Law of Contract

BYRNE & CO v LEON VAN TIENHOVEN & CO [1880] 5 CPD 344

FACTS

The defendants wrote a letter, on October 1, to the plaintiffs offering the sale of 1000 boxes of tin plates. The defendant was based in Cardiff and the plaintiff was based in New York, and letters took around 10-11 days to be delivered. The plaintiffs received this letter on October 11 and accepted it on the same day by telegram, as well as by letter on October 15. However, on October 8, the defendant sent a letter to the plaintiffs which withdrew their offer and this arrived with the plaintiff on October 20. The plaintiffs claimed for damages for the non-delivery of the tin plates.

ISSUE

The court was required to establish whether the withdrawal of the offer for the sale of goods was acceptable. The court would have to consider whether the contract had been agreed by the acceptance by the plaintiffs of the letter of October 1, or whether the defendants had successfully withdrawn their offer by issuing the withdrawal by letter on October 8.

HELD

The court held that the withdrawal of the offer was ineffective as a contract had been constructed between the parties on October 11 when the plaintiffs accepted the offer in a letter dated October 1. On this basis, it was held that an offer for the sale of goods cannot be withdrawn by simply posting a secondary letter which does not arrive until after the first letter had been responded to and accepted. The court gave judgment for the plaintiff and awarded that the defendant paid their costs.

LUXOR(Eastbourne)LTD V COOPER[1941]1K.B.290.

FACTS

The plaintiff had an agreement to provide prospective purchasers for the sale of two cinemas on behalf of the defendants for which he was due to receive £10,000 commission. Having provided prospective purchasers, the defendants refused to complete the contract on the basis that the agreement was made with unauthorised persons of the company and hence it was ultra vires (beyond the director’s and the company’s powers). The Court considered that whilst it was possible for the agreement to be ratified, this was prevented by the fact that all the directors had a personal interest in the transaction, nullifying any attempt at ratification.

ISSUES

whether there is an implied term in the contract that the agent should receive remuneration where the principal chooses not to proceed with the contract.

The law of restitution operates where the principal derives a benefit from the contract and prevent the principal from receiving unjust enrichment under a contract where the agent’s fee is not stipulated. Under the law of restitution, the agent is entitled to be paid a reasonable sum for the work completed, which is referred to as a quantum meruit payment.This figure is to be calculated at the point the principal receives the benefit and thus will not incorporate future profits the principal receives

HELD

The Court held that there was no agreement of agency as the agent had not been asked to find a purchaser for the cinema albeit that he was promised a reward if he did. This argument relates to the agent approaching the principal as opposed to the principal requesting the services of the agent. Moreover, the agreement was stated to be subject to contract, removing the right to commission where the contract did not proceed. The House of Lords concluded that there could be no implied term on the basis that it imposed a negative commitment, in which it would not be possible to define precise terms. The Court assessed the quantum meruit argument but concluded that this is not available where the principal employs an agent and subsequently revokes the agreement on the basis that the agent is only due to be paid on completion thereby finding that there was no implied term for remuneration until the contract had been completed. This was irrespective of the contract not being pursued by the principal.

DAHLIA v FOUR MILLBANK NOMINEES [1978] Ch 231 

FACTS

The claimant wished to purchase some property from the defendant. The terms had been agreed but no written contract had been completed. The defendant promised the claimant that if he arranged for a bankers draft for the deposit to be delivered to the defendant before 10.00 am on the 22nd December he would complete the written contract. The claimant duly complied with the request but the defendant refused to complete. The claimant brought an action stating that unilateral contract existed and the defendant was thus bound by that contract to complete the written contract for the sale of the property.

HELD

A unilateral contract did exist.

Goff LJ stated obiter on the issue of revocation of a unilateral offer:-

"Whilst I think the true view of a unilateral contract must in general be that the offeror is entitled to require full performance of the condition which he has imposed and short of that he is not bound, that must be subject to one important qualification, which stems from the fact that there must be an implied obligation on the part of the offeror not to prevent the condition becoming satisfied, which obligation it seems to me must arise as soon as the offeree starts to perform. Until then the offeror can revoke the whole thing, but once the offeree has embarked on performance it is too late for the offeror to revoke his offer."

 BALFOUR V. BALFOUR [1919] 2 KB 571

FACTS

A husband worked overseas and agreed to send maintenance payments to his wife. At the time of the agreement the couple were happily married. The relationship later soured and the husband stopped making the payments. The wife sought to enforce the agreement.

HELD

The agreement was a purely social and domestic agreement and therefore it was presumed that the parties did not intend to be legally bound.

ROSE & FRANK Co  V.  CROMPTON & BROS LTD

FACTS

An American company and English company entered into a sole agency agreement in 1913 for the sale of paper goods in the USA. The written agreement contained a clause stipulating that it was not a formal or legal agreement, and an “honourable pledge” between business partners. Subsequently, the American company placed orders for paper which were accepted by the British company. Before the orders were fulfilled, the British company terminated the agency agreement and refused to send the goods, claiming that the 1913 agreement was not legally binding and that, consequently, the orders did not create legal obligations.

ISSUE 

The questions arose as to (1) whether the sole agency agreement of 1913 constituted a legally binding contract, and (2) whether the orders constituted enforceable contracts of sale.

HELD

Firstly, as to the 1913 agreement, the Court gave overriding weight to the provision in the agreement that expressly provides that it is to be solely an “honourable pledge”, as demonstrating that the parties did not intend the arrangement as a legally-binding contract. The Court explained that the argument that clauses restricting the legal enforceability of a contract apply solely when the document is otherwise unquestionably of legal force. In this case, the document and circumstances did not intend to create any legal interest, and the clause expressly precluding the agreement’s legal enforceability applies. Secondly, the Court held that the fact that the arrangement does not constitute a legal contract does not preclude the orders and acceptances from constituting legally-binding contracts. The lack of enforceability of an express legal arrangement under an agency agreement does not preclude the legal transactions. The orders constituted mutual offers and acceptances with each transaction having ordinary legal significance.

OSCAR CHESS LTD  V.  WILLIAMS[1957]1W.L.R.370.

FACTS

The defendants sold a Morris car to the claimants, who were motor traders, for £290. The defendants provided a copy of the vehicles first registration indicating that the car was first registered in 1948. Some eight months later the claimants became aware that the car had actually been registered in 1939 and was therefore only worth £175. The defendant honestly believed that the car was a 1948 model. The claimants claimed damages for breach of contract.

ISSUE 

The issue in this context was whether the statements given by the defendants constituted a warranty as to the age of the car.

HELD

The Court of Appeal found that the defendants’ comments did not constitute a warranty. More importantly, the court set out a number of considerations that should be made when assessing whether a statement is a warranty.

(1) Where an assumption is fundamental to a contract, it does not mean that it is a term of the contract. 

(2) The term warranty means a binding promise as well as a subsidiary, non-essential, term of a contract. 

(3) A warranty must be distinguished from an innocent misrepresentation.

(4) Whether a warranty is intended must, judged objectively, be based on the parties’ words and behaviour. 

(5) Where one party makes a statement, which should be within his own knowledge, but not the knowledge of the other, it is easy to infer a warranty. If the party states that it is not within his knowledge and is information passed from another, a warranty is less easily inferred. 

(6) An oral representation repeated in writing suggests a warranty, but the issue is not conclusive. Neither is the fact that it is not stated in writing.

PARKER  V. CLARK[1960]1W.L.R.286.

FACTS

The Clarks were an elderly married couple. Mrs Parker was Mrs Clark’s niece, and Mr Clark suggested she and her husband move into their home with them. Mr Parker supported the idea but expressed concern that it would mean their selling their own house. Mr Clark wrote to Mr Parker stating the Clarks would bequeath their home to Mrs Parker, her sister and her daughter on their death. The Parkers sold their home and moved in with the Clarks. The Clarks told the Parkers the arrangement was not working, and they would have to move out. The Parkers brought an action for breach of contract.

ISSUE 

The Parkers argued the agreement was contractual in nature, and was intended to be legally binding. In reliance on it being a legally binding agreement, the Parkers sold their home and shared the running costs of the Clarks’ home. They contended the Clarks were in breach of this agreement by wrongfully giving them notice to quit. The Clarks denied the existence of any agreement. Even if there had been an agreement, it was insufficient to satisfy s40(1) Law of Property Act 1925 because it was not in writing. They also claimed the terms of the purported agreement were too vague to form a valid contract.

HELD

The Parkers were successful in their claim. The language used in the letters and the surrounding circumstances indicated that both parties intended the agreement to have legal force. Mr Clark’s letter was sufficient to satisfy s40(1) Law of Property Act 1925 and amounted to a contractual offer. The Parkers were entitled to damages for the loss of the prospect of inheritance and the loss of the value of the benefit of living in the house.

ESSO PETROLEUM LTD V. COMMISSIONERS OF CUSTOMS AND EXCISE[1976] 1 WLR

FACTS

Esso, a petrol company, by which customers would receive one free World Cup coin for every four gallons of petrol purchased. The World Cup coins were manufactured coins with the head of a 1970 World Cup English footballer on one side and the word ‘Esso’ on another for a sales promotion. Esso ran advertisements The Customs and Excise Commissioners claimed that the coins were liable to purchase tax as goods “produced in quantity for general sale,” under the Purchase Tax Act 1963, Sch 1, Group 25. Esso claimed that the coins were free gifts and, thus, there was no sale with the intention to create legal relations and produce a legal effect.

ISSUE 

The question arose as to whether, the distribution of the coins were goods “for general sale,” and thus sold per a legal obligation by Esso to supply the coins under a contractual relationship with customers.

HELD

Firstly, the Court held that there was an intention to create a legal obligation by Esso to supply the coins. The transaction took place in a business setting, and was itself a legal offer beyond a mere ‘puff’ (p 5) that rendered Esso commercial advantages, and was accepted by the customers. Secondly, the Court held that, for a contract of sale, there must be a transfer of the goods for monetary consideration. The Court held that, despite the intention to create a legal obligation, there was no consideration for the transfer of the coins as the coins were transferred under a separate contract for sale of the petrol. Accordingly, the Court held that there was no contract of sale by Esso, there was a contract to produce the coins as goods “for general sale.”

JONES V. PAVALTON[1969] 1 WLR 328 

FACTS

A mother promised to pay her daughter $200 per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $200 was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding.

HELD

The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.

ABDALLAH SHAMTE V. MSAADAH[1972]HCD9.

FACTS

The appellant and respondent, African Moslems, were married according  to Islamic Law. The marriage ended by divorce  by talk 18 years after solemnization. After the divorce the respondent filed a suit  in the Primary Court claiming Shs. 3,300/= as representing her contribution to the costs of  erecting two houses and a but during the subsistence of the marriage. The respondent’s  case was  that shortly after their marriage the appellant  who was then working as a house-boy for a certain expatriate found her a job as  a yaya with the same employer. It was agreed between them that the appellant  was to take her wages  as  her contribution to the building of some houses. It was part of the agreement that one of the houses would eventually be given to her. On the basis of the agreement the appellant received her wages for the whole period of her employment and built two houses. When the expatriate left  they went to live in Bagamoyo where the respondent’s relatives gave them a piece of land on which they cultivated rice. They used the proceeds of the sale  of the rice to build yet  a third house. When the marriage broke up the appellant refused to give her any  of the houses. The appellant disputed the claim. He  admitted that the respondent  was employed as she alleged but denied receiving  her  wages and that there was  any partnership or arrangement  between them. The primary court magistrate concurred with the assessors that there  was not sufficient evidence for a finding of partnership and held that the respondent  could not simply allege partnership by virtue of being the appellant’s wife. On appeal to the district court the magistrate set aside the decision and  awarded the respondent the amount claimed. He disagreed with the findings  of the assessors and held that the respondent’s story was consistent and held that the respondent’s story was consistent and was sufficient to support her  claim. In making  his  order he relied on the English case of Balfour v. Balfour  [1919] K. B. 521. He  stated that that case established the principle that contracts between husband and wife were enforceable if they were intended to have legal consequences. In the High Court counsel for -10 – The appellant conceded that  the respondent did contribute but argued that since this was an appeal from a primary court the law to be applied was either Moslem law or customary law. He submitted that  the district magistrate was wrong to apply English law.  

HELD

(1) “I agree … that the proper  law applicable to the case was customary law or Islamic law and  that it  was wrong for the District Magistrate to import the principle of English  law.” 

(2) “I am  of  the view however that the District Magistrate’s conclusions were fully justified on the basis of customary law and/or Islamic law. That Islamic laws as  well  as Customary Law are equally applicable to Africans converted to Islam is fully  established by  the decisions in Hussein Mbwana v.  Amiri Chongwe  (Tanzania High court Civil  Appeal No. 1 of 1969)  and Re. Kusudwa  [1965] E. A. 248. In the latter case Sir Ralph Windham C. J. stated as follows:- “The fact that a tribe may have been converted to Islam does  not necessarily  mean that  its customs, particularly those relating to land tenure are thereby changed.” In the former case Spry J. (as he then was) made the following observations: - “It  has sometimes been argued that Islamic law is to be regarded as applying to Africans as part of their customary law. In my view this is not a sound proposition. Customary law is the body  of  customs which b usage has acquired the force of law. As such  it is  constantly  changing with changing ways of life. It cannot therefore, in my view include a complete and fully developed system of Religious law. Some  elements of Religious law may, of course, be absorbed into the customary  law but they are then to be judged and are subject to change as part of the customary law and they lose the attributes of the Religious law from  which they were derived. I hold therefore that there are two systems or law which may apply in an  African Muslim Community, Religious law in matters personal, such as  marriage, and customary law which may  apply in all spheres of life.” 

(3)  “The District Magistrate was therefore not strictly correct when he held, in effect, that Islamic law  was exclusively to be applied to the case before him. There can be no doubt that  a contract such as the one under consideration is enforceable under Customary law. Even under  Islamic law a Muslim wife is not obliged to provide  anything for household expenses, a Muslim wife’s wages are her  personal  property and there is nothing,  in principle, to invalidate or to prevent the enforcement of an arrangement such as the present one under Islamic law.” 

(4) “The District  Magistrate was fully justified in his finding on the fact. The reasons given by  the Primary Court for dismissing the respondent’s claim were unsound.” 

(5) Appeal dismissed.

BLACKPOOL AND FYLDE AERO CLUB LTD   V. BLACKPOOL BOROUGH COUNCIL[1990]3AllE.R.25

FACTS

The defendants were a local authority that managed the local airport as its owners. They had granted the plaintiffs, who were a flight club, a concession to operate casual flights out of the airport. The concession came up for renewal and the tender invitation was released to the plaintiff and six other companies. The tender had a clause stating that tenders would not be considered if they missed the time and date deadline stipulated. The town’s clerk failed to empty the letterbox on time and as such, the plaintiff’s tender missed the deadline and the defendant accepted a lower proposal. The plaintiffs brought an action for damages against the defendant for negligence and for breaching their contract. At an initial hearing, the judge held that the request for tenders by the defendant required them to consider all the tenders received and on this basis, they were liable to the plaintiff. The defendants appealed this decision.

ISSUE

The issue for the court was whether the invitation to submit a bid for tender could be considered to establish the intent to create a contract between the parties. It is important to note that contracts were not to be readily implied by the courts which made this deliberation particularly important.

HELD

The court dismissed the defendant’s appeal. They found that the invitation to submit a tender was usually no more than an offer to receive bids but in this circumstance, examining the behaviour of the parties created clear intention to create a contract and therefore the failure to consider the plaintiff’s application made them liable.

NASH V. INMAN[1908] 2 KB 1

FACTS

A tailor supplied 13 waistcoats and other things of that kind to an undergraduate student when the latter was a minor. Student refused to pay for the goods supplied and tailor brought this suit against him for recovery of price of those goods.

ISSUES

(a)Whether the goods so supplied fall into the category of necessary?

(b)If the answer is No, whether the contract was enforceable at law?

(c)On whom does the onus to prove or disprove the necessity of goods so supplied fall?

HELD

“Necessaries means goods or services suitable to the condition in life of minor, or any other person incapable of forming contract for himself, and as to his actual requirements at the time of sale and delivery”. This means that not only the goods need to be suitable and necessary to the condition in life of a minor (here) but also be needed by minor in actuality, i.e. he must not be already having sufficient supply of such goods. The onus to prove that the thing contracted for was a necessity lies on plaintiff, however difficult it may be to prove that it was needed by minor in actuality.

In English Law, incompetent person is to compensate the supplier of necessities to him by paying a reasonable price for such necessities. However, if the necessities so supplied are services instead of goods, then action for recovery lies against the estate of such person and not against him.

Fletcher-Moulton LJ: 

“An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services so rendered, and will enforce that obligation against the estate of the infant or lunatic.”

Buckley LJ: 

“an infant may contract for the supply at a reasonable price of articles reasonably necessary for his support in his station in life if he has not already a sufficient supply. To render an infant’s contract for necessaries an enforceable contract two conditions must be satisfied, namely, 

(1.) the contract must be for goods reasonably necessary for his support in his station in life, and

 (2.) he must not have already a sufficient supply of these necessaries.”

KARMALI TARMOHAMED AND ANOTHER  V. I H LAKHANI & COMPANY [1958]  1 EA 567.

FACTS

The appellants appealed from  a judgment and decree  of  the  High  Court  decreeing  specific performance of a contract for the  sale  of  land,  the contract having been affected by  correspondence. Their defence in the High Court was that the contract documents  wer e in fact bogus and had been made in pursuance of a conspiracy  between the respondents and themselves to fabricate false evidence for the purpose of proceedings which the respondents  had said that they  intended to bring against a third  party.  On appeal the  appellants applied to admit fresh evidence in support of their defence. The court considered the affidavits in support of the  application and concluded  that the appellants  had failed to establish that the evidence sought to  be  adduced  could  not  with  reasonable diligence have been made available at the  trial,  and  dismissed  the application. The appellant’s  counsel thereupon withdrew all the grounds of appeal, except one,  which  alleged that there had never been a complete or finally  concluded agreement  of  which specific performance could have  been decreed. It was argued;

 ( a ) that the use of the words “.  .  .  Please contact our Mombasa office for preparation  of  formal documents  .  .  .”  in  the  telegram  accepting the appellant’s  offer indicated that it was not a final acceptance and

(b) that the expression “. . . payment to be effected within seven months . . .” in the appellant’s offer indicated further that no concluded agreement had been reached, as it left both the date of completion and the method of payment open.

HELD

(i) except on grounds of fraud or surprise, the general rule is that an appellate court will not admit fresh evidence, unless it was not available to the party seeking to use it at the trial, or that reasonable diligence would not have made it so available.

(ii) f a contract depends on a series of letters or other documents, and it appears from them that the drawing. up of a formal instrument is contemplated, it is a question of construction whether the letters or other documents constitute a binding agreement or whether there is no binding agreement until the instrument has been drawn up; the whole of the correspondence or documents must be considered, and a document which, taken alone, appears to be an absolute acceptance of a previous offer does not make the contract binding if, in fact, it does not extend to all the terms under negotiation, including matters appearing from oral communications.

(iii) the correspondence, in the present case, amounted to a complete offer and acceptance and the fact that the respondents desired it to be put into more formal legal shape did not make the contract conditional or relieve either party from liability under it.

(iv) even if the completion date was unspecified or uncertain, this would not render the contract unenforceable.

Appeal dismissed.

AL-JAH NOMAN MOHAMMED QADASI V. GANEM AHMED MUGAHID QADASI[1963]  1 EA 142

FACTS

The appellant and the respondent had for many  years prior to May  29, 1949, been running, under an agreement known as a “zam”, a bakery  which they  had  purchased  many  years  earlier,  and  on  that  date they  renewed the agreement in writing. it was agreed that a “zam”  is  the  name  given in Aden to a type of  agreement in present use there whereby  two persons agree to share a business turn and turn about. The renewed agreement provided, inter alia months, tha , that each party  would run the bakery  for  a  period  of  six t each was bound to take over his turn on the day  it  was due and that if he refused to do so, the  other would have the right to claim  damages  or compensation. The agreement also provided that in the event of either party  refusing to hand over the bakery  on completion  of his turn, he would be liable to pay  the other party  a sum  of Rs. 20/- per  day  until  the bakery  was handed over. On April 13, 1961, the appellant filed a suit in the Supreme Court of Aden claiming that the  respondent’s  zam  had expired on January  4, 1961, and that the respondent had refused  delivery  to the appellant for his turn, and the appellant claimed a declaration that he  was entitled to six months’ zam  and  a  decree  for specific performance and compensation at the rate provided in  the  agreement. In his defence the respondent alleged that the appellant was “given” the zam  as being the son-in-law and servant of  the respondent and that he had broken  the  agreement  by  failing to run the bakery  for about five months, necessitating expenditure on repairs and replacements, and that, therefore, he  had  informed  the appellant that he “would not like to continue the zam”. He also denied the claim  for specific performance, alleging that there was no consideration for the zam  agreement and that the appellant was himself in breach of the  agreement  and  was  guilty  of laches. The Supreme Court held that there was no consideration to support the agreement in question and  dismissed  the  suit  on  that  ground. Thereupon the appellant appealed and the respondent filed a cross-appeal contending that the decision of theSupreme Court should be affirmed on other grounds.

HELD

(i) the agreement of May 29, 1949, contained reciprocal promises in that each party undertook to run the business in turn for periods of six months and thereafter to hand it over to the other.

(ii) these promises had value in the eyes of the law for each party had an interest, with financial implications, in having the business continuously operated in order that customers would be retained and the goodwill thereby maintained; consequently.

(iii) there was accordingly consideration sufficient to support the agreement.

Appeal allowed. Case remitted to Supreme Court for consideration of other issues.

THOMAS  V.  THOMAS 1842) 2 QB 851; 114 ER 330.

FACTS 

Before he died, Mr Thomas said he wished for his wife to have the house they lived in for the rest of her life.  However, this was not written into his will. After he died, his executors, ‘in consideration of such promise’, agreed with Mrs Thomas that she would pay a peppercorn rent of £1 per year in return for being allowed to live in the house.  They later tied to dispossess her.

ISSUES

A valid contract must be supported by consideration. That is, the promisee must promise to do something in return for the promise of the other party. It was argued that there was no contract because Mrs Thomas, the promise, provided inadequate consideration as the rent was nothing like a commercial rent for the property. Mrs Thomas argued that her promise to pay rent and keep the house in repair was good consideration.

HELD

The executors statement did not create a contract as it only expressed their motive for entering into the agreement. However, the £1 rent was recognized as good consideration. Patteson J said (at 859):

Motive is not the same thing as consideration. Consideration means something which is of some value in the eye of the law, moving from the plaintiff:

Without consideration the transaction was merely a voluntary gift. However, by agreeing to pay rent in return for being allowed to stay in the property, Mrs Thomas had provided consideration, even though it was not economically adequate or anything like a commercial rent for the building. Therefore, the contract was enforceable.