REQUIREMENTS FOR A
VALID CONTRACT - Cases
Cao Xuan Phong
Institute for Legal Strategy and Science
Gordon v Selico
• Facts: The claimant purchased a long lease of a flat from the first
defendant and of which the second defendant was the managing
agent. The flats were already in poor repair at the time of the
purchase and subsequently the second defendant made no
attempts to fulfil its maintenance obligations. The building was
ultimately found to be badly affected by dry rot and the local
authority served a dangerous structure notice. The claimant sought
damages for deceit on the basis that a contractor had fraudulently
hidden details of the dry rot at the time of the purchase when
carrying out work ordered by the second defendant on the first
defendant’s behalf. This claim was successful at first instance and
the judge also found that the defendants were both in breach of their
maintenance obligations under the Housing Act 1974. The
defendants did not appeal on the basis that there had been no
deceit, but rather that this should not be imputed on them.
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Gordon v Selico
• Issues: The issue in this context was whether the deceit of the
contractor instructed and employed by the defendants could be
imputed on them.
• Decision: The Court of Appeal dismissed the defendants’ appeal,
but on different grounds from those found at first instance. The
second defendant had become a party to the contractor’s fraudulent
misrepresentation as a result of its controlling shareholding in the
property, and the authority for this was conferred on the second
defendant by the first. The defendants were therefore liable for this
fraudulent misrepresentation. The defendants were also found to be
in breach of their maintenance obligations under the lease. The
court ordered damages in respect of both areas of the claim
together with the making of orders for specific performance to be
worked out by the Chief Chancery Master.
3
Bisset v Wilkinson
• Facts: The vendor sold land to the buyer, having told the buyer that,
if properly worked, he estimated the land would carry 2,000 sheep.
In fact, it was capable of supporting many fewer.
• Decision: the vendor had not made a misrepresentation. Since he
had never used his land for sheep farming, he was not making a
statement of fact merely stating an honest opinion when he told the
buyer how many sheeps he believed the land would support
4
Maddison v Alderson
• Fact: The claimant had been the defendant’s housekeeper for 10
years. She had received no wages in this period. She announced
that she wished to leave and get married. She alleged that the
defendant had promised that, if she stayed with him, he would leave
her in his will a life interest in his farm. She agreed to remain with
him until he died. He left a will which included this promise, but
because it had not been witnessed, it was void. She claimed that
the promise to make a will in her favor was representation.
• Decision: the doctrine of estoppel by representation is applicable
only to representation as to some state of facts alleged to be at the
time actually in existence, and not to promises de futuro which, if
binding at all, must be binding as contract
5
Derry v Peek
• Facts: In the prospectus released by the defendant company, it was
stated that the company was permitted to use trams that were
powered by steam, rather than by horses. In reality, the company
did not possess such a right as this had to be approved by a Board
of Trade. Gaining the approval for such a claim from the Board was
considered a formality in such circumstances and the claim was put
forward in the prospectus with this information in mind. However, the
claim of the company for this right was later refused by the Board.
The individuals who had purchased a stake in the business, upon
reliance on the statement, brought a claim for deceit against the
defendant’s business after it became liquidated.
6
Derry v Peek
• Issue: It is important to note that the law regarding false
misrepresentation was still developing and this was an important
case in doing so. In this case, the court was required to assess the
statement made by the defendant company in its prospectus to see
whether the statement was fraudulent or simply incorrect.
• Decision: The claim of the shareholders was rejected by the House
of Lords. The court held that it was not proven by the shareholders
that the director of the company was dishonest in his belief. The
court defined fraudulent misrepresentation as a statement known to
be false or a statement made recklessly or carelessly as to the truth
of the statement. On this basis, the plaintiff could not claim against
the defendant company for deceit
7
Howard Marine & Dreging Co Ltd v
Ogden & Sons Ltd
• Facts The defendant, A, were civil engineering contractors who
entered into negotiation with H for the hire of two ships to carry clay
out to sea. During the negotiation, A, represented that the ships
could carry 1600 tonnes, a representation which was based upon
consultation of an erroneous register. The accurate capacity was
significantly lower but A continued negotiations without checking this
figure. The parties agreed on a charter-party which included a
clause which stated that the hiring party had examined the ships
and that they were fit for purpose. Six months later, A gained further
information on the correct capacity and paid £20,000 for the hire but
no more. H restricted the use of the barges and claimed for the
remaining hire charge amount. A brought a counter-claim for
damages.
8
Howard Marine & Dreging Co Ltd v
Ogden & Sons Ltd
• Issue: The defendant claimed for breach of the collateral warranty in
the representations between the parties before the agreement had
been reached as well as in negligence under
Hedley Byrne v Heller & Partners [1964] AC 465, on the basis of a
special relationship between the parties and for breaching
the Misrepresentation Act 1967, section 2.
• Decision: The court allowed the appeal in part. It was found that
there was no collateral warranty agreed between the parties prior to
the agreement of the parties. Moreover, the misrepresentation
regarding the capacity of the ship was considered a minor matter.
However, the court found H liable for a breach of duty under
the Misrepresentation Act 1967. On this basis, the court was not
required to consider the claim in tort law under Hedley Byrne v
Heller & Partners [1964] AC 465.
9
William Sindall plc v
Cambridgeshire County Council
• Facts: C brought some land from D. The contract included
conditions 14 and 7 from the National Conditions of Sale. D did not
disclose a private foul sewer on the land to C. C sought to rescind
the contract after spotting it on the land. After both parties
contracted, the value of the land dropped significantly.
• Issues
• Can the purchaser claim rescission for mistake?
• Did the vendor make an innocent misstatement?
• Should damages be awarded in lieu of rescission?
• Decision: Appeal allowed – there had been no misrepresentation
and the purchaser was entitled to contract rescission. D’s loss would
have been greater if the contract was terminated than the loss C
actually sustained.
10
Couturier v Hastie
• Fact: The parties made a contract for the sale of a cargo of corn
which was being conveyed on named ship from a foreign port.
Unknown to either party, the corn had already been disposed of by
the carrier because it had started to ferment and become a risk to
the safety of the ship.
• Decision: there was no possibility of a contract coming into being if
the specific goods did not exist at the point when the parties
reached agreement. It was impossible to buy that cargo any longer
11
Raffles v Wichelhaus
• Facts: Two ships called Peerless were both carrying cotton from
Bombay. The parties contracted for the sale of such a cargo. The
buyer believed that he was buying one consignment while the seller
was disposing of the other.
• Decision: This mistake prevented any agreement coming into being
and therefore the contract was void. No true agreement existed
between them since they were entirely at cross purposes about
what was being bought and sold
12
Phillips v Brooks
• Fact: The claimant jeweller contracted to sell a ring to a rogue who
claimed to be Sir George Bullough. He then pawned the ring with
the defendant and the claimant sued to recover it.
• Decision: the claimant could not recover the jewellery since the
contract he had made with the rogue was not void. The issue of
identity was clearly not crucial to the claimant who had merely
checked the name and address in a street directory and was
satisfied by such flimsy evidence which did not demonstrate any
real link between the rogue and the person he claimed to be. It
proved nothing more than that a Sir George Bullough did live at a
particular address
13
Atlas Express Ltd v
Kafco Importers & Distributors
• Facts: The claimant had contracted to transport goods for the
defendant at a certain price calculated (by the claimant) on the basis
of an estimated size of load. The first load was actually much
smaller than was economic. The claimant then said that they would
not make any further trips unless the price was renegotiated with a
raised minimum cost per load. The defendants felt obliged to accept
this as there was not time to find another carrier; they were also
heavily dependent on a current order to Woolworths, where the next
delivery was to be made.
• Decision: where a party is forced to renegotiate terms to its
disadvantage and is left without bargaining power with no alternative
but to accept the new terms offered, economic duress has occurred.
Kafco’s business would have been in danger of collapse if it was
unable to supply its main customer
14
Goldsworthy v Brickell
• Facts: The claimant, who was elderly, owned a large and valuable
farm which had become very run down. He came to rely heavily on
the defendant (his neighbour) for advice. Within a few months the
defendant was effectively managing the farm. The claimant then
gave the defendant a tenancy of the farm on terms very favourable
to the defendant, but took no independent advice.
• Decision: the tenancy was voidable because undue influence was
presumed. A fiduciary relationship was held to exist because of the
very close working relationship of the parties in which the defendant
clearly dominated the claimant
15
Everet v Williams
• Facts: Two highwaymen agreed to rob a stagecoach and share the
proceeds. One held up the coach at gunpoint while the other
collected all the valuables from the unhappy passengers. They were
successful in carrying out their plan, but the one who had grabbed
the valuables refused to part with any of them so the other one sued
him in contract.
• Decision: since the contract was to commit a crime, it was illegal and
void.
16
Regazzoni v Sethia
• Facts: India’s export regulations prohibited exports from India to
South Africa. To avoid the prohibition, the claimant and defendant
agreed to export the goods initially to Italy. From there they would be
sent on to South Africa. The buyer sued for breach of contract when
the seller failed to deliver.
• Decision: the buyer’s claim must fail because the contract was illegal.
Its performance would breach the law of India and was likely to
endanger its friendly relationship with Great Britain
17
Pearce v Brooks
• Facts: The claimant coach builders supplied a carriage to the
defendant, knowing that she would use it to ply her trade as a
prostitute.
• Decision: the contract was illegal. The coach builders could neither
recover payment from the defendant nor repossess the carriage.
They had effectively aided and abetted soliciting
18
Keir v Leeman
• Facts: After a riot, criminal proceedings instigated by the claimant
against the defendant were compromised when the defendant
promised £50 to the claimant in return.
• Decision: this contract was illegal and void because it undermined
the administration of justice and the claimant was not entitled to the
money.
19
Miller v Karlinski
• Facts: The defendant employer agreed to pay a salary of £10 to the
claimant and told him that he could claim expenses in which he
could include the amount he should have paid in tax on the salary.
The employer then failed to pay and the defendant sued for breach
of contract. He claimed 10 weeks’ salary and just over £21
expenses.
• Decision: the contract was void for illegality: it was clearly intended
to evade paying tax. Over three-quarters of the expenses claimed
represented what the claimant should have paid in income tax.
20
Parkinson v College of Ambulance
• Facts: The defendant charity persuaded the claimant to make it a
donation of £3,000 on the understanding that the charity would
ensure that he got a knighthood, but then failed to deliver on its
promise. The claimant sued for breach of contract.
• Decision: this was an illegal contract because it tended to promote
corruption and the claimant could not recover the money
21
Readmacher v Granatino
• Facts A French investment banker married a very wealthy German
national. Prior to the marriage, at the request of the wife’s family, an
anti-nuptial agreement was signed by both parties. The agreement
provided that each party forego any interest or benefit from the
other’s property acquired either before or during the marriage. They
had two children but divorced after nine years and the husband
claimed ancillary relief against the wife’s assets.
22
Readmacher v Granatino
• Issues: The husband contended he should not be bound by the
terms of the agreement because he was nowhere near as wealthy
as the wife, and he had not sought independent legal advice. He
argued anti-nuptial agreements are contrary to public policy
under MacLeod v MacLeod [2010] 1 AC 298 because the
financially weaker party is inevitably under pressure to sign, they
exclude the jurisdiction of the court which is unfair, and if they are to
be accorded validity, it should be a matter for parliament to legislate
to provide for their validity. The wife argued there was no legislation
prohibiting such agreements, and parties should be free to agree
between themselves how their assets are to be held. The husband
entered the agreement of his own free will and should be bound by
its terms.
23
Readmacher v Granatino
• Decision: The anti-nuptial agreement was valid. The rule that such
agreements are contrary to public policy should no longer apply. A
court could give effect to an agreement even if the result is different
to that which the court would have ordered. If freely entered into,
with all information available to both parties and in the absence of
pressure, such agreements should be upheld, unless it would be
unfair to do so.
24
Fitch v Dewes
• Decision: a solicitor’s managing clerk could reasonably be
restrained from working as a solicitor for the rest of his life, within a
seven-mile radius of Tamworth town hall, as he had dealt
confidentially with many clients within his employer’s practice. They
might follow him if he were allowed to practise locally.
25
Nordenfelt v Maxim Nordenfelt Guns &
Ammunition Co. Ltd
• Facts: Nordenfelt sold his arms manufacturing business to the
Maxim Nordenfelt Co. The contract restrained him from being
involved, for 25 years, in any way with the armaments trade. No
geographical limit was mentioned.
• Decision: given the wide scope of the business (a large variety of
armaments were manufactured by Nordenfelt) and the very small
number of customers involved (state governments), this was held to
be a reasonable restraint
26
Esso Petroleum v Harper’s Garage
• Facts: Two solus agreements were made between Harper’s and
Esso: agreement 1, which was to last four-and-a-half years, was
made in return for a price discount on the petrol; agreement 2, which
was to last 21 years, was made in return for a mortgage loan of
£7,000 from Esso secured on the filling station and which was
repayable over that period.
• Decision: agreement 1 was binding as it was entirely reasonable.
Agreement 2 was held to be unreasonable in relation to its time span.
It was longer than necessary to allow Esso to protect their business
interest in maintaining stable levels of distribution. It was irrelevant
that it had been agreed in relation to a mortgage.
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Thank You!
