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CONTRACT LAW

IntroductionMuch of what you study in this course has its roots in contract law. These notes provide a refresher on the principles of contract. They are intended as additional, recommended reading rather than a comprehensive discussion of contract law.

To begin, think of and write down below some situations in which you have entered into an agreement with someone. Some examples are:

½ having someone fix your car

½ your employment situation.

Some other examples of where you have entered into an agreement with someone could include things like buying furniture, clothes or a fridge on hire purchase, or booking a holiday.

Even a simple transaction such as buying a carton of milk or a newspaper is an example of an agreement.

These agreements may be called contracts when certain conditions are met. It is these conditions that we will study here.

The distinction between contracts and agreements is important because:

½ not all agreements are contracts, although an agreement is one of the requirements for a contract

½ the law enforces contracts, but it does not enforce agreements.

We will begin by looking at what goes into making a contract that the court will enforce. We will see that much of the law of contract is court-made law that has had some aspects added to or modified by statute law.

A contract, then, is a promise or a set of promises made between parties that the law will enforce.

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Essentials of a valid contractIndividuals have complete freedom over what they negotiate and what they agree to. They can promise to do anything and can make statements about the remedies available if the promise is not kept.

For an agreement to be legally binding, however, it must have the following features:

1. An intention to create legal relations.

2. Offer and acceptance (an alternative test is whether, when viewed as a whole, the communications between the parties shows that an agreement has been concluded).

3. An exchange of consideration (something of value)1.

4. Legal capacity.

5. Genuine consent.

6. Legality.

The law takes an objective standpoint when considering whether a contract exists. It does not try to get inside the minds of the actual players to guess what they were thinking, but looks at what a reasonable person would have intended or understood in the circumstances.

We will start by looking at each of these elements in turn.

Intention to create legal relationsConsider this example: Daphne and Fenella agree to meet at a restaurant for dinner.

We all probably agree that, although Daphne and Fenella have an agreement, there was no intention by either party to have the agreement they have made to meet for dinner enforceable through court action.

We can come to this conclusion objectively – that is, by looking at the circumstances of the agreement that has been made.

1 This is not required if the contract is a deed (a written and correctly signed form of contract).


For a contract to exist, the parties must have the apparent intention that if one party does not perform his or her obligations under the agreement, the other party will have the opportunity to use any available legal remedy to force the defaulting party to perform, or pay the injured party compensation (damages) for failing to perform.

Clearly, not every agreement made falls into this category. Pointers that help decide if intention to create legal relations is present include:

½ the evidence – what the parties actually do, say and/or write

½ the situation in which the statement is made – events leading up to the statement may be used to identify the intention.

PresumptionsThe courts will generally presume that there was no intention by the parties to be legally bound in arrangements entered into between:

½ close family members, and

½ to a lesser extent:

¾ more distant family members

¾ friends or acquaintances in a social setting.

We will look at a case involving a family agreement.

Balfour v BalfourIn Balfour v Balfour [1919]2 KB 571 the husband returned to Ceylon after a break at home in England. The wife was sick and did not return with him. The husband promised orally to pay her an allowance of 30 pounds a month. The parties separated and eventually divorced.

The wife sued the husband for breach of contract and arrears due under the verbal agreement.

The court held that the (ex) husband did not have to pay. There was no contract because the parties did not intend legal consequences to flow from this arrangement. It was an arrangement of natural love and affection and outside the realm of contract altogether.

In the case of a commercial or business arrangement, there will be a very strong presumption that the parties do intend that they should have the option of access to legal remedies if the other party defaults in performance of the agreement.

The parties’ actual expressed intention in their agreement may override any presumption from the circumstances that the parties did or did not intend to form an arrangement enforceable by law.


We will now look at another case. In this case, the presumption that family members do not intend to be legally bound was overridden.

Parker v ClarkIn Parker v Clark [1960] 1 All ER 93 Mr and Mrs Clark were an elderly couple who lived in a large house by the sea. Mrs Parker was Mrs Clark’s niece and she lived with her husband in a small country cottage with their daughter. The families were on good terms.

Mr Clark wrote to Mr Parker suggesting the Parkers sell their cottage and move in with the Clarks, sharing the cost of running the large house. The Parkers accepted, selling their home, investing some of the proceeds and giving the rest to their daughter to buy a flat.

The Parkers moved in and, as part of the deal, the Clarks changed their will so that the Parkers got the house. The Parkers were to do most of the housework, gardening and shopping.

Two years later the two couples were not getting on. The Parkers eventually left under the threat of eviction. The Parkers sued for damages for breach of contract.

The issue was – was it a contract or did its family nature make it an arrangement that was not legally binding?

The court held it was a legally enforceable contract. The main reason was because of the financial implications to the parties.

Activity

In the following two situations, do you think the parties intended to be legally bound?

Old Tom Leader’s lawn is waist high. His young friend and neighbour, Margot, feels sorry for him. She offers to mow his lawn regularly if Tom covers costs.

Write down your thoughts on whether the parties intended to be legally bound in this situation.

Answer

There will probably be a presumption here that these two neighbours did not intend to be legally bound – which means no contract. This presumption could be rebutted, however, if there was some evidence they did intend to be legally bound.


Consider this example:

Example

It is the late 19th century. A company manufacturing ‘medicinal smoke balls’ places a newspaper advertisement offering to pay one hundred pounds to anyone who gets sick after using their ‘smoke ball’ three times daily. The advertisement goes on to explain that one thousand pounds has been deposited in a named bank to show how sincere the company is. A customer reads the advertisement, buys a ‘smoke ball’ and gets sick. She asks for one hundred pounds, as per the advertisement. The company refuses to pay it. It says there was no contract because no intention to be legally bound.

What do you think? – is the company legally bound?

This was an actual case; Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. The court held that any reasonable reader of the advertisement would be entitled to assume that the company did intend to be legally bound. The words of the advertisement went much further than a usual advertisement because they stated that money was deposited in a bank account to show sincerity and this could only be interpreted as a serious intention to pay the ‘reward’ of one hundred pounds. The offer was made ‘to the world’ and could be accepted by anyone who followed the instructions in the offer.


Offer and acceptanceThe second essential element of a contract is offer and acceptance. It is not always straightforward to distinguish between what is an offer and what is an acceptance in the pattern of dealings between the parties. Therefore, we will study this in more detail now.

OfferConsider this example, then look at the definitions below

Cordelia: “Sally, I will sell you my 1997 Honda Prelude car for $2,700.”

Some definitionsAn offer is an explicit proposal to contract which, if accepted, completes the contract and binds both the offeror and the offeree to the terms of the contract.

An offeror is a person making an offer (Cordelia, in the above example).

An offeree is a person receiving an offer (Sally, in the above example).

Features of offersAn offer may be:

½ oral

½ written

½ inferred.

An offer may be made to:

½ any one person

½ a group or class of persons

½ the world at large, when no single person is identifiable.

Despite this flexibility, some features of the offer must be precise, that is:

½ the offeror must intend to be bound by it

½ the offer and its terms must be communicated to the offeree

½ the terms will be clear and specific, rather than general

½ the offer must be intended to create, and be capable of creating, a legal relationship.


Not everything that may look like an offer is an offer; it may be an invitation to treat, which we will look at shortly.

A person making an offer can withdraw (revoke) it at any time before acceptance. Once notice of the revocation of the offer is received by the person to whom the offer was made, that person can no longer accept the offer.

Activity

Consider each of the following scenarios. Write down whether or not you think there is an offer and why.

1. Ben is a coffee supplier. Mary tells Ben her office has just installed new coffee machines on every floor. Ben asks Mary whether her office would be interested in buying his coffee.

Has Ben made an offer to Mary?

Answer

No. Ben’s question is general; there are no specific terms. There is nothing to indicate that Ben is intending to be bound by his comment about supplying coffee; there is nothing to indicate an intention to create a legal relationship.

2. Nickersons places an advertisement for the sale of office furniture and brewing equipment by auction. Mr Harris obtains a commission to buy these goods and travels to the out-of-town place stated in the advertisement. Once there, he finds that the goods have been sold before the auction.

Harris sues for his travelling expenses on the basis that Nickersons are in breach of contact. Whether there was a good contract depends on whether the advertisement was an offer.

Do you think it was?

Answer

This was another real case: Harris v Nickerson (1873) LR QB 286. The court held there was no contract because the advertisement was not an offer, it was only a statement of intention. Harris failed in his action because if there was no offer, there was no contract.


An offer versus an invitation to treat How can we distinguish between an offer and an invitation to treat? We will look at an example.

Consider this example

A sign on a rack of clothes in a clothes shop reads: ‘Everything on this rack is $20’.

Is this sign an offer?

The phrase invitation to treat is relevant here. A statement or an action may be considered to be an invitation to treat rather than an actual offer. The intention of the parties is a useful gauge in deciding whether an offer has been made or whether it is an invitation to treat.

The word ‘treat’ here is used in an unusual way. In this context, ‘treat’ means ‘negotiate a deal’. So…

An invitation to treat is an invitation to negotiate a deal (which, if negotiations are successful, will result in the formation of a contract).

Example

The key case about what constitutes offers as opposed to invitations to treat is Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd. [1953]1 QB 401. (The ‘Boots’ case).

The Boots caseBoots Cash Chemists had just instituted a new method for its customers to buy certain medicines. The company would let shoppers pick drugs off the shelves in the chemist and then pay for them at the till. Before then, all medicines were stored behind a counter and an assistant had to get what was requested.

The Pharmaceutical Society of Great Britain objected and argued that under the Pharmacy and Poisons Act 1933, that was an unlawful practice. Under s 18(1), a pharmacist needed to supervise at the point where ‘the sale is effected’ when the product was one listed on the 1933 Act’s schedule of poisons.

The Society argued that displays of goods were an ‘offer’ and when a shopper selected and put the drugs into their shopping basket, that was an ‘acceptance’. Therefore, because no pharmacist had supervised the transaction at this point, Boots was in breach of the Act.

Boots argued that the sale was effected only at the till.


The court held that the display was only an invitation to treat, not an offer. No contract began until the customer had taken the goods to the till and offered to buy them. At this point the pharmacist was present and could accept or reject the customer’s offer. So, no offence was being committed by Boots.

For us, the key points are that the display of goods by Boots was only an invitation to treat, the customer made an offer at the till, and no contract existed until the shopkeeper accepted the customer’s offer to buy.

Effect of an invitation to treatInvitations to treat are not intended to create a legal agreement, but are made to invite offers. If an offer is then made, it can be accepted (in which case a contact is made) or rejected (in which case no contract is made).

In answer to the earlier question about the sign on the clothes rack: it is not an offer, but an invitation to treat. There was clearly no intention to create legal agreement based on the sign. It was just to initiate offers. If another customer mistakenly placed a top priced at $130 on the rack after trying it on, the shop would not be obliged to sell the top for $20 to another customer who read the sign and selected it from the rack.

An offer versus a request for or a supply of informationHow can we distinguish between an offer and a request for or supply of information? We will look at another example:

Mike: “How much do you want for your mountain bike?”

Simon: “I’d sell it for $180.”

Neither of these statements is an offer. One person is requesting information and the other person is supplying it. You can form this conclusion just by looking at what is being said.


AdvertisementsExample

For sale: Three chickens and a small hutch, $30 the lot. Telephone 444-7295 after 5 p.m.

The advertisement in this example is not an offer, but rather an invitation to treat. Advertisements, whether on the visual media, the web, in shops, sent by email, or in newspapers, will generally be classified legally as invitations to treat. But, this does not mean that advertisers are free to misrepresent the price or attributes of goods sold. When you study consumer law, you will learn about misleading representations. A misleading advertisement might fall foul of consumer law but, in contract it is an invitation to treat rathe rather than an offer.

AuctionsActivity

Consider this example:

Auctioneer: “What am I bid for this 2002 Nissan Skyline? Let’s start the bidding at $2,000. Do I have $2,500?”

Selena: “Yes.”

Auctioneer: “Bidder’s name is?”

Selena: “Selena.”

Auctioneer: “Do I have any more bids? No? Come on, ladies and gentlemen, this car is a bargain at anything under $5,000. No more bids? This is your last chance to own this desirable vehicle. Going. Going. Gone! Sold to Selena for $2,500.”

In the above scenario, who is making the offer? Who is accepting the offer?

Write down your thoughts here.


Answer

The bids made by potential buyers at an auction are generally considered to be offers, the highest of which is accepted by the fall of the auctioneer’s hammer, as Selena’s was in the example above.

An advertisement that an auction is to be held at a particular place on a particular date is not an offer (Harris v Nickerson).

The conditions set for the auction, notified to prospective bidders before the auction commences, can alter the general rules as to what constitutes an offer and when acceptance is final.

TendersLook at this example of a typical invitation for the submission of tenders:

Tenders are invited for the supply and installation of plumbing for seven houses being constructed at lots 1 to 7 inclusive, Broadway Drive, Netherton. Copies of plans and specifications can be collected at the offices of Clemmer and Clemmer, Level 4, 17 Step Street, Netherton. Tenders should use the form provided with the specifications and be submitted to Clemmer and Clemmer by 5 p.m. on 4 June 2017. Lowest or any tender not necessarily accepted.

A tender is usually advertised when an organisation wants work done or goods supplied and is seeking proposals, including prices, from anyone interested in supplying the services or goods.

Government agencies are often required to use the tender process to ensure that services or goods are obtained for the lowest possible price available in the market that can be coupled with a satisfactory standard of services or goods sought.


Are tender ‘offers’ invitations to treat?Yes, a tender notification will usually be an invitation to treat. Someone who answers the notification by advising the details and prices of their services or goods will be making an offer. Often more than one offer is received in response to an advertisement asking for tenders. It is then up to the organisation advertising the tender to:

½ Accept an offer, in which case a contract is formed; or

½ Decide not to accept any or all except one of the offers, in which case no contract is formed with any of the unsuccessful tenderers; or

½ Enter into further negotiations that may or may not result in an eventual contract. The further negotiation process is likely to involve a counter-offer (discussed shortly) that would cancel the original offer received in response to the tender advertisement.

However, be aware that, just as in other cases that we have found for contracts, the wording of the tender advertisement is important, and advertisements inviting tenders can sometimes be offers rather than invitations to treat. For example, an advertisement inviting tenders that indicated that the person submitting the lowest price would automatically be engaged may well be an offer that would be accepted by the person submitting the proposal with the lowest price.

Termination (end) of the offerThe person making an offer may withdraw (revoke) the offer at any time. An important issue to consider, therefore, is: When does an offer end?

There are four methods of termination:

½ acceptance – there is a contract

½ rejection – there is no contract (a counter-offer – which we come to shortly – given in response to an offer also operates as a rejection of that offer)

½ lapse – there is no contract

½ revocation (withdrawal) – there is no contract.


AcceptanceConsider this example

OFFER

Cordelia: “I will sell you my 1997 Honda Prelude car for $2,700.”

ACCEPTANCE

Sally: “I agree to buy your car for $2,700.”

Once an offer has been made, it can become a contract only if it is accepted. Acceptance, therefore, defines the time that the contract comes into acceptance. It can be oral, in writing, by conduct, or by any combination of two or all of these.

Acceptance of an offer takes effect upon the offeree’s communication to the offeror of the offeree’s assent to be legally bound by an agreement, the terms of which are set out by the offer.

An acceptance can be made as soon as the offer is communicated to the person or persons to whom it is being made.

The following points are key:

½ The acceptance must match the terms made by the offer.

½ An enquiry or request for information is neither an offer nor acceptance and does not terminate an offer.

½ A conditional acceptance may be a counter-offer and terminate the original offer or require some further steps before a contract is in place or becomes enforceable.

½ There must be a visible act of acceptance, which must be communicated to the offeror – except when the offer is made to the world at large. In the latter case, the doing of the act required by the offer is the acceptance.

½ The terms of the acceptance must be communicated to the person who made the offer (the offeror).

½ Silence can never be an acceptance of an offer. If the offerree does not respond to the offer, this does not mean they have accepted it.

There is one exception to the principle that a contract is made on the receipt of an acceptance by the offeror - under the postal acceptance rule. We do not discuss the postal acceptance rule here as we rather focus on forms of communication more commonly used today.

What are the rules of acceptance for email, text, facsimile (fax) messages, or other types of electronic communication such as through social media?.


Section 11 of the Electronic Transactions Act 2002 provides:

1. Time of receipt: An electronic communication is taken to be received

¾ in the case of an addressee who has designated an information system for the purpose of receiving electronic communications, at the time the electronic communication enters that information system; or

¾ in any other case, at the time the electronic communication comes to the attention of the addressee.

To avoid any possible doubt, section 13A ‘Time of communication of acceptance of offer’ was added to the Act in 2014, and this provides:

1. For the purpose of the formation of a contract, an acceptance by electronic communication of an offer is taken to be communicated to the offeror at the time determined by section 11 to be the time of receipt for that electronic communication.

2. Subsection (1) does not apply if—

¾ the parties to the contract otherwise agree; or

¾ an enactment provides otherwise.

Effects of electronic transactionsThis means:

For an email or text message, acceptance is communicated when the acceptance message arrives in the offeror’s phone or computer inbox.

For a fax, acceptance is communicated when the acceptance message prints at the offeror’s printer or arrives into the offeror’s computer inbox, depending on the particular fax receipt system being used.

For an acceptance contained in a social media message, acceptance is when that media site is accessed and the message came to the offeror’s attention.

The contract is formed upon communication of acceptance (unless the parties have agreed otherwise or a statute provides otherwise).


Counter-offersConsider this example:

OFFER

Bruce: “I will sell my car to you for $4,000.”

COUNTER-OFFER

Cindy: “I will buy your car for $4,000 if you get that rust taken out of the front doors.”

A counter-offer is an offer that seeks to introduce new terms into the arrangement being proposed.

In the above situation:

¾ Bruce’s offer has not been accepted, so there is no contract.

¾ Bruce’s offer has been cancelled by Cindy’s counter-offer. Cindy cannot now change her mind and accept Bruce’s offer.

¾ Bruce can accept Cindy’s counter-offer and there will be a contract, or he can reject it and there will be no contract.

As an illustration of acceptance and counter-offers, we will look at the following scenarios based on Jenny and Rudra.

Example: Jenny v RudraJenny: “I will sell you my 2006 Honda Accord for $10,000.”

Rudra: “I agree to buy your car for $10,000.”

Rudra has unconditionally accepted Jenny’s offer. The terms were clear.

But what if Rudra makes the following response instead?

Rudra: “That is too much for your car. You do not have a warrant of fitness and I can see there is a dent on the bonnet of the car. How about if you get the warrant and fix the dent?”

Here, Rudra has made a counter-offer to Jenny and has, therefore, not accepted her offer.

Jenny’s original offer has been destroyed by Rudra’s counter-offer.

We will pause here for a minute and look at a real case: Hyde v Wrench (1840)3 Beav 334, 49 ER 132.


Hyde v WrenchWrench offered to sell a property to Hyde for one thousand pounds. Two days later Hyde made an offer to buy for nine hundred and fifty pounds. This offer was refused by Wrench. Hyde wrote to Wrench saying he was now happy to pay one thousand pounds. Wrench refused, claiming he could do so because there was no contract because there was no offer and acceptance.

The court held that Wrench was correct. The offer of nine hundred and fifty pounds was a counter-offer which had the effect of ending the original offer. There was nothing for Hyde to accept.

Now, going back to Jenny and Rudra – suppose that Jenny and Rudra’s conversation had gone like this:

Jenny: “I will sell you my 2006 Honda Accord for $10,000.”

Rudra: “That is too much for your car. You don’t have a warrant of fitness, and I can see there is a dent on the bonnet of the car. I will buy it if you get the warrant and fix the dent.”

Jenny: “Okay. I will get the warrant, but I won’t fix the dent. You will have the new stereo I put in, but you will have to tell me your answer by 2 o’clock tomorrow.”

Rudra: “I will call you.”

Activity

This situation involves an offer and two counter-offers. Consider the main points of it by completing the following activity:

Write down your thoughts on these questions:

1. Has Rudra accepted Jenny’s final counter-offer?

2. What happens if Rudra does not ring by 2 o’clock?

3. What happens if Rudra calls Jenny and says he has decided not to buy her car?

4. If Rudra says: “I agree to your terms. I will bring the bank cheque on Thursday next week” – can you list the terms of contract that they have agreed to?


Answers

1. By saying “I will call you”, Rudra has obviously not accepted Jenny’s counter-offer.

2. If Rudra does not ring by 2 o’clock the offer lapses.

3. If Rudra calls Jenny and says he has decided not to buy her car this is a rejection of Jenny’s offer.

4. The terms of the contract they have agreed to are:

¾ Jenny will sell her 2006 Honda Accord to Rudra.

¾ The cash price is $10,000.

¾ Jenny has to obtain a warrant of fitness.

¾ The car comes with a stereo.

¾ Rudra will bring the bank cheque on Thursday next week.

Now, consider the following situation:

Rudra: “I am interested in the 2006 Honda Accord car you advertised for sale on the ‘U-sell’ website.”

Jenny: “I will sell you my 2006 Honda Accord for $10,000.”

Rudra: “What is the odometer reading? I don’t want to buy a car that has travelled over 150,000 kilometres.”

Jenny: “That is okay. The car has only had two elderly owners and the odometer reading is 28,000 kilometres.”

Rudra: “In that case I will buy it. Here is the money.”

Jenny: “Sorry, I’ve just changed my mind. I am so attached to the car that I cannot part with it.”

Is there a contract for the sale of the car?

You can probably find the offer – “I will sell you my 2006 Honda Accord for $10,000.”

And an apparent acceptance – “I will buy it. Here is the money.”

However, consider – “What is the odometer reading? I do not want to buy a car that has travelled over 150,000 kilometres.”

Is this a counter-offer that destroys the original offer, making it no longer capable of acceptance? It is in fact just a request for more information, so it has no effect on the offer, which is still available for acceptance.


What about Jenny’s change of mind? We have learnt that a contract is made the moment the offer is accepted. Jenny’s change of mind is too late – the car has been sold to Rudra.


Consideration

What is consideration?Consider this example:

Clare: “If you will erect and paint a new 1.5 metre high wooden picket fence on the front boundary of my property, Brian, I promise to pay you $2,000 on completion.”

Brian: “I will erect and paint the fence for $2,000.”

In law, many words have a special meaning. Consideration is one of these – it is the idea that a person will do something and the other party will also do something in return. In effect, it is ‘the price of a promise’. This price of a promise can be paid by, for example, paying or promising to:

½ pay money

½ provide goods or services

½ provide anything of real value

½ give up something of value, for example giving up the right to take an insurance company to court to pursue a claim as a condition of being paid by the insurance company an amount of money that does not appear to meet the full amount of the insured losses (consideration that involves giving up something of value is called a ‘forbearance’).

Consideration must be legal and not in breach of the law.

In the above example, Clare’s consideration is her promise to pay $2,000.

Brian’s consideration is his promise to erect and paint the fence.

Brian has exchanged his promise to erect and paint a fence for Claire’s promise to pay. Both Clare and Brian have provided consideration for the contract.

Past considerationBarbara asks Mike, an electrician, to install four power points in her lounge. Without Barbara’s consent, Mike rewires her living room as well, in the expectation of being paid.

Barbara, who thinks she ought to pay Mike for his work, then promises to pay him for the rewiring, but later changes her mind.

In the above scenario, is Barbara bound to pay Mike? Why?


Answer

No, because her promise to pay him for the rewiring was given for a service that was already carried out at the time her promise to pay for it was given. The consideration (the rewiring) was given in the past in relation to Barbara’s promise to pay for it.

Past consideration is not consideration that will support the formation of a contract. Barbara is legally obliged to pay for the four power points only and not for the rewiring.

There is no valid contract for the wiring work and Mike cannot force Barbara to pay.

Past consideration is not consideration, because it consists of something that has already happened. If consideration in a particular contract has been given or provided before the making of the contract, it will not be recognised as consideration.

We will now look at a real case: Re McArdle [1951] Ch 669.

Re McArdleMarjorie McArdle carried out certain improvements and repairs on a bungalow. The bungalow formed part of the estate of her husband’s father who had died leaving the property to his wife for life and then on trust for Marjorie’s husband and his four siblings. After Marjorie had completed the work, the brothers and sisters signed a document stating ‘in consideration of you carrying out the repairs we agree that the executors pay you £488 from the proceeds of sale.’ When the mother died, the brothers and sisters refused to authorise the payment to Marjorie.

The court held that Marjorie was not entitled to the money.

The promise to make payment came after the consideration (Marjorie’s improvements) had been performed, therefore, the promise to make payment was not binding. Past consideration is not valid.

NOTE: When a court implies a promise to pay for the services at the time they were performed, a later request for payment will be enforceable. The implied promise to pay will be good consideration for the services performed, even though the amount to be paid is quantified later.

An example is the very old case Lampleigh v Braithwait (1615) Hob 105; 80 ER 255.

Lampleigh v BraithwaitBraithwait was awaiting execution and asked Lampleigh to try and obtain a royal pardon for him. Lampleigh returned with the pardon and Braithwait promised to pay him £100 for his services, but later refused to pay. The court found that this was not the sort of service that would be expected to be carried out without payment and that part of the agreement to seek the pardon was an implied promise to pay an appropriate fee. The later mention of the amount just clarified the amount of the fee.


Other situations in which consideration might not be presentWe have just seen that past consideration is not consideration that will support the formation of a contract. There are three other situations in which an arrangement at first sight appears to be supported by consideration sufficient to form a contract, but the law considers that consideration is not present. In cases such as these the courts often use the term that the consideration is ‘insufficient’ to support a contract.

These are situations in which:

1. the plaintiff was already under a public duty imposed by law to do what the plaintiff agreed in the claimed contract

2. the plaintiff was already under a contractual duty to the defendant to do what the plaintiff agreed in the claimed contract

3. the plaintiff was already under a contractual duty to someone else to do what the plaintiff agreed in the claimed contract.

The ‘plaintiff’ here is the person who is trying to enforce the contract and the ‘defendant’ is the other party to the contract.

These situations are quite logical if you think about them. If someone is already obliged by law to do something, then someone who pays that person money to do that thing is not going to receive any value (consideration) for their payment.

Consideration and the contract entered into by deedAs you have just learned, consideration is required for a valid contract. One way of getting around this requirement is to enter into the contract through a deed. In the body of your course you will learn about entering into a contract in deed form. As you will see, deeds must comply with the requirements of the Property Law Act 2007. If a contract is entered into under deed, and the requirements of the Act are satisfied, consideration is not required.


Capacity to contractActivity

Read this scenario and complete the activity that follows:

Pete, who is still at school and is aged 15, signs a two-year contract with the supplier and service provider Zing Limited for a fifth-generation smartphone that has unlimited calling time, a 36 megapixel, 15x zoom camera, digital subscriber television, an ultra-high-capacity music storage and playing system, and a global positioning system.

Payments are $2,900 per month. The phone handset without the service contract would have cost $22,500. Pete paid only $390 for the phone handset, because he signed the two-year service contract.

The written and signed phone contract makes it clear that the offer and acceptance process has resulted in an agreement. Intention and consideration are clearly present.

Pete delivers advertising material at the weekends, for which he earns $64 per week after tax. He has $110 left in his bank account after paying for the purchase of the phone.

Is there anything in this agreement that would prevent it from being a contract enforceable by both parties? What do you think? Write down your ideas here.

Answer

Keep reading and we will refer back to this fact situation and provide an answer shortly.

Situations such as this one with Pete introduce the topic of capacity to contract.

An adult person will usually have full capacity to contract. He or she will be able to agree to any commercial arrangement within the law and both parties will have the right to enforce the contract against the other (however unwise one of the parties may have been in entering the contract).

The law recognises that not all people have full contractual capacity. It does not seem right, does it, if Zing Limited could enforce the contract mentioned above against Pete, given his young age.

Rules about lack of capacity to contract have developed in case law and statute. The issue of capacity to contract mainly arises with:

½ minors (as with Pete in the example above)

½ natural persons who have mentally or legally impaired capacity

½ corporate persons.


These notes focus on minors. In the body of the course you will learn about corporate persons, and their legal capacity.

MinorsFor the purposes of the law of contract, a minor is a person under the age of 18 years of age. This is stated in section 2 of the Minors’ Contracts Act 1969.

Main effects of the ActThe main effects of the Act are as follows:

½ if you are 18 or older, you are an adult for the purposes of the law of contract

½ the key date for identifying the age of a person for the purposes of the Act is the date at which the contract is made

½ contracts entered into by a minor are generally not enforceable against the minor

½ the minor, however, can enforce the contract against the other party.

Two specific exceptionsThere are two specific exceptions to the rule that contracts are not enforceable against minors. These are:

1. contracts for life insurance, if the minor is 16 or over

2. contracts of service (contracts of service are contracts of employment).

These two types of contract will have effect as if the minor were of full age unless either of the following circumstances exist:

½ the consideration for a minor’s promise or act was so inadequate as to be unconscionable

½ any obligation imposed on the minor under the contract was harsh or oppressive.

General exceptionThere is also a general exception to the rule that contracts are not enforceable against minors, this being that the court can, in its discretion, look into the fairness and reasonableness of any contract entered into by a minor.

There are a number of things the court can do. For example, it can enforce the contract against the minor. On the other hand, it can also cancel the contract altogether. In section 6(2) and (3) you can see that there are a number of circumstances the court must consider when deciding whether a contract is fair and reasonable. These include:

http://www.legislation.govt.nz/act/public/1969/0041/latest/DLM392356.html




½ the circumstances surrounding the making of the contract

½ the subject matter and nature of the contract

½ the value and nature of any property involved

½ the age and means of the minor.

All other relevant circumstancesNow we will look back to Pete and Zing Limited from the earlier scenario.

When Pete fails to pay Zing Limited the monthly payments for the phone, a court is not going to enforce this contract against Pete because the contract is very clearly not fair and reasonable. Pete was a minor and so did not have capacity to enter this contract, although the first three necessary elements for a valid contract were present. The Minors’ Contracts Act 1969 sets out the options that the court has, and cancellation of the contract seems most likely.

However, as we have seen, if the court finds a contract with a minor to be fair and reasonable, it can enforce the contract against the minor, declare it binding in whole or in part, or order payment of compensation.

Avoiding the effects of the Minors Contract ActNote that under sections 9 and 10 a minor and the other contracting party can avoid the effects of the Minors’ Contracts Act on their contract by:

½ having the contract approved by the District Court before it is entered into

½ having a guarantor or indemnifier (someone who agrees to pay up on the contract if the minor does not) as part of the contract

½ contracting with an adult who is prepared to enter into the contract on behalf of the minor.


Contractual consentConsider this example:

Example Clarence is selling her car. In the course of negotiations with Brian, she tells him that the car was imported from Europe. In fact, it was imported from China.

The contractual element of consent requires that the parties to a contract have agreed freely to its terms without being influenced by any misleading behaviour, unfair or improper pressure from the other party, or some limited categories of mistake.

Consent is not present if an agreement is made unfairly because one of the following factors is present:

½ misrepresentation by one party (when that party tells untruths or only part of the truth before the contract is made), inducing the other party to enter the contract

½ mistake (for example, when one or both of the parties have made an error about the terms of the transaction)

½ duress, undue influence or unconscionable bargain.

In the above example, Clarence has told Brian a little of the truth, but in such a way that it actually significantly misrepresents the true situation. In making his decision to buy the car, Brian is clearly influenced by this misrepresentation. As we shall see, it is highly likely that Brian will be able to cancel this contract because of the absence of consent caused by Clarence’s misrepresentation.

MisrepresentationAn actionable misrepresentation requires:

½ a false statement of fact that is

½ made by a party to the contract (or their agent)

½ to another party to the contract

½ inducing the party to enter into the contract.

See section 6(1) of the Contractual Remedies Act 1979.

Note that it does not matter if the false statement of fact is made innocently or with the knowledge that it is false. The statement may have been made in either speech or in writing.



The following are not actionable misrepresentations:

½ a puff – a statement so obviously exaggerated beyond the realm of reasonable belief that it has no legal significance (think of some of the humorous television advertisements you have seen)

½ a statement so important to the parties that it becomes incorporated as a term of their contract (where such a term is broken the aggrieved party will have a remedy based on a breach of contract)

½ a prediction of what is likely to happen in the future (such a prediction is clearly not a ‘fact’)

½ a statement of an honestly held opinion (again, this is not a ‘fact’)

½ a statement about the law (yet again, this is not a ‘fact’ and a misrepresentation must be a false statement of ‘fact’).

Key issues when trying to assess whether a pre-contractual statement by a party to a contract will nullify consent are to decide whether or not the statement:

1. is a misrepresentation (conveying false information) and, if so,

2. whether it is also an actionable misrepresentation.

The Contractual Remedies Act 1979 deals with the remedies for misrepresentation and some other breaches of contract. You will study this Act and the remedies for misrepresentation in the body of your course.

A misrepresentation may also give a party remedies under the Fair Trading Act 1986. You will study these in the body of your course.

Duress, undue influence and unconscionable bargainConsider this situation:

Polly is a timid, frail and elderly woman who hardly ever gets out of the house and has little knowledge of commercial matters. She enjoys a quiet life and tends to get flustered if she is put under stress, but suffers from no mental impairment.

Conrad, a pizza deliverer, who has met Polly when visiting to drop off pizzas, is aware of Polly’s temperament and circumstances.

Conrad offers Polly $300 for some antiques he has seen in her house and which he knows are worth more than $100,000. Conrad has previously been an antiques dealer, but was imprisoned for knowingly buying stolen property and, as a result, lost his business.


Polly does not at first consider selling the items, but Conrad returns to see her several times. He persists in arguing with Polly that she should sell so she can buy a new heater and electric blanket for the winter. Polly eventually accepts the offer and agrees to sell the antiques to Conrad for $300, which he pays to her. Conrad arranges for a van to collect the antiques the following week. Polly later talks to a friend who has some knowledge of antiques, and realises their true value. Polly no longer wishes to proceed with the contract.

Is there a contract here? We can note that:

½ The first four elements for a valid contract are present.

½ There has been no evident misrepresentation – just a low offer that was eventually accepted.

½ We know that the law does not look at the adequacy of consideration, just as long as something of value is exchanged for something else of value. This means the price paid, in contrast with the much higher value of the antiques, is not in itself grounds for avoiding the contract.

½ There has been no mistake. Each party knew what they were buying and selling.

Read on further and we will return to consider this question more fully again shortly.

Although we have lumped duress, undue influence and unconscionable bargain together in this one part of the module, note that they are significantly different from each other. However, sometimes it is possible to argue that two or more of these are present in a particular situation. Remember, these elements are all concerned with establishing whether or not there is consent.

Broadly speaking, duress, undue influence and unconscionable bargain are technical terms to describe the type and level of influence used by one party to get another party to agree to the terms of a contract that is being negotiated. When one of these is established in a contract, the contract is voidable by the disadvantaged party because there has been no consent by that party to the contract.

DuressDuress is a physical or economic form of coercion (application of force) to obtain the consent of the other contracting party.

For duress to be established, there must be:

½ pressure amounting to compulsion of the will of the victim, and

½ the pressure or the nature of the demand must be illegitimate.


So, the pressure must leave the disadvantaged person with no real practical choice but to agree to the contract in the terms specified by the party that is exercising the duress, and the pressure must be improper in some way. Examples of illegitimate physical pressure include assaults, threats to prosecute and threats to continue detention. An example of illegitimate economic pressure is a threat to break a contract.

Note that legitimate economic pressure does not constitute duress. An example of legitimate economic pressure would be a firm saying that it would not renew its contract with its traditional supplier, but would contract with a competitor unless the price per item supplied was reduced from $3.20 to $2.80 for the renewed contract. Even if this new price meant potential economic ruin for the supplier, this is just legitimate commercial pressure and not duress.

The concept of duress was developed through the common law. If duress is proved, the contract will be voidable by the party suffering the duress.

An example of economic duress can be seen in the North Ocean Shipping v Hyndai Construction (The Atlantic Baron) [1979] QB 705 case.

North Ocean Shipping v Hyundai Construction (The Atlantic Baron)This case involved a contract to build a ship at an agreed price in United States dollars. After work started, the US dollar was devalued by 10% and the shipbuilder threatened to stop work unless it was paid an extra 10% of the contract price by the buyer. The buyer agreed, as it had a valuable charter booked for the ship. However, eight months after the delivery of the ship the buyer sued the builder in court for the return of the extra 10% paid, claiming it was paid under duress resulting in an absence of genuine consent. The court agreed that there was duress sufficient to nullify genuine consent, but that as the buyer had waited eight months to complain, the delay was too long and the buyer had affirmed the contract so it was no longer voidable. A remedy was not granted.

Undue influence Undue influence is mental domination by one party over the other that has an impact amounting to abuse on the formation and/or terms of a contract.

In recent times, there have been numerous cases in which undue influence has been pleaded, often in connection with guarantees of bank mortgages. This has led to a development in the law.


To establish the presence of undue influence, the party alleging the undue influence must prove that:

½ a relationship exists in which one party has influence over the other in business matters because of the trust and confidence the other places in them, and

½ the circumstances call for an explanation, and no evidence to the contrary is provided – for example, a client gives a large gift to a solicitor.

In terms of the first element, there are some situations in which a relationship of trust and confidence will be presumed. For example, between:

½ lawyer and client

½ parent and child

½ religious leader and follower

½ doctor and patient

½ trustee and beneficiary.

A presumption can always be overcome by evidence indicating that no such influence was exerted in a particular situation. For the presumption to be overcome by evidence, the person alleging the undue influence must prove the existence of influence in the relationship.

An example of a finding of undue influence in one of these types of relationship was the case of Lancashire Loans Limited v Black [1934] 1KB 129.

Lancashire Loans Limited v BlackThe defendant applied for a loan that was approved subject to her finding someone to act as guarantor of the loan. The woman brought her daughter to the loan company and the daughter signed the loan documents as guarantor. The mother defaulted on the loan and the company sued the daughter as guarantor to recover the amount owing. The evidence showed that the mother was an extremely dominating woman. The daughter was able to successfully claim undue influence and defend the claim that she repay the loan under the guarantee. The court found that the daughter had been dominated by her mother, did not understand the nature of what she had signed, and had been given no independent advice. The only advice she had been given was from her mother’s solicitor. Clearly, the undue influence meant the daughter had given no consent to the guarantee agreement.

Another example is provided by Allcard v Skinner (1877) 36 Ch D 145.


Allcard v SkinnerA woman joined a religious order and, under the influence of its leader, agreed to put her property under the control of the leader. Several years later, after the woman left the order, she sued to recover what was left of her property. She was successful, the court finding she had been under the undue influence of the leader when she agreed to put her property in his care.

Alternatively, when the situation is not one in which a relationship of trust and confidence will be presumed, the person alleging undue influence must show that there is a relationship of influence involving trust and confidence.

An example of such a situation can be found in the case of Lloyds Bank v Bundy [1975] QB 326.

Lloyds Bank v BundyIn ordinary circumstances, a bank is not in a relationship of trust and confidence when it obtains a guarantee from a customer. However, here, where an elderly father was induced to give a guarantee of his son’s business debts by the assistant manager of his son’s bank, the court found that on the particular facts a relationship of trust and confidence had developed between the father and the assistant manager of the bank. The father relied implicitly on the assistant manager’s partial advice and it was not suggested that he obtain independent legal advice. He trusted the assistant manager absolutely. There was little room for doubt that an independent banker would have advised an ordinary investor not in any circumstances to give such a guarantee. The court found the contract of guarantee was voidable for undue influence because the element of genuine consent by the father was not present in the contract.

If undue influence is proved, the contract will be voidable by the party suffering the undue influence.

Undue influence developed from the courts of equity. A court will not grant relief if:

½ there has been undue delay in bringing the claim

½ a third party has innocently gained rights under the contract

½ there is some practical problem – for example, the property that was transferred by the contract no longer exists

½ the party suffering the undue influence has affirmed the contract (indicated an intention to continue with the contract) after declining the opportunity to treat the contract as voided.


Unconscionable bargainFor an unconscionable bargain to be established, there needs to be:

½ a significant inequality in the bargain made between the parties

½ a serious disadvantage to the claiming party – for example, in respect of education, age, experience or circumstances – as compared with the other party

½ improper advantage, amounting to an unconscientious use of the power arising from the circumstances of the parties, exercised against the claiming party.

The example of Conrad and Polly introduced earlier seems to be an arguable case of unconscionable bargain. There was a significant inequality in the bargain ($300 versus $100,000). Conrad had the experience of being an antiques dealer, while Polly had no idea of the real value of the antiques. Conrad took improper advantage of his knowledge of both Polly’s situation and the real value of the antiques. As long as a court finds that unconscionable bargain is established on the facts, the contract is voidable by Polly for lack of consent. She can give Conrad back the $300 and refuse to part with her antiques.

The pressure exerted by Conrad does not seem to have been sufficient, or of the right sort, to amount to duress. Neither, apparently, had a relationship of trust and confidence been developed that could be considered for undue influence.

Unconscionable bargain has also developed from the courts of equity. If unconscionable bargain is proved, the contract will be voidable by the party suffering the poor bargain. Relief from a court will not be granted if:

½ there has been a considerable delay in bringing the claim

½ a third party has innocently gained rights under the contract

½ there is some practical problem – for example, the property that was transferred by the contract no longer exists.


IllegalityConsider this situation:

Donald: “I’ll have a packet of Coffin Nail cigarettes, please.”

Storekeeper Julie: “That will be $18.80, thanks. Here is your change and the cigarettes. Happy smoking.”

Donald: “Thanks. Well, I can’t stop here talking. I’m late for my Year 9 Social Studies field trip. The bus is waiting.”

Later…

Donald: “These cigarettes I bought this morning, there is something wrong with them. I think they’ve been contaminated by sewage. Here, you smell them. I want a refund.”

Storekeeper Julie: “Get lost, you little squirt. You can’t be more than 12 years old. It is illegal for anyone under 18 to buy cigarettes. You’ve got them, you keep them. Let this be a lesson to you.”

You will see from this contract that offer, acceptance, intention and consideration are all present. However, as Julie has pointed out, the contractual element of legality is absent.

The good news is that the syllabus does not require you to study this topic further, apart from being aware that legality is one of the six essential items that must be present for a valid contract to exist.

Illegal contracts are of no effect, although a court has discretion to grant relief on an application made by a party to such a contract under the Illegal Contracts Act 1970.

In the body of your course you will learn about contracts in restraint of trade. Agreements in restraint of trade are one example of contracts which may be illegal.

http://www.legislation.govt.nz/act/public/1970/0129/latest/DLM396435.html?src=qs


Remedies in contract It would be nice to think that, once a contract had been made and all six of its requirements were satisfied, the parties to the contract would continue to have a happy and profitable contractual arrangement. This, unfortunately, does not always happen.

Where things go wrong, one of the parties will seek a remedy. A remedy is something that fixes or attempts to fix something that is not performing as it should be.

Our remedies come to us from statute (legislation) and from common law and equity.

The statutory remedies are in the Contractual Remedies Act 1979 and the Sale of Goods Act 1908. You will study these statutes in the body of the course.

The common law remedies is damages.

The remedy from equity is specific performance.

Damages Damages are awarded to restore the plaintiff to the position they would have been in if the misrepresentation had not been made or the contract had not been breached. Damages are a common law remedy and are also provided for in the Contractual Remedies Act 1979.

To recover damages, it must be proved from the evidence available that the plaintiff’s losses actually flowed from the breach of contract. It is sometimes difficult to establish this connection and the extent of the loss that should be compensated.

Types of damagesThere are a number of categories of damages:

½ General damages – these are recoverable for losses that cannot be objectively quantified in money terms. For example, a successful claim for general damages was made for mental anguish when a breach of contract by a travel retailer resulted in a disrupted holiday for a customer.\

½ Special damages – these are capable of being objectively quantified in money terms. They must be specifically claimed and proved (for example, by showing a receipt).

½ Nominal damages – where loss cannot be established. The plaintiff might only be trying to establish that some right had been infringed.

½ Exemplary damages – exemplary or ‘putative’ damages are to punish the defendant (rare in breach of contract cases).


½ Liquidated damages – damages that have been estimated in advance by the parties as likely to flow if the contract is breached. An example would be a contract booking a motel room, where the customer agrees to pay a sum equivalent to one night’s accommodation if the booking is cancelled within 24 hours prior to the first night booked. The parties have agreed that the motel proprietor, by accepting the booking, has most likely lost an opportunity to rent the room to someone else for that first night because of the late notice of cancellation. The sum equivalent to one night’s accommodation is the amount of liquidated damages agreed to be paid in the event of the customer’s breach (by cancellation) of the contract.

Factors that may restrict or prevent the award of damagesEven when there has been a misrepresentation, breach or cancellation and the other party is proven to be at fault, the injured party may not always be able to recover the loss or the full extent of the loss.

RemotenessThe most frequently encountered problem is that the connection between the action by the at-fault party and the loss is too distant for the loss, or all of the loss, to be recoverable. The phrase used is that the loss is too remote.

The rules about remoteness were set down in cases such as Hadley v Baxendale (1854) 9 Exch 341.

Hadley v BaxendaleIn this case, the plaintiff owned a flour mill about 250 miles from London. The mill’s driving shaft broke and the plaintiff hired the defendant firm of carriers to take the shaft to London to get a replacement of the same kind. The defendants delayed bringing the new one back. The mill was idle without a shaft for a much longer time than necessary because of the defendant’s delay.

The plaintiff sued for breach of contract, including for loss of profits due to the period of delay.

The court held the loss was too remote. A person in the defendant’s position would not expect that the absence of the shaft would have stopped the mill; for instance, there may have been a spare shaft. The carrier had not been told of the stoppage.

Only nominal damages were awarded.


In a nutshell, the rules about remoteness provide that a person in breach of contract is liable only for:

½ losses that one would expect to occur

½ losses flowing naturally from the breach

½ losses that were or should have been in the contemplation of the parties (or where the defendant knew about the special circumstances).

Duty to minimise lossThe second difficulty that may prevent recovery of the loss, or the full extent of the loss, is that there is also a responsibility on the party who suffers the loss to minimise the extent of their loss whenever practical and possible. This is called the duty to mitigate the loss.

Consider the example of a strawberry grower who has a contract to supply 400 tonnes of strawberries to a supermarket chain for $1.5 million dollars. Just before the strawberries are due to be delivered the supermarket chain advises the grower that it is now unwilling to accept the strawberries because of an employee strike. The only alternative market that can be found is a jam manufacturer that is willing to pay $200,000 for the strawberries. The grower must sell the strawberries to the jam manufacturer to mitigate his loss. He can then sue the supermarket for the balance of the contract price, $1.3 million. If the grower had failed to sell the crop to an available buyer, he would have been prevented from recovering $1.5 million in damages from the supermarket, and could still only have recovered $1.3 million, because he would have failed to take a practical step to mitigate his loss.

Specific performanceConsider this situation:

Terry: “I have a contract with Jane that she will sell me a Goldie painting for $250,000. Now she says she has changed her mind and won’t sell.”

Solicitor Lianne: “That’s okay. We will find you another Goldie painting, then sue Jane for damages for any extra cost involved in buying the alternative painting.”

Terry: “That’s no good to me. I want the one Jane has because the painting is of my great-great-great-grandmother. Isn’t there something else we can do to get her to hand over the painting?”

Clearly, Terry’s case is one in which damages will not be an adequate remedy. Fortunately, there is another remedy that can be sought – specific performance.


Specific performance is an equitable remedySpecific performance is another form of equitable relief provided by the courts. It is an order made by a court for the performance of a contract. Sometimes a plaintiff will want the contract performed and damages would not be an adequate remedy.

For example, the property that the plaintiff has signed a contract to purchase might have particularly attractive features, such as the family connection in Terry’s case above, or a unique harbour view in a house property.

Another example could be a contract to purchase a very rare antique or something unavailable from another source as in Nutbrown v Thornton (1805) 10 Ves 159.

Nutbrown v ThorntonThe plaintiff contracted to buy machinery from the defendant. The defendant breached the contract by refusing to deliver the machines. Only the defendant manufactured this particular type of machinery. The plaintiff sued for an order for specific performance and it was granted by the court. As the machinery could not have been purchased elsewhere, damages would not have been an adequate remedy. As with all equitable remedies, specific performance is awarded at the discretion of the court. The court will not award this remedy when it would be inequitable (unfair or not in accordance with good conscience) to do so.

Circumstances in which specific performance will not be availableIn some circumstances, specific performance will not be awarded. These circumstances include:

½ contracts of personal service

½ where constant supervision of the court would be required

½ where damages would be an adequate remedy

½ where the claimant is in breach of his or her contractual obligations or unwilling to perform them

½ where there has been an undue delay in seeking the order

½ where there is no consideration if the contract is made by deed

½ where there would be hardship caused to the party in respect of whom performance of the contract is sought.

Cases illustrating two of these circumstances are:


Cohen v RocheIn Cohen v Roche [1927] 1 KB 169 the plaintiff, a furniture shop proprietor, entered into a contract with the defendant to purchase some Hepplewhite chairs. The defendant, in breach of the contract, refused to deliver the chairs. The plaintiff sued for breach of contract and asked for an order for specific performance for delivery of the chairs. The court refused to grant an order for specific performance. It stated that the payment of damages by the defendant would be an adequate remedy for the plaintiff as identical chairs could easily be purchased from another supplier.

Patel v AliIn Patel v Ali [1984] 1 All ER 978 Mr and Mrs Patel entered into a contract to sell their house to Mr Ali. Mr Patel was bankrupted shortly afterwards and this considerably delayed the settlement of the sale. Sometime later Mr Ali sued, seeking an order for specific performance to have the house transferred to him. At the time that the contract of sale was signed, Mrs Patel was well and had one child. Unfortunately, by the time of the court action, Mrs Patel has suffered an illness that required the amputation of one leg and two further children had been born. She had by this time become very reliant on friends and neighbours for assistance with her daily living and, as a consequence, the Patels no longer wished to move from the house. The court refused the order for specific performance because of the hardship that would be caused to the Patels if they were forced to move.

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