LEVEL 6 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS JUNE 2010

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1 LEVEL 6 - UNIT 2 CONTRACT LAW SUGGESTED ANSWERS JUNE 2010 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the June 2010 examinations. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. ILEX is currently working with the Level 6 Chief Examiners to standardise the format and content of suggested answers and welcomes feedback from students and tutors with regard to the helpfulness of the June 2010 Suggested Answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners reports which provide feedback on student performance in the examination. Section A Question 1 An exclusion clause is one that seeks to exclude either liability or the availability of remedies. When addressing questions relating to this type of clause, the modern judge has available both the common law and statute. To be valid at common law the clause must be incorporated into a contract. That is, as general rule, there must be privity of contract: see (e.g.) Adler v Dickson [1954]; the Contracts (Rights of Third Parties) Act 1999 has, however increased the number of those who may take advantage of such clauses. The rules on incorporation are divided into those governing signed documents, unsigned documents, and course of dealings. The rule on signed documents is that the party is bound by the contents of a document once it is signed, whether the party has read document or not: L Estrange v Graucob [1934]. This is subject to the rule on overriding oral representations, which provides that where the party relying on the clause makes an oral representation as to the written contractual document the oral representation shall override the written term: see (e.g.) Curtis v Chemical Cleaning Co. [1951], J Evans & Son (Portsmouth) v Andrea Merzario [1976]. The rules on unsigned documents turn on proper notice. They require the person relying on the clause to do what is reasonable to bring the clause to the notice of the other party. The test is an objective one. There is no requirement to show that the other side actually saw the unsigned document. Valid incorporation of unsigned documents requires that sufficient notice must be given. To constitute sufficient notice the unsigned document must, first, be Page 1 of 19

2 recognisable as having legal consequences: see Chapleton v Barry Urban District Council [1940]. Beyond that, what amounts to sufficient notice varies with nature of the clause. The more unusual and the wider the clause in its effect the more is required by way of notice: Thornton v Shoe Lane Parking [1971]. `Some clauses I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient'' per Lord Denning MR, Spurling v Bradshaw [1956]. To be sufficient, notice must be given either before or at the point of contract: see (e.g.) Olley v Marlborough Court [1949] and Thornton v Shoe Lane Parking [1971]. Where a party is under a disability (such as illiteracy) this will not (of itself) render notice insufficient: see Thompson v LMS [1930]. Where the party relying on the clause was aware of the disability of the other that will render notice insufficient: see (e.g.) Geier v Kujawa Weston & Warne Bros Transport [1970] and Harvey v Ventilatoren Fabrik Oelde [1988]. Where there has been a course of dealings between the parties notice may be regarded as sufficient even though it was not given in good time in the transaction that is in issue. In Spurling v Bradshaw [1956] the defendant delivered eight barrels of orange juice to the plaintiff s warehouse for storage. Some days later the plaintiff sent the defendant a landing account on which was printed an exclusion clause. It was held that the exclusion clause was incorporated into the present agreement because the clause was used in previous dealings and communicated in the same way. For incorporation to be effected by a course of dealings, those dealings must be consistent: see McCutcheon v David MacBrayne [1964]. Once it is established that the clause is incorporated it will be interpreted strictly by the court. The burden of proving the validity of the clause is upon the party seeking to rely on it. If the clause is ambiguous it will be construed contra proferentem, that is against the party relying on it: see (e.g.) White v John Warwick & Co Ltd [1953] and Hollier v Rambler Motors [1972]. If the clause does not cover the particular facts of the breach in question it will not provide an adequate defence: see (e.g.) Andrews Bothers (Bournemouth) v Singer [1934]. The clause will be struck down if it is unconscionable or forms part of an unconscionable contract: see Schroeder Music Publishing v Macaulay [1974]. It will be struck down if it is repugnant to the rest of the contract: see Evans v Merzario [1976]. The Unfair contract Terms Act 1977 provides a major addition to the court s powers. It provides a wide understanding of what may amount to an exclusion clause: see s13. It includes not only attempts to exclude liability but also attempts to claim to be entitled to provide substitute performance or no performance at all: see s 3. In non-consumer contracts the Act renders some exclusion clauses void; more generally it requires that the clause be subject to a test of reasonableness: see sections 2(2), 3, 6 and 7. Page 2 of 19

3 Reasonableness under the Act has a technical meaning. It is dealt with in s11 and Schedule 2 of the Act. These provisions have been criticised as being unnecessarily complex. S11(1) provides that reasonableness is to be judged by whether the clause is fair and reasonable in the light of circumstances that were known, or ought to have been known at the time of the contract. S11(5) provides that the burden of proving reasonableness lies upon the party seeking to rely on the exclusion clause. S11(2) directs the court to have regard to Schedule 2 when considering breach of implied terms in contracts for the sale and supply of goods (ss 6 and 7 of the 1977 Act). In fact the courts have applied the Schedule 2 criteria generally when considering reasonableness: see Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] per Smith LJ. Schedule 2 criteria includes the requirement that the parties knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties). This goes beyond the common law test of incorporation and requires that consent to the term be real: see AEG (UK) Ltd v Logic Resource Ltd [1996]. The remaining four criteria within the Schedule may be divided into those which require consideration of economic and business matters which may go to the reality (or lack of it) of consent to the disputed clause. They include the strength of the bargaining positions of the parties and whether there had been an inducement to accept the clause. Where terms are agreed between experienced businessmen of equal bargaining power it is more likely that the term will be fair and reasonable. In those situations the court interferes only if it is convinced that one party has taken unfair advantage of the other or the term is so unreasonable that it is likely that one of the parties has misunderstood or failed to consider the clause properly: see Watford Electronics v Sanderson [2001]. Other criteria require consideration of factors such as whether the term restricts or limits liabily if some condition is not complied with. These may be seen as indications of misunderstanding or poor consideration distorting the bargaining process and so rendering the clause unfair and unreasonable. The common law rules relate to incorporation and construction of these clauses. They may be said to relate traditional ideas of formal justice and fairness. The Unfair Contract Terms Act 1977 gives the court considerable discretion and permits it to look beyond the requirements of formal justice to consider the business realities which underpin contractual relationships and their provisions. Page 3 of 19

4 Question 2 A contract is discharged when the duty to perform the primary obligations under it cease. A contract may be discharged by performance, agreement, breach or frustration. Breach of contract occurs when a party to the contract either fails to perform its contractual obligations or performs them defectively. Alternatively a contract may be breached by repudiation; that is, by one party expressly or impliedly making it known that it does not intend to be bound by the contract. The effect of breach depends upon the nature of the term breached. Breach of warranty sounds in damages only. Breach of condition opens to the innocent party the right to accept repudiation of the contract that is brought about the breach. It is the innocent party s electing to terminate the contract that brings about its discharge, not the breach. Discharge is therefore not automatic upon breach. Breach of primary obligations under the contract (generally) gives rise to a secondary obligation: to compensate the innocent party by the payment of damages. The purpose of damages in contract is to place the innocent party in the position it would have been had the contract not been breached: Robinson v Harman (1848). This is usually obtained by claiming damages for the expectation loss incurred. This may include loss of profit. Other heads of damages include reliance loss, which is compensation made in reliance upon the contract, and compensation for distress and physical inconvenience. Frustration of contract occurs when some event renders performance of the contract either impossible or radically different from that agreed. Like breach, it occurs after the contract is entered into. To amount to frustration it must be the fault of neither party to the contract. Where a risk is foreseen and provided for in the contract its occurrence will not amount to frustration. Unlike breach, frustration discharges the contract automatically irrespective of the wishes of the parties. The obligations of all parties cease at once. At common law the rule governing frustration is: let the loss lie where it falls. This means that obligations to perform, which had not accrued before the frustrating event, are at an end. They need not be performed and failure to perform them need not be compensated for. Obligations that had accrued and should have been performed before the frustrating event, remain to be performed despite the frustrating event, as does a secondary obligation to pay compensation where they are not performed. Thus, work completed in performance of the contract before the frustrating event will go unrewarded if the duty to pay has not yet arisen: see (e.g.) Appleby v Myers (1867). Where the contract provided for payment (in whole or part) before the frustrating event it remained payable and if already paid it could not be recovered: see (e.g.) Chandler v Webster [1904]. ). The distribution of loss between the parties is, under this principle, quite arbitrary. An aspect of the rule was changed by the House of Lords in Fibrosa SA v Fairbairn Lawson Combe Barber Ltd [1943], where it was held that where there had been payment for which there was a total failure of consideration resulting from the frustrating event, money could be recovered on a restitutionary basis. Page 4 of 19

5 This decision was criticised because it imposed a harsh burden on the party that had been paid and arguably interfered with the allocation of risk agreed upon by the parties. The law on the consequences of frustration was amended by the Law Reform (Frustrated Contracts) Act It introduces what are sometimes called the Payee Rule, the Payer Rule, and the Valuable Benefit Rule. The Payer Rule was brought into being by s1(2) of the 1943 Act. It provides that money payable under the contract before the frustrating event ceases to be payable. Money already paid before the frustrating event is recoverable. It extends Fibrosa in that there is no need to demonstrate total failure of consideration. The Payee Rule also derives from s1(2) of the Act. It provides that where the payee has incurred expenses in performing the contract before the frustrating event the court may, at its discretion, allow the payee to retain or recover the whole or part of its expenses up to the amount paid or payable before the frustrating event: see (e.g.) Gamerco SA v ICM/Fairwarning Agency [1995]. The Valuable Benefit Rule is brought about by s 1(3) of the Act. It provides that if any party has obtained a valuable benefit from performance of the contract before the frustrating event the court may award the performing party such a sum as it thinks just in the circumstances but it is not to exceed the value of the benefit conferred. When determining what is just the court should take into account the expenses incurred by the receiving party before the frustrating event and the effect of the frustrating event on the benefit received. In BP Exploration (Libya) v Hunt (No2) [1979] it was held that a valuable benefit had been conferred which consisted in the increased value of a certain oil concession. Per Robert Goff J in cases such as prospecting the valuable benefit (which survived the frustrating event) was, in part, the knowledge gained from exploration. This has been criticised as an inaccurate construction of the statute which fails to address the problem in Appleby v Myers. The financial consequences of breach and frustration are potentially quite different. This is particularly the case where substantial damages are available and there is a successful claim for expectation loss. The aim there is clearly compensatory and the claimant should be placed in the position he would have been had the contract not been breached, including any profits he might have made. In practical monetary terms the difference between breach and frustration may be marked. Where damages are based on reliance loss the compensation is based upon the claimant s expenditure in performing the contract: see (e.g.) Anglia Television v Reed [1971] the result in financial terms may be closer to that produced when the court decides that a contract is frustrated and the Law Reform (Frustrated Contacts) Act 1943 is applied. The same may be said of situations in which nominal damages only are available for this will reflect the fact that the terms of the contract have been complied with but there is no loss that is recognised by the law. The common law rules on frustration still apply to contracts that are excluded from the 1943 Act: see section 2 for application of the Act and its exclusion. Where they do apply there is no attempt at compensation other than where the situation lies within the ambit of Fibrosa SA v Fairbairn Lawson Combe Barber Ltd and even then recovery is limited to restitution. This rule may produce harsh and unfair results Page 5 of 19

6 Where the 1943 Act applies the court is empowered to do justice between the parties and to mitigate the harshness of the rule of let the loss lie where it falls. The effect of the Act is nevertheless essentially restitutionary and within close limits that reflect the contract and its frustration. Question 3 The main remedy for breach of contract is common law damages. These compensate for faulty performance or non-performance but do not enforce primary contractual obligations. Specific performance is an order from the court compelling performance of primary positive obligations under the contract. It is therefore an exceptional remedy. The only other remedy, which may be said to enforce performance of a contractual obligation, is a claim for an agreed sum (i.e. the price of performance by the claimant), which is a claim in debt. This action is to be distinguished from specific performance. Specific performance is an equitable remedy that was developed by the Court of Chancery. Even after the amalgamation of the courts of common law and equity under the Judicature Acts the remedy retains its exceptional quality and status. In practice this means that the remedy is subject to a number of restrictions that are imposed by the court and which reflect specific performance s equitable origins and status. Common law damages are available as of right. As an equitable remedy, specific performance is available at the court s discretion. The discretionary nature of specific performance means that the conduct of the person seeking the order must not be such as to preclude the aid of equity. He who comes to equity must come with clean hands. His actions must not be unconscionable. In order to forfeit the aid of equity it is not necessary to commit a legal wrong, mere trickery or sharp dealing is sufficient: see, for example, Webster v Cecil (1861), Walters v Morgan (1861). He who seeks equity must do equity: a person seeking specific performance must have performed his side of the bargain or be ready and willing to do so. The court will not grant specific performance where damages are an adequate remedy. Where goods or services are faulty the appropriate remedy is usually compensation for the diminution in value. Where goods or services are not delivered the usual remedy is compensation for loss of bargain and inconvenience where appropriate. Such damages are a means of the claimant obtaining adequate alternative performance from a third party. Specific performance is not available in contracts for the sale of goods where it is possible to obtain substitute goods in the market. The appropriate remedy is damages. It remains open to the party seeking specific performance to demonstrate that damages are not an adequate remedy. This may be done by establishing that the subject matter is in some way unique; it may also be done by demonstrating that damages will not reflect the true expectation loss of the claimant: see Beswick v Beswick [1968]. As a matter of law, land is unique. Damages are therefore not an adequate remedy for a breach of a contract to sell land. In Phillips v Lamdin [1949] an Adam style door was removed after the defendant had contracted to sell his Page 6 of 19

7 house to the plaintiff. The door was held sufficiently unique for it to be made the subject of an order for specific performance. In contracts for the sale of goods it may be possible to show that the goods possessed some unique quality and so substitute performance is not available. In such cases damages may not be an adequate remedy. Valuable antiques and works of art have been held to possess this unique quality: see (e.g.) Falcke v Gray (1859). However, in Cohen v Roche (1927), antique Heppelwhite chairs were regarded as ordinary commercial items readily available on the open market and specific performance was refused: An order will not be granted where it would cause undue hardship. In Patel v Ali [1984] the court refused to grant an order of specific performance for the sale of the defendants family home because it would have had the effect of causing undue hardship to the wife (who had a history of ill-health, spoke little English and was at home with small children) by isolating her from friends and family. Equity does nothing in vain. Performance of the contract must be possible if an order is to issue: see Wroth v Tyler [1974]. Performance must not be futile. An order for specific performance will not be made where the contract is vague or uncertain. Equity will not assist a volunteer. An order will not be granted where consideration is lacking. Specific performance will not be ordered where there is a want of mutuality of obligation: see (e.g.) Flight v Boland (1828), Price v Strange [1978], Sutton v Sutton [1984]. Specific performance will not issue where the contract is one involving personal services; equity may not be used to force one person to work for another: see (e.g.) De Francesco v Barnham [1890]. Specific performance will not issue where the contract requires constant supervision by the court. In Ryan v Mutual Tontine Westminster Chambers Association [1892] a tenancy agreement provided that the landlord was obliged to provide a hall porter. This was not done properly. The court refused specific performance on the ground that to do so would require the court to supervise the work. However, in Posner v Scott-Lewis [1987], in which the agreement required the landlord to employ a resident hall porter, the court was prepared to grant specific performance. If the landlord failed to comply with the order the tenant could simply return to the court. The restrictions the court places upon the granting of specific performance may be said to have three primary sources. They are: the nature of the remedy and its impact upon personal freedom; the origins of the remedy in the courts of equity; and the practicality and appropriateness of the remedy. Equity acts in personam. When compared with the requirement to pay compensation for not carrying out one s obligations, an order to carry them out may be seen as having a considerable impact upon personal freedom. A failure to comply with such an order is a contempt of court and may be met with punitive measures against the person, such as fines, sequestration of property, or imprisonment. The equitable nature of the remedy brings with it under underlying attitudes and requirements of equity that relate to fairness, proportionality and the desire to do justice between the parties. Equity may be refused to those who do not Page 7 of 19

8 behave properly. Equity leans against causing undue hardship even where a party is in breach of contract. Finally, the court will refuse such an order upon practical grounds for example upon the court s unfitness to supervise an order and the wasting of the court s time on contracts that are futile or impossible to perform. Question 4(a) Alderson B s statement in Hadley v Baxendale (1854) provides the most influential statement on remoteness of damage in the law of contract. The language used and the structure of the rule it contains is complex and has given rise to debate. Whilst some readings may identify two possible rules within the statement, it is clear that the better view is that the statement contains a single rule. The question has been considered on various occasions by the judiciary, perhaps most notably by the House of Lords in The Heron II [1967] per Lord Reid: I do not think that it was intended that there were to be two rules or that two different standards or tests were to be applied. It was considered again in Jackson v Royal Bank of Scotland [2005], per Lord Hope, there is a single principle that governs remoteness of damage in breach of contract claims; it is what was in the contemplation of the parties at the time they made the contract. There is, then, a single rule that governs remoteness of damage. It may be divided into two parts or limbs. The first limb refers to losses arising naturally, i.e. according to the usual course of things, for such breach of contract itself. This rule seeks to identify what must have inevitably been in the minds of both the parties as the likely result of the breach in question. The loss that the parties must have had in contemplation is arrived at by looking at the nature of the contract and asking: what loss will almost inevitably follow if there is a breach? The test is objective. The person in breach may not therefore defeat a claim for substantial damages by arguing that he, personally, did not have such a loss in mind. The second limb deals with losses in the contemplation of both parties; the test is based on the actual knowledge of the parties at the time of contract and so may be described as subjective. Under this limb damages may be recovered from losses arising from special circumstances, provided they were known to party in breach. It follows that the more a party knows about the contract and the requirements of the other party the greater is the potential liability in damages. There is, however, an irreducible minimum, based on common knowledge, it is the objective test set out in the first limb. Page 8 of 19

9 4 (b) Alderson B s rule is expressed in 19 th century language. There have been various attempts to analyse and, on occasion, re-caste it. The meaning of contemplation in this context has given rise to judicial debate. In Victoria Laundry (Windsor) v Newman Industries [1949] Asquith LJ took the view that within contemplation had the same meaning as reasonable foreseeability (the test for remoteness in the tort of negligence). This interpretation was criticised by the House of Lords in The Heron II, where Lord Reid said that the test for remoteness in contract was stricter than that in tort. Alderson B s rule was concerned not with reasonable foreseeability but with things that were likely to happen because they occur in the great majority of cases. They were to be distinguished from results which are unlikely because they would happen in only a small minority of cases. His Lordship went on to say: I am satisfied that the Court did not intend that every type of damage which was reasonably foreseeable by the parties when the contract was made should either be considered as arising naturally i.e. in the usual course of things or be supposed to have been in the contemplation of the parties. The Heron II is a complex case, which is not made simpler by their Lordships use of language in relation to the concepts of in contemplation and foreseeability. Furthermore, there was some inconsistency among members of the House of Lords on what was required to satisfy the test for remoteness in contract. It is, however, clear that the court was agreed that the test for contract was distinct from that for tort. The Court of Appeal departed from this view in Parson v Uttley Ingham [1978], where Scarman and Orr LJJ thought that there was no difference between the tests for remoteness in tort and in contract. They held that, provided the type of loss was foreseeable, it was not too remote. These views are inconsistent with the House of Lords analysis in The Heron II and as such, must be suspect as good authority on remoteness of damage in contract. They nevertheless were used to inform the judgment in Brown v KMR Services [1995]. Evans LJ in Kpohraror v Woolwich Building Society [1996], took the view that both limbs related to the extent of the shared knowledge of the parties at the time the contract was made. He said that it was often the case that the two limbs overlapped or it was unnecessary to distinguish between them. What can be said with any certainty is Alderson B s statement in Hadley v Baxendale is still of central importance to decisions on remoteness of damage in contract. It should be regarded as a single rule governing remoteness of damage in contract. The extent of liability is based upon the knowledge of the parties and the likelihood of the damage, should there be a breach. What is within the contemplation of the parties for contractual purposes is to be distinguished from the reasonable foreseeability in the context of tort. The practical implications of Alderson B s statement in Hadley v Baxendale are that the test for remoteness marks a boundary for what may be recovered by way of substantial damages. Losses within the first limb of the rule are generally recoverable. They are sometimes referred to as common knowledge losses. Page 9 of 19

10 Losses of a kind that are not common knowledge can be recovered only if the particular circumstances leading to the loss are known to the party in breach. The failure to provide sufficient information on relevant circumstances has presented bars to claims for substantial damages. Where a party s business was particularly vulnerable to a breach by the other, and the resultant damage was not in contemplation, because it was neither common knowledge nor expressly or impliedly conveyed the loss was held too remote: see Hadley v Baxendale. If the contract has a value to the claimant that exceeds that in contemplation by way of common knowledge, based on market value and the claimant has neither expressly nor impliedly made known that additional value, it has been held too remote: see (e.g.) Horne v Midland Rly Co (1873) and Victoria Laundry (Windsor) v Newman Industries [1949]. Where, however, the loss is obvious because of the surrounding circumstances it will not be too remote: see (e.g.) Simpson v London v North Western Rly Co (1876) per Cockburn CJ: The principle is now settled that, whenever either the object of the sender is specifically brought to the notice the notice of the carrier, or circumstances are known to the carrier from which the object ought in reason to be inferred, so that the object may be taken to have been within the contemplation of the parties, damages may be recovered for the natural consequences of the failure of that object. In The Heron II a vessel was chartered to carry sugar to Basrah, a well-know sugar market. The claimant intended to re-sell the cargo of sugar immediately. The defendant received no express notice of this from the claimant. In breach of contract, the vessel arrived nine days late, during which time the price of sugar on the Basrah market fell considerably. The claimant sought damages for loss of profits resulting from the breach. The House of Lords held the loss was recoverable because it fell within the first limb of the rule in Hadley v Baxendale. The practical implications of cases such Simpson v London v North Western Rly Co and The Heron II are that the court will expect the parties to behave as reasonable persons when it comes to the contemplation of risk. These cases, of course provide little help when there is nothing in the surrounding circumstances to suggest purpose or additional risk, as in Hadley v Baxendale and Victoria Laundry (Windsor) v Newman Industries. Section B Question 1(a) The relationship between Helena and Ian is governed by their agreement of July 2008.There is nothing in the facts to suggest that Ian is in breach of any of his duties as landlord, which might provide grounds for Helena withholding all or part of the rent. A failure to pay the rent in full and on time is a breach of contract, which may be pursued as a debt. In February 2009 Ian agreed to accept 500 in rent for that month. In April 2009 he agreed to lower Helena s rent to 500 until such time as Helena s financial situation improved. There are three questions to be considered. They are: Page 10 of 19

11 Can Ian: 1. recover the balance of the rent for February recover the balance of the rent for the period April 2009 to date 3. return to his former position: i.e. can the agreement that Helen pay 1200 per month in rent be returned to. The February Payment The rule at common law is that part-payment of debt is insufficient to discharge the whole debt even if the creditor agrees to accept a lower amount: Pinnel s Case (1602). There are common law exceptions to this rule. None of these exceptions to the rule in Pinnel s Case seem to be applicable in this situation. At common law Ian may therefore recover all that is outstanding in unpaid rent. Helena may, however, seek the aid of equity in the form of the doctrine of promissory estoppel. In order to establish promissory estoppel it must be demonstrated that there was (a) an existing contractual relationship between the parties, (b) that one party ( the promisor ) had promised to waive his strict legal rights under that contract, (c) that the promisor knew that the promisee would rely on his promise and (d) the promisee did act in reliance on the promise made by the promisor: see Denning J s comments in Central London Property Trust Ltd v High Trees House [1947] and Denning and Birkett LJJ s clarification of the doctrine in Combe v Combe [1951]. All the above elements seem to be present: Helena does seem to have the basis for an argument that Ian is estopped from obtaining the balance of the rent owed. The underpinning and principal element of promissory estoppel, however, is that it must be inequitable for the promisor to go back on his promise. Where factors are present which render it not inequitable to do so the promisor is not estopped. Such factors include where the promise is not truly voluntary. In D&C Builders v Rees [1966] the debtor, knowing that the creditor was in financial difficulties, offered 300 in full satisfaction of a debt for 482, stating, in effect, that if the 300 were not accepted the creditor would get nothing. The creditor accepted the 300 in full settlement and then sued for the balance. The debtor s attempt to argue that the creditor was estopped failed on the ground that it was not inequitable for the creditor to go back on a promise, which had been obtained by a form of duress. In February 2009 Helena wrote to Ian in very similar terms to those expressed in D&C Builders. Knowing Ian to be in financial difficulties, she offered him 500 instead of the amount of 1200 owed, or nothing. Applying the decision in D&C Builders, it is unlikely that Helena s plea of estoppel will succeed. It would not be inequitable for Ian to go back on a promise that was given under duress. Ian may therefore claim the 700 outstanding for February 2008 under the rule in Pinnel s Case. Payments From April 2009 Assuming that there was no element of duress in the exchange between Helena and Ian in April 2009, Ian may be estopped from pursuing a claim for the balance of the rent from April Page 11 of 19

12 However, Helena s position improved significantly in October She did not inform Ian of this improvement. Her conduct may consequently prevent a successful plea of promissory estoppel on two grounds. The first is that Helena s poor financial circumstances were the basis upon which Ian s promise was made. Once Helena s situation changed so radically it became no longer inequitable for Ian to go back on his promise. Alternatively the court may refuse Helena the aid of Equity. He who comes to Equity must come with clean hands. If Ian can show that Helena behaved improperly, in connection with the protection sought she may be refused equity s help. In the present situation Helena continued to gain advantage from a representation that ceased to be true in October She is therefore unlikely to succeed in establishing promissory estoppel for the period from April Can Ian return to the original agreement? There is a danger that the present position may continue for some unspecified period. To avoid this Ian should serve Helena with proper notice that he wishes to return to the original agreement: see (e.g.) Central London Property Trust Ltd v High Trees House and Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] (b) The contract between Jack and Helena provided that Helena should supply Jack with 10,000 Cat in the Willow greeting cards, at a price of 10,000 by October Breach of the Agreement Between Helena and Jack There would appear to be two points at which Helena may have breached the contract. The first is when she telephoned Jack and told him that she was unlikely to be able to perform her part of their bargain. This may have amounted to a repudiatory breach of contract. Jack s response is likely to be regarded as affirmation of the contract. If that is the case, the contract remained in existence until the last day of October, when Helena s non-performance of her obligations under the contract became actionable. Helena may argue Jack is estopped in his action against her for breach of contract. The requirements for establishing promissory estoppel are set out above in the advice to Ian. Whilst it is clear that there was a contractual relationship between Helena and Jack, that Jack did promise Helena that he would not to rely on his strict legal rights, and it may be inferred that Jack knew that Helena would rely upon his promise, it is not entirely clear that there was actual reliance. Reliance may take the form of detriment suffered by the promisee; change of position has also been held sufficient: see (e.g.) Hughes v Metropolitan Railway (1877), Ajayi v Briscoe [1964] etc. Reliance was not addressed fully in the leading case of Central London Property Trust Ltd v High Trees House. It has been argued subsequently, however, that the defendants continuing as tenants in central London throughout the war years, amounted to sufficient reliance. It is possible to draw an analogy between Helen continuing in business and the tenants in High Trees House continuing as tenants. Page 12 of 19

13 There are weaknesses in Helena s arguments. The most significant of these is the nature of Jack s promise: is it sufficiently clear to found an estoppel? In A.C. Israel Cocoa Ltd v Nigerian Produce [1972] the Court of Appeal held that to establish an estoppel the promise must be precise and unambiguous. It must be such as would be understood by a reasonable person. The question is would a reasonable person interpret Jack s words as sufficient to found an estoppel that would defeat his claim for breach. The market value of the cards has increased since the formation of the contract and subsequent breach. Jack may prefer to argue that, if there were an estoppel, it merely suspended his rights to performance and that Helen should now deliver the 10,000 cards at their original contract price. Whether the doctrine of promissory estoppel is extinctive or suspensory depends upon the nature of the contract and the nature of the promise. Where the contract is ongoing the doctrine appears to be suspensory: see (e.g.) Central London Property Trust Ltd v High Trees House and Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd. Where the contract is one off in nature the doctrine has been held to be extinctive: see (e.g.) Rickards v Oppenheim [1950], where the buyer agreed to accept late delivery it was held that he could not go back on his promise. In that case there was late delivery: the right to timely delivery was extinguished. Jack s situation may be distinguished from Rickards: the present contract has not been performed at all. Jack s words to the effect that they should discuss the matter later indicate that he is not waiving all rights under the contract. They are insufficient to estop him from all action in the matter. He may therefore pursue a claim for common law damages or, if appropriate, specific performance. Question 2 In order for Victor, William and Xavier to establish Gilbert s liability they must show that (a) a contract existed between each of them and Gilbert and (b) Gilbert is in breach of the contract in question. A contract is a legally binding agreement. The court will look to objective evidence of agreement between the parties. The usual way of establishing this is by demonstrating valid offer and acceptance. The first issue to address is whether Gilbert made an offer. If he did so it took the form of an advertisement placed in Country Holidays Magazine. An offer is an expression of willingness to contract upon specified terms. It is capable of being converted into a binding agreement by acceptance of those terms by the offeree. Generally, advertisements do not constitute offers. They constitute invitations to treat: that is they invite others to make an offer. Purported acceptance of an invitation to treat is not capable of constituting a contract. In Partridge v Crittenden [1968] Lord Parker CJ took the view that there was business sense in advertisements and circulars being construed by the court as invitations to treat and not offers. There are, however, circumstances, in which an advertisement is capable of constituting an offer. Page 13 of 19

14 It is possible to make an offer to the world. To constitute such an offer, it must be clear from the advertisement that the person placing it is willing to be bound upon the terms specified. Those terms must be sufficiently specific. The leading case on such offers is Carlill v Carbolic Smoke Ball Company [1893], in which it was held that sufficient evidence of an intention to be bound, together with a sufficiently precise statement of terms amounted to an offer. Like Carlill, Gilbert s advertisement amounts to a promise of reward upon the performance of certain conditions. It is arguable that it is a unilateral offer. The rest of this advice will therefore be based upon the assumption that it constitutes an offer. Liability to Victor Victor was on a pony trekking holiday and so unaware of Gilbert s advertisement. This gives rise to two questions of law: (1) is an offer effective if it is not communicated; (2) is it possible to accept an offer of which one is ignorant. With regard to the first question, it seems to be clear law that in order to be effective an offer must be communicated: see Taylor v Laird (1856). There a number of cases that address the issue of the acceptance of unilateral offers by conduct. They generally pertain to rewards for information given. A number are unsatisfactory, inconsistent and are distorted by the facts of the case and the prejudices of the court: see (e.g.) Gibbons v Proctor (1891), R v Clarke (1927) (High Court of Australia), and Williams v Carwardine (1833). The better view is contained in Fitch v Snedakar (1868) (Court of Appeals, State of New York), in which the plaintiff gave information in ignorance of the offer of a reward of $200. It was held the plaintiff could not succeed in recovering a reward because there was no contract between the parties, the plaintiff could not accept an offer of which he was unaware. Fitch v Snedakar is closer in principle to the rules which generally govern this area of contract. It is undistorted by fact and the prejudices of earlier times. It provides persuasive authority. Victor is consequently unlikely to succeed; Gilbert is unlikely to be liable to him in contract. Liability to William William read Gilbert s advertisement and, having decided to accept, did so by conduct: that is he arrived at the Castle, on foot, shortly after dawn on 1 st May. It is unclear whether he was the first to do so. If he were then Gilbert would seem to be liable for breach of contract. There remains, however, Gilbert s attempt to revoke the contract by way of a sign displayed by the path to the castle. The general rule is that an offer may be revoked at any time until acceptance: Payne v Cave (1789). The contract in question is a unilateral contract, where acceptance is by performance. The rule governing revocation in such contracts is that the offer may not be revoked once acceptance has begun: see Errington v Errington & Woods [1952]. Gilbert is therefore liable to William for his failure to provide the consideration promised in Gilbert s advertisement. Page 14 of 19

15 Liability to Xavier The position with regard to Xavier is essentially similar to that of William. There is one significant difference: Xavier accepted Gilbert s revocation and so failed to complete the condition for performance set out in the advertisement. Thus, whilst the revocation may be ineffective (see Errington v Errington & Woods), there remains the issue that performance is incomplete. It was held in Daulia v Four Millbank Nominees [1978], per Lord Denning MR, that the offeror is entitled to expect full performance of the condition set out in the unilateral offer; short of full performance the offeror was not bound. However, Lord Denning went on to say that he was prepared to imply an obligation that, once performance had begun, the offeror should neither withdraw the offer nor prevent performance. Xavier had begun performance and had desisted as a result of Gilbert s attempted revocation. Consequently Gilbert is likely to be held liable for breach of an implied obligation to neither attempt to revoke the agreement nor to prevent performance. Question 3 Tina s contract with Rowan & Hale (R&H) is for the supply by R&H of professional services, namely the surveying and valuation of Swallow Grange. There are two possible terms of the contract which are relevant to Tina s problem. The first of these is an express term: that R&H, as part of their survey and valuation, should ascertain and report on whether Swallow Grange was located in a quiet place. It seems that Tina made it clear in her instructions to R&H that it was of central importance to her that Swallow Grange was located in a quite place. This may be interpreted as a requirement that R&H report on this matter. It is equally clear that they failed to do so. The issue therefore turns upon whether or not this instruction became an express term of the contract. In Bannerman v White (1861) clear indication by a purchaser that he would not buy certain hops if they had been treated with sulphur was sufficient to render assurances by the seller that they were untreated a term of the contract. Tina s expression of the importance of R&H s reporting on the level of noise may fall short of this. There is an additional problem: it is likely that R&H s contract with Tina was may have been reduced into writing. If that is the case, and the written contract is silent on the matter of reporting on noise, the general rule is that the earlier statement will not be incorporated as a term of the contract: see Routledge v McKay [1954]. There is, however, good authority that even where the expression falls short of that in Bannerman v White, and the agreement is reduced into writing that is either silent on the requirement or even excludes it, such a requirement may become a term of the contract providing it is clear that one of the parties entered into the contract in reliance on the statement. In Birch v Paramount Estates [1956] the Court of Appeal held that buyers entered into a contract on the basis of a promise by the sellers that the house would be as good as the show house. This was held to be a term of the contract even though the agreement was reduced into writing, which was silent on the matter. In Couchman v Hill [1947] the written terms of an agreement for the sale of a heifer excluded liability for condition of the animal. The buyer nevertheless sought assurances from the auctioneer and the seller of the heifer that the animal was unserved. The Court of Appeal held that these assurances amounted to a term of the contract. Tina s Page 15 of 19

16 difficulty in the present case is in demonstrating that R&H made a promise on which she relied. On the facts of the problem, there is at least an arguable case that R&H s undertaking the work after Tina s instructions amounted to an implied promise to carry out her express instructions. The second clause, which is relevant to Tina s problem, is implied by s13 Supply of Goods and Services Act 1982, which provides that in a contract for the supply of a service where the supplier is acting in the course of a business there is an implied term that the supplier will carry out the service with `reasonable care and skill. The test for breach of this implied term is objective: the question is would a reasonably competent surveyor have (a) carried out the wishes of the client and (b) reported on such environmental matters as a matter of good practice. In Lawson v Supersink (1984) the failure to carry out instructions (in the form of drawings) was held to be a breach of section 13 of the 1982 Act. Again, Tina has at least an arguable case for breach of this implied term. In order to recover substantial damages the Claimant must show: (i) that the Defendant breached the contract, (ii) that the breach caused the loss suffered by the Claimant, (iii) that the damage suffered by the Claimant was not too remote in law, and (iv) that the Claimant has attempted to mitigate his/her loss. The appropriate measures of damages in Tina s case are expectation loss and distress. Her expectation loss is the loss of the benefits which s/he should have received under the contract. In this case the benefits Tina would have derived from a full and accurate survey. Her claim for distress is based upon physical discomfort and the resultant distress. In Watts v Marrow [1991] the purchaser of a house brought an action against a surveyor for breach of an implied term to carry out a survey and prepare a report with proper skill and care. The surveyor failed to report on defects in the house, which resulted in the Plaintiff paying more for the property than it was worth. The Plaintiff spent almost 34,000 remedying the defects in the house and later sought to recover damages for the cost of cure. The Court of Appeal awarded damages for diminution in value and rejected the claim for cost of cure (a much higher sum). Ralph Gibson LJ said that to award the cost of cure would be to act as if the Defendant had guaranteed the accuracy of the report. This would have the effect of imposing strict liability upon the surveyor. His opinion was that the obligation was qualified: it did not go beyond the obligation to act with reasonable skill and care. In Farley v Skinner (No 2) [2001] the House of Lords disapproved of the distinction between strict and qualified obligations made by Ralph Gibson LJ in Watts v Marrow, at least to the extent that it applies to claims for distress caused by physical discomfort. The facts of Farley v Skinner are similar to those of Tina s problem: the claimant specifically asked a surveyor to report on aircraft noise when submitting its report on the survey of a house. The surveyor failed to do so. The Plaintiff purchased the house for 490,000 and spent 125,000 on improving the property and, upon moving in, discovered the problem with aircraft noise. There was no evidence that the aircraft noise led to a diminution in value. The claimant did not move house but sought damages for breach of contract. The House of Lords held that the decision of the trail judge should be upheld: the Plaintiff should be awarded damages of 10,000 for distress. Page 16 of 19