CONTRACT LAW - TRANSLATION
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Estoppel
in its broadest sense is a legal term referring to a series of legal and equitable doctrines
that preclude "a person from denying or asserting anything to the
contrary of that which has, in contemplation of law, been established as the
truth, either by the acts of judicial or legislative officers, or by his own
deed, acts, or representations, either express or implied."[1]
This term appears to come from the Old French estoupail (or a variation), translated as
"stopper plug", referring to placing a halt on the imbalance of the
situation. The term is related to the verb "estop" which comes from
the Old French term estopper,
meaning "stop up, impede".
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Promissory estoppel is an equitable doctrine which in some instances can stop a
person going back on a promise which is not supported by consideration. Promissory
estoppel was developed by an obiter statement by
Denning J (as he then was) in Central London Property Trust Ltd v High
Trees Ltd [1947] KB 130 (Case summary). Denning J based the doctrine on the decision in Hughes v Metropolitan
Railway (1876-77) L.R. 2
App. Cas. 439 (Case summary). The House of Lords
affirmed the existence of promissory estoppel in
contract law in Tool Metal Manufacturing v Tungsten [1955] 1 WLR 761 (Case summary).
Requirements of
promissory estoppel:
The doctrine of privity in
contract law provides that a contract
cannot confer rights or impose obligations arising under it on any person or
agent except the parties to it.
The premise is that only parties to contracts should
be able to sue to enforce their rights or claim damages as such. However, the
doctrine has proven problematic due to its implications upon contracts made
for the benefit of third parties who are unable to enforce the obligations of
the contracting parties.
Third-party rights
Privity of contract occurs only between the parties
to the contract, most commonly contract of sale of goods or services. Horizontal privity arises when the benefits
from a contract are to be given to a third party. Vertical privity involves a
contract between two parties, with an independent contract between one of the
parties and another individual or company.
If a third party gets a benefit under a contract, it
does not have the right to go against the parties to the contract beyond its
entitlement to a benefit. An example of this occurs when a manufacturer sells
a product to a distributor and the distributor sells the product to a
retailer. The retailer then sells the product to a consumer. There is no
privity of contract between the manufacturer and the consumer.
This, however, does not translate to the fact that
the parties do not have another form of action e.g. Donoghue v.
Stevenson – here a friend
of Ms. Donoghue bought her a bottle of ginger beer, which was defective.
Specifically, the ginger beer contained the partially decomposed remains of a
snail. Since the contract was between her friend and the shop owner, Mrs.
Donoghue could not sue under the contract, but it was established that the
manufacturer has a duty of care owed to their consumers and she was awarded damages
in tort.
Privity is
the legal term for a close, mutual, or successive relationship to the same
right of property or the power to enforce a promise or warranty.
Exceptions
Common law exceptions
There are exceptions to the general rule, allowing
rights to third parties and some impositions of obligations. These are:
Attempts have been made to evade the doctrine by
implying trusts (with varying success), constructing the Law of Property Act
1925 s. 56(1) to read the words "other property" as including
contractual rights, and applying the concept of restrictive covenants to property
other than real property (without success).
[edit] Statutory exceptions
The Contracts (Rights of Third Parties) Act 1999 now provides some reform for this area of law which
has been criticised by judges such as Lord Denning and academics as unfair in
places. The act states:
1. - (1) Subject to the provisions of this Act, a
person who is not a party to a contract (a "third party") may in
his own right enforce a term of the contract if-
(a) the contract expressly provides that he may, or (b) subject to subsection (2), the term purports to confer a benefit on him. (2) Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
This means that a person who is named in the
contract as a person authorised to enforce the contract or a person receiving
a benefit from the contract may enforce the contract unless it appears that
the parties intended that he may not.
The Act enables the aim of the parties to be fully
adhered to. Taking the situation in Beswick v Beswick whereby the only reason
why Mr Beswick and his nephew contracted was for the benefit of Mrs Beswick.
Under the Act Mrs Beswick would be able to enforce the performance of the
contract in her own right. Therefore, the Act realises the intentions of the
parties.
The law has been welcomed by many as a relief from
the strictness of the doctrine, however it may still prove ineffective in professionally drafted documents, as the
provisions of this statute may be expressly excluded by the draftsmen.
[edit] Third-party beneficiaries
In Australia,
it has been held that third-party beneficiaries may uphold a promise made for
its benefit in a contract of insurance to which it is not a party (Trident General Insurance Co Ltd v.
McNiece Bros Pty Ltd (1988) 165
CLR 107). It is important to note that the decision in Trident had no
clear ratio, and did not create a general exemption to the
doctrine of privity in Australia.
Queensland, the Northern Territory and Western
Australia have all enacted statutory provisions to enable third party
beneficiaries to enforce contracts, and limited the ability of contracting
parties to vary the contract after the third party has relied on it. In
addition, section 48 of the Insurance Contracts Act 1984 (Cth) allows
third-party beneficiaries to enforce contracts of insurance.
Although damages are the usual remedy for the breach
of a contract for the benefit of a third party, if damages are inadequate, specific
performance may be granted (Beswick v.
Beswick [1968] AC 59).
The issue of third-party beneficiaries has appeared
in cases where a stevedore has claimed it is covered under the exclusion
clauses in a bill of lading. In order for this to succeed, four factors must be
made out:
The last issue was explored in New Zealand Shipping Co Ltd v. A M Satterthwaite
& Co Ltd [1975] AC 154,
where it was held that the stevedores had provided consideration for the
benefit of the exclusion clause by the discharge of goods from the ship.
New Zealand
has enacted the Contracts Privity Act 1982, which enables third parties to sue if they
sufficiently identified as beneficiaries by the contract, and in the contract
it is expressed or implied they should be able to enforce this benefit.
The capacity of both natural
and legal persons determines whether they may make binding
amendments to their rights, duties and obligations,
such as getting married or merging, entering into contracts,
making gifts, or writing a valid will.
Capacity is an aspect of status and
both are defined by a person's personal law:
When the law limits or bars a person
from engaging in specified activities, any agreements
or contracts
to do so are either voidable or void for incapacity. Sometimes such
legal incapacity is referred to as incompetence. For comparison, see Competence (law).
A
minor (typically under 18) can disaffirm a contract made, no matter the case.
However, the entire contract must be disaffirmed. The minor cannot keep any
of the goods traded for. Also, barter
transactions such as purchasing a retail
item in exchange for a cash payment is generally recognized through a legal fiction
to not be a contract due to the absence of promises of future action. A minor
may not disavow such a trade.[1]
Disaffirmance
- it must be timely. For example, a contract that goes beyond two years of
reaching the age of majority would be considered ratified. Minors are still
allowed to disaffirm, even if their age is misrepresented. They will not face
tort violations. Some states don't allow disaffirmance if the consideration
cannot be returned.
Obligations
- most states hold that a minor only must return the goods (consideration) if
the goods are still in the minor’s possession. Many states are requiring that
the minor restore the adult (other party) to the state they were in before
the contract was made. Minors are beginning to be held responsible for
damages, wear, tear, etc. of the good in question upon return. A suit for
tort is considered by some states to be an enforcement of the contract and is
not allowed.
Liability
- for necessities, (1) the item contracted for must be necessary for minor’s
existence, (2) the value must be up to that of the current standard of living
or financial/social status (not excessive in value), (3) the minor must not
be under the care of a parent/guardian who is required to supply the item. A
minor could be held liable for a contract for the purchase of luxury items
(those that are not in the financial/social/standard of living range).
Ratification
- accepting and giving legal force to an obligation. Express ratification
(for a minor) is expressly stating, orally or in writing that he/she intends
to be bound by the contract. Implied ratification is when the conduct of the
minor is inconsistent with that of disaffirmance or when minor fails to disaffirm
an executed contract within a reasonable period.
Generally,
the courts base their determination on whether the minor, after reaching the
age of majority, has had ample opportunity to consider the nature of the
contractual obligations he or she entered into as a minor and the extent to
which the adult party to the contract has performed.[2]
There are four instances where a minor
contracting for an interest in a subject matter of a permanent nature will
be bound, unless he repudiates it before or within a reasonable time of
attaining majority; this applies even if he does not know of his right to
repudiate
(Edwards
v. Carter (1893) ). They are contracts:
(i) to buy or lease land;
(ii) for marriage settlements;
(iii) to buy shares in a
company;
(iv) to enter a partnership.
it was held that if the infant chose to repudiate
the disposition, he must do so within a reasonable time after coming of age.
In May 2000, the Contracts (Rights of
Third Parties) Act 1999 came into force. The Act brought to an end one of the
basic principles of English law known as "privity of contract"
whereby it was established that nobody could make a claim under a contract unless
he or she was a party to that contract. The Act provides that third parties
can make claims under a contract to which they are not a party. In order to
make such a claim, the third party must be expressly referred to as having
the right to enforce the contract or the contract must "purport to
confer a benefit" on the third party. That latter provision does not
apply if on a proper consideration of the terms of the contract "it
appears that the parties did not intend the term to be enforceable by the third
party".
The construction industry has generally been quite hostile to this new Act. Lawyers have advised their clients that contracts should clearly exclude the provisions of the Act on the basis that, in the example of a contract between a client and a main contractor, there is an unacceptable and unquantifiable risk in permitting potential claims from third parties such as funders, purchasers, future tenants, designers and subcontractors. The one notable exception to this is the new Major Project Form published last year by the JCT which wholly embraces the Act by identifying the third parties that may be entitled to obtain benefits under the main contract and by setting out in a third party rights schedule precisely what those benefits are intended to be. One of the key objectives underlying this approach is to try to avoid the proliferation of separate warranties and other collateral agreements which these days tend to be a feature of large construction projects. The case of Nisshin Shipping Co v Cleaves & Co appears to be the very first case in which the Act has been considered by the courts and though it concerns shipping rather than construction, it provides a clear example of the manner in which the Act may be utilised by third parties to bring claims under a contract to which they are not a party. Cleaves were ship chartering brokers who had negotiated nine contracts for the charter of ships between Nisshin, the ship owners, and various charterers. These agreements between the owner and the charterers, commonly referred to as charterparties, contained clauses which stated that a commission of 1% was payable by the owners to Cleaves on any hire paid under the charter. Nisshin had refused to pay the commission, arguing that its agency relationship with Cleaves had been brought to an end as the result of a repudiation by Cleaves brought about by the principal of Cleaves becoming a shareholder and senior manager of a company which was a competitor to Nisshin. Cleaves disputed that it was in breach of its agency agreement. Relying upon the 1999 Act, it brought a claim for payment of its commission under the terms of the charterparty agreements. Since these agreements contained arbitration clauses, Cleaves referred the matter to arbitration. Nisshin applied to the court seeking a declaration that the arbitrators had no jurisdiction to hear the claim and that the 1999 Act had no application. Mr Justice Colman rejected these submissions and held that Cleaves was entitled to rely on the 1999 Act. In so doing, he gave helpful guidance on the operation of the Act. Firstly, the charter agreements did not expressly state that Cleaves was entitled to enforce any term of the contract. Accordingly it was necessary to determine whether the contract "purported to confer a benefit" on Cleaves. The judge held that this requirement had indeed been satisfied on the facts of the case. The clause stating that Cleaves was entitled to a commission of 1% did "purport to confer a benefit" on Cleaves. As previously noted however, that provision would not apply if on a proper reading of the contract as a whole, it appeared that the parties did not intend the term to be enforceable by the third party. Crucially, Mr Justice Colman concluded that if the contract was silent on the subject of third party rights, that silence would generally indicate that the third party would be entitled to take advantage of a term of the contract which purported to confer a benefit upon him. Justice Colman concluded that since the charter party did not express an intention contrary to the entitlement of Cleaves to enforce the commission term, Cleaves remained entitled to rely on that term by virtue of the 1999 Act. Moreover, the judge concluded that Cleaves could rely upon the arbitration clause contained within the charterparty to bring the claim in respect of their commission. What is clear from all of this is that in appropriate cases, the Contracts (Rights of Third Parties) Act will be effective to allow third parties to make claims on contracts to which they are not a party unless such rights have been expressly excluded. Where the parties to a contract wish to confer a right to enforce a term of the contract on a third party, it is essential that they examine the contract as a whole and set out carefully which terms of the contract are to apply to the third party and exclude those terms which are not to apply.
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Hughes v Metropolitan Railway Co
- case
considered unremarkable for many years until it was resurrected by Lord Denning in the case of Central London Property
Trust Ltd v High Trees House Ltd in his
development of the doctrine of promissory estoppel. The case
was the first known instance of the concept of promissory.
Thomas Hughes owned property leased to the Railway
Company at 216 Euston Road. Under the lease, Hughes was entitled to compel the
tenant to repair the building within six months of notice. Notice was given
on October 22, 1874 from which the tenants had until April 22 to finish the
repairs. On November 28, the tenant railway company sent a letter proposing
to purchase the building from Hughes. Negotiations began and continued until
December 30th, at which point nothing was settled. Once the six months had
elapsed the landlord sued the tenant for breach of contract and tried to
evict the company.
Held: It
ruled that with the initiation of the negotiations there was an implied
promise by the landlord not to enforce their strict legal rights with respect
to the time limit on the repairs, and the tenant acted on this promise to
their detriment.
Jordan v Money - Estoppel doesn’t apply to a promise for the future; creditor is
entitled to change her mind. There
must be good consideration.
Expansion and
definition
the High Trees case - It reaffirmed the
doctrine of promissory estoppel in contract law in England and Wales. Denning J held estoppel to be: a promise was made which was
intended to create legal relations and which, to the knowledge of the person
making the promise, was going to be acted on by the person to whom it was
made and which was in fact so acted on.
In 1937, High Trees House Ltd leased a block of
flats in Balham, London, for a rate £2500/year
from Central London Property Trust Ltd. Due to the conditions during the
beginning of World War II occupancy rates were drastically lower than normal.
In January 1940, to ameliorate the situation the parties made an agreement in
writing to reduce rent by half. However, neither party stipulated the period
for which this reduced rental was to apply. Over the next five years, High
Trees paid the reduced rate while the flats began to fill, and by 1945, the
flats were back at full occupancy. Central London sued for payment of the full
rental costs from June 1945 onwards (i.e. last 2 quarters of 1945).
Held: Based on previous judgments such as Hughes
v Metropolitan Railway Co, Denning J
held that the full rent was payable from the time that the flats became fully
occupied in mid-1945. However, he continued in an obiter
statement that if Central London had tried to claim for the full rent from
1940 onwards, they would not have been able to. This was reasoned on the
basis that if a party leads another party to believe that he will not enforce
his strict legal rights, then the Courts will prevent him from doing so at a
later stage. This obiter remark was not actually a binding precedent, yet it
essentially created the doctrine of promissory
estoppel.
A representation/promise that strict rights will not be enforced.
Hughes v Metropolitan
Railway Co case considered
unremarkable for many years until it was resurrected by Lord Denning in the case of Central London Property
Trust Ltd v High Trees House Ltd in his
development of the doctrine of promissory estoppel. The case
was the first known instance of the concept of promissory estoppel.
Thomas Hughes owned property leased to the Railway
Company at 216 Euston Road. Under the lease, Hughes was entitled to compel the
tenant to repair the building within six months of notice. Notice was given
on October 22, 1874 from which the tenants had until April 22 to finish the
repairs. On November 28, the tenant railway company sent a letter proposing
to purchase the building from Hughes. Negotiations began and continued until
December 30th, at which point nothing was settled. Once the six months had
elapsed the landlord sued the tenant for breach of contract and tried to
evict the company.
Held: The House of Lords affirmed the Court of Appeal. It
ruled that with the initiation of the negotiations there was an implied promise
by the landlord not to enforce their strict legal rights with respect to the
time limit on the repairs, and the tenant acted on this promise to their
detriment.
The representation/promise must be
intended to create legal relations
The representation/promise was going to be
and had been relied upon.
Brikom Investments v Carr (1979).
Facts: A
lease contained a clause that tenants had to contribute to the repair of the
roof. To encourage tenants to sign a new lease at a time when the roof needed
repairing the landlord's promised they would not enforce this term when the
roof was next repaired.
Held: the
landlord's could be kept to this promise.
However to claim the protection of the doctrine a party to
the contract has to show:
1. that he or she was promised by the other party to the
contract that he or she would not be sued if certain parts of the contract
were not complied with even though he or she was obliged to perform the
contract and had not given any consideration in return for the promise;
2. the party who made the promise will only be prevented
from going back on the promise if:
- it would be inequitable (unfair) to allow him or her to
do so;
- the party to whom the promise was made relied upon the
promise.
3. the party to whom the promise was made can only use the
promise as a defence when he or she is being sued;
4. the party who made the promise will only be prevented
form suing for as long as is equitable (fair). This may be forever or in some
cases it may just be for a particular part of the contractual period see the High
Trees Case and Brikom Investments v Carr.
Baird
Textile Holdings Ltd v Marks & Spencer plc case on the possibility of
an implied
contract after a course
of dealings between two businesses.
Baird Textile Holdings Ltd[1] had supplied clothes to Marks &
Spencer plc. for thirty years. All
of a sudden, M&S said they were cancelling their order. Baird sued
M&S on the grounds that they should have been given reasonable notice.
The problem was, there was no express contract under which such a term could be said to have arisen. Baird argued
that a contract should be implied through their course of dealings. The judge
found there was no such contract, and Baird appealed to the Court of Appeal
Held: Sir Andrew Morritt V-C (with whom Judge LJ and
Mance LJ) concurred, found that a contract could not be implied. Contracts
are only implied where it is necessary. Here, any such agreement to keep up
the purchase of clothes, subject to reasonable notice for termination, would
be too uncertain. Uncertainty was confirmed by an absence of intention
to be legally bound. Furthermore,
an argument of estoppel could not succeed because estoppel is not capable
(in English law as yet) of creating its own cause of action. Also, concerning
estoppel, Judge LJ held that “The interesting question…is whether equity can
provide a remedy which cannot be provided by contract. It seems clear that
the principles of the law of estoppel have not yet been fully developed…”
questioning estoppel and the applicability of equity.
Richard Field QC, Charles Bear and Herbert Smith
acted for Baird and Michael Brindle QC, Andrew Burrows and Freshfields
Bruckhaus Deringer acted for
M&S.
The estoppel acts as a shield not a sword
Combe v
Combe is a
famous English case on promissory
estoppel. An ex-wife
tried to take advantage of the principle that had been reintroduced in the High Trees case to enforce her husband's promise to give
her maintenance. The Court held that promissory estoppel could not be
applied. It was available only as a defence and not as a cause of action.
Mr and Mrs Combe were a married couple. Mr Combe
promised Mrs Combe that he would pay her an annual maintenance. Their
marriage eventually fell apart and they were divorced. Mr Combe refused to
pay any of the maintenance he had promised. Seven years later Ms Combe
brought an action against Mr Combe to have the promise enforced. There was no
consideration in exchange for the promise and so no contract was
formed. Instead, she argued promissory estoppel as she had acted on the
promise to her own detriment.
At first instance the Court agreed with Mrs Combe
and enforced the promise under promissory estoppel. However this decision was
then appealed.
Held: Denning LJ
reversed the lower court decision and found in favour of Mr Combe. He
elaborated on the doctrine from High Trees. Stating the legal principle, the
estoppel could only be used as a "shield" and not a
"sword". In the High Trees case, there was an underlying cause of action outside
the promise. Here, promissory estoppel created the cause of action where
there was none. In this case, the court could not find any consideration for
the promise to pay maintenance. He further stated that the High Trees
principle should not be stretched so far as to abolish the doctrine of
consideration.
"[t]he
doctrine of consideration is too firmly fixed to be overthrown by a
side-wind....it still remains a cardinal necessity of the formation of a
contract".
While it may be true that the wife did forbear from suing
the husband on the arrears for seven years, this forbearance was not at the
request of the husband. He held that in the absence of proof of any request,
express or implied, by the husband that the wife should forbear from applying
to the court for maintenance, there was no consideration for the husband's
promise. Moreover, even if the wife had promised to not apply to court for
maintenance, there would have been no consideration, because one cannot waive
the statutory right to apply for maintenance.
D & C Builders Ltd v Rees - case on the issue of part payment of debt,
estoppel, duress and just accord
and satisfaction.
The small firm had done some work for Mr. Rees but
weren't paid the £482. After a few months of being asked for the money, Mrs.
Rees, acting on behalf of Mr. Rees, offered to pay them £300. She knew that
they needed the money desperately but told them that it was the £300 or
nothing. D&C successfully sued for the balance because she had not
provided sufficient consideration. This is an example of economic duress. The
courts will not enforce a promise made under duress. Part payment of debt is
not sufficient consideration.
Held: Lord Denning MR held that the doctrine of part payment of a debt not discharging the
whole ‘has come under heavy fire’ but noted that estoppel, deriving from the
principle laid down in Hughes
v Metropolitan Railway Co.
could give relief in equity. Although in his opinion part payment of debt
could satisfy a whole debt, he found that Mrs Rees had effectively held the
builders to ransom. Therefore any variation of the original agreement was
voidable at the instance of the debtors for duress
Uncertainty over effect of doctrine
Hughes v Metropolitan Railway Co
the
High Trees case
Tool
Metal Manufacturing v Tungsten Electric the
strongest case authority for the fact that promissory estoppel only has
suspensory effect.
the owner of a patent promised to suspend periodic
payments during the war. It was held by the CA that the promise was binding
for the duration of the war but the owners could, on giving reasonable
notice, at the end of the war, revert to their original legal entitlements.
Tungsten had been infringing a patent right held by TMM.
When TMM heard of this they waived all infringements in return for Tungsten
paying 10% Royalty and also 30% 'compensation' if sales exceeded 50KG in any
month. These sums were excessive but Tungsten agreed to pay them otherwise
they would be faced with a claim for infringing the copyright. Tungsten
struggled to make payments. They got into arrears during the war times and an
agreement was reached to waive the 'compensation' payments during the war
years.
Held: TMM could not enforce the compensation payments during the war years but could enforce them on termination of the war. TMM were estopped from going back on their promise to waive the payments in equity. Generally promissory estoppel will merely suspend legal rights rather than extinguish them. However, where periodic payments are involved and a promise has been made to reduce the payments because of pressing circumstances which are not likely to persist, promissory estoppel can be used to extinguish legal rights.
Re
Selectmove Ltd.
Facts
Over an extended time period Selectmore Ltd. failed to pay employee deductions to the Crown. The managing director met with the tax collector to discuss the problem. T tax collector asked for a proposal to deal with the money in arrears. Company made a proposal and the tax collector allegedly said he would have to seek approval but would get back to the company if it was unacceptable. Company made payments but not in strict accordance with the alleged agreement. Crown then demanded the entire payment in arrears.
Issue
1. Was there an enforceable contract? 2. Was there consideration?
Ratio
Found that the Crown had not accepted the proposal and so there was no contract. Considered in the alternative, if there had been an acceptance, whether there had been consideration. When a creditor and debtor reach an agreement on the payment of the debt by installments it would seem to benefit both. With no precedent this would appear to be consideration. However, Foakes v. Beer held that this was not good consideration in law. Impossible for the court to extend the principle in Williams to any case governed by the principle in Foakes v. Beer. Judge was right to hold that if there was an agreement between the company and the Crown, it was unenforceable for want of consideration.
Held
Appeal dismissed.
Need for reform
Woodhouse
A.C. Israel Cocoa Ltd. v. Nigerian Product Marketing Co. Ltd.
Kenyan Shillings. At the time the value of pound sterling
and Kenyan shillings was equal. The buyers accepted the delivery and invoice
with out objection. Subsequently the value of the pound fell quite
dramatically in relation to Kenyan shillings. The buyers then sought to
revert to pound sterling as stated in the contract.
Held: The buyers conduct in accepting the invoice unquestionably amounted to an implied clear and unambiguous promise to accept on those terms.
Intention to create legal relations.
Social and domestic arrangements
Balfour
v Balfour It held that there is a rebuttable
presumption against an intention to
create a legally enforceable agreement when the agreement is domestic in
nature.
Mr Balfour was a civil engineer, and worked for the
Government as the Director of Irrigation
in Ceylon (now
Sri Lanka).
Mrs Balfour was living with him. In 1915, they both came back to England
during Mr Balfour's leave. But Mrs Balfour got rheumatic arthritis.
Her doctor advised her to stay, because a jungle climate was not conducive to
her health. As Mr Balfour's boat was about to set sail, he promised her £30 a
month until he came back to Ceylon. They drifted apart, and Mr Balfour wrote
saying it was better that they remain apart. In March 1918, Mrs Balfour sued
him to keep up with the monthly £30 payments. In July she got a decree nisi
and in December she obtained an order for alimony.
Held: The Court of appeal unanimously held that there was
no enforceable agreement, although the depth of their reasoning differed. Warrington LJ
delivered his opinion first.
Pettitt
v Pettitt - is a leading English
trusts law case,
concerning the presumption of advancement and a spouse's equitable interest in the
matrimonial home.
In the course of his judgment, Lord Diplock said,
"It would, in my view, be an abuse of the legal
technique for ascertaining or imputing intention to apply to transactions
between the post-war generation of married couples "presumptions which
are based upon inferences of fact which an earlier generation of judges drew
as to the most likely intentions of earlier generations of spouses belonging
to the propertied classes of a different social era."
Merritt
v Merritt case, on the
matter of creating legal relations. While under the principles laid out in Balfour v
Balfour, domestic
agreements between spouses are rarely legally enforceable, this principle was
rebutted where two spouses who formed an agreement over their matrimonial
home were not on good terms.
Mr. Merritt and his wife jointly owned a house. Mr.
Merritt left to live with another woman. They made an agreement (signed) that
Mr. Merritt would pay Mrs. Merritt a £40 monthly sum, and eventually transfer
the house to her, if Mrs. Merritt kept up the monthly mortgage payments. When
the mortgage was paid Mr. Merritt refused to transfer the house.
Agreements
between parents and child – no legal arrangements
Jones
v. Padavatton decision on contract law. The decision demonstrates how domestic
agreements, such as in between a mother and daughter, are presumed not to be
legally binding unless there is clear intention.
Mrs. Jones offered to pay her daughter, Mrs. Padavatton,
to go to law school if she would return from the US to live in England. The
daughter returned and lived in a house purchased by Mrs. Jones. She also
received maintenance from the rent Mrs. Padavatton collected from tenants.
Mrs. Jones attempted to back out of the agreement and
repossess the house.
The Court held that there was no binding contract.
Although there would have been a contract if it was not the domestic parties
related, there was insufficient evidence to rebut the presumption against
domestic arrangements.
Other
domestic arrangements
Lens v Devonshire Club It was held that the winner of a competition held by a golf
club could not sue for his prize where "no one concerned with that
competition ever intended that there should be any legal results flowing from
the conditions posted and the acceptance by the competitor of those
conditions".
The defendant, her granddaughter, and the
plaintiff, a paying lodger shared a house. They all contributed one-third of
the stake in entering a competition in the defendant's name. One week a prize
of £750 was won but on the defendant's refusal to share the prize, the
plaintiff sued for a third.
It was held that the presence of the
outsider rebutted the presumption that it was a family agreement and not
intended to be binding. The mutual arrangement was a joint enterprise to
which cash was contributed in the expectation of sharing any prize.
Parker v Clarke
Mrs Parker was the niece of Mrs Clarke. An
agreement was made that the Parkers would sell their house and live with the
Clarkes. They would share the bills and the Clarkes would then leave the
house to the Parkers. Mrs Clarke wrote to the Parkers giving them the details
of expenses and confirming the agreement. The Parkers sold their house and
moved in. Mr Clarke changed his will leaving the house to the Parkers. Later
the couples fell out and the Parkers were asked to leave. They claimed
damages for breach of contract.
It was held that the exchange of letters
showed the two couples were serious and the agreement was intended to be
legally binding because (1) the Parkers had sold their own home, and (2) Mr
Clarke changed his will. Therefore the Parkers were entitled to damages.
Commercial arrangements
Carlill v Carbolic Smoke Ball Company
Esso v Customs and Excise Commissioners
This case ([1976] 1
WLR) demonstrates that if a party in a commercial agreement wishes to claim
that an agreement is not intended to be legally binding, it has the
evidential burden of proof. In this case only one of the parties to the
alleged agreement was a company, the other were consumers, but the principle
remains the same.
In 1976 Esso manufactured a large number of coin-like tokens carrying the likenesses of the England World Cup football team. These were to be offered to motorists for every four gallons of petrol purchased from Esso petrol stations. The question naturally arose whether someone, somewhere ought to be paying VAT in respect of these coins. Esso's defence was that the arrangement with the public was of the form of a gift, and was not a commercial arrangement at all. The coins, it argued, were not sold and therefore not subject to VAT. Customs and Excise argued, successfully, that the arrangement was a commercial contract with the public; it was set up to entice people to buy a product, and the transaction itself took place in the context of a sale-purchase interaction. In the end, although Esso lost the argument they won the case; the House of Lords ruled that although the public were offering a consideration for the coins, the consideration was not monetary, it was the promise to buy petrol. As the coins were not exchanged for money, they weren't subject to VAT.
Express declarations
Jones v Vernon Pools
The plaintiff claimed to have won the
football pools. The coupon stated that the transaction was "binding in
honour only". It was held that the plaintiff was not entitled to recover
because the agreement was based on the honour of the parties (and thus not
legally binding).
Rose & Frank Co v JR Crompton & Bros Ltd regarding the
intention to create legal relations in commercial arrangements. In the Court
of Appeal, Atkin LJ delivered an important dissenting judgment which
was upheld by the House of Lords.
Rose and Frank Co was the sole US distributor of JR
Crompton's carbon paper products. In 1913, the parties signed a new document
which included this clause:
This
arrangement is not entered into, nor is this memorandum written, as a formal
or legal agreement and shall not be subject to legal jurisdiction in the law
courts ..., but it is only a definite expression and record of the purpose
and intention of the three parties concerned to which they each honourably
pledge themselves with the fullest confidence, based upon past business with
each other, that it will be carried through by each of the three parties with
mutual loyalty and friendly co-operation.
The relationship between the two parties broke down as JR
Crompton refused to supply some of the orders of the plaintiff. Rose &
Frank Co sued on enforcement of the agreement.
Held: At first instance, the court held that there was no
legal contract. The clause had the effect of negating any other objective
evidence of intention to create legal relations. Bailhache J, writing for the
Court, reasoned that it was a gentlemen's
agreement and therefore no contract
enforceable in the court.
Edwards v Skyways (1964)
The plaintiff pilot was made redundant by
the defendant. He had been informed by his pilots association that he would
be given an ex gratia payment (ie, a gift). The defendant failed to pay and
the pilot sued. The defendant argued that the use of the words "ex gratia"
showed that there was no intention to create legal relations.
It was held that this agreement related to
business matters and was presumed to be binding. The defendants had failed to
rebut this presumption. The court also stated that the words "ex
gratia" or "without admission of liability" are used simply to
indicate that the party agreeing to pay does not admit any pre-existing
liability on his part; but he is certainly not seeking to preclude the legal
enforceability of the settlement itself by describing the payment as "ex
gratia".
Letters of discomfort
Kleinwort
Benson v Malaysia Mining Corp The
plaintiff bank agreed with the defendants to lend money to a subsidiary of
the defendants. As part of the arrangement, the defendants gave the
plaintiffs a letter of comfort which stated that it was the company's policy
to ensure that the business of its subsidiary is at all times in a position
to meet its liabilities. The subsidiary went into liquidation and the
plaintiffs claimed payment from the defendants.
It was held that the letters of comfort were statements of
the company's present policy, and not contractual promises as to future
conduct. They were not intended to create legal relations, and gave rise to
no more than a moral responsibility on the part of the defendants to meet the
subsidiary's debt.
A transaction which must be made mainly in writing
Certainty
Harvey
v. Facey, is a legal opinion which
was decided by the British Judicial Committee of the Privy Council,
which in 1893 held final legal jurisdiction over most of the British
Caribbean.[1] Its importance in case law
is that it defined the difference between an offer and an
invitation to treat. The Privy Council held that indication of lowest
acceptable price does not constitute an offer to sell. Rather, it is
considered an offer to treat (i.e., to enter into negotiations).
The case involved negotiations over a property in Jamaica.
Defendant Facey had been carrying on negotiations with the Mayor and Council
of Kingston to sell a piece of property to Kingston City. On 7 October 1891,
Facey was traveling on a train, and Appellant Harvey (who wanted the property
to be sold to him rather than to the City) sent Facey a telegram
which said:
"Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid" Facey replied on the same day: "Lowest price for Bumper Hall Pen £900." Harvey then replied in the following words: "We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order that we may get early possession."[2]
Facey, however refused to sell at that price, at
which Harvey sued. Facey successfully defended his action at trial, but
Harvey appealed to the Supreme Court, which reversed the trial court
decision. Facey appealed the Supreme Court decision to the Privy Council.[3] The Privy Council reversed the Supreme Court's
opinion, reinstating the trial court's decision and stating the reason for
its action.
Opinion of the Court
No contract existed between the two parties. The
first telegram was simply a request for information, so at no stage did the
defendant make a definite offer that could be accepted.
Clifton
v Palumbo
Facts:
"I am prepared to offer you my Lytham estate for £600,000 ... and a
reasonable and sufficient time shall be granted for the examination of all
the data and details for the preparatio of the Schedule of Completion".
Held: this
was not sufficiently clear to be an offer.
- The binding effect of an offer in relation to land may
be suspended by the use of the words "subject to contract". This
means that the agreement will have no legal effect until there is a formal
contract in writing - Chillingworth v Esche (1924). The words
"provisional Agreement" do not appear to have the same effect - Branco
v Cabarro (1947). Although the phrase subject to contract is applied mainly
to contracts for land it would have the same effect in relation to other
types of contract as well.
Bigg
v Boyd Gibbins Ltd
plaintiff
wrote: 'As you are aware that I paid
£25,000 for this property, your offer of £20,000 would appear at least a
little optimistic. For a quick sale I would accept £26,000
defendants
replied: 'I accept your offer'.
plaintiffs argued this was acceptance of offer
Court of Appeal ruled agreement on price not always
agreement of sale, and word 'offer' did not always mean offer in law
BUT ruled that first letter = offer
reply = acceptance
thus binding contract formed
Incomplete agreements
May and Butcher v. R. "An agreement between two parties to enter into an
agreement in which some critical part of the contract matter (eg. price) is
left undetermined is no contract at all. It is of course perfectly possible
for two people to contract that they will sign a document which contains all
the relevant terms, but it is not open to them to agree that they will in
future agree upon a matter which is vital to the arrangement between them and
has not yet been determined."
Hillas
& Co Ltd v Arcos Ltd is a landmark House of Lords case on English
contract law where the
court first began to move away from a strict, literal interpretation of the
terms of a contract, and instead interpreted it with a view to preserve the
bargain. The Court ruled that judges may imply terms into a contract based on
the past dealings of the parties rather than void the agreement.
Lord Wright stated in this case that people who give
good consideration can bind themselves to a duty to negotiate in good faith,
though this was controversially rejected in the later House of Lords case, Walford v Miles.[1]
Arcos agreed to supply Hillas with lumber in a
contract stating the sale of "22,000 standards of softwood of fair
specification". In the contract there was an option to purchase
additional "100,000 standards" of lumber. The only terms of the
option stated,
"whatever the conditions are, buyers shall
obtain the goods on conditions and at prices which show to them a reduction
of 5 per cent on the f.o.b. value of the official price list at any time
ruling during 1931."
Hillas tried to exercise the option but Arcos
claimed the contract was cancelled. At trial the jury found that the contract
had not been cancelled but Arcos put forward the claim that the option
"was an agreement to make an agreement, the terms of which were not
defined, and so was unenforceable."
Though they expressed regret for doing so, MacKinnon
J of the Court of Appeal followed the rule set out in the case of May v Butcher
which stated that if there are any essential terms of a contract of sale that
are to be set by a future agreement then the contract is void.
Held: There were two issues put to the Court. First,
whether the description of the goods in the option clause was sufficient, and
second, whether the option clause "contemplate[d] a future bargain the
terms of which remained to be settled."
Lord Tomlin
noted that the words of the option clause were also present in the rest of
the contract which was certain. He argued that the context of the language
could suggest a precise meaning that would give certainty to the option
clause.
Lord Wright
noted that businessmen familiar with their trade often "record the most
important agreements in crude and summary fashion; modes of expression
sufficient and clear to them in the course of their business may appear to
those unfamiliar with the business far from complete or precise." To
which he concluded, that Courts must interpret contracts "fairly and
broadly" following the maxim that "Words are to be so understood
that the subject-matter may be preserved rather than destroyed." Wright
qualified this statement by saying that courts can never create a contract
where there is none.
Wright further noted that it would be mistaken to
interpret the option as an offer into a new contract despite the wording
suggesting otherwise. The contract for the option was formed as part of the
initial agreement and was only to be executed at a later date. Lord Wright
also noted that "a contract de praesenti to enter into what, in
law, is an enforceable contract is simply that enforceable contract, and no
more and no less".[2]
In application to the facts, the court ruled that
"fair specification" was not vague enough to void the contract.
Both parties had experience in the trade and had completed similar bargains
in the past thus each would have known each others' intentions at the time.
Therefore, the option in the contract was valid.
Foley v.
Classique Coaches Ltd
The Facts
The defendants operated a fleet of motor coaches, and purchased a piece of land from the plaintiffs, who operated a service station on adjacent premises. The defendants entered into a supplemental agreement to purchase all of their required fuel from the plaintiff's at a price that would be periodically agreed upon by the parties. The supplemental agreement contained a clause that stated that if any dispute should arise as to the construction of the agreement, it shall be submitted to arbitration in accordance with the provisions of the Arbitration Act, 1889. After three years of the defendants obtaining all of their fuel from the plaintiffs, they attempted to repudiate the supplemental agreement. The plaintiffs sought a declaration that the agreement was binding and an injunction to prevent the defendants from purchasing their petrol elsewhere.
Issue
Can the defendant's successfully repudiate the supplemental agreement, thereby making their obligation to purchase petrol solely from the plaintiff of no force or effect?
Ratio
The letter attempting to repudiate the supplemental agreement made no suggestion that the land would be returned, and as such, was merely an attempt to avoid the binding obligation to the plaintiffs that arose from the supplemental agreement. The parties obviously believed that they had a contract, and acted as such for three years. There is no valid reason for the defendant's attempt to repudiate the supplemental agreement.
Obiter
Should the plaintiffs in the future attempt to sell petrol to the defendants at an unreasonable price or of unreasonable quality, the plaintiffs would be in violation of their obligation to the defendant as dictated by the supplemental agreement.
Held
Judgment upheld, appeal dismissed.
Where key terms are
omitted – implied terms
Vague Agreements
G Scammell & Nephew
Ltd v Ouston the House of
Lords held that an agreement to acquire “on hire-purchase” was too vague
since there were many kinds of hire purchase agreements in widely different
terms so that it was impossible to specify the terms on which the parties had
agreed.
Nicolene Ltd. v. Simmonds
Facts
Plaintiffs ordered reinforcing steel bars from the defendant and asked for a written confirmation of the acceptance of their order. In a written letter to the plaintiffs, the defendant confirmed that he had received the order. In his letter, the defendant wrote, "I am unable to confirm on my usual printed formbut I assume that we are in agreement that the usual conditions of acceptance apply." The defendant failed to deliver the steel bars. The plaintiffs claimed damages for breach of contract. The defendant claimed there was no contract, since there was no consensus ad idem with respect to the conditions mentioned in his letter.
Prior Proceedings
Sellers J. held in favour of the plaintiff. The defendant appealed.
Issue
Can a contract containing a meaningless clause be recognized and enforced as a contract?
Ratio
It may be the case that there is no contract at all if a contract contains a clause which has yet to be agreed upon. In this case, nothing remained to be negotiated. Here, the parties agreed that "the usual conditions of acceptance apply". This clause is meaningless since there were no usual conditions of acceptance at all. Denning L.J. asserts that since this clause is so vague and uncertain, it can be rejected without impairing the rest of the contract. Both parties treated the contract as existing and regarded it as binding obligations between them. The contract in question is enforceable, notwithstanding the meaningless clause.
Held
Appeal dismissed.
Where further agreement is required
Storer v Manchester City Council - Lord Denning stated: ‘In contracts you do not
look into the actual intent in a man’s mind. You look at what he said anddid.
A contract is formed when there is, to all outward appearances, a contract.’
In
one case, Storer v Manchester City Council (1974), the Court of Appeal found
that there was a binding contract. The Council had sent Storer a
communication that they intended would be binding upon his acceptance. All
Storer had to do to bind himself to the later sale was to sign the document
and return it.
Facts: D offered to sell city council home to P, form
sent, P filled out, only date of transfer of property status was left out
-D claimed D had not signed the form to finalize the deal
-Issues: was there a K? Was a final formal act completed
-Decision: for P
-Reasons: date was not a crucial term to K, parties were
just seeking to avoid formalities
-offer = clerk mailing agreement for sale, acceptance = P
signing
In contrast, however, in Gibson v Manchester City Council (1979), the
Council sent Gibson a document which asked him to make a formal invitation to
buy and stated that the Council ‘may be prepared to sell’ the house to him.
Gibson signed the document and returned it. The House of Lords held that a
contract had not been concluded because the Council had not made an offer
capable of being accepted.
Terms left to be agreed
May and Butcher v. R
Agreements to agree
May and Butcher v. R
Pitt v PHH
Asset Management Ltd which confirmed the enforceability of lockout agreements.
In Parsonage Lane, Chelsworth,
Suffolk,
is a residence known as "The Cottage". PHH Asset Management Ltd
were undisclosed agents of mortgagees, who were selling The Cottage for
£205,000. Mr Pitt and Miss Buckle put in competing bids. Mr Pitt bid
£200,000, which PHH accepted ‘subject to contract’. Miss Buckle then
increased her bid to £210,000. PHH withdrew its acceptance of Mr Pitt.
Mr Pitt threatened to sue for an injunction,
to compel transfer of the cottage to him (it was noted in the Court of Appeal
that this probably would have not succeeded, and just caused nuisance). So
PHH agreed to sell to him and said they would consider no further offers.
This is known as a "lock down agreement". But then, PHH sold to
Miss Buckle anyway. Mr Pitt sued. PHH argued in its defence, there was no
consideration to not consider further offers (for the lock out agreement),
because Mr Pitt had only promised to be ready, willing and able to proceed
with exchange of contracts, and he was already obliged to do that.
Held: He is liable to the prospective purchaser for
damages which remain to be assessed. I would dismiss the appeal.
Capacity – Minors
Exceptions – voidable contracts by minors
Steinberg v
Scala Ltd
Contracts for necessaries
1. Chapple v Cooper a widow was
held to be liable for the funeral expenses of her husband. It was classed as
a contract for necessaries.
o A minor whose husband had recently died
contracted with undertakers for his funeral. She later refused to pay the
cost of the funeral, claiming her incapacity to contract. The court held her
liable to pay the bill.
o The funeral was for her private benefit and
was a necessary as she had an obvious obligation to bury her dead husband.
Peter V Fleming - rings, pins and a watch chain
were held to be necessaries for an undergraduate with a
rich father.
Beneficial
contracts of service
Doyle v White City
Stadium Ltd - beneficial contracts
of service. A minor is bound by
a contract of apprenticeship or employment, as long as it contains an element
of education or training and is, on the whole, for their benefit. In Doyle
v. White City Stadium (1935), a minor who had obtained a professional
boxer?s licence, attempted to avoid some of the rules contained in the
agreement by having it declared unenforceable due to his lack of capacity. In
deciding the case, not only was the licence treated as a contract of
apprenticeship, but it was also held that, taken as whole, it was beneficial
to him.
De Francesco v Barnum
this case a 14 year old girl was apprenticed
for 7 years to learn stage dancing.
The terms restrained her from serveral acts for example, not being maintained by Barnum, not being able to accept other work and being deemed to have resigned if wishing to marry. It was held in this case that beneficial contracts of service require that the beneficial terms outweigh the onerous terms. In this case they did not - the restrictions on her were too harsh so the contract was not considered binding.
Guarantees of minor contracts
Leslie Ltd v Sheill - a minor who fraudulently misrepresents
his age to obtain a loan cannot be made liable for damages in the tort of
deceit
Mentaly disordered and drunken persons
IRVANI v. IRVANI
Gore v Gibson
PRIVITY
Price v Easton - Easton made a contract with X that in return for X
doing work for him, Easton would pay Price £19. X did the work but Easton did
not pay, so Price sued. It was held that Price's claim must fail, as he had
not provided consideration
Smith and Snipes Hall Farm Ltd v River
Douglas Catchment Board
The
River Douglas Catchment Board agreed with a number of landowners between the River Douglas
and the Leeds and Liverpool Canal) to carry out some
work if some contribution to the cost was given. In 1940 Mrs S, one of the covenantees,
sold her land ("Low Meadows") to Smith, which incorporated Snipes
Hall Farm Ltd in 1944. In Autumn 1946 the Ellen Brook burst its banks and
flooded Smith and Snipes Hall Farm land. They made a claim against the Board
for damages in tort and breach of contract. The question was whether not
having been privy to the original agreement was a bar to any recovery.
Held
The Court of Appeal all held that the Board was in
breach of contract, and that breach caused damage to the farm. The agreement
showed the intention that the obligation would attach to the land, and it
would not matter whose hands the land came into: the owner could enforce the
covenant. Because the covenant ran with the land, under s 78 Law of
Property Act 1925 it could be
enforced by the covenantee and successors in title.
Attempts
to avoid the doctrine
The plaintiff was the son of the late John Tweddle.
Tweddle had arranged with late William Guy that a marriage portion would be
given to the plaintiff as part of the marriage.
The courts ruled that promisee cannot bring an action
unless the consideration from the promise moved from him. Consideration must
move from party entitled to sue upon the contract.
No legal entitlement is conferred on third parties to an
agreement. Third parties to a contract do not derive any rights from that
agreement nor are they subject to any burdens imposed by it.
Dunlop Pneumatic
Tyre Co Ltd v Selfridge & Co Ltd
case on privity
of contract. It
established that only a party to a contract can be sued on it.
Dunlop, a tyre manufacturing company, made a
contract with Dew, a trade purchaser, for tyres at a discounted price on
condition that they would not resell the tyres at less than the listed price
and that any reseller who wanted to buy them from Dew had to agree not to
sell at the lower price either.
Dew sold the tyres to Selfridge at the listed price
and made Selfridge agree not to sell at a lower price either. However,
Selfridge sold the tyres below the price he promised to sell them for.
At trial the judge found in favour of Dunlop. In
appeal the damages and injunction were reversed, saying that Selfridge was
not a principal or an agent and
thus was not bound.
The issue put to the court was whether Dunlop could
get damages from Selfridge without a contractual relationship.
Held:
Viscount Haldane based his argument on three fundamental principles
in law. First, the doctrine of
privity requires that only a party
to a contract can sue. Second, the doctrine of consideration requires a person with whom a contract not under
seal is made is only able to enforce it if there is consideration from the
promisee to the promisor. Third, the doctrine of agency requires that the principal not named in the contract can only be
sued if the promisee was contracted as an agent. In application to the facts,
Haldane could not find any consideration between Dunlop and Selfridge, nor
could he find any indication of an agency relationship between Dew and
Selfridge. Consequently, Dunlop's action must fail.
Coulls v. Bagot’s Executor and Trustee Co Ltd - shows
the approach has been similar to Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board . Here the contract was between a husband (Mr
Coulls) and a company (Bagot's). Mrs Coulls was not a party to it. Even if
she was, she would not be able to enforce it, as she gave no consideration.
Bagots was entitled to the benefit of this contract as executor of Mr Coull's
Estate.
Agency
Scruttons Ltd v Midland Silicones Ltd a leading House of Lords case on privity of contract. The Court outlined an exception to the privity rule,
known as the Lord Reid test, through agency as it applies to sub-contractors and employees seeking
protection in their employers' contract.
Scruttons Ltd was shipping a load of crates through a carrier.
In the contract between the two parties there was a limitation of liability
clause for £500 per box. The goods were damaged in transit due to the
negligence of the stevedores. The stevedores were under contract with the
shipping company which contained an exclusion clause. Midland were unaware of
the relationship between the carriers and the stevedores.
At first
blush, it was clear to the Court that the stevedores could not be exempted by
the exemption clause as there was no privity of
contract.
The Court looked at whether there was a bailment relationship but found none.
The case turned on the application of the Elder, Dempster case which
suggested that privity could be circumvented. Lord Reid proposed that the
stevedores could be covered under the contractual clause through agency if
certain pre-conditions were satisfied.
All
these conditions were satisfied in the subsequent case of New Zealand
Shipping v Satterthwaite
New Zealand Shipping v
Satterthwaite.- or The
Eurymedon, is a leading case on contract law by the Judicial Committee of the Privy Council. The council gave conditions of when a
third party may seek protection of an exclusion clause in a contract between
two parties.
A drilling machine was to be shipped from Liverpool
to Wellington. The bill of lading stipulated the limited liability of the carrier. It further stated
that the clause would extend to servants, agents, and any independent
contractors.
The carrier company was a subsidiary of the company
that also owned the stevedore operation that unloaded the drill. Due to
negligence the stevedores damaged the drill while unloading it.
The stevedores claimed protection of the immunity
clause in the contract between the carrier and Satterthwaite.
Advice
The council held that the services provided by the
shipper in unloading the drill was consideration for a unilateral
contract agreeing to protect those
who are doing the unloading. Typically an agreement to do something that a
third party is already obligated to do is not valid consideration unless the
promisee obtains some benefit from an enforceable agreement.
Equitable doctrine of constructive trusts
green v russell
Gregory & Parker v Williams
Beswick v Beswick is a landmark case on privity
of contract and specific
performance. The House of
Lords disagreed with Lord Denning MR's dicta in the Court of Appeal
that someone specifically intended to benefit from a contract could enforce
it. Today Lord Denning MR's decision has been given effect to through the Contracts (Rights of Third Parties) Act 1999.
Lord Denning MR in the Court of Appeal started describing the facts of the case in
the following way.
The agreement was that Peter assign his business to
his nephew in consideration of the nephew employing him for the rest of his
life and then paying a weekly annuity to Mrs Beswick. Since the latter term
was for the benefit of someone not party to the contract, the nephew did not
believe it was enforceable and so did not perform it, making only one payment
of the agreed weekly amount of 5 pounds.
The nephew argued that as Mrs Beswick was not a
party to the contract, she was not able to enforce it due to the doctrine of privity of
contract.
Attempts to impose liabilities on strangers
Tulk v Moxhay is a landmark English case that decided that in certain cases a restrictive
covenant can "run
with the land" (ie. a future owner will be subject to the restriction)
in equity.
In 1808, the owner of several parcels of land in Leicester Square sold a plot to another party, making a covenant to keep the Garden
Square "uncovered with buildings" such that it could remain a
pleasure ground. Over the following years the land was sold several times
over to new parties, eventually to the defendant.
The defendant, who was aware of the covenant at the
time of purchase, refused to abide by the covenant as he claimed he was not in privity of
contract and so was not bound by
it.
Held:
Lord
Cottenham found in favour of the
plaintiff and granted an injunction
to restrain the defendant from violating the covenant.
Prior to this case, for covenants to run, the
original agreement had to be made by a landlord and tenant at the time that they
entered into the lease, that is, there had to be privity of estate, also
called "horizontal privity." The Court noted that if the agreement
had been a contract instead of a covenant, it would have been enforceable.
Therefore, the Court decided that the covenant was enforceable at equity,
that is, when the plaintiff seeks an injunction as opposed to damages. The
case stands for the proposition that horizontal privity (privity of estate)
is not required for the burden of a covenant to run at equity. In order for
the burden to run, the covenant must satisfy certain requirements:
PORT LINE, LTD. v. BEN LINE STEAMERS
A (Silver Line Ltd) is an owner of a ship. A makes a
contractual agreement with B (Port Line Ltd) allowing B to use that ship for
a fixed period. A then sells its ship to C (Ben Line Ltd). The ship was then
requisitioned by the Ministry of Transport – C was paid compensation as a
result. B claimed to be entitled to the compensation payments received by C –
that claim depended on B showing that it had a right, binding on C, to use
the ship. Does B have a direct right against C?
-
No: C has not
acted in such a way as to give B a direct right
-
In deciding
whether or not B had a direct right against C, Diplock J had to consider the
fact that, when acquiring A’s right, C ought to have been aware of the terms
of A’s initial contract with B
-
B argued that,
as C ought to have been aware of the terms of A’s initial contract with B, C
was under a duty not to interfere with B’s rights under that contract
but B’s argument is based on the de Mattos v
Gibson principle and Diplock J refused to accept the validity of that
principle (see D3:2.3.5)
Does B have a pre-existing property right?
No: B’s right to use the ship does not count as a property
right (see D1:1.4.3)
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