The Law of Contract Lecture Notes PDF

The Law of Contract Lecturer : Karen Murray BL Text Books White F., Commercial and Economic Law in Ireland ( 2nd edn, Wolters Kluwer 2020) (Available online: see Moodle for instructions). Keenan A., Essentials of Irish Business Law (7th Ed., Gill & MacMillan 2021). Introducing Contract Law A c...

The Law of Contract Lecturer : Karen Murray BL Text Books White F., Commercial and Economic Law in Ireland ( 2nd edn, Wolters Kluwer 2020) (Available online: see Moodle for instructions). Keenan A., Essentials of Irish Business Law (7th Ed., Gill & MacMillan 2021). Introducing Contract Law A contract is a legally binding agreement. It is a voluntary relationship between 2 or more people and there are four essential elements of a contract which must exist. 1.The agreement is made by offer and (2) acceptance (topics 1 & 2) 3.There is a bargain, supported by consideration (topic 3). 4. The parties must have an intention to create legal relations (topic 4). Once it is established that a contract exists there are several matters which might affect its validity. It is important to note that some contracts must be in a particular form or supported by written evidence and if they are not they will be unenforceable (topic 5). Both parties must have capacity to enter into a contract (topic 6). The content must be clear and complete, terms may be implied into the contract in the absence of express terms and some terms may be obsolete because of conflicting legislation (topic 7). There must be a genuine consent and mistake (topic 8), misrepresentation (topic 9), duress or undue influence (topic 10) may all affect the contract. A contract which does not satisfy all the tests may be void, voidable or unenforceable. A void contract is not a contract at all and the parties will not be bound by it. A voidable contract is a contract which one party may avoid at his option. This may arise in the case of a misrepresentation for example and any property which is transferred before avoidance is usually irrecoverable from a third party. (Topic 8) Contracts will come to an end in four ways and when this happens the contract is said to be ‘discharged’ (topic 11) and where it comes to an end because of a breach of contract, there are a number of remedies available to the injured or innocent party (topic 12). It is worth noting that the courts will not enforce an illegal contract. A contract could be void by statute (contracts for hire purchase that are not evidenced in writing under the Consumer Credit Act 1995,, contracts © Karen Murray BL 1|P a g e for the sale of the family home without the required consent under the Family Home Protection Act 1976). Some contracts are illegal and void at common law (contracts to commit a crime or fraud, contracts to defraud the revenue commissioners, unreasonable restraint of trade clauses). In a business context, a contract for insurance is essential and all the principles we will discuss apply. This is an agreement whereby an insurer agrees to pay a sum of money on the occurrence of an unexpected event in return for payments (premiums). Like all contracts, there must be consideration but in addition, there must be a degree of uncertainty as to whether the event insured will happen or if bound to happen, when it will happen. And when the event occurs, it must be adverse to the interests of the insured. Topic 1 The Offer What is an offer? An offer is a promise to be bound by an agreement provided certain specified terms are accepted. It may be made in writing or made orally. Clark in Contract Law in Ireland, states ‘An offer may be defined as a clear and unambiguous statement of the terms upon which the offeror is willing to contract, should the person … to whom the offer is directed decide to accept’ 1.. The offer may only be accepted by a person to whom the offer has been made but it is possible to make an offer to the public at large (see Carlill v Carbolic Smoke Ball Co. below ) The terms of the offer must be definite and not vague. For example in Gunthing v Lynn 2 the offeror offered to pay a sum of money for a horse if he was lucky. The court refused to enforce the contract as the offer was too vague. Similarly a vendor wrote stating he was ‘prepared to offer’ the other party land, in Clifton v Palumbo. 3 The purchaser wrote to accept. Do you think there was a valid contract? An offer may be made to a particular person, the public at large or to a specific class of persons but the offer it should be distinguished from the following: 1. A declaration of intention. In Wilson v Belfast Corporation 4, the defendants passed a resolution to pay half wages to employees who joined the forces in World War 1. When one of the employees sought to rely on the contract the Corporation denied the existence of any contract. It was held that this was not an offer capable of being accepted but rather a declaration of intention. 2. An offer is not the supply of information. In Harvey v Facey 5, the plaintiff telegraphed the defendant ‘Will you sell us Bumper Hall Pen? Telegraph lowest cash price’. The defendant replied ‘Lowest price for Bumper Hall Pen £900’. The plaintiff assumed that this was an offer and he sent a telegraph 1 (4th edn, Roundhall, 1998). 2 2 BR AD 232 3 2 All ER 497 4 55 ILTR 205 5 AC 552 © Karen Murray BL 2|P a g e  accepting the offer. The defendants refused to sell and the plaintiff’s sued. It was held that no contract had been made. The defendant’s telegram was merely a statement of his price if a sale were to be agreed. It was not an offer that was capable of acceptance. 3. An offer is not an invitation to treat. This is an invitation to a person to make an offer (which can be accepted by the other party). The display of goods, auction sales, advertisements and tenders all constitute invitations to treat. For example, a bid at an auction is an offer which the auctioneer is free to accept or reject, or a local authority, college etc. might invite tenders for the supply of goods or services or for the carrying out of some project. The advertisement of the tender is an invitation to treat and the tender is the offer. In the Phamaceutical Society of Great Britain v Boots Chemists 6 certain pharmaceutical products could only be sold 'under the supervision of a qualified pharmacist'. It was alleged that this rule had been broken by Boots when they put these products on the open shelves in a self-service shop. Boots argued that there was no sale until a customer brought them to the cash desk and offered to buy them; there was a qualified pharmacist was stationed at this point. It was held that the display of goods amounted to an invitation to treat only, so Boots were not in breach of the law. Similarly in The Minister for Industry & Commerce v Pimm Bros 7, the display of a coat with a notice stating that credit terms were available (which was an offence) amounted to an invitation to treat only; no offer had been made. Websites are also considered as invitations to treat. Advertisements are not offers but rather an invitation to treat. It is worth noting that where an advertisement turns out to be false, the advertiser may be accused of misleading advertising under the Consumer Protection Act 2007-2014 and advertisements must also comply with the Equal Status Act 2000 as amended and Employment Equality Acts 1998 – 2015 (in other words, they must not be discriminatory). In Partridge v Crittenden 8 the plaintiff placed an advertisement in a journal which read ‘Bramblefinch cocks, bramble finch hens, 25s each’. A man ordered a hen and enclosed the money. The plaintiff sent the hen and was charged with ‘unlawfully offering for sale’ a bird contrary to a 1954 Act. It was held that the advertisement was not an offer therefore the prosecution was unsuccessful. In some situations an advertisement may constitute an offer if it was intended to bind the advertiser if someone was to rely on it. In Carlill v Carbolic Smoke Ball Co. 9, the manufacturers of a medicine promised to pay £100 reward to anyone who caught influenza after having sniffed a smoke ball three times daily for two weeks. In order to show their sincerity, they lodged the sum of £1,000 into a bank account. The plaintiff used the ball correctly but still caught the flu. She then claimed her reward but the defendants refused and argued that the advertisement was not an offer and that there had been no acceptance. They argued that it was just an invitation to treat. But was it held that the advertisement was indeed an offer to the whole world which the 6 1 QB 401 7 IR 154 8 1 WLR 1204 9 EWCA Civ 1 © Karen Murray BL 3|P a g e plaintiff had accepted and therefore she was entitled to the reward of £100. The lodgement of the money showed their sincerity and intention. The court held that there was a unilateral contract between the Carbolic Smoke Ball Company and anyone who satisfied the conditions set out in the advertisement. Once Mrs Carlill had satisfied the conditions (sniffing the smoke ball) she was entitled to enforce the contract (or in other words receive the reward). Similarly, in Lefkowitz v Great Minneapolis Surplus Store 10 it was held that where something is ’clear, definite, explicit and which leaves nothing open for negotiation’ then such an advertisement may constitute an offer. Here the advertisement stated ‘out [it] must go, first come first served’. 10 86 N.W.2d 689 (Minn) © Karen Murray BL 4|P a g e Termination of the Offer An offer may only be accepted while the offer is still open and it will terminate in a number of circumstances. 1. Lapse of Time If a time is specified in the offer, it will lapse at that time. If no time limit is specified it will terminate after a reasonable time. What is reasonable depends on the circumstances of the case. In Ramsgate Victoria Hotel Co v Montefiore 11 the defendant applied to the plaintiff company for shares but the plaintiff did not reply for five months. At that stage, the defendant refused to pay for the shares and argued successfully that his offer had expired and therefore could no longer be accepted. It was held that the defendants offer was for a reasonable time only and five months was longer than that. Their delay in getting back to the defendant had caused his offer to lapse. This was restated in O’Hanlon J. in Commane v Walsh. 12 2. Revocation An offeror can withdraw his offer at any time before it is accepted. This is true even when the offeror undertakes that his offer will remain open for a specified time. (Note: Equal Status Act, 2000 as amended prohibits rejection on grounds such as gender, civil status, family status, disability, age, race, religion, sexual orientation and membership of the travelling community). In Routledge v Grant 13 the defendant offered to buy the plaintiffs house requiring acceptance within 6 weeks. Within that time the defendant withdrew his offer as he was perfectly entitled to do. Revocation will only be effective if it is communicated to the offeree before acceptance either by the offeror or by a reliable third party such as an agent 14. In Billings v Arnott & Co 15, the defendants offered to pay employees who joined the Defence Forces half their salary (up to £2) per week. The plaintiff informed his employers that he wished to take up the offer but was told that he ‘could not be spared’. He then sued Arnotts for breach of contract and the key question was whether the defendants were entitled to withdraw their offer. Are they? Most contracts are bilateral (obligations on both parties). Some contracts may be unilateral (only one party is under an obligation but that is dependent on some act by the other party). E.g. a reward for lost puppy. The offer may be revoked at any time before complete performance of the contract. Revocation communicated by post only takes effect from the time of receipt and not from the time of posting. 11 LR 1 Exch 109 12 IEHC 15 13 130 ER 920. See also Byrne v Van Tienhovlen 14 Dickenson v Doods 15 80 ILTR 50 © Karen Murray BL 5|P a g e 3. Rejection Rejecting the offer will terminate the offer and a counter offer will also terminate the offer. Where a counter offer is made the original offeror may accept it but if they reject it, the original offer is no longer available for acceptance. (It may be, but it doesn’t have to be available!) In Hyde v Wrench 16 the defendant offered to sell his farm to the plaintiff for £1,000. The plaintiff made a counter offer of £950 which the defendant rejected. The plaintiff then said he would accept the original offer of £1,000. But it was held that the original offer of £1,000 was terminated by the counter offer of £950. It could not be accepted. Requesting further information may not terminate the offer. In Stevenson v McLean 17 the defendants offered to sell iron to the plaintiff for £2 per tonne cash. The plaintiff wrote asking whether the defendant would agree to a contract providing for credit facilities. On receiving no reply the plaintiff accepted the offer the original offer as agreed. The defendants then sought to avoid the agreement and argued that the request for information was a counter offer. Do you think the request amounts to a counter-offer? Or is it merely a request for further information? The death of the offeree before the offer has been accepted renders the offer incapable of acceptance. Death of the offeror will also terminate the offer unless the offeree accepts it in ignorance of the offerors death and the offer is not of a personal nature. Topic 2 Acceptance Offer + acceptance = agreement Acceptance takes place when the offeree accepts an offer made by an offeror and acceptance may be by express words spoken or written or by action (as in Carlill's case). It may also be implied from conduct. The acceptance must be clear and unqualified and must be communicated to (by the offeror or someone with authority, and received by the offeror. For example in Powell v Lee 18 the plaintiff applied for a position as a head master and while the management (after the interview) passed a resolution to appoint him they made no decision as to how to communicate the acceptance. A manager, without any authorisation, contacted him and offered him the job. He accepted and sued for breach of contract when the defendants later appointed someone else and refused to appoint him. It was held that there was no contract: no valid offer was made and therefore no acceptance. What is the effect of Silence? 16 3 Beav 334 17 5 QBD 346 18 99 LT 284 © Karen Murray BL 6|P a g e There must be some act on the part of the offeree to indicate his acceptance and passive inaction is not acceptance. In Felthouse v Bindley 19 the plaintiff offered by letter to buy a horse stating ‘If I hear no more about him, I'll consider the horse mine at £30’. No acceptance was ever communicated to the plaintiff and the horse was sold to someone else. The plaintiff sued for breach of contract but it was held that there was no acceptance and therefore no contract. An offeror cannot impose acceptance merely because the offeree has not rejected the offer. This was restated in Russell & Baird v Hoban. 20 Communication of acceptance Generally there must be an external, as opposed to a mental, indication of acceptance. There should ideally be some words spoken or act done by the offeree or by his agent. The offeree may accept by any means unless the offeror requires acceptance by a particular means (if it is equally advantageous to the offeror). An offer by fax indicates the desire for a prompt reply, so acceptance by post will not do. A verbal, fax or e-mail message could be satisfactory acceptance of an offer inviting acceptance by return of post. The Postal Rule Where the use of the post is within the contemplation of both the parties, acceptance is complete and effective as soon as a letter is posted. It follows that the letter must be correctly addressed and stamped and put in the post. The rule applies even though it may be delayed or lost in the post. In Kelly v Cruise Catering 21, an Irish employee was injured on a cruise liner. The contract of employment was drafted in Norway and signed by the plaintiff and posted by him in Dublin. It was held that acceptance took place in Dublin when it was signed and posted. In Household Fire & Carriage Accidents Insurance Co v Grant 22 the defendant applied for shares in the plaintiff company and enclosed a deposit for those shares. The company accepted his offer by posting a letter of acceptance, which he never received. He was then required to pay the balance owed to the company for the shares and was sued for breach of contract when he refused. It was held that the defendant was bound by an acceptance in a letter of allotment even though the letter was never delivered. It is worth noting that more instantaneous communications are not bound by the postal rule. In Entores v Miles Far East Corp. 23 the plaintiffs were based in England and the defendants in The Netherlands. The plaintiffs argued that the contract between them was made in England from where the offer was sent (by telex) and the acceptance was received; the defendants argued that the contract was made in the Netherlands where the offer was received and from where the acceptance was sent. The question that fell to be decided by the English Court of Appeal was the location where the contract was made. Denning J held that 19 11 CBNS 869 20 2IR 159 21 2 ILRM 394 22 LR 4 EX D 216 23 3 WLR 48 © Karen Murray BL 7|P a g e  ‘…the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offeror: and the contract is made at the place where the acceptance is received…’ (at 51) Given that email is an instantaneous communication, acceptance takes place at the time of receiving the email (unless agreed otherwise). It was held in Brinkibon v Stahag Stahl und Stahl 24 that the actual time of receipt would depend on the intention of the parties and sound business practice. 25 ‘Since 1955 the use of Telex communication has been greatly expanded, and there are many variants on it. The senders and recipients may not be the principals to the contemplated contract. They may be servants or agents with limited authority. The message may not reach, or be intended to reach, the designated recipient immediately: messages may be sent out of office hours, or at night, with the intention, or on the assumption that they will be read at a later time. There may be some error or default at the recipient’s end which prevents receipt at the time contemplated and believed in by the sender. The message may have been sent and/or received through machines operated by third persons. And many other variants may occur. No universal rule can cover all such cases; they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie’. Interestingly, a Canadian court held that a thumbs up emoji constituted valid acceptance of an offer in South West Terminal Ltd v Achter 26 which concerned the purchase of flax. The byer SWT Ltd texted an image of the signed contract to the seller with a message ‘please confirm flax contract’. The defendant responded with a thumbs up. The court noted the definition of the thumbs-up emoji in Dictionary.com, which states: “It is used to express assent, approval or encouragement in digital communications, especially in western cultures... In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item — a meeting of the minds — just like they had done on numerous other occasions.” Watch this space! Topic 3 Consideration Consideration is required for all contracts, except those made by deed (this is a very formal legal document) and there are seven rules concerning consideration. A person cannot sue on a contract unless he/she gave or promised to give some advantage to the party he/she wishes to sue, in exchange for what that party promised in return. The courts will never enforce a bare promise and it will be a complete defence in a court action, if a 24 2 AC 34 25 See also the Electronic Commerce Act 2000 (topic 5) 26 https://www.legalcheek.com/2023/07/thumbs-up-emoji-valid-acceptance-of-contract-says- canadian-court/amp/ (accessed 10/8/2023) © Karen Murray BL 8|P a g e party can show that no consideration was given. ‘The typical modern contract is the bargain struck by the exchange of promises. If A orders goods on credit from B, both A and B are bound from the moment of agreement, and, if one subsequently refuses to execute his part of it, the other may sue at once. The consideration for each party’s promise is the other party’s promise’. 27 The rules are as follows: (1) Consideration must be of some value, but it need not be adequate for example money, goods, property, services are all good consideration. The value may be nominal and so 50c in consideration of a promise worth €1 million is acceptable. The adequacy of the consideration is irrelevant. For example in Thomas v Thomas 28, a widows promise to pay £1 per year to occupy a house even though the market rent was substantially higher was deemed to be valuable consideration even though it was not adequate. (See also O’Keefe v Ryanair which will be discussed in class under Questions at the end of the topic). Undue influence, unconscionability or fraud are important to note here and would affect the consideration. (2) Past Consideration Past Consideration is not sufficient consideration. (This would be something done before a promise). For 29 example in Re McArdle a will was made by a mother which provided that her children would be entitled to the house on her death. During her life time, one of her sons and his wife lived in the house and made improvements. The other children agreed in writing to repay the sum of £488 which was the cost of the improvements. On their mother’s death however, they refused to pay the sum of money. Her son and his wife sued for breach of contract and the key question was whether there had been valuable consideration. It was held that at the time of the promise of £488 the improvements were past consideration, so the promise was not binding. There are some exceptions to the rule. When a request is made for a service, this request may imply a promise to pay for it. In Lampleigh v Braithwait 30, the defendant who killed a man, asked the plaintiff to obtain a pardon for him. The plaintiff went to considerable trouble to get the pardon and was then promised £100 for all the work he had done. The defendant then refused to pay the money and the plaintiff sued. It was held that a promise to pay was implied at the defendant’s initial request for help. The promise was binding, and the sum of £100 fixed the amount. (3) Consideration must not be illegal. The courts will not enforce an illegal contract such as a promise to pay a reward for a criminal act. (4) The performance of an existing obligation imposed by law cannot be consideration. In Collins v Godefroy 31, the defendant promised the plaintiff a sum of money if he acted as a witness at a trial. He was subsequently 27 Cheshire, Fifoot and Furmston, Law of Contract, (12 edn, Butterworths, 1991), p73. 28 2 QB 851 29 Ch 669 30 EWHC KB J17 31 1 V & Ad 950 © Karen Murray BL 9|P a g e sent a subpoena and had to attend. The defendant then refused to pay the money. It was held that the plaintiff was unsuccessful because he was already bound by the law to attend on subpoena. If however, some extra service is given, that will be sufficient consideration. In Glasbrook Bros -v- Glamorgan CC 1925 the owners of a mine, asked and promised to pay for a special police guard on the mine. Later they refused to pay arguing that the police had done their public duty which they are obliged to do anyway. It was held that the police had done more than their general duty. The extra services given were consideration for the promise to pay. See also Ward v Byham All ER 318 and Harris v Sheffield United FC QB 77 (5) A promise to do something which an existing contract already requires a person to do is no consideration. For example in Stilk v Myrick 32, the plaintiff was a member of an 11 man crew of a ship. During the voyage, 2 members deserted and the others were promised a share in the wages of the deserters if they would complete the voyage. On completion, the crew were refused the money. It was held that the plaintiff was already contractually bound to complete the voyage and to perform extra duties if called on to do so. They did not provide consideration for the promise of extra pay. This rule applies unless a party does something more than they are already contractually bound to do. 33 (6) Consideration must move from the promise. A person can only enforce a promise if they themselves have have provided the consideration. In Tweedle v Atkinson 34 the plaintiff provided no valuable consideration for his father-in-laws promise to pay him a sum of money on his marriage. The agreement was between the plaintiff’s father and father-in-law. There is a general rule in contract law which provides that only a person who is a party to a contract i.e. provided consideration, can sue on it. This is known as the 'privity of contract doctrine'. There are some exceptions under agency law and liability in Tort. (7) Consideration must be given to enforce the waiving of a contractual obligation – The rule in Pinnel’s case 35. ‘…payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction for the whole, because it appears to the Judges that by no possibility, a lesser sum can be a satisfaction to the plaintiff for a greater sum: but the gift of a horse, hawk, or robe, etc. in satisfaction is good... [as] more beneficial to the plaintiff than the money’. In Foakes v Beer 36 the defendant obtained a judgement against the plaintiff for £2,091 with interest. By a written agreement the plaintiff promised to pay back the money by instalments and the defendant promised not to institute any claim on the judgement. In breach of the agreement, the defendant claimed the interest. The key question was whether the defendant was entitled to the interest; the defendant claimed that the agreement was not binding and therefore he was entitled to claim for the interest. Is he? The answer is yes; the defendant 32 SC6 Esp 129 33 Hartley v Ponsonby 34 1 B. & S. 393 35 5 Co. Rep. 117a. 36 9 A.C. 605 © Karen Murray BL 10 | P a g e is entitled to the interest. No consideration had been given by the plaintiff to waive any part of the defendant’s rights against him. There are some exceptions to this rule such as where a creditor accepts payment of a lesser amount in full settlement before the due date, a creditor accepts something else other than money, part payment accepted from a 3rd party, and promissory estoppel. Under the doctrine of promissory estoppel, where a person makes a promise (with no consideration) to waive a debt or other obligation in the contract and where the promisee acts on this promise, the promisor will be estopped (or prevented) from retracting or withdrawing his promise. But if circumstances change which remove the reasons for the promise, the original rights of the promisor become enforceable again. This was stated in the case of Central London Property Trust v High Trees House. 37 In 1939 the plaintiffs let a block of flats to the defendants at an annual rent of £2,500 per year. Because it was wartime and difficult to lease the flats they reduced the rent to £1,250 in January 1940. After the war, when the flats were fully let the plaintiff’s looked for the full rent of £2,500, both retrospectively and for the future. They sued when they were not paid and it was held that the agreement of January 1940 was temporary only and stopped operating in early 1945. This meant that they were entitled to raise the rent from 1945 but were not entitled to claim it retrospectively. Topic 4 Intention to create legal relations A legally enforceable contract may not come into existence because the parties do not intend to create legal relations. An express statement by the parties of their intention not to make a binding contract will be conclusive. In Rose and Frank v Crompton & Bros 38 the agreement expressly stated that it was 'not subject to legal jurisdiction in the law courts'. The defendant terminated the agreement without giving the correct amount of notice but it was held that the general agreement was not legally binding therefore the notice provisions could not be enforced. Where there is no express statement the courts will presume that social, domestic and family arrangements are not intended to be binding. ‘… [S]ocial and family matters agreements do not give rise to legal relations because such a consequence is not the intention of the parties and in family matters, an intention to remain free of legal obligations will be readily implied whereas in business matters the opposite result would ordinarily follow’. 39 Commercial agreements are usually intended by the parties involved to be legally binding. Domestic arrangements 37 KB 130 38 UKHL 2 39 Budd J, Rogers v Smith, , Supreme Court, © Karen Murray BL 11 | P a g e If there is an agreement between a husband and wife, relatives or friends it is presumed that there is no intention to create legal relations. ‘To promise a friend that you will invite him to your birthday party is not to invite a law suit. If the friend is turned away at the door, she cannot sue you for her taxi fare’. 40 In Balfour v Balfour 41 the defendant promised to pay his wife the sum of £30 while he was stationed abroad. They later divorced and the plaintiff sued for the maintenance but it was held that the agreement was not enforceable as they had not intended to create legal relations. It is always possible to rebutt the presumption (by showing contrary evidence) as in Merritt v Merritt. 42 Here the plaintiffs were separated. They met up to make arrangements surrounding maintenance and the mortgage. The husband agreed to pay £40 per month maintenance, out of which his wife would pay the mortgage. They agreed that when the mortgage was paid off he would transfer the house into her sole name. He wrote this down and signed the paper, but later refused to transfer the house. The question arose as to whether the agreement was valid. Here however, it was held that the agreement was intended to be legally binding. At the time of the agreement, they were not living together, therefore they must have intended that the agreement be binding. This intention was evidenced by the written agreement. Topic 5 Formal Requirements of a contract A valid contract may be in writing or made orally. For example, in Pernod Ricard v FII Fyffes Plc 43, an oral agreement for the multi-million pound sale of shares was valid. It is worth noting however, that there can problems with oral agreements. For example, often people agree to share a lotto win but in the absence of a written agreement this can lead to disputes before the courts on winning a large sum of money. 44 Sometimes a contract must be in a particular format and if it is not it will be unenforceable. Some contracts must be in writing, made by deed or evidenced by a note or memorandum. 1. Contracts which must be in writing Bills of Exchange Contracts of marine insurance. Share transfers Contracts for the conveyance of any interest in the family home. 40 McDermott, Contract Law, (Butterworths, 2001). 41 2 KB 571 42 1 WLR 1211 43 [unrep. High Court 1988] 44 Horan v O’Reilly, McHale, Joyce, O’Brien & An Post National Lottery Company IESC 65 © Karen Murray BL 12 | P a g e Credit and hire purchase agreements under the Consumer Credit Act, 1995 Leases for more than one year Assignments of copyright under the Copyright and Related Rights Act, 2000 as amended. 2. Contracts which must be made by deed (or under seal) If there is no consideration (e.g. a gift), the contract must be made by deed: deed of covenants for tax purposes and the issuing of share certificates must be made by deed, trust deeds. A deed is a formal document, signed by both parties and impressed with a seal. 3. Contracts which must be evidenced in writing under the Statute of Frauds (Ire) Act, 1695 Sometimes a contract must be evidenced in writing and it will be unenforceable for lack of written documentary evidence such as contracts of guarantee, contracts not to be performed within one year, sale of land or any interest therein 45. All these contracts must be evidenced in writing unless the equitable doctrine applies. The note or memorandum may be one document or series of documents and they do not have to be drafted for the purposes of satisfying the Statute. They must include the signature (or mark e.g. rubber stamp) of the party against whom it is sought to enforce the contract (In Casey v Intercontinental Bank it was held that a letter typed by the solicitors secretary on headed notepaper was signed within the meaning of the Act); identification of all parties by name or otherwise; description of the subject matter; the consideration; any other essential terms. In Golden Ocean Group Ltd v Salgaocar Mining Industries 46 it was held that a chain of e-mail correspondence can give rise to a binding contract of guarantee. In this case, the parties held detailed negotiations about the terms of a contract and guarantee by exchanging emails which they believed would ultimately lead to a formal document. The High Court disagreed holding that that emails showed agreement on the important points and thus created a legally binding contract. The emails satisfied the Statute of Frauds in that the guarantee was in writing and signed. Equitable doctrine of Part-Performance The statute of frauds may cause hardship for a party to an verbal contract particularly in the case of a sale of land. Equity will treat performance of the contract as evidence of the contract. The plaintiff must show that at least part performance of the contract by him and his actions are sufficiently indicative of the existence of the contract to provide evidence it, there is adequate oral evidence of the terms of the contract and it would otherwise be unfair to the plaintiff. For example in Wakeham v Mackenzie 47 the plaintiff a widow of 67 was promised that if she would move from her council flat into the defendants house and look after him until his death he would leave her his house and contents at his death. While she lived with the defendant Wakeham 45 Restated in the Land and Conveyancing Law Reform Act 2009 46 EWHC 56 47 2 ALL ER 783 © Karen Murray BL 13 | P a g e paid for her board and fuel. When Mackenzie died however, he did not leave her the house. Do you think the plaintiffs conduct was sufficient part performance of the contract? In many negotiations such as negotiations over property, it is usual for the parties on both sides to put ‘subject to contract’ or ‘contract denied’ on every letter or email. Use of these terms means that the existence of contract is denied, in other words there is no contract until the parties have agreed on the terms. In Thompson -v- R 48 it was held that where the parties use terms such as 'subject to contract' in the course of negotiations, no contract comes into existence until a formal contract is executed 49. Similarly stated in Mulhall v Haren 50 it was stated that ‘…no note or memorandum which contains any term or expression such as ‘subject to contract’ can be sufficient’ to satisfy the Statute of Frauds. However, equity may intervene where one party acts to their detriment. For example in Prunty v Crowley [IEHC 293, a vendor selling land entered into an agreement with a developer and he later began specific performance proceedings against them. He subsequently entered into an agreement with another party (the developers former business partner) whereby they agreed that if he abandoned the legal proceedings against another property developer, they would pay any money due to him. Correspondence stated ‘subject to contract’. The vendor discontinued the legal proceedings but the former business partner failed to pay any money due. O’Malley J. held that while the letter stated ‘subject to contract’, the letter was an inducement to the plaintiff to surrender his claim against the developer and he acted to his detriment in abandoning his action. Electronic Contracts Electronic Commerce Act, 2000 The Act relates to the creation of contracts made electronically and codifies elements of the existing common 51 law of contract and implements much of the EU Directive on Electronic Signatures 1999/93/EC. The Act provides that provides that contracts may not be denied legal effect simply because they are in electronic form. 52 E-signatures cannot be used on wills, enduring powers of attorney, many documents in relation to real property (creation, registration of an interest for example), affidavits. In these circumstances a written signature is still required. 48 49 Boyle v Lee 1 IR 155. 50 IR 364 51 Regulation (EU) no 910/2014 is also relevant in the context of electronic signatures. 52 s.19(1) © Karen Murray BL 14 | P a g e In the formation of a contract, the offer, acceptance (cancellation or revocation) may be communicated electronically (unless otherwise agreed between the parties). 53 This Act provides that the acceptance of an offer may be made by electronic means and normal contractual rules apply. The Act contains complex provisions setting out the time and place where an electronic communication may be deemed to have been dispatched and received. Key definitions to note are as follows: an ‘electronic signature’ is defined as data in electronic form which authenticates the originator (e.g. a scan of a signature or a typed signature). Contracts were deemed to be signed by the electronically printed signature of the sender in an email in Golden Ocean Group Ltd v Salagacar Mining Industries. An ‘advanced electronic signature’ is a signature which is uniquely linked to the signatory, identifies the signatory and any change to the data can be detected, thus there are additional protections against fraud. 54 A qualified electronic signature is similar to an advanced signature but it has additional security. These types of signatures are issued by a qualified trust service provider authorized by EU member states and are created by a 55 qualified e-signature creation device and based on a qualified certificate for e-signatures. Where contracts are to be made under seal for example, an advanced electronic signature must be used. The question of whether a senders address in the header could constitute a signature was addressed in J Pereira Fernandes SA v Mehta 56 the defendant was a Director of a company that owed the plaintiff a sum of money. The plaintiff brought a petition to wind up the company; in response an e-mail was sent to the plaintiff which purported to promise that in return for a stay in the proceedings the defendant would personally guarantee the debt. The e-mail was not signed by the defendant but was ‘…described in the header as having come from [email protected]’. This is something that is inserted automatically and is not inserted by the sender. Section 4 of the Statute of Frauds provides that 'no action shall be brought... Unless the agreement…[is] in writing and signed by the party to be charged therewith…’. Therefore it was important to know if this e-mail address amounted to a signed document. It was held that the email address is the ‘equivalent of a fax or telex number’ and did not amount to a signature. The court further held that ‘I have no doubt that if a party creates and sends an electronically created document then he will be treated as having signed it to the same extent that he would in law be treated as having signed a hard copy of the same document. The fact that the document is created electronically as opposed to as a hard copy can make no difference…. if a party or a party's agent sending an e- mail types his or her or his or her principal's name to the extent required or permitted by existing case law in the body of an e-mail, then in my view that would be a sufficient signature for the purposes of s 4’. Other provisions 53 s19(2). 54 S.2. 55 s19(2). 56 2 All ER 891 © Karen Murray BL 15 | P a g e Consumer transactions may be made electronically and will be protected by consumer legislation 57. The courts may not deny the admissibility into evidence of documents, information, communications and contracts simply because they are in electronic form 58. If information is required to be kept in its original form, it may be kept in electronic form (providing its integrity and accessibility is assured). 59 If information is required to be retained or produced, by law or contract, then this may be done in electronic form. 60 The Law of Defamation applies to the Internet. 61 Topic 6 Capacity to Contract The enforceability of a contract also depends also on the status of the person making it and both parties must have capacity to contract. The rules relating to capacity relate to the following categories of persons: minors, mentally incapacitated persons and drunkards. A minor is defined in the Age of Majority Act as a person under 18 years. Contracts entered into by a minor may be valid, void or voidable. The law relating to capacity seeks to balance between a minor who may enter into an unwise contract and the other party who forms the agreement in good faith with no intention of taking advantage of the minor’s inexperience. A minor can enter into a valid contract for necessaries and they will be bound to pay a reasonable price. 'Necessaries' are defined as goods suitable to the condition in life of the minor and to his actual requirements at the time of delivery. 62 In other words there is a double test of suitability and need. In Chapple v Cooper 63 it was stated that necessary goods were ‘things … without which an individual cannot reasonably exist. In the first place, food, raiment, lodging and the like. About these there is no doubt. Again as the proper cultivation of the mind is as expedient as the support of the body, instruction in art or trade, or intellectual, moral and religious information may be a necessary also’. The onus is on the seller to prove that the goods were necessaries not luxuries. In Nash v Inman 64 the Plaintiff, a tailor sued the defendant, a Cambridge undergraduate for the price of 11 fancy waistcoats when he refused to pay for them. Do you think he was successful? Is this contract binding on the minor? It was stated by Buckley LJ that ‘an infant may contract for the supply at a reasonable price of articles reasonably necessary for his station in life if he has not already had a sufficient supply. To render an infant’s contract for necessaries an enforceable contract two conditions 57 Section 15. 58 Section 23. 59 Section 27. 60 Section 18. 61 Section 23. 62 Section 2 of the Sale of Goods Act 1893. 63 13 M&W 252 64 2 KB 1 © Karen Murray BL 16 | P a g e 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’. Similarly in Ryder v Wombwell 65 cufflinks encrusted with jewels were not necessary goods. Contracts of employment or apprenticeship are also binding on a minor if they are for his benefit. 66 Contracts for education, medical advice or legal advice are all binding on the minor because they are for the minors benefit In DeFrancesco v Barnum 67 a child entered into an apprenticeship for stage dancing with the plaintiff but the contract was so harsh that she was deprived of all freedom. It also limited her right to marry. Do you think the contract was binding? In Doyle v White City Stadium 68, the plaintiff, a minor, obtained a licence to box from the British Boxing Board of Control. The licence provided that should he be disqualified for a foul blow (as happened) and he was refused the prize money. Doyle argued that the contract was not for his benefit and therefore it was not binding on him. Do you think the contract was binding and why? In Proform Management v Proactive Sports 69 - when Rooney was just 15 years of age he entered into a two year representation contract with the plaintiff Proform. At the time he was contracted with Everton FC (who provided him with training and education and playing time). Six months before the expiry of the contract with Proform, Rooney entered into a representational contract with Proactive. Because Rooney took no benefit from the original contract. He was not provided with any training or education and nothing to enable him to begin a career), he was not bound by the contract. Voidable contracts are contracts which are valid and binding on the minor unless and until they repudiate them while they are a minor or a reasonable time thereafter. In voidable contracts the minor usually derives an interest of some sort and generally the contracts requires the minor to undertake continuous obligations. There are 4 types of voidable contracts. Leases : while the minor is in possession they are subject to all the terms of the lease agreement. Contract for shares: the minor is bound to discharge all obligations attached to the shares until they repudiate the transaction. Partnerships agreements: the minor partner not liable for partnership debts while they are a minor but they are not entitled to any share of partnership funds until all partnership debts have been paid. Contract of Insurance : The minor must pay the premiums. The effect of Repudiation is to relieve the minor of any contractual obligations arising after the repudiation. 65 LR 4 Ex 32 66 Note : The Protection of Young Persons in Employment Acts, 1996 applies to young persons in employment 67 45 CH D 430 68 1 KB 110 69 1 All ER. 542 © Karen Murray BL 17 | P a g e Void Contracts Under the Infants Relief Act 1874 contracts for loans to minors are void and a minor cannot ratify them after reaching the age of 18. Contracts for goods to minor (other than necessaries and as distinct from services) are also void. Contracts made by a mentally incapacitated person or drunk person The contract is binding unless they can show that they were unable to understand the nature of the contract and the other party knew/ ought to have known of their incapacity. If a person later ratifies (agrees) the contract when they become sober or mentally, the contract will be valid. They are liable to pay a reasonable price for necessaries. Topic 7 Terms of the Contract The terms are the obligations and rights of the parties under the contract and the parties can include whatever terms they choose. This is known as ‘freedom of contract’. The terms in the contract are important and any change may amount to a breach of contract. The importance of agreeing terms was illustrated in the case of Horan v O’Reilly, McHale, Joyce, O’Brien & An Post National Lottery Company. 70 In January 2001 the winning lotto ticket (£1.5m) was purchased in Castlebar on behalf of a syndicate for £6. The plaintiff, Horan, argued that he was entitled to a share as he was part of the syndicate. The other members disagreed and argued that they had no written agreement. In 1999 all five parties formed a syndicate; each party was to pay £3 (to cover two draws) to O’Brien who would then buy the ticket. It was O’Brien’s responsibility to collect the weekly contributions and they agreed that winnings would be shared equally. O’Brien permitted Horan to fall into arrears by carrying the arrears himself and later payments to catch up were accepted. Horan paid arrears up to October 2000. The Supreme Court held that ‘The only real question in this case is whether the parties agreed to vary their original agreement to the extent that Mr Horan would remain in the syndicate and entitled to proportionate share in any winnings even though in arrear in payment for an indefinite period and that Mr. O’Brien would continue to purchase tickets on his behalf in the absence of some notice of termination.’ It was held that O’Brien had no right to vary the original contractual terms. Any variation has to be agreed by all parties. Only £6 was invested in the ticket in January 2001 not £7.5, therefore Horan was not entitled to a share. This case illustrates the consequences of not having a written agreement! It is important to note that contractual terms must be distinguished from representations and conditions must be distinguished from warranties. In a contract there may be express terms (such as the price of the product) and/or implied terms (the goods must be of merchantable quality). 70 IESC 65 © Karen Murray BL 18 | P a g e Representations v Terms Representations are things that are said during negotiations and they do not form part of a contract. If the representations turn out to be false, the innocent party may sue for ‘misrepresentation’ whereas if a term is broken the innocent party may sue for breach of contract. It can be difficult to determine whether the statement was a term or representation and so the courts will look at a number of issues in order to determine its status. A court will look at: the time the statement is made, whether the statement is in writing and whether the person making the statement has any particular skill or knowledge. But the innocent buyer will always have a remedy. In Bannerman v White, a buyer emphasised that he wanted to purchase hops that had not been treated with sulphur during negotiations. The seller explicitly stated that no sulphur had been used (but in fact some had). When the buyer refused to pay the price agreed, the seller argued unsuccessfully that the conversation was merely preliminary to the contract. It was held that the statement as to the absence of sulphur was intended to be a term of the contract. Express Terms Express terms are words used by the parties (either written or spoken). In a contract of employment for example an express term might be the duties of the employee, notice period, restraint of trade clause, salary etc. Where a contract is in writing, the ‘Parol Evidence’ rule provides that parties cannot adduce evidence (particularly, oral evidence) ‘to add to, vary or contradict that writing’ 71. There are some exceptions to the rule including inter alia where there was a mistake in writing an oral agreement; where a contract was partly written and partly oral; collateral contract (where the courts will accept that 2 contracts exist). Implied Terms The parties may not put all the terms in writing and terms might be implied into the agreement from the circumstances. Express terms are those that are stated in the contract while others may be implied into the contract through legislation or to give effect to the presumed intention of the parties (in that instance, the terms are taken for granted and not expressly stated). The officious or reasonable bystander test can be used for implying terms in order to give business efficacy to the agreement as must have been intended. ‘[S]omething so obvious that it goes without saying that if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement they would testily suppress him with a cry of 'oh, of course’. 72 Conditions v Warranties 71 Henderson v Arthur 1 KB 10 72 Shirlaw v Southern Foundaries Ltd 2 KB 206 © Karen Murray BL 19 | P a g e Not all terms carry equal weight and some terms are more important than others. A condition is a vital term and if it is breached the party not in breach (the injured party) can rescind (cancel) the contract and claim damages. They may in the alternative choose to affirm the contract (and also have the right to claim damages). A warranty on the other hand is a ‘term subsidiary to the main purpose of the contract’. If a warranty is breached, the injured party is entitled to damages only. They are not entitled to rescind the contract. The failure to sing on the opening night was a breach of a condition in Poussard v Spiers 73 which entitled the producer to rescind the contract and claim compensation whereas the failure to attend rehearsals was a breach of a warranty in Bettini v Gye. 74 Conditions precedent: The contract will not take effect until the condition is fulfilled. In Pym v Cambell 75, the parties entered into an agreement for the sale and purchase of part of the proceeds of an invention on the express verbal understanding that no contract would come into effect until a 3rd party had approved it. Conditions subsequent: the condition must be complied with after the contract starts e.g. An insurance contract might state that the for the house insurance to take effect, you must have a monitored alarm. Exemption Clauses An exemption clause is a term in a contract where one or both parties attempt to limit (in the case of a limitation of liability clause) or exclude (exclusion clause) their liabilities under the contract if the contract is broken. For example a term might state ‘no litigation may be instituted for goods damaged in delivery unless notified to us within 5 days’ or ‘Management does not accept responsibility for loss or damage to property of customers’. There are two important issues: 1. Was the exemption clause incorporated into the contract? and 2. Is the clause properly constructed to cover the events that have occurred? Incorporation of the term An exemption clause may become a term of the contract by signature or by notice. If a person signs a contract, he is bound by the terms even if he does not read them. For example, in L'Estrange v Graucob 76, the plaintiff purchased a machine and signed a contract (for the purchase of a cigarette vending machine) which contained a term that excluded her rights under the Sale of Goods Act 1893. It was held that ‘[w]hen a document containing contractual terms is signed, then, in the absence of fraud, or …misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.’ It is immaterial whether the 73 1 QBD 410 74 1 QBD 183 75 6 E & B 370 76 2 KB 394 © Karen Murray BL 20 | P a g e person can read or understand what he is signing. In Barclay’s Bank v Schwartz 77 a Romanian man who could not speak English was bound by his signed contract. A click on a website may constitute acceptance of a term. If a customer is mislead into signing an exemption clause it may not apply. In Curtis v The Chemical Cleaning Company 78 the plaintiff brought her wedding dress into the defendant cleaners for dry cleaning. She was given a form to sign which excluded the cleaners liability for all damage. When she queried the term, she was informed that it only applied to damage to the beads and sequins only. It happened that during the cleaning process her dress was stained but when she complained she was told that defendants were not liable because she had signed the contract which stated that this was the case. The court disagreed holding that it had mislead the plaintiff as the extent of their liability. Incorporation by notice Where there is no written contract and therefore no signature, a term may still be binding on a consumer where notice has been given. The exemption clause will only apply if the party adversely affected by the clause (1) knows of the clause or (2) if reasonable steps are taken to bring it to his notice before the contract is made. This may be done through the use of a disclaimer notice but it must be reasonably brought to the party’s attention before the contract is entered into so as to give them an opportunity to refrain from entering into the contract. In Olley v Malborough Court 79, the plaintiff’s booked a room in the defendant hotel. When they reached their room they read a notice on the wall which stated that the hotel disclaimed liability for anything lost or stolen. The plaintiff’s furs were later stolen from her room. Do you think the plaintiffs were bound by the notice in this case and why? In Thornton v Shoe Lane Parking 80 the plaintiff parked his car in a multi-story car park and received a ticket from the machine (which stated that it was issued subject to the conditions displayed on the premises). At that point the plaintiff had no option but to continue to drive into the premises. When the plaintiff returned to collect his car he was injured due to the negligence of the defendants. They sought to rely on the exclusion clause which exempted them from liability. But it was held that the car park had taken insufficient steps to bring this to the attention of the plaintiff before he entered into the contract and therefore the plaintiff was not bound by them. In Carroll v An Post National Lottery Company Ltd 81 the plaintiff purchased a ticket which was not entered into the draw in a post office. The plaintiff claimed to be entitled to a share of the lotto but was denied by the High Court which held that the plaintiff was bound by terms contained on the back of the playslip which read: ‘Players acknowledge the Lotto agents are acting on their behalf in entering playslips into the National Lottery computer system. The National Lottery holds no responsibility for tickets cancelled in error or where the apparent numbers on a ticket disagree with numbers on file oat the central computer for that ticket….By playing the game, 77 Times 2/Aug/1995 78 1 KB 805 79 1 All ER 127 80 2 QB 163 81 IEHC 50; 1 IR 443 © Karen Murray BL 21 | P a g e a player agrees to abide by the National Lottery rules and regulations’. The plaintiff did not examine the tickets he received from the Lotto agent's representative to ensure that they corresponded with the playslips as he was required to do by the rules. The Court would not imply a term that the Lotto agent's representative would use reasonable skill and care in entering the plaintiff's playslips into the Lotto draw as this would be contrary to the express terms and intention of the defendant. The plaintiff was bound by the exemption clause because it was justified to protect the defendant from fraudulent claims and it was not exceptionally onerous or unusual or of such a nature as to require that the defendant gave special notice of them to purchasers of Lotto tickets. Onerous or unusual terms Where the exemption clause is particularly onerous or unusual the clause should be reasonably brought to the attention of the other party. In Interfoto Picture Library v Stiletto Visual Programmes 82, the plaintiffs sent transparencies to the defendants. The delivery note (the contract) stipulated that if the transparencies were not returned within 14 days, Stiletto would have to pay £5 per transparency per day. The defendants delayed for 3 weeks and were sent a bill for £3,783. They refused to pay. It was held that the plaintiffs could not recover the money even though the clause was properly incorporated into the contract. The clause which was ‘unusual’ should have been ‘fairly brought to the attention of the other party’. The court awarded damages of £3.50 per transparency per week. This is sometimes referred to as the ‘red hand’ test. Fundamental breach of contract Photo Production v Securicor Transport 83 provides that an exemption clause may apply to a fundamental breach particularly in commercial contracts where the parties have equal bargaining power. It depends on the construction of each contract. In commercial contracts, the parties are able to divide the risks as they so choose. Contra Proferentem rule: if there are doubts about the meaning and scope of the exemption clause, the benefit of the doubt is given to the weaker party. This has been given statutory effect in the Directive 93/13/EEC and Consumer Rights Act 2022 and provides that a contract term will be unfair if (a) the term has not been individually negotiated and (b) contrary to the requirements of good faith it causes a significant imbalance in the parties rights and obligations to the detriment of the consumer. See Consumer protection and the Consumer Rights Act 2022 will be examined later. Restraint of trade clauses Sometimes a contract might contain an express term restricting the right of a person to trade or carry out a business or profession. In determining whether these types of terms are valid, the law seeks to balance between the rights of an employer or business to protect its legitimate interests, and the right of the person contracted 82 1 All ER 348 83 WLR 283 © Karen Murray BL 22 | P a g e to earn a living and society’s interest in free competition. 84 In John Orr Ltd v John Orr 85 it was held that ‘All restraints of trade in the absence of special justifying circumstances are contrary to public policy and are therefore void. A restraint may be justified if it is reasonable in the interests of the contracting parties and in the interests of the public. The onus of showing that a restraint is reasonable between the parties rests on the person alleging that it is so. Greater freedom of contract is allowable in a covenant entered into between the buyer and seller of a business that in the case of one entered into between an employer and employee. A covenant against competition entered into between by the seller of a business which is reasonably necessary to protect the business sold is valid and enforceable. A covenant by an employee not to compete may also be valid and enforceable if it is reasonably necessary to protect some proprietary interest of the covenantee such as may exist in a trade connection or trade secrets. The courts may in certain circumstances enforce a covenant in restraint of trade even though take as a whole the covenant exceeds what is reasonable by the severance of the void parts from the valid parts’. A restrictive covenant or restraint of trade clause can be found as an express term in a contract of employment; this may seek to protect the employers’ interest’s pre and post termination. Terms should always be inserted to protect confidential information and trade secrets, and this type of clause operates to restrict an employee from working after they leave their employment. These are generally known as non-compete clauses but it worth noting that the law will protect employees too by ensuring that when leaving employment ‘they retain the freedom to take up alternative employment and exercise their skill and knowledge in such new employment, even though much of that skill and knowledge may have been obtained while working for their former employe[r]’. 86 There are two types of restraints, restraints during employment (which will be implied by law under a duty of fidelity anyway and are usually valid); and post-employment restraints (which are generally contrary to public policy and are invalid). Restraint of trade clauses or restrictive covenants post termination are generally void as they are contrary to public policy unless the employer can show a legitimate and reasonable proprietary interest such as a trade secret or confidential information or where the employee would otherwise take advantage of his employer’s trade connection. The enforceability of restraint of trade clauses was examined in a series of cases including in Murgitroyd & Co. Ltd. v Purdy. 87 The plaintiff was a firm of patent agents and the defendant was a patent agent and a former employee of the plaintiffs. He had agreed that for a period of one year he would not compete in Ireland with the plaintiff’s business. When the defendant’s contract was terminated the plaintiff’s sought to rely on the restraint of trade clause in his contract of employment. The court considered that the appropriate test was whether in all the circumstances the restriction and its extent were reasonable to protect the employer’s goodwill and in making this determination, it was important to consider the duration of the restriction and its geographical scope. Clarke J. was ‘….satisfied that there are only 10…patent attorneys operating in Ireland and 84 Competition Acts 1991-2010 85 ILRM 702 86 Koger Inc v O’Donnell et al, IESC 28. 87 3IR12 © Karen Murray BL 23 | P a g e that they all operate from Dublin….[I]t does not seem to me that a geographical restriction based upon the jurisdiction of the Irish state is unreasonable having regard to the way in which the business operates in Ireland’. The court acknowledged the specialised nature of the business of being a patent agent and that restraint period of 12 months was not unreasonable. But ‘a prohibition on dealing with (in addition to soliciting of) customers of the plaintiff would, in my view, have been reasonable and sufficient to meet any legitimate requirements of the plaintiff. The wider prohibition which restricts dealing with those who might be, but are not, such customers is excessive….’. The plaintiffs sought to prevent the defendant from competing for any business and this was held to be too wide. This case was relied upon in Net Affinity v Conaghan 88 where an employer sought an injunction restraining a former employee taking up a position with a competitor and from restraining her from approaching, soliciting or dealing with existing customers for a period of twelve months. Dunne J. did not to stop her from taking up her new appointment as she found the non-compete clause to be void and unenforceable (there was no geographical limit and was therefore too wide) but granted an injunction restraining her from approaching, soliciting or dealing with any existing customers for a period of 12 months (on the basis that the contracts between Net Affinity and its customers were on an annual basis). This was also ordered against her new employers. In Levinwick v Hollingsworth 89 the issue was considered when a pharmacy owner sought to force the defendant, a pharmacy manger, to comply with his contract of employment which prevented him from engaging in similar work in another pharmacy for a period of 24 months and within a 2 mile radius of his employer’s business. The High Court considered again that the nature and extent of the restriction had to be reasonable to protect the employer’s goodwill. Given that the role of the defendant as a manager was largely administrative with limited personal contact with customers the plaintiff’s application failed. The cases illustrate that whether a clause is binding or not can vary depending on the nature of the business of the employer, and that reasonable clauses should be inserted into contracts as otherwise they may not be enforceable. In Ryanair v Bellew 90 the High Court held that while the restraint of trade was necessary to protect Ryanair’s sensitive and confidential commercial and financial information and prevent its use by Bellew in a competing workplace, the wording is critical and it is essential that it is drafted to protect the legitimate interests of the employer and not to unfairly restrict competition. In this case the scope of the term was to wide and therefore unenforceable. Bellew’ contract provided that he was prevented from ‘being employed, engaged, concerned or interested in any capacity in any business wholly or partly in competition with the company for air passenger services in any market’ for one year following the termination of this contract of employment. This restraint had the effect of preventing Bellew from taking any position in any competing airline in any capacity. Had the restraint sought to prevent him from working in another low cost airline in direct competition where he might have used his knowledge, it may well have been upheld. 88 IEHC 160 89 IEHC 333 90 IEHC 907 © Karen Murray BL 24 | P a g e In summary, the restraint must be reasonable (a restraint with worldwide effect would be unreasonable) and the duration must be no longer than necessary to protect the employer’s legitimate interests. An employer’s remedy in this situation is to seek an injunction and /or damages. Importantly, an employer cannot enforce a restraint of trade clause where they have repudiated that contract e.g. where the employee was wrongfully dismissed. It is worth noting that customer information constitutes personal data within the meaning of data protection legislation. Data controllers (employers) should be aware that where they process data brought into their organisation from elsewhere without the consent of the individuals are in breach of data protection laws. Topic 8 Misrepresentation Pre- contractual statements. Some statements may become a term of the contract and if untrue, the innocent party may sue for breach of contract (damages); or if the statement does not form part of the contract, the innocent party may sue for misrepresentation. In this case the remedy is rescission and misrepresentation will render a contract voidable. A misrepresentation is a statement of fact which is untrue, made by one party to the other before the contract is made. The purpose of the misrepresentation is to induce the latter into entering into the contract and the person must rely on the statement when entering. It follows that the inducement must relate to something of some importance. In Grafton Court v Wadson Sales Ltd 91 the defendants entered into an agreement with the plaintiffs to rent property in a shopping complex and argued it was on the basis that the other tenants would be of ‘high quality’. They later sought to avoid the contract arguing that there was a misrepresentation. It was held that there was no misrepresentation because at the time of the contract, the defendant knew the identity of the other tenants so the representation did not induce them to enter into the contract. A statement of fact is a representation, while a statement of law, intention opinion or sales talk may not be a representation. Sometimes the speaker’s knowledge may determine what category the statement belongs. In Bisset v Wilkinson 92 a seller of land (which both parties knew had not previously been grazed by sheep) stated that it would support about 2,000 sheep. This was untrue. Do you think this statement was a misrepresentation and why? Silence as misrepresentation 91 HC 3749 92 AC 177 © Karen Murray BL 25 | P a g e Generally, neither party is under any duty to disclose what they know, and if they keep silent, that is not a representation. However, there are exceptions! There is a duty to correct an earlier statement which was true when made but which may become untrue before the contract is completed. 93 In contracts of uberrimae fidei, there is a duty to disclose facts which one knows and non-disclosure can lead to the contract being voidable for misrepresentation. For example, contracts of insurance and contracts where there is a fiduciary relationship. For example where a person does not disclose a previous fire on a proposal form for fire insurance. 94 ‘[T]he reason for the rule which obliges one party to disclose is to prevent fraud and encourage good faith. It is adapted to such facts as vary the nature of the contract; which one privately knows and the other is ignorant of and has no reason to suspect’. 95 In Coleman v New Ireland 96 the plaintiff entered into an insurance contract with New Ireland but when she went to claim the sum of €95,000 when she was diagnosed with multiple sclerosis the insurer sought to avoid the policy on the basis that Coleman had not disclosed material facts. In particular a doctor had stated to her 8 years previously, that there was a possibility that an inflammation of her eye could cause her ‘trouble in the future but that this hopefully would not be the case’. She sued for breach of contract and the insurer argued her silence constituted a misrepresentation. The court did not agree and held that 8 years had elapsed and the advice was never taken seriously by Coleman. The contract could not be avoided by the defendants. Types of Misrepresentation. 1. Fraudulent - the statement is made with knowledge that it is untrue or reckless as to whether it is true or false. There is no honest belief. For example, a misrepresentation was made in Fenton v Schofield the vendor claimed that an average of 300 fish was caught yearly. At the time he made the statement, he knew it was incorrect. 2. Negligent misrepresentations – the statement is made in the belief that it is true but without reasonable grounds for that belief. The misrepresentation is a breach of duty of care which arises out of special relationship between the parties. In Walsh v Jones Lang Lasalle 97 a purchaser of property relied upon a brochure which incorrectly overstated the size of property (it was in fact 2,000 sqft less than the brochure price). The auctioneers were liable to the purchaser even though there was no direct relationship between them. The usual remedy in these types of cases is an action in tort for negligent misstatement. Where a person relies upon the skill and judgement of bank when writing a reference in respect of a customer for example, as in Hedley Byrne v Heller 98, they may be sued for negligent misstatement. 99 93 With v O’Flanaghan 94 Chariot Inns v Assicurazioni Generali SPA 95 Carter v Boehm 3 Burr 1905 96 IEHC 273 97 IEHC 28 98 AC 465 99 The Bank was not liable in this case because the reference contained a disclaimer. © Karen Murray BL 26 | P a g e  3. Innocent misrepresentations – the statement is made in the belief that it is true and with reasonable grounds for that belief. Remedies 1. Rescission (this is an equitable remedy) and entitles the innocent party (i.e. the party not at fault) to be released from his obligations under the contract and the parties return to the position they were in before they entered into the contract. The innocent party must make it clear that they refuse to be bound by its provisions. Recission is not available where the plaintiff delays or where an innocent third party has acquired rights. In other words, the innocent party must rescind the contract before a bona fide purchaser becomes involved and acquires the subject matter of the contract. Alternatively, the innocent person may affirm (confirm) the contract. 2. Damages (common law remedy) is available to the innocent party. In Fenton v Schofield 100 the buyer recovered damages for the loss of bargain. The compensation was the difference between what the land was worth and what the land was represented to be worth. Topic 9 Mistake Mistake may render the entire contract void but the mistake must be fundamental i.e. it must destroy the entire basis of the contract. A mistake may render the entire contract void. A buyer might make a mistake in buying coat that is available in another shop at a cheaper price, but this will not render the contract void. There are 4 types of fundamental mistakes but a mistake of law will never render a contract void. 1. Mistake as to the existence of the subject matter (res extincta). In Courturier v Hastie 101, the plaintiff and defendant entered into a contract for the sale of corn. Unknown to both parties, prior to the sale, the corn had already been sold. The defendants argued successfully that they should not have to pay on the basis that the goods did not exist at the time of sale. In Galloway v Galloway 102, a man and woman entered into a separation agreement (as husband and wife). Neither of them knew that, at the time of their marriage ceremony, Mr. Galloway’s first wife was still alive. In this case the contract was void for mistake because the contract related to a marriage that did not exist. 2. Mistake as to the identity of the subject matter. 100 100 ILTR 101 8 Exch 40 102 30 TLR 531 © Karen Murray BL 27 | P a g e In Raffles v Wichelhaus 103 the buyer agreed to purchase a cargo of cotton ‘ex Peerless from Bombay’ from the seller. There were, however, 2 ships with the same name leaving Bombay, one in October and the other in December. The parties were at cross purposes and therefore the contract was void. Mistake as to quality (as opposed to the identity of the subject matter) will never render a contract void. In Smith v Hughes 104 oats were bought by sample. The buyer believed that they were old oats but the seller (who was unaware of the buyers belief) was in fact selling new oats which were less valuable. On discovering that they were new oats the buyer refused to complete the sale and argued unsuccessfully that the contract was void for mistake. The contract was not void for mistake because there had been a mistake as to the quality of the oats (i.e. whether they were old or new). 3. Unilateral Mistake: This arises where one party makes a mistake and the other party is aware of this and takes advantage. The contract however, will not be void for mistake in a situation where the parties deal face to face. In Lewis v Avery 105 the plaintiff, a car sales man foolishly sold a car to a man and accepted a cheque which later bounced. He accepted the cheque on the basis that the man said he was a Richard Gere, a famous actor, and he was shooting a film nearby. In fact, he was not the actor and sold the car onto an innocent person who bought the car in good faith, Avery. The plaintiff argued that the contract between himself and the dishonest person was void for mistake but a mistake cannot be made where the parties deal face to face. 4. Mistakes over documents (non est factum) A blind or illiterate person who signs a document which they cannot read is protected by this rule. In Foster v Mackinnon 106 an elderly man with very poor eye sight was asked to sign a guarantee as he had done several times before. The document put before him was actually a bill of exchange which he signed as acceptor. It was held that because the document was so different from what it was believed to be that he could avoid the transaction. There must be a fraud to rely on this type of mistake and the party signing the document must show that they acted with reasonable care. Topic 10 Duress and Undue Influence The courts are reluctant to set aside contracts on the grounds that one party is in a stronger bargaining position (note: capacity). But some protection is given where the consent of one party has been obtained under an improper pressure. The common law remedy is duress while equity will provide a remedy in the case of undue influence. 103 2 H & C 906, 104 LR 6 QB 597 105 1 QB 198 106 LR4 CP 704 © Karen Murray BL 28 | P a g e Duress A contract is voidable if made under duress. As Keenan notes duress is the ‘actual or threatened violence to, or the false imprisonment of, the contracting party, their spouse or partner, parents or children’. Griffith v 107 Griffith provides an interesting example of duress. In 1925, Mr Griffith (19 years) went camping with friends on Howth Head where he met the respondent who was 17 years old at the time. Some months later, she and her mother informed him that she was pregnant. Threats were made that he would be prosecuted and that both he and his father would lose their jobs unless he married her. They got married and shortly afterwards she confessed that he was not the father of her child. The marriage was ecclesiastically annulled in 1935 and he successfully obtained a civil nullity in this case. It was held that ‘the consent to marry was given because of a real and grave fear inspired by an unjust and fraudulent misrepresentation of a...vital matter... I feel bound to hold that a consent so obtained by this combination of fraud and fear [is]... no real consent in law (and, therefore)... no valid marriage’ (or contract). Economic duress An illegitimate threat to break a contract may amount to duress where the innocent party has no real alternative. In North Ocean Shipping v Hyundai 108 there was a contract between the plaintiffs and defendants to build a ship. Owing to a devaluation in the dollar, the sellers demanded a 10% price increase. The buyers agreed under duress. The contract was voidable. Undue Influence The Courts of Equity regarded the common law doctrine of duress as far too narrow and so the law of undue influence provides protection. This has been defined as ‘some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage obtained by the guilty party.’ 109 The contract is also voidable for undue influence. A presumption of undue influence will arise where there is a special relationship between the parties such as in contracts between a parent and child, a trustee and beneficiary, a doctor and client, a religious adviser and disciple. In these cases the onus is on the dominant party to show that the other party entered into the contract freely. The best way of doing this is by showing that the weaker person received independent legal advice. Unconscionable bargain A contract may be set aside where one party takes unfair advantage of another or victimizes the weaker party and the contract is not to their benefit. This mainly arises where a person is weak, mentally deficient, and it concerns an agreement which no reasonable person would have agreed to. In such cases, the onus is on the 107 IR 35 108 QB 705 109 Allcard -v- Skinner 36 CH D 145 © Karen Murray BL 29 | P a g e defendant to show that the contract is fair. In Grealish v Murphy 110 a wealthy, elderly but mentally incompetent farmer sold his property to a ‘friend’ at a substantially reduced price. The transaction was set aside. Topic 11 Discharge of Contract A contract may be brought to an end in in four ways. 1. By performance. Once the contract is fully performed, contractual liability comes to an end. It follows that the performance must be exact and complete. In Bolton v Mahedeva 111 a central heating system was installed which did not work correctly. The contract was not fully performed and therefore the builder was not entitled to payment. Where the breach is minor, equity requires that payment must be made subject to repayment for the unperformed portion. Where a contract is divided into parts, in the case of partial performance, payment must be made on completion of each part. Payment may be claimed on a quantum meruit basis where completion is prevented by the other party. 2. Discharge by agreement A contract may come to an end where there is an express term allowing the contract to be discharged by agreement. For example, iIn the case of an employment contract, the presence of a notice term will discharge the contract by agreement. If the contract is not performed the parties themselves may agree to cancel the contract. It is important to point out that this in itself will be a new contract and will require new consideration such as the waiving of rights and obligations (there may be a cancellation fee or penalty of some sort included for example). If both parties do not agree to bring the contract to an end, then one party will almost certainly be in breach. The parties could agree to substitute the old contract with a new contract. If that happens the new contract must comply with all the usual formalities. This is called ‘novation’. 3. Discharge by Frustration A contract is discharged when it becomes impossible to perform because an intervening event occurs which is neither parties fault. An event occurs which significantly changes the very nature of the rights and or obligations as set out in the contract. There must be a fundamental change which would cause the court to say ‘This was not the bargain which these parties made and their bargain must be treated as at an end’. 112 The contract will not have any effect after the frustrating date. In Taylor v Cauldwell 113 the plaintiff hired a music hall but before 110 IR 35 111 2 All ER 1322 112 David Contractors v Fareham UDC 2 All ER 145 113 3 B&S 826 © Karen Murray BL 30 | P a g e the hiring date, the hall burnt down accidentally. The plaintiff sued for breach of contract but it was held that the contract had ended when the hall was burnt down (in other words the subject matter of the contract was destroyed). The defendant was not responsible for failing to provide the hall and the plaintiff was not responsible to provide the hire price. What constitutes a frustrating event? ‘The event must be an unexpected event. If one party anticipated or should have anticipated the possibility of the event which is alleged to cause the frustration and did not [incorporate] a clause into the contract to deal with it, they should not be permitted to rely on the happening of the event as causing frustration’ - McGuill v Aer Lingus & United Airlines. 114 Here the defendants claimed that a strike constituted a frustrating event. But it did not, as they were aware of the possibility of a strike. If the contract can still be performed, it is not frustrated. In Davis Contractors Ltd v Fareham UDC 115 the plaintiff agreed to build houses for £94,000 to be completed in 8 months. There were considerable shortages of materials and labour at the time and the houses took 22 months to complete and cost £115,000. The plaintiff argued that the contract was frustrated but was it? No, because the contract was still capable of being performed. It might be very costly but nonetheless the contract could still be performed. Non-occurrence of an event upon which the contract is dependent. A contract could be frustrated when the reason for the contract no longer exists but it is never the less capable of performance? In Krell v Henry 116 (one of a series of cases known as the coronation cases) the defendant paid to hire the plaintiff’s flat for the purpose of viewing the procession of Edward VII. This was the sole reason for the contract. When the procession was cancelled, the plaintiff sued for the hiring price. It was held that the purpose of the contact was to view the procession. Therefore the contract was frustrated. If a contract is frustrated, it is at an end and neither party is obliged to perform his obligations (from the date of the frustrating event). For example, in Krell v Henry, the defendant had paid a deposit of 25 up front and was obliged to pay a further 50 on the day of the procession. He did not have to pay the 50, but he was not entitled to the return of the 25. 4. Discharge by breach A contract will come to end where an essential term of the contract has been broken or breached. E.g. failure to comply with a condition as opposed to a warranty. You cannot rely on your own breach to bring the contract to an end. There are two types of breach. (a) Anticipatory breach: This arises where one party may be able to show before the performance of the contract that they do not intend to fulfil their obligations. The innocent party may sue for 114 IEHC 71 115 AC 696 116 2 KB 740 © Karen Murray BL 31 | P a g e  compensation. In Hochster v De La Tour 117, the defendant hired the plaintiff to act as a courier on the 2nd of April on a holiday which was to begin on the 1st of June. On the 11th of May the defendant informed the plaintiff that he was not taking the holiday and therefore he would not need the plaintiff’s services. The plaintiff sued for breach of contract. The defendant argued that he could change his mind at any time before the 1st of June. The court disagreed and held that the plaintiff could sue from the 2nd of April. (b) Repudiatory Breach (or actual breach): This arises where one party indicates that they do not intend to complete the contract. What is different here is that performance of the contract has started when someone breaches it. For example a repudiatory breach arose in Athlone Rural District Council v Campbell 118 when the defendant’s agreed to excavate a well for the plaintiff’s. Half -way through the work, the Council said it did not want the work finished. To recap if an essential term is breached, the contract will come to an end. But even if it is not an essential term, the innocent party will always have a cause of action but could still be bound by other provisions in the contract. Topic 12 Remedies for Breach of Contract Under the Statute of Limitations Act 1957, remedies for breach of contract are only available if the injured party sues within 6 years. An action seeking damages for personal injuries must be taken within 2 years. The remedies available to an injured party are described as follows: 1. Damages An action for damages is always available as of right when a contract is broken. The objective of damages is to compensate the victim for the loss, damage or injury they have suffered through the breach and to put them into the position they would have been in had the contract been performed. The purpose of compensation is not to punish the defendant but rather compensate the plaintiff. Where the plaintiff has not suffered any loss, a nominal award may be made. Even if it is difficult to assess the amount of damages, the courts will attempt to quantify losses. (Note: A person is always under a duty to mitigate or reduce his losses). Remoteness of Damage Plaintiff must show that the loss they have suffered was as a result of the breach but a defendant is not liable for all losses. Certain losses may be deemed to be too remote. In Hadley v Baxendale 119 the plaintiffs were mill owners who contracted with the defendant carriers to have a broken crankshaft delivered to a firm in Greenwich. The defendants were late returning the crankshaft which meant that the mill was closed for longer 117 2 E & B 678 118 47 ILTR 142 119 9 EX 341 © Karen Murray BL 32 | P a g e than it should have been. The plaintiffs sued, claiming damages for loss of profits during this extra period of time when the mill was not in use. It was held that the plaintiffs could not sue for the loss of profits during that late period because the damage was too remote. The court found that damages may only be recoverable if they arise naturally (in other words, during the ordinary or usual course of things) or in the case of special circumstances when they may ‘reasonably be supposed to be in the contemplation of both parties at the time they made the contract’. The loss must result from the breach. Damages may also be recoverable for substantial inconvenience or discomfort arising from a breach In Hobbs v London and South Western Railway Co 120 the plaintiff received damages for being transported to the wrong station and having to walk 3 miles home in the rain. He was awarded damages for the physical inconvenience of walking home in the rain. In Dinnegan and Dinnegan v Ryan 121 the plaintiffs were entitled to compensation when they and their guests, on their wedding day, were turned away from the reception and in Jarvis v Swan Tours the plaintiff, a holiday maker, was awarded compensation for ‘disappointment, the distress, the upset and the frustration caused by the breach’. The tour company had promised him a ‘good time’ on a skiing holiday. He was promised house parties, cakes and yodeling but unfortunately for the plaintiff the house parties were cancelled, he was provided with crisps instead of cakes and the yodeller’s performances were poor. On the first week he was one of a small number of guests and on the second week he was the only guest. Measure of Damages in the Sale of Goods Where the seller of goods fails to deliver goods as promised, the buyer is entitled to go into the market and buy identical goods at market price. Damages will be the amount by which the market price at the date of the breach exceeds the contract price. 2. Specific Performance Specific Performance is a decree issued by the Court ordering a contracting party to perform a promise he had made. The normal remedy for a breach of contract is damages but sometimes damages are inadequate and so specific performance may be required. The Order is supplementary to the common law remedy of damages and it is discretionary. All circumstances of case considered (such as undue influence) and the conduct of the parties will be taken into account – ‘He who comes to equity must come with clean hands’ and ‘delay defeats the equities’. In O’Brien v Kearney 122, the defendant agreed to purchase land at auction. It later transpired that the auctioneers map was not accurate and did not identify a right of way. The defendant refused to complete the sale. The plaintiff’s successfully sought an order of specific performance against the defendant. Circumstances where specific performance will not be ordered: 120 10 QBD 111 121 3 IR 178 122 2 ILRM 232 © Karen Murray BL 33 | P a g e Specific performance is unlikely to be ordered where one of the parties is a minor or where the contract is for personal services as it would require the courts to supervise. For example in Ryan v Mutual Tonine Westminster Association 123, Ryan leased a flat in the defendant’s apartment building. The lease stipulated that there would be a resident porter in constant attendance. In fact, the porter had a second job as a chef and was rarely there. The plaintiffs sought an order of specific performance. It was held that the court would not grant specific performance because it would involve the courts supervising the performance of the contract. ‘…[T]hese services shall be performed during the whole term of the tenancy; it is therefore a long-continuing contract, to be performed from day to day, and under which the circumstances of non-performance might vary from day to day. I apprehend, therefore, that the execution of it would require that constant superintendence by the court, which the court in such cases has always declined to give’. 3. Injunction Where the parties to a contract either expressly or impliedly in negative terms agree that a certain act will not be done, the court may intervene by way of an injunction to ensure that the thing is not done. An injunction may be granted to restrain the breach of a negative term in a contract even though the court might decline to enforce positive stipulations as in the Lumley case. In Lumley v Wagner 124, the defendant agreed to sing at the plaintiff’s theatre and not to sing anywhere else during the contractual period. She later made a contract to sing at another theatre and she refused to sing at the plaintiff’s. The court refused to order specific performance, but it granted an injunction restraining or stopping the defendant from singing elsewhere. Why did the court refuse an order of specific performance? In decided whether or not to grant an injunction, the courts will consider the following (usually called the Campus Oil Test): (1) Is there a serious issue to be tried (2) are damages an adequate remedy and (3) where does the balance of convenience lie? Does it lie in favour of granting an injunction or refusing one. This involves weighing up plaintiff’s need for protection against the harm that could be done to a defendant. 4. Quantum Meruit A party is given reasonable value for work performed even though it might be there was no