be rectified and to prove the existence of a collateral agreement (City and Westminster Properties v Mudd). 

J Poole- PER states that if the contract is written, then that writing is the whole contract and the parties cannot adduce extrinsic evidence and especially oral evidence to contradict it. (Henderson v Authur). Contributes to contractual certainty, so others can rely on the written contract.

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Shogun showed it wasnt possible to go outside the terms of the written offer of the hire purchase contract. Certainty may achieved at the expense of justice, since it may be clear certain terms have been included by not written. It can no longer be said the general rule is that extrinsic evidence is inadmissable to prove further terms. Clear the rule only applies to express terms and not implied terms. Doesnt operate to prevent proof of intrinsic evidence of such defects in teh contract such as mistake. Parol evidence can be admitted in these situations: Rectification- equitable remedy that allows a document to revised where there has been a transcript mistake in recording a previously oral agreement. Couldnt be possible without extrinsic evidence. Contracts partly written and partly oral- means the contract isnt completely written so the parol evidence rule cannot apply. Permissible to introduce extrinsic evidence of oral terms in order to determine whether the contract is a contract wholly in writing to which the rule would apply. The rule can be avoided by introducing evidence of oral terms (Portsmouth v Mezario). In that case the oral terms overrode in the inconsistent term in the written contract. Collateral contracts- courts allow use of these to sidestep the PER. PER will apply to written contract but where there is an oral promise in parallel, court may conclude the oral promie is enforceable as a second (or collateral) oral contract. The promise can be enforceable as a contract as the consideration for the promise is the making of the written contract. The collateral contract is a separate oral contract meaning PER cant apply. In Evans, oral assurance was a separate collateral contract

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inducing the written contract and that the oral terms of the collateral contract overrode the inconsistent one of the main contract. The effect of an entire agreement clause: states the document is intended and agreed to contain the entirety of the contract and each party acknowledges that it has not relied upon any promise or undertaking in entering into the agreement that isnt expressly contained in the written contract. Shows contract purely written and PER applies, cant use evidence of oral terms to add to, vary or contradict the written document. (Inntreprenuer). The clause must be clear. An entire agreement clause does not exclude implied terms as may be applicable to the particular contract. Doesnt extend to prevent a claim for misrepresentation. 

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McKendrick- Unfair Contract Terms Act 1977 made major changes to the law of exclusion clauses. Made some ineffective and subjected others to reasonablenss test. The act only comes into play when it is demostrated the defendant is in someway liable to the claimant. The act says that you cannot exclude liability for death or personal injury cause by negligence, the court isnt given a say in the matter, the acts states that it is not possible to exclude these. 

S11) reasonableness test- 1) 'term shall have been a fair and reasonable one to be included having regard to the circumstances which were or ought to have been reasonably been, known to, or in the contemplation of the parties when the contract was made. 2) subsection 1) 'does not prevent the court or arbitrator from holding, in accordance to the rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract.' 3) in raltion to notices 'should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability or would have arise. 4) where by a person seeks to restrict liability to a specific sum of money, and the question arises whether the term or notice satisfies the requirement of reasonableness regard should be had to a) the resources which he could expect to be available to him for the purpose of meeting the liabilty should it arise and b) how far it was open to him to cover himself by insurance. 5) it is for those claiming that a contract term satisfies the requirement of reasonableness to show that it does.

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Reasonable terms

Comments on the sections: 1) establishes the time at which the reasonableness test is to be applied is the time of entry into the contract. It is not at the time which the breach occured. Reasonableness and fairness of rights at entry to the contract. 3) sets out the test is different on notices to that on contract terms. Must have been fair and reasonable to place reliance on it and to regard the circumstances. 4) requires court to take into account matters in the case of clauses that seek to limit rather than exclude liability. Particularly relevant in cases of contract in teh context of limitation, the court must have regard to these factors. Availablity of insurance is an important factor in determining reasonableness. 5) puts onus of proof on the party who asserts its reasonable. Therefore unnecessary in the claimants claim to state he intends to challenge the reasonableness. (Sheffield v Pickfords) 

Courts also regard: the meaning of the clause: need to ascertain the meaning of the clause before applying the test. Wider the scope of the clause the less likely it is to be reasonable.  The narrower the scope the more likely it is to pass (Regus v Epcot Solutions). Equality of bargaining power- greater the equality of bargaining power of the parties the more likely it is to pass the test. In Watford v Sanderson it was suggested there must be a form of advantage taking or failure to comprehend the clause before courts will intervene. Judicial opinion demonstrates a reluctance to invalidate a clause which has been agreed between two substantial commerical parties who have access to legal advice (Granvil v Davis Turner)

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Size of a corporation is unlikely to make a difference as long as they are an 'experienced commerical enterprise.' Regard must be had to the clause as a whole: clause tested at time of entry, not breach. Court cant just regard the part of the clause that is in issue on the facts. Must regard in entireity and the range of events that it covers. Shouldnt focus too much on hypotheticals though, only to the extent that would have been contemplated by the parties. Need to be cautious about wide exemption clauses, as they will be tested at their weakest realistic point. Courts will not severe parts of the clause to make it reasonable. Will stand or fall, not being rewritten by courts. Drafters often split the clause up to prevent this. Importance of insurance- having regard to availability of insurance, not just what parties have. Expressly directed to take this into account. The dangers of the relaxation clause in practise- a party to a contract may have good commercial reasons for not wanting to enforce an exclusion or limiation clause against a customer. May not for fear of losing business. Such conduct may lead a court to see the clause as unreasonable. Non enforcement of the clause was a 'decisive factor' that led to the HoL finding unreasonable in George Mitchell. In other cases there has been a more relaxed view. Important to examine reasons for non inforcement. Fine if give and take of business life, not if shown clause doesnt operate reasonably. Two different losses in the same clause: not generally advisable to include two different types of losses within the same clause. More likely to be unreasonable. 

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Advantage of limitation clauses: in many cases a sensibly drawn limitation clause if more likely to be reasonable than a total exlcusion of liability. These have sometimes failed still. The onus of proof is person relying on limitation clause. A figure plucked out the air is unlikely to pass. A figure supported by an objective justification is much more likely to. Factors are not exhaustive.

Unfair Consumer Terms- The Unfair Terms in Consumer Contracts Regulations 1999 implementation and EC Directive into English law. Regulations made far reaching changes as gave courts broad powers to regulate unfair terms in standard form consumer contracts. Reach is broader than UCTA. To regulate unfair terms, rather than unfair contracts. Terms which relate to the definition of the main subject matter or an adequacy of the price do not fall in the scope of the Regs. Consumers on the whole tend to be aware of these terms and can decide whether or not to accept. Matters in relation to small print they tend to be unaware of, and consequently are surprised by the content. Seeks to protect consumers from 'unfair surprise.' Unfair term: 1) must be 'contrary to good faith' and 2) must 'cause significant imbalance in parties rights and obligations arising under the contract' to the detriment of the consumer. Interpreted in European meaning. S2 of Regs sets out a non exhaustive list of terms that may be unfair. Most inforcement done by Unfair Contract Terms Unit not courts. Consumers reluctant to go to court. 1999 Regs extend range of bodies that can seek redress on consumers behalf. An unfair term isnt binding.

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McKendrick- What is a breach of contract? failure, without lawful excuse to perform a contractual obligation. Can be a) an express refusal to perform the contract or term 2) defective performance or 3) incapacitating oneself from performing the contract.Not a breach if there is a lawful reason (goods are faulty eg). Liability for breach is strict. Reason is someone who has voluntarily assumed an obligation to perform should perform it. In some cases the law imposes a strict obligation without the wishes of the party eg goods must be satisfactory quality. Liability not always strict, need to show fault under S13 of Supply of Goods and Services Act 1982. Unitary notion of breach of contract, meaning doesnt depend of cause of breach. While every breach gives rise to damages not all have a right to terminate future performance. The court may ask if the party who purported to terminate had a right to. If not there may be heavy damages.

The existence of a right to terminate- one approach is to leave to parties to decide when this right arises. The difficulty is that a party may not do that so the law needs a default rule. If left always to the courts there would be too much uncertainty. English law focuses on certainty. First strategy is to focus on nature of the term broken, if of sufficient importance court will give innocent party right to terminate, irrespective of the consequences of the breach. Problem is many terms are trivial so dont know when right will arise. 2nd strategy is to look at consequences of breach, used if term is trivial. Fairer remedies, but more uncertainty. 

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a) breach of condition- law uses term condition in many different ways. If condition of conformity you can acquire the right to end the contract. A term can be classified as a condition either by Parliament (Sale of Goods Act 1979), the courts or by the contracting parties. Contracting parties must make it clear it was their intention for the term to be a condition. Problems arise as in Schuler v Wickman, often when contracts are badly drafted. Allows judges to interpret their own construction of the contract which may not be the same as the parties. Condition in a well drafted contract should generally suffice to give right to terminate, Wickman not authority. See Lombard v Butterworth- showed parties were free to classify as a condition a term that would otherwise not be. Freedom of contract prevails here. 

b) breach of warranty- a warranty is a less, subsidiary term of the contract. Gives rise to damages but not a right to terminate. Sales of Goods Act 1979 classifies certain obligations of sellers of warranties. If term is not a warranty likely to be treated as an intermediate term.

c) breach of innominate terms- origin in Hong Kong Fir. Gives courts remedial flexibility so they can decide if a breach is repudiatory or not by having regard to consequences. Gives rise to uncertainty. Must be a very serious consequence for a repudiatory breach. Takes strict approach to time stipulations in commericial contracts (apart from payment times) so that breach of time, no matter how small, maybe repudiatory. Bunge says clause should be condition where 

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required by the demands of commerce but otherwise a term should be intermediate. 

e) termination clauses- commerical contracts sometimes have these which confers on parties an express right to terminate in certain defined circumstances. English law places signifcance on termination as a remedy due to freedom of contract, allowing parties to decide for themselves when the right to terminate will arise. The choice whether to affirm a contract that has been breached is an election. Termination operates prospectively.

Loss of right to terminate- lost if the innocent party decides to affirm the contract. May not adopt an unduly technical approach. Generally must be uneqivocal. Once a choice has been made to affirm its irrevocable. As a general rule a party will not have affirmed the contractunless he had knowledge of the facts giving rise to the breach and knew of his right to affirmation or termination. Middle way in the sense that the innocent party is given a period of time to decide to affirm or not (Stocznia) The length of time depends on circumstances. If market is volatile the period is short. 

Anticapatory breach- sometimes before the time fixed for performance, one party informs the other that he will or cannot perform his obligations under the contract, or he intends to do it in a way thats not consistent with the contract. May do so so innocent party can find 

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performance elsewhere. This may reduce the losses of the innocent party so may lessen breakers damages. Horchester- gives an immediate cause of action dont have to wait until contract would start. Remedies are termination and damages to compensate. When the innocent party decides to breach he must 'accept' the breach and inform the other party of his decision to terminate. The innocent party doesnt need to accept the breach, he can affirm the contract and then wait for time of performance. This is a source of contraversy- White and Carter v McGregor. Need distinction between claim in debt or damages. A claim in debt is a claim that the debtor owes to the credito a liquidate sum of money. A claim in damages is an unliquidated claim to be compensated for the loss that the innocent party suffered as a result of the breach of contract. If you bring a claim for damages you are under a duty to take reasonable steps to mitigate your loss. Claim in this case was one for debt, no duty to mitigate. Has been contraversial. Some say unfair to the respondent as saddled him with performance he didnt want. Two exceptions to the rule in White 1) doesnt apply where the innocent party is dependent upon the cooperation of the party in breach in order to be able to continue with performance. Must persue claim in damages. 2) where the innocent party has no leigimate interest in performance of the contract. Right to payment: where the right to payment is depended upon performance of the inncoent party of his contractual obligations, and the innocent party has been unable to perform the obligations as a result of lack of cooperation of from the breaching party, the innocent party will not be entitled

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to claim payment under the contract as the right to payment hasnt arisen. Where the right to payment is not dependent upon performance by the innocent party of his contractual obligations, then the innocent party should be entitled to claim payment in accordance with the contract provided that any conditions which entitle him to payment have been satisfied. 

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Every breach on contract gives rise to damages. If havent suffered any loss due to the breach he can claim but damages will be nominal. 3 interests indentified by Fuller and Perdue 1) restitution interest, 2) expectation interest and 3) reliance interest. They see damages as justified due to the desire to provide a cure for the reliance losses occured. 

Performance interest- commitment by courts is less than whole hearted. In Robinson v Harman in 1848 'the rule of common law is, that where a party sustains loss by reason of breach of contract, he is, so far as money can do it, to be placed in the same situtation, with respect to damages as if the contract had been performed. Two methods courts have challenged this: 1) to award the claimant the difference in value between the performance for which he contracted and the performance which he recieved. Wants to put claimant in financial position he would have been in ifit had been performed fully. Alternative is 'cost of cure' where the claimant is given the money needed to enable him to obtain the performance he contracted for.  2) relates to the case where the claimant has no direct financial interest in the performance of the contract eg fixing 3rd parties property. In Ruxley man awarded £2'500 in 'loss of ameniety' damages. Tried to get cost of cure for £21000 but this was disproportionate to the benefit he'd recieve from full performance. Lord Jauncey said if he got the higher it would be gratioutious benefit. Some consumer groups have been critical as gives contractors liscense to provide wrong performance and offer small loss of amenity damages. 

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On other hand the law doesnt wish to over compensate claimants by cost of cure where they dont intend to carry out the works. Intention was one factor in deciding if cost of cure was unreasonable, but courts are slow to count something as unreasonable if someones a victim to breach and the party in breach isnt in a position to place 'unreasonable obstacles' in the way of damages. 

Reliance interest- Fuller and Perdue 'losses involved in foregoing the opportunity to enter other contracts.' Claimant is entitled to recover loss of profits on any substitute transaction he would have concluded, rather than loss of profit on actual transaction. More widely used conception is that enables claimant to recover his out of pocket expenditure incurred in the course of performance of contract. Performance interest will include reliance expenditure plus net profit of transaction. A reliance loss claim will generall be lower than performance interest as will not include loss of profits. Will bring claim in three scenarios: 1) when he cannot prove his loss of profit 2) where he wishes to recover damages in respect of pre contract expenditure (Anglia Television) Has been criticised. 3) where has entered into a losing bargain. Dont in general allow this if not from breach of contract. Party in breach has burden of proving bargain was a losing one for the innocent party. Not an easy one to discharge. Innocent party will normally be able to recover wasted expenditure, unless clear from the facts he wouldnt have been able to recoup his expenditure. 

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The restitution interest: Fuller and Perdue says this presents the strongest claim for protection as there is both a benefit to the defendant and a loss to the claimant. It has no role to play until the contract is set aside. When the contract is set aside by acceptance of repudiatory breach, the claimant may have a claim to recover the value of any benefit conferred upon the defendant in the course of performance prior to the termination of the contract. Narrow and specific, normally when entered into a bad bargain. Money should be paid on failure of consideration. 

Non pecuniary losses: recovered for physical injury suffered by the claimant due to the defendants breach of contract. More difficult when suffer physical inconvience or 'mental distress'. The object of the term broken should be one which is to provide pleasure or freedom from distress and needs to be an important term. Inconvience is covered but disappointment is not. Discomfort test is subjective. Courts are more willing to allow for physical injury. Latter only appear to have been recoverable in the limits set out by Farley, although most come under when pleasure was promised in the contract. From Farley £10'000 seems to be at top of the scale. Damages should be on a modest scale. When assessing damages judges should stand back and look at all elements before arriving at a figure. 

Diminutation of future prospects: can be awarded to reflect loss when breach of contract adversley affects claimants future prospects eg Dunk v George Waller

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Inconvience- where claimant has been put to physical inconvience rather than anger or disappointment. Court may reflect sum to reflect inconvience. Bailey v Bullock 1950. Had to live in over crowded house due to negligence of solicitor. Barry J said there is a distinction between mere annoyance or disappointment at failure of other party and actual physical inconvience and discomfort caused by the breach. 

Date of assessment: damages assessed at breach of contract (Johnson v Agnew). Reason is innocent party is presumed to be able to go out to the market on date of breach and will obtain substitute performance and cost of that substitute performance will fix measure of damages. This is based on the assumption theres an immediately available market. If this is not the case courts are more likely to defer to date of assessment to a later point in time such as when a sale is achieved (Hooper v Oates). If claimant not aware of the breach, assessed when the claimant should reasonably have discovered the breach. Flexible rule. Need to put claimant back in financial position he would have been in.

Limiting protection of performance interest: cant claim in all circumstances. a) remoteness: if too remote a consequence of the breach cant claim. Hadley says losses are recoverable if they flow naturally from the breach or are in contemplation of both parties at time of contract being made. Relevant time is entry into contract, not time of breach. May insert limitation clause

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Victoria Laudary and Heron 11- criticised due to ambigous language in judgement. Transfield- general understanding in ship market was liability is restricted to the difference in market rate and charter in an overrun period. Signals new approach. Seems no longer to be sufficient taht the loss was a reasonably foreseeable consequence. May ask if defendant accepted responsibility for loss in respect of which a claim has been brought. Expectation of market should be taken into account. Lord Hope said assumption of responsibility is 'determined by more than what at the time of the contract was reasonably foreseeable.' Decided damage was too remote. Lords reluctant to find potentially extensive liability which at the time of entry the party wouldnt know about or control. Parties can contract out the rule in Hadley, restrict liability (Achilleas) or increase it (Supershield).

b) mitigation: claimant must take reasonable steps to minimise the loss. This is a duty to mitigate loss. (British Westing House). Cant claim damages in relation to failing to do so. 1) claimant must not unreasonably increase the loss suffered as a result of the breach. 2) claimant must take reasonable steps to minimise his loss. The law doesnt make onerous demands of the claimant as defendant contract breaker cant ask court to do this. Whether or not reasonable steps have been taken is a matter of fact. Where a claimant can obtain the performance elsewhere they must do so, can recover damages for the price difference. 

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Contributory negligence: defence that relates to the Law Reform Contributory Neglience Act 1945. Only available when the liability for breach of contract is the same as a breach in tort, independently of existence of contract. Partial defence. (Barclays Bank v Fairclough).

Account of profits: defendant may make a profit from his breach and that profit may exceed the loss suffered by claimant. May be able to recover the profit. Remedy only available when other contractual remedies are inadequate. Claimant must have 'legitimate interest' in preventing teh defendant making the profit. Court must regard all circumstances.

Punative damages: cannot be recovered for in Addis v Gramophone. Entitltement is likely to turn on 1) oppressive, arbirtrary or unconstitutional actions by servants of government or 2) where defendants conduct has been calculated by him to make a profit which may exceed the compensation to the claimant. If allowed it may impact other areas of contract law. SC of Canada now recognises them.

Agreed damages clauses: can make own provisions for consequences of breach. Can insert clause that quantifies or liquidates the sum payable on breach. Courts reserved the power to regulate these. If penalty clause it will not be valid as 'blatant interference with freedom of contract. Anomoly within the law of contract and will not be expanded beyond its current limits. 

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Deposit and part payment: contract may say a particular sum is payable upfront and wont be returned in event of failure of contractual obligation. Deposit is a security and generally irrecovable, but part payment is part of the price and is recoverable by the party in breach in the event of termination. Which one it is is a question of construction.  General deposits rule is that they are not recoverable by the party in breach. 

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