Satisfactory quality

The SSGA 1994 repealed the implied condition of ‘merchantable quality’ and replaced it with the current s 14

            There is an implied term that the goods shall be of satisfactory quality, according to s 14 of the SoGA 1979. While s 14 uses the word ‘term’, it is clear from s 14 that the term is a condition. Unlike s 13, s 14 does not apply to private sales; that is, the goods must be sold in the course of a business. The term ‘sale in the course of a business’ is not defined in the SoGA 1979, but in Stevenson v Rogers it was heldthat a fisherman ‘acted in the course of business’ when he sold his trawler. Even though he did not deal in vessels, it was a sale connected with his business.  which discusses the meaning of ‘in the course of business’ in the context of s 12 of the Unfair Contract Terms Act 1977  Thus, goods which come within s 14 include not only goods sold in the normal course of business, but also goods used in or connected with the business, for example, the sale of a van which has been used in a grocery business.

            The meaning of the requirement of ‘satisfactory quality’ must also be considered. Section 14 states that ‘goods are of satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking account of any description of the goods, the price  and all other relevant circumstances’. In Jewson v Kelly the buyer purchased heating boilers for the flats he wasrefurbishing for sale as low cost/energy efficient. The boilers did not comply with low cost/energy efficient ratings but did provide adequate heating. At first instance, the boilers were found not to be of satisfactory quality under s 14 because a reasonable person buying such a flat would expect it to be possible to show evidence of the low cost/energy efficient claim, that is, what a ‘reasonable person’ would expect had to be looked at in the context of the particular requirements of the contract. However, the Court of Appeal found there was no breach of s 14 the particular requirements of a buyer in the context of a particular contract were a matter for s 14 of the SoGA 1979 not s 14 Under s 14 the factor to consider was the intrinsic quality of the goods; the court should determine what quality a reasonable person would expect from a heating boiler. The court decided a reasonable person would expect a boiler to heat adequately, which these boilers did; the expectations of a reasonable person in relation to these particular boilers  should be decided under s 14 Section 14 must be read subject to s 14 which states:

... the quality of the goods includes their state and condition and the following factors (among others) are in appropriate cases aspects of the quality of goods:

(i) fitness for all the purposes for which goods of the kind in question are commonly supplied;

(ii) appearance and finish;

(iii) freedom from minor defects;

(iv) safety; and

(v) durability.

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Seller’s implied obligations

As well as performing any express undertakings in the contract, the seller must also comply with certain terms implied into the contract by the SoGA 1979, regardless of whether he or she sells to a consumer or a business. These implied terms are of particular interest to the consumer, who rarely negotiates and agrees express terms. In supermarket sales, for example, it is unlikely that there will be any discussion, let alone specific undertakings given, as to the quality and functions of the goods sold. Nevertheless, the implied terms will place a seller under an obligation as to matters such as quality and functions of the goods that he or she sells. It is also important to note that the seller’s obligations under the implied terms apply even though the seller is not actually at fault; he or she undertakes liability by the act of selling the goods. Thus, if a new stereo system does not function properly because of a manufacturing defect, the buyer may still sue the seller for breach of contract. Furthermore, in some cases, the Contracts Act 1999 might give a non-buyer the same rights against the seller.

            Finally, it should be realised that the implied terms of the SoGA 1979 are classified as conditions or warranties which give rise to different remedies for breach

Title

We have already seen that the objective of a contract for the sale of goods is to buy ownership in the goods; accordingly, s 12 implies a condition into the contract that the seller has the ‘right to sell’ the goods. If the seller cannot transfer ownership, he or she does not have the ‘right to sell’. In Rowland v Divall the buyer of a car did not receive ownership, as the garage which sold him the car did not own it. There was a breach of s 12 and he was able to recover the full purchase price paid, even though he had used the car for four months. Where ownership is not transferred, there is a total failure of consideration, as the buyer does not receive what he contracted to buy. Clearly, legal ownership is of paramount importance and transferring use and possession of goods is not sufficient for performance of a sale of goods contract.

            Section 12 also implies into the contract warranties of quiet possession and freedom from encumbrances Effectively, the seller undertakes that the buyer’s title will not be interfered with or be subject to anyone else’s rights, except in so far as such are known by or disclosed to the buyer before the contract is made.

            In Microbeads AC v Vinhurst Road Markings the seller sold some road marking machines to the buyers. Unbeknown to the seller at the time of the sale, another firm was in the process of patenting this type of equipment, although rights to enforce the patent did not commence until after the contract between the seller and buyer was made. A patent action was subsequently brought against the buyer, who then claimed that the seller was in breach of the implied condition, as he had no right to sell and was in breach of the warranty of quiet possession. It was held that, at the time of sale, the seller had every right to sell the goods, but was in breach of the warranty for quiet possession, because that amounted to an undertaking as to the future.

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The price of the goods

Being an essential part of the contract by virtue of s 2  the price of the goods is usually expressly agreed; for example, when buying goods in a shop, the buyer agrees to pay the marked price. Section 8 of the SoGA 1979 confirms that the price may be fixed by the contract and also indicates that the price can be determined by a course of dealing between the parties or in a manner agreed by the contract. Thus, when  re-ordering goods without reference to the price, the parties could be taken to agree that the price paid in a previous transaction was applicable to this contract. Equally, the parties might validly agree that an independent third party should determine the price payable. Of course, the question arises of what happens if that third party does not make, or is prevented from making, that determination of the price payable. Section 9 of the SoGA 1979 solves these issues:

(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and he cannot or does not make the valuation, the agreement is avoided; but if the goods or any part of them have been delivered to and appropriated by the buyer, he must pay a reasonable price for them.

(2) Where the third party is prevented from making the valuation by the fault of the seller or buyer, the party not at fault may maintain an action for damages against the party at fault.

Some problems arising from determination of the price, however, are not specifically addressed by the SoGA 1979. Though the Act indicates in s 8 that ‘a reasonable price’ is payable where the price has not been determined under s 8 it has beensuggested that failure to agree a price or a manner of fixing it means that there is no contract concluded and s 8 cannot operate to make such an arrangement a contract.

In May and Butcher v The King an agreement for the purchase of government tentage provided that the price was to be agreed from time to time; effectively, they agreed to make later agreements as to the price. Had there been no mention of the price at all, then failure to actually agree a price would not mean that there was no contract: a ‘reasonable price’ would have been payable, under the SoGA 1893. However, as the parties had expressly stated that the price was to be agreed later, it was held that they were simply agreeing to agree and had not intended to make a binding contract.

In Foley v Classique Coaches Ltd the defendants agreed to purchase supplies of petrol from the plaintiffs, at a price ‘to be agreed by the parties from time to time’. Failing agreement, the price was to be settled by arbitration. The agreement was held to be a binding contract by the Court of Appeal.

The distinction between the two cases would appear to be based on the fact that, by providing a method by which the price could be fixed, the parties had shown an intention to make a legally binding agreement. Accordingly, it would seem that intention to be bound can be regarded as the key issue, and agreement as to price is merely a factor in determination of such intention.

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SALE AND SUPPLY OF GOODS

INTRODUCTION

One of the most common transactions entered into by businesses is the contract for the sale of goods to other businesses or consumers. However, goods may be supplied under contracts other than sale, as follows, for example:

• Contracts of hire

Here, the owner of goods transfers possession for a fixed period but retains ownership; common examples are television rental and car hire.

• Contracts of hire purchase

The owner of goods transfers possession of the goods, but does not transfer ownership of them unless and until the hirer has paid all of the agreed instalments and has exercised his or her option to purchase.

Furthermore, a person may be supplied with goods other than under a contract; for example:

• By gift

   Gifts are voluntary transfers of ownership to a person who does not give any          consideration in return for the ownership.

It should also be appreciated that the sale and supply of goods can give rise to both civil and criminal liability, the latter being of particular importance in relation to the protection of consumers.

      A detailed examination of the laws relating to all transactions for the sale or supply of goods is outside the remit of this book; civil and criminal laws relating to the commonest of such transactions will be considered, namely:

• Civil liability:

❍ Sale of Goods Act 1979;

❍ Supply of Goods and Services Act 1982;

❍ Consumer Protection Regulations 2000;

❍ Part I of the Consumer Protection Act 1987.

• Criminal liability:

❍ Part II of the Consumer Protection Act 1987;

❍ General Product Safety Regulations 1994;

❍ Trade Descriptions Act 1968.

 THE SALE OF GOODS ACT 1979

This Act has been amended by the Sale and Supply of Goods Act 1994, the Sale of Goods  Act 1994 and the Sale of Goods  Act 1995. All references to the SoGA 1979 are to the provisions as amended.

            Note should also be taken of the Sale and Supply of Goods to Consumers Regulations 2002  these result from an EC Directive The 2002 Regulations make amendments to the SoGA 1979, mainly where the buyer of goods is a consumer; the Regulations define a ‘consumer’ as a natural person who is acting for purposes which are outside his business.

 Definition

Under s 2 a contract for the sale of goods is ‘a contract by which the seller transfers or agrees to transfer the property in the goods to the buyer for a money consideration, called the price’.

            In this context, ‘property’ means ‘ownership’, so the object of such a contract is to transfer ownership in the goods to the buyer; however, the contract is only covered by the SoGA 1979 if the buyer’s consideration is money. Accordingly, an exchange of goods is not within the Act; following the decision in Connell Estate Agents v Begej  however, it can be argued that part exchange contracts are within the Act, particularly where the value of the goods given in part exchange is apparent. Section 2 also requires that ‘goods’, as defined in s 61 of the SoGA 1979, are the subject matter of the contract. In general, the word ‘goods’ includes personal property of a moveable type For example, crops become goods on harvesting and money becomes goods when antique or collectable. However, there are specific exclusions from the definition of ‘goods’, for example:

• real property  and

• choses in action

 Form of the agreement

The basic essentials for forming any contract such as capacity to contract, must be met, but there are no formal requirements: the contract can be oral, written or even inferred from conduct, as might be the case in a supermarket sale, where the parties are unlikely to actually state that they wish to buy and sell the goods!

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Quantum meruit

The term quantum meruit means that a party should be awarded as much as he had earned, and such an award can be either contractual or quasi-contractual  below, in nature. If the parties enter into a contractual agreement without determining the reward that is to be provided for performance, then, in the event of any dispute, the court will award a reasonable sum.

            Payment may also be claimed on the basis of quantum meruit where a party has carried out work in respect of a void contract and the other party has accepted that work.

            In Craven-Ellis v Canons Ltd  the plaintiff had acted as the managing director of a company under a deed of contract. However, since he had not acquired any shares in the company, as required by its articles, his appointment was void. He sued to recover remuneration for the service he had provided prior to his removal. The court decided that, although he could not claim under contract, he was entitled to recover a reasonable sum on the basis of quantum meruit.

            Furthermore, where the defendant has prevented the claimant from completing performance, the claimant may be entitled to payment for work done so far. In Planche v Colburn  the plaintiff was under contract to write a book for the defendants, with payment to be made on completion of the manuscript. The defendants abandoned publication plans before the manuscript was completed; the plaintiff, having done some of the research for and writing of the manuscript, could claim for that work done.

QUASI-CONTRACTUAL REMEDIES

Quasi-contractual remedies are based on the assumption that a person should not receive any undue advantage from the fact that there is no contractual remedy to force them to account for it. An important quasi-contractual remedy is an action for money paid and received.

            If no contract comes into existence by reason of a total failure of consideration, then, under this action, any goods or money received will have to be returned to the party who supplied them.

            A case of particular interest is HM Attorney General v Blake Blake, j ailed for treason for spying for the Soviet Union, escaped and subsequently wrote his

autobiography. This was alleged to be a breach of his contract of employment with the British Intelligence Service and the Attorney General sought an injunction to prevent

the publishers from paying Blake £90,000 royalties on the book. The Court of Appeal granted the injunction on the ground that it was against public policy for a criminal to profit from his crime.

            The House of Lords did not uphold grant of the injunction as they could find no statutory or common law authority for such grant; accordingly, the money could be paid to Blake. However, Blake’s treachery made the case exceptional, allowing application of the principle of restitution to Blake’s breach of contract. Accordingly, the Attorney General was allowed an account of all profits resulting from the breach. Effectively, therefore, the Attorney General recovered the royalties from Blake.

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Liquidated damages and penalties

It is possible, and common in business contracts, for the parties to an agreement to make provisions for possible breach by stating in advance the amount of damages that will have to be paid in the event of any breach occurring. Damages under such a provision are known as liquidated damages. They will only be recognised by the court if they represent a genuine pre-estimate of loss and are not intended to operate as a penalty against the party in breach. If the court considers the provision to be a penalty, it will not give it effect but will award damages in the normal way, that is, unliquidated damages assessed by the court.

In Dunlop v New Garage & Motor Co the plaintiffs supplied the defendants with tyres under a contract designed to achieve resale price maintenance. The contract provided that the defendants had to pay Dunlop £5 for every tyre they sold in breach of the resale price agreement. When the garage sold tyres at less than the agreed minimum price, they resisted Dunlop’s claim for £5 per tyre, on the grounds that it represented a penalty clause. On the facts of the situation, the court decided that the provision was a genuine attempt to fix damages and was not a penalty. It was, therefore, enforceable.

In deciding the legality of such clauses, the courts will consider the effect, rather than the form, of the clause, as can be seen in Cellulose Acetate Silk Co Ltd v Widnes Foundry Ltd  In that case, the contract expressly stated that damages for late payment would be paid by way of penalty at the rate of £20 per week. In fact, the sum of £20 was in no way excessive and represented a reasonable estimate of the likely loss. On that basis, the House of Lords enforced the clause, in spite of its actual wording.

In Duffen v FRA Bo SpA it was held that a term in an agency contract which established so-called ‘liquidated damages’ for the dismissal of the agent at £100,000 was, in fact, a penalty clause and could not be enforced. This was in spite of the fact that the agreement specifically stated that the £100,000 was ‘a reasonable pre-estimate of the loss and damage which the agent will suffer on the termination of theLtd v agreement’. In reaching its conclusion, the court held that although the wording of the agreement was persuasive, it was outweighed by the fact that the level of damages did not alter in proportion to the time remaining to be served in the agreement. The claimant was consequently only allowed to claim for normal damages, although these could be augmented under the Commercial Agents Regulations 1993

The whole question of penalty clauses is fraught. It is obviously advantageous, in a business context, for the parties to a contract to know with certainty what the financial consequences of any breach of the contract will be, so as to allow them to manage their risk properly. However, the possibility of the courts subsequently holding a damages clause to be punitive introduces the very uncertainty that the clause was designed to avoid.

In any case, why should businesses not be bound by clauses, as long as they have been freely negotiated? This point leads to a comparison of liquidated damages clauses and limitation and exclusion clauses. Usually, penalty clauses are thought of as overestimating the damages, but it should be considered that such a pre-estimation may be much lower than the damages suffered, in which case the clause will effectively operate as a limitation clause. It would surely be better all round if the liquidated damages/penalties clause question was subject to a similar regime as regulates exclusion/limitation clauses under the Unfair Contract Terms Act 1977. The courts would then be required to examine whether the clause was the product of truly free negotiation and not the outcome of an abuse of power, in which case it would be effective, or, alternatively, whether it was imposed on one of the parties against their wishes, in which case it would be inoperative. 

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Remoteness of damage

What kind of damage can the innocent party claim? This involves a consideration of causation and the remoteness of cause from effect, in order to determine how far down a chain of events a defendant is liable. The rule in Hadley v Baxendale states that damages will only be awarded in respect of losses which arise naturally, that is, in the natural course of things; or which both parties may reasonably be supposed to have contemplated, when the contract was made, as a probable result of its breach.

In Hadley v Baxendale, Hadley, a miller in Gloucester, had engaged the defendant to take a broken mill-shaft to Greenwich so that it could be used as a pattern for a new one. The defendant delayed in delivering the shaft, thus causing the mill to be out of action for longer than it would otherwise have been. Hadley sued for loss of profit during that period of additional delay. It was held that it was not a natural consequence of the delay in delivering the shaft that the mill should be out of action. The mill might, for example, have had a spare shaft. So, the first part of the rule stated above did not apply. In addition, Baxendale was unaware that the mill would be out of action during the period of delay, so the second part of the rule did not apply, either. Baxendale, therefore, although liable for breach of contract, was not liable for the loss of profit caused by the delay.

The effect of the first part of the rule in Hadley v Baxendaleis that the party in breach is deemed to expect the normal consequences of the breach, whether they actually expected them or not.

Under the second part of the rule, however, the party in breach can only be held liable for abnormal consequences where they have actual knowledge that the abnormal consequences might follow.

In Victoria Laundry Ltd v Newham Industries Ltd the defendants contracted to deliver a new boiler to the plaintiffs, but delayed in delivery. The plaintiffs claimed for normal loss of profit during the period of delay, and also for the loss of abnormal profits from a highly lucrative contract which they could have undertaken had the boiler been delivered on time. In this case, it was decided that damages could be recovered in regard to the normal profits, as that loss was a natural consequence of the delay. The second claim failed, however, on the ground that the loss was not a normal one; it was a consequence of an especially lucrative contract, about which the defendant knew nothing.

The decision in the Victoria Laundry case was confirmed by the House of Lords in Czarnikow v Koufos although the actual test for remoteness was reformulated in terms of whether the consequence should have been within the reasonable contemplation of the parties at the time of the contract. In The Heron II, the defendants contracted to carry sugar from Constanza to Basra. They knew that the plaintiffs were sugar merchants, but did not know that theyintended to sell the sugar as soon as it reached Basra. During  a period in which the ship was delayed, the market price of sugar fell. The plaintiffs claimed damages for the loss from the defendants. It was held that the plaintiffs could recover. It was common knowledge that the market value of such commodities could fluctuate; therefore, the loss was within the reasonable contemplation of the parties also As a consequence of the test for remoteness, a party may be liable for consequences which, although within the reasonable contemplation of the parties, are much more serious in effect than would be expected of them.

In H Parsons Ltd v Uttley Ingham & Co the plaintiffs, who were pig farmers, bought a large food hopper from the defendants. While erecting it, the plaintiffs failed to unseal a ventilator on the top of the hopper. Because of a lack of ventilation, the pig food stored in the hopper became mouldy. The pigs that ate the mouldy food contracted a rare intestinal disease and died. It was held that the defendants were liable for the loss of the pigs. The food that was affected by bad storage caused the illness as a natural consequence of the breach, and the death from such illness was not too remote.

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Law Reform (Frustrated Contracts) Act 1943

Statute intervened to remedy the potential injustice of the common law with the introduction of Law Reform Act 1943. The position is now as follows:

• any money paid is recoverable;

• any money due to be paid ceases to be payable;

• the parties may be permitted, at the discretion of the court, to retain expenses incurred from any money received; or to recover those expenses from money due to be paid before the frustrating event. If no money was paid, or was due to be paid, before the event, then nothing can be retained or recovered; and

• a party who has received valuable benefit from the other’s performance before the frustrating event may have to pay for that benefit.

The Act does not apply to contracts of insurance, contracts for the carriage of goods by sea and contracts covered by s 7 of the SoGA 1979

DISCHARGE BY BREACH

Breach of a contract occurs where one of the parties to the agreement fails to comply, either completely or satisfactorily, with their obligations under it. A breach of contract may occur in three ways:

• where a party, prior to the time of performance, states that they will not fulfil their contractual obligation;

• where a party fails to perform their contractual obligation; or

• where a party performs their obligation in a defective manner.

 Effect of breach

Any breach will result in the innocent party being able to sue for damages. In addition, however, some breaches will permit the innocent party to treat the contract as having been discharged. In this situation, they can refuse either to perform their part of the contract or to accept further performance from the party in breach. The right to treat a contract as discharged arises in the following instances:

• where the other party has repudiated the contract before performance is due, or before they have completed performance; and

• where the other party has committed a fundamental breach of contract. As has already been pointed out in Chapter 7, above, there are two methods of determining whether a breach is fundamental or not: the first is by relying on the distinction between conditions and warranties; the other is by relying on the seriousness of the consequences that flow from the breach.

 REMEDIES FOR BREACH OF CONTRACT

The principal remedies for breach of contract are:

• damages;

• quantum meruit;

• specific performance;

• injunction;

• action for the agreed contract price; and

• repudiation.

Which of these remedies is available for a particular breach depends on issues such as whether the breach is of a condition or a warranty

 DAMAGES

According to Lord Diplock in Photo Productions Ltd v Securicor Transport Ltd  Every failure to perform a primary obligation is a breach of contract. The secondary obligation on the part of the contract breaker to which it gives rise by implication of the common law is to pay monetary compensation to the other party for the loss sustained by him in consequence of the breach.Such monetary compensation for breach of contract is referred to as ‘damages’. The estimation of what damages are to be paid by a party in breach of contract can be divided into two parts: remoteness and measure.

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DISCHARGE OF A CONTRACT

INTRODUCTION

When a contract is discharged, the parties to the agreement are freed from their contractual obligations. A contract is discharged in one of four ways:

• agreement;

• performance;

• frustration; or

• breach.

 DISCHARGE BY AGREEMENT

Emphasis has been placed on the consensual nature of contract law, and it follows that what has been made by agreement can be ended by agreement. The contract itself may contain provision for its discharge by either the passage of a fixed period of time or the occurrence of a particular event. Alternatively, it may provide, either expressly or by implication, that one or other of the parties can bring it to an end, as in a contract of employment.

Where there is no such provision in a contract, another contract will be required to cancel it before all of the obligations have been met. There are two possible situations, as follows:

• Where the contract is executory, the mutual exchange of promises to release one another from future performance will be sufficient consideration.

• Where the contract is executed, that is, one party has performed, or partly performed, their obligations, the other party must provide consideration in order to be released from performing their part of the contract The provision of this consideration discharges the original contract and there is said to be accord and satisfaction. This was found to have occurred in Williams v Roffey Bros  

 Tender of performance

‘Tender of performance’ simply means an offer to perform the contractual obligations. For example, if a buyer refuses to accept the goods offered, but later sues for breach of contract, the seller can rely on the fact that they tendered performance as discharging their liability under the contract. The seller would also be entitled to claim for breach of contract.

In Macdonald v Startup Macdonald promised to deliver 10 tons of oil to the defendant within the last 14 days of March. He tried to deliver on Saturday 31 March at 8.30 pm, and Startup refused to accept the oil. It was held that the tender of performance was equivalent to actual performance, and Macdonald was entitled to claim damages for breach of contract.

Section 29 of the Sale of Goods Act 1979 now provides that tender is ineffectual unless made at a reasonable hour. It is unlikely that 8.30 pm on a Saturday evening would be considered reasonable.

 The effect of frustration

At common law, the effect of frustration was to make the contract void as from the time of the frustrating event. It did not make the contract void ab initio, that is, from the beginning. The effect of this was that each party had to perform any obligation which had become due before the frustrating event, and was only excused from obligations which would arise after that event. On occasion, this could lead to injustice. For example, in Krell v Henry  the plaintiff could not claim the rent, as it was not due to be paid until after the coronation event had been cancelled. However, in Chandler v Webster the plaintiff had already paid £100 of the total rent of £141 15 s for a room from which to watch the coronation procession, before it was cancelled. He sued to recover his money. It was decided that not only could he not recover the £100, but he also had to pay the outstanding £41 15 s, as the rent had fallen due for payment before the frustrating event had taken place.

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Illegal contracts

A contract which breaks the law is illegal. The general rule is that no claim can be brought by a party to an illegal contract, though in some circumstances money or property transferred may be recovered. The contract may be either expressly prohibited by statute, or implicitly prohibited by the common law. Illegal contracts include:

• contracts prohibited by statute;

• contracts to defraud the Inland Revenue;

• contracts involving the commission of a crime or a tort;

• contracts with a sexually immoral element, although contemporary attitudes mayhave changed in this respect

• contracts against the interest of the UK or a friendly State;

• contracts leading to corruption in public life; and

• contracts which interfere with the course of justice.

Void contracts

A void contract does not give rise to any rights or obligations. The contract is void only in so far as it is contrary to public policy; thus, the whole agreement may not be void. Severance is the procedure whereby the void part of a contract is excised, permitting the remainder to be enforced. Contracts may be void under statute or at common law.

Wagering contracts

A wagering contract is an agreement that, upon the happening of some uncertain event, one party shall give something of value to the other, the party who has to pay being dependent on the outcome of the event. Such contracts are governed by the Gaming Acts 1835–1968.

Anti-competitive practices

Certain agreements relating to matters such as price fixing and minimum resale prices may be void and unenforceable under the Competition Act 1998.

Contracts void at common law

• Contracts to oust the jurisdiction of the court

Any contractual agreement which seeks to deny the parties the right to submit questions of law to the courts is void as being contrary to public policy. Agreements which provide for compulsory arbitration can be enforceable.

• Contracts prejudicial to the status of marriage

It is considered a matter of public policy that the institution of marriage be maintained. Hence, any contract which seeks to restrain a person’s freedom to marry, or undermines the institution of marriage in any way, will be considered void.

 Contracts in restraint of trade

One area of particular importance which is subject to the control of the common law is contracts in restraint of trade. A contract in restraint of trade is an agreement whereby one party restricts their future freedom to engage in their trade, business or profession. The general rule is that such agreements are prima facie void, but they may be valid if it can be shown that they meet the following requirements:

• the person who imposes the restrictions has a legitimate interest to protect;

• the restriction is reasonable as between the parties; and

• the restriction is not contrary to the public interest.

The doctrine of restraint of trade is flexible in its application and may be applied to new situations when they arise. Bearing this in mind, however, it is usual to classify the branches of the doctrine as follows.

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The statement must actually induce the contract

That the statement must actually induce the contract means that:

• the statement must have been made by one party to the contract to the other, and not by a third party;

• the statement must have been addressed to the person claiming to have been misled;

• the person claiming to have been misled must have been aware of the statement; and

• the person claiming to have been misled must have relied on the statement.

In Horsfall v Thomas  Horsfall made and sold a gun to Thomas. He concealed a fault in it by means of a metal plug, and Thomas did not examine the gun. After short usage, the gun blew apart. Thomas claimed that he had been misled, by the presence of the plug, into buying the gun. It was held that the plug could not have misled him, as he had not examined the gun at the time of purchase. In Attwood v Small  a false statement as to the profitability of a mine was not a misrepresentation as the purchaser did not rely on it; he commissioned an independent survey of the mine. On the other hand, in Redgrave v Hurd where the purchaser of a business declined to examine the accounts which would have revealed the falsity of a statement as to the business’s profitability, there was a misrepresentation. Because he declined to examine the accounts, he clearly relied on what was said to him about profitability; he was not under a duty to check the truth of the statement.

Whether the reliance was reasonable or not is not material once the party claiming misrepresentation shows that they did, in fact, rely on the statement. See Museprime Properties Ltd v Adhill Properties Ltd in which an inaccurate statement contained in auction particulars, and repeated by the auctioneer, was held to constitute a misrepresentation, in spite of the claims that it should have been unreasonable foranyone to allow themselves to be influenced by the statement. This view was confirmed in Indigo International Holdings Ltd & Another v The Owners and/or Demise Charterers of the Vessel ‘Brave Challenger’; Ronastone Ltd & Another v Indigo International Holdings Ltd & Another However, it should be noted that in Barton v County Natwest Bank the court indicated that an objective test would be applied to determine reliance. If, objectively, there was reliance, this was a presumption which was rebuttable.

 UNDUE INFLUENCE

Transactions, either under contract or as gifts, may be avoided where they have been entered into as a consequence of the undue influence of the person benefiting from them. The effect of undue influence is to make a contract voidable, but delay may bar the right to avoid the agreement. There are two possible situations relating to undue influence.

 CONTRACTS AND PUBLIC POLICY

It is evident that some agreements will tend to be contrary to public policy. The fact that some are considered to be more serious than others is reflected in the distinction drawn between those which are said to be illegal and those which are simply void.

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There must be a false statement of fact

False

In most cases it can be proved whether a statement is false, but the following situations need consideration:

• Where the statement is a half-truth, it may be true but misleading because of facts not given; it will be treated as false. In Dimmock v Hallett when selling property, it was truthfully stated that a farm was rented to a tenant for £290 per annum. The failure to indicate that the tenant was in arrears, had left the farm and a new tenant could not be found rendered the statement false.

• Where the statement was true when made, but has subsequently become false before the contract was concluded, the change must be notified to avoid misrepresentation. In With v O’Flanagan in January, the seller of a doctors’ practice told the prospective buyer that it was worth an income of £2,000 per annum. By the time that the contract was concluded, its value had dropped substantially, to only £5 per week. The court held that the representation was of a continuing nature and, as it was false when it induced the contract, the buyer was entitled to rescind. The obligation to disclose changes relating to a representation of a continuing nature was affirmed by the Court of Appeal in Spice Girls Ltd v Aprilia World Service BV

A statement

There must be a written or oral statement. There is no general duty to disclose information, except in insurance contracts; silence does not generally amount to misrepresentation. In Turner v Green when negotiating a dispute settlement between T and G, T’s solicitor failed to mention other legal proceedings he knew of which made the settlement to which G agreed a ‘bad deal’ – one he would not have made had he known. G was bound by the settlement; he was not induced by a misrepresentation, as silence is not misrepresentation. However, it should be notedthat  there have been cases where courts have found that there is a misrepresentation by conduct; for example, Gordon v Selico and, at first instance, Spice Girls Ltd v Aprilia World Service BV.

A fact

The following statements will not amount to representations because they are not facts:

• Mere sales puffs – the statement must have some meaningful content. Thus, in Dimmock v Hallett, it was held that a statement that land was fertile and improvable was not actionable as a misrepresentation.

• Statements of law – everyone is presumed to know the law and, therefore, in theory, no one can be misled as to what the law is.

• Statements of opinion – these are not actionable, because they are not statements of fact. In Bisset v Wilkinson the vendor of previously ungrazed land in New Zealand stated that it would be able to support 2,000 sheep. This turned out to be untrue, but it was held that the statement was only an expression of opinion and, as such, was not actionable; the purchaser knew that the vendor had no expertise. However, in Smith v Land & House Property Corp a statement that the tenant of a hotel was a ‘desirable tenant’ was a misrepresentation. Though descriptions like ‘desirable’ may seem to be subjective opinions, here there was expert knowledge that the tenant did not pay on time and was currently in arrears. That being so, the statement implied that there were facts on which it was based when there were not.

• A statement of intention – this does not give rise to a misrepresentation even if the intention subsequently changes, unless it can be shown that there was no such intention at the time it was stated 

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