Elements in a Contract X – Terms Implied By Fact

In addition to the express terms that have been agreed to by the parties there may also be additional terms that are read into the contract by the courts. These terms are known as implied terms. There are in essence and substance four types of implied terms. They are as follows:-

i) Terms implied by fact

ii) Terms implied by law

iii) Terms implied by custom

iv) Terms implied by trade usage

Terms implied by fact are terms that despite not being included in the contract, are included or read into the contract because the court assumes that the parties must have intended the terms to be part of the contract.

In Shirlaw v Southern Foundries (1926), it was held that implied terms are terms which in any contract are left to be implied and need not be expressed i.e. they are tacit terms.

These terms are so obvious that they go without saying and if, while the parties were making their bargain, an officious bystander were to suggest some express provision to be included in the agreement, the parties would testily suppress him with a common “Oh, of course!”. This test is also known as the officious bystander test.

In Banco de Portugal v Waterlow & Sons Ltd (1932), the plaintiffs a bank had contracted with the defendant company to print bank notes. The defendants delivered the notes to a third party and the notes were then circulated. The plaintiffs subsequently retracted the notes and sued for damages.

The defendants argued that the term was not part of the contract. The court held that the term was implied and that any person would know that the notes should not make their way into the hands of an unauthorized person or persons.

The test that is applied is the subjective test because it is applied from the perspective of the parties in the contract in that it would have been obvious to them that the term should be a part of the contract.

In Liverpool City Council v Irwin (1977) the tenants in a block of flats rented out by the City Council refused to pay the rent because the flats were in a state of disrepair and some of the basic amenities were either not available or were unusable. The council sued for the outstanding rent and in their claim they argued that the duty to keep the flats in good repair was not a term of the contract.

The House of Lords held that the landlord (the council) should take reasonable care to ensure that the facilities were kept in a good state of repair and that the terms to do so were implied into the contract. The plaintiffs were unsuccessful in their claim.

Terms are also incorporated or read into a contract in order to give the contract business efficacy. In the Moorcock (1889) the defendants owned a wharf and the plaintiffs contracted with them to unload their boat (the Moorcock).

Because the water levels were low at the time, the docking of the boat was dependant on the river bed. If the river bed was soft, it was possible to unload the boat but if the river bed was hard then it would not be possible to unload the boat without the boat sustaining some form or type of damage. The plaintiffs boat docked and did in fact incur some type of damage. The plaintiff sued.

The Court of Appeal held that the contract was based on the proposition that the plaintiffs could unload their boat without causing any damage to the boat. The plaintiffs were successful. The term that the boat should not be damaged was read into the contract because otherwise it was like saying unload at your own risk which would not have been the intention of the parties to start with.

The use of implied terms to facilitate business efficacy was however restricted by the court in Reigate v Union Manufacturing Co (1918). The court decided that it is important to first determine what the parties had expressed in the contract and if the court feels or deems it necessary then an implied term can be imported into the contract.

A term can only be implied if it is necessary in the business sense to give efficacy to the contract, that is to say that if at the time the parties were entering into the contract, someone had stood up and said what would happen in such a case?

The position of the courts was clarified in Trollope and Colls Ltd v North West Regional Hospital Board (1973). An express term can only be implied if the courts are satisfied that the parties would have incorporated the term into the contract and it does not suffice that a reasonable man would have stood up and suggested it to them. It must be a term that that goes without saying i.e. implied or understood to be part of the contract and a term necessary to give business efficacy to the contract.

In Alpha Trading Ltd v Dunnshaw Patten Ltd (1981) an agent was to receive a commission from a sale. The agent introduced a third party to the principle who subsequently entered into a contract with the third party but pulled out before the sale was completed. Since there was no sale the agent despite having made the introduction as per the agency agreement stood to lose his commission. The principle settled with the third party but did not pay the agent his commission. The agent sued.

The Court of Appeal held that business efficacy required that the principle would not withdraw from the sale and leave the agent without his commission. The court ruled that the agent was entitled to his commission.

Both the officious bystander test and the business efficacy test are subjective in that the court will look into the intention of the parties at the time that they entered into the contract to determine if a term can be implied into the contract or otherwise.

Copyright © 2017 by Dyarne Ward

Sikhandini

Sikhandini though not an orthodox Hindu Goddess is an intriguing character that first appears in the Mahabharata. She is the reincarnation of Amba, one of the three daughters of the King of Kasi that were spirited away by Bhisma during or just after a Swayamvara (a test of strength held to find a suitable husband for a bride, usually a princess) and the route or that path that she took to gain her revenge is intriguing. One is left wondering if it is possible to emulate the steps that she took to gain the powers that she eventually acquired i.e. meditate on the rakshashas (race of giants).

We have to keep in mind that she eventually defeated a warrior that even the great Parashurama couldn’t defeat, Devavrata or as he was later known, Bhisma of the Gods.

Bhisma by spiriting Amba, had caused her to be spurned by the person that she had set her heart on, the Prince of Saubala, Salva, and a distraught Amba, pleaded with Bhisma, to reunite her with the person that she loved most and despite Bhisma’s attempts to do so, Salva wouldn’t have her back and her unrequited love eventually turned to anger and hate that was, not as expected directed at Salva, but was instead directed at Bhisma, whose actions had precipitated the whole affair.

An angry Amba sought her revenge by first looking for suitable warriors to take on Bhisma but no warrior was brave enough to test his mettle against the son of Ganga, the daughter of Brahma. Bhisma just by his lineage alone, without taking into account his own accomplishments, was destined to be great and was almost impossible to defeat.

Brahma however was equaled in power by the other two divinities in the Hindu trinity, Vishnu and Shiva, and it was ultimately Shiva or those that came from the line of Shiva that were able to provide her with the means to exact her revenge and that was by drawing on the powers of others who came from the line of Brahma and the seven saptarishis.

She undertook severe austerities and gained the friendship of Lord Subrahmanya who was in fact the son of Shiva. He took kindly to Amba and gave her a garland of flowers promising her that anyone who wore the garland of flowers around his neck would be able to defeat Bhisma.

Amba searched high and low for a champion but no warrior was game enough to take on Bhisma, even with the garland of flowers around his neck, and a distraught Amba left the garland hanging on the palace gates of King Drupada and went into the forest to retreat.

There she befriended the hermits and sages who resided in the forest. They took kindly to her and advised her to seek the aid of Parashurama, the Vishnu incarnate who had defeated every warrior in the Kysastria clan.

Amba soon after started meditating and in time Parashurama appeared before her and promised to grant her anything that her heart desired. Amba wished for the defeat of Bhisma and Parashurama accordingly took to the battlefield but was eventually forced to admit that even he could not defeat the son of Ganga of the Gods.

A distraught Amba then fled to the Himalayas and there she meditated upon the mountain mendicant Shiva who appeared before her in time and assured her that she would defeat Bhisma in her next birth.

Unable to restrain herself Amba built a fire and threw herself into the flames and in her next birth she found the garland hanging on King Drupada’s palace gates and retreated into the forest to meditate.

She called upon the powers of the rakshashas and acquired not only their strengths but also the ability to shape-shift and she eventually became the man who defeated Bhisma in Kurukshetra.

The story is intriguing from the perspective that it tells us that it is possible to obtain the powers of the rakshashas. I certainly don’t mean to suggest that people should throw themselves into a funeral pyre, no, not by a long-shot, but while we are on the subject self-immolation has long been regarded as the highest form of sacrifice and the next birth will be in accordance with the deal that was struck just prior to death.

When in the meditative state, it is difficult to ascertain the nature of the “powers” one comes in contact with. Obviously this type of meditation has to be done in isolation or in seclusion and sages in the past have acquired tremendous powers from practicing this type of meditation and the source of their powers has never been identified.

Is it possible to drawn upon the power of the rakshashas via the meditative process? …. the answer in short would be yes because it is impossible to ascertain what happens when the unexplored channels of the mind are opened or the type of energies that pass through the body when that happens.

Copyright © 2017 by Dyarne Ward

Elements in a Contract – Contract Interpretations

Just like the words in an enactment or a statute can lead to an ambiguity, similarly words in a contract can also sometimes be a source of confusion. Therefore, the courts have developed certain guidelines in addition to the existing rules of interpretation (see statutory interpretation) to make the law more flexible.

In Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) Lord Hoffman set out five guidelines to aid with the interpretation of contracts. They are as follows: –

1) The terms in a contract should be looked at from the perspective of the reasonable man after taking into account all the background knowledge that was available to the parties at the time of entering into the contract.

2) The background knowledge that is to be taken into account is what is known as the matrix of facts or the factual matrix that was put forward by Lord Wilberforce and it includes anything, as long as the information is available to the parties, which would have affected the way in which the language of the document would have been understood by a reasonable man.

For example, in the case of Reardon Smith Line v Hansen Tangen (1976) the charterers agreed to take ownership of a tanker that was being built in a specific shipyard. The contract identified the tanker as Osaka No. 354 corresponding to the shipyard that it was being built in. Due to unspecified reasons the work could not be completed in the shipyard and the building of the tanker was subsequently transferred to another shipyard. The tanker was completed satisfactorily but it was no longer designated Osaka No. 354.

In the meantime, that world tanker market had taken a turn for the worse. The charterers refused to take possession of the tanker and claimed that the tanker did not fit the description as per s13 of the Sale of Goods Act – “Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description ….”. The courts held that the designations i.e. Osaka No. 354 and the following designation were merely labels and were not valid descriptions as per the act and that there was in fact a valid contract in place

3) Previous negotiations or any other past declaration of intent however is no included it what is deemed or termed as background knowledge. Lord Wilberforce in Prenn v Simmonds (1971) said that the reason for not admitting evidence of these exchanges is not a technical one or even one of convenience. It is simply that such evidence is unhelpful.

By the nature of things, where negotiations are difficult, the parties’ positions, with each passing letter, changes. It is only the final document which records a consensus.

4) The meaning of the words that have been used and the meaning of the words incorporated in a document may not be the same as that which is perceived or understood by an ordinary man. Words and sentences have numerous meanings. The meaning of the words in a contractual document is what the parties using those words against the relevant background would reasonably have understood the words to mean.

In Mannai Investment Co Ltd v Eagle Star Life Assurance Co (1997), the appeal was concerned with the question of whether a notice given by a tenant pursuant to a break clause in a lease was effective notice, Lord Hoffman said that it is of course true that the law is not concerned with the speaker’s subjective intentions. But the notion that the law’s concern is therefore with the “meaning of his words” conceals an important ambiguity. The ambiguity lies in a failure to distinguish between the meanings of words and the question of what the words would mean to a person who uses the words.

5) The “rule” that words should be given their “natural and ordinary meaning” excludes the probability that people can make mistakes especially when it comes to formal documents. The law does not attribute to the parties an intention that they clearly could not have had.

In The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. (1984) Lord Diplock said that “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

Copyright © 2017 by Dyarne Ward

Statutory Interpretation II – The Purposive Approach

With the inclusion of the United Kingdom into the European Union and with the rising number of cases that involved members of other European nations, especially in areas of trade and commerce, a new mode of interpretation was adopted and an approach that was more common in neighboring European countries was used. It is called the purposive approach and when using the approach the courts will first look at the intention of parliament.

Under normal circumstances or in most instances, the function of the courts is to ascertain the meaning of what parliament had said by giving the words their ordinary and natural meaning but this approach requires extreme clarity from draftsmen and it may be to a degree, that in all probability, is difficult to satisfy. It is an inescapable fact that despite all the care that is given to drafting documents, that there would be certain terms or clauses that turn out ambiguous.

It is a lot to ask of draftsmen to be precise in drafting documents especially when words and phrases can have numerous meanings. Paying too much attention, to construing words, may at times lead to a decision otherwise than that which was intended by parliament.

In Candler v Crane, Christmas & Co (1951), in comparing the various mechanisms that judges used to interpret statues, Lord Denning pointed out that the judiciary has always been divided in their approach.

On the one side there were judges who preferred the more traditional approach and on the other there were judges who were prepared to be more liberal and in the center, were the doctrines of Parliamentary Supremacy and the Separation of Powers.

In Magor and St Mellons Rural District Council Appellants v Newport Corporation (1950) Lord Denning clearly favored the purposive approach – “We do not sit here to pull the language of Parliament to pieces and make nonsense of it. This is an easy thing to do, and it is a thing to which lawyers are too often prone. We sit here to find out the intention of Parliament and of Ministers and carry it out, and we do this better by filling in the gaps and making sense of the enactment than by opening it up to destructive analysis.”.

Lord Denning was of the belief that it was the function of the judiciary to first determine the intention of parliament rather than construed the words or the sentences that were used.

The case also tells us that the purposive approach is by no means a new approach and that it has been around for some time. It has however been used sparingly.

In James Buchanan & Co Ltd v Babco Forwarding & Shipping (UK) Ltd, (1977), Lord Denning stated his view that the courts have for too long relied on the literal approach and in interpreting article 17 and article 23 of the Convention on the Contract for the International Carriage of Goods by Road, he said, the proper approach to use was the European Method or the “schematic and teleological” method of interpretation i.e. an approach that first identifies the purpose of the enactment.

When using this approach, judges do not go by the literal meaning of the words or the grammatical structure of the sentence. Instead they go by the design or purpose behind it. He went on further to say that in interpreting the Treaty of Rome and laws with regards to the European Union, the purposive approach should be the preferred approach.

In Pepper v Hart (1992) – the case was with regards to a teacher in a private school and the amount of taxes that he had to pay in lieu of the fringe benefits that he received.

Because there had been debates on the matter in parliament, the parties sort to refer to Hansard (an official record of debates in parliament).

The court departed from the rule in Davis v Johnson (1978) that stated that transcripts in Hansard cannot be used in court proceedings. Using the purposive approach, they allowed the parties to refer to Hansard.

The court also stated that reference to parliamentary material should be allowed as an aid to construing legislation when using the golden rule and the literal rule leads to an absurd result, but should be limited to the material that shows the intention of parliament and the mischief that it intends to remedy (parliamentary privilege still applies in that members are free to speak their minds).

In Wilson v Secretary of Trade (2003) it was held that only statements made by a minister or promoters of a bill could be looked at by the courts.

Copyright © 2017 by Dyarne Ward

Nestor Makhno II

In the days that followed the initial years of the revolution Ukraine disintegrated into a state of lawlessness. Russia’s involvement in the First World War (Jul 28, 1914 – Nov 11, 1918) provided much needed reprieve for Makhno.

While the Cossacks were preoccupied with the war, Makhno recruited and built his resistance movement and by the end of the war his troops numbered in access of 50,000. It was by no means a small movement and Makhno had managed to bolster his numbers fairly quickly. It was clearly a sign of the uncertainty of the times.

The unprecedented support may also have been due to the fact that Makhno’s insurrection had gained popular support and many idealists and liberalists within Russia sympathized with Makhno’s efforts. Printed materials including pamphlets and leaflets were distributed nationwide, and support for his efforts was on the rise.

Makhno’s Revolutionary Army liberated many urban areas in Northern Ukraine from the folds of the Ukrainian Nationalist Movement, a predominantly Cossack movement, loyal to the czar.

Makno and his army soon acquired a name for carrying out brash and brazen attacks, which included numerous armed robberies. His raids were bold, imaginative, creative, and soon became the stuff of legends.

He was very much in the Robin Hood mold and like the fictional hero; he stole from the rich to help the poor. Makhno was a master strategist and a brilliant commander and it was inevitable that he’d build up a sizeable following.

He was soon conferred the title little father “Batko”. He was by no means a tall man, approximately 5’4’ in height but his exploits towered well above that of giants.

Makhno’s style and tactics were best defined as anarchism. It wasn’t something that he had acquired naturally and there were some Czech influences there because he was mentored by a Czech teacher prior to being imprisoned but having said that, it could also have been a derivative of the anarchist philosophy of Mikhail Bakunin.

In 1920, in the City of Poltava, located along the banks of the Vorlska River in Central Ukraine, a predominantly Cossack part of Ukraine, a general uprising began against Bolshevik rule.

The historical city was shaken by the tremors of insurgency. Dissatisfaction and anger over the continued suppression of the proletariat boiled over and spiraled into a rebellion. The resentment towards the Bolsheviks was so strong that units of the regular army defected in a display of open hostility.

The situation was further aggravated by the conscription of Polish youth into the military to send them to the Polish front, to battle Polish forces under the command of First Marshall Jozef Pilsudski, and the compulsory requisitioning of food.

It was an area that was under the influence of the Ukrainian Party of Socialist-Revolutionaries (Borotbists) who had broken all ties with the Bolsheviks and were leaning towards an independent struggle.

There were attempts to merge the party with the Communist Party of Ukraine but the Borotbists walked out and in March 1920 decided to dissolve their party.

The Borotbists took their name from the word Borotba which connotes struggle and is symbolic of the Ukrainian uprising. The party largely comprised of peasants from the lower strata, whose most common source of income was farming and the performance of other menial tasks.

Two months later armed with rifles and small arms, a fight broke out with the local requisitioning units. In a minor battle the rebels overcame the Red Army Units and having won the skirmish, they released the captured prisoners.

The response was swift and lethal and included targeted hits and assassinations. Scores of people were killed. Makhno proved resilient and continued to attack where and when the enemy least expected and eventually the Bolsheviks called for a ceasefire.

Makhno accepted on the condition that thousands of political prisoners were freed. He was then invited to a conference which was nothing short of a trap that Makhno successfully eluded. He continued his fight for freedom but his grass-root supporters had diminished considerably by then, due to repeated and calculated attacks. His numbers were waning.

In August 1921, an exhausted Makhno was finally driven by Mikhail Frunze’s Ukrainian Red Army into exile while the remainder of his followers, fled to Romania, Poland, Berlin and Paris.

Makhno remained a noble and valiant hero of the people to the very end. He died on July 6 1934 in France at the age of 45, as a result of tuberculosis, evading capture and surrender to the very end.

Copyright © 2017 by Dyarne Ward

Nestor Makhno I

The Ukrainian Revolution occurred at a similar time, almost concurrently, as the Russian Revolution (1917 – 1921) and was in fact a revolution within a revolution. The Bolsheviks revolted to free Russia from czarist rule and their motives or intentions at time was to free the masses from the clutches of the decadence they were trapped in.

“Freeing the people from the clutches of decadence” however came at a huge cost and even as I write this I can’t help but wonder if revolutions are indeed what they are made out to be and if it isn’t easier to just work with the system to try and achieve a specific result or an objective.

Lenin was once quoted as saying “I don’t care if we exterminate 90% of the population, as long as the remaining 10% are communists”. The price as far as I am concerned was just too high. The success of the Russian Revolution came at a cost of 20 million lives.

At the start I was under the impression that Ukraine was a nation striving to achieve its own identity but having spoken to people who have been to Ukraine since then, I am convinced that there are two sides to the coin and that there is a segment of the population that firmly belief that Ukraine’s history should be read in light of Russia’s and at times it is not possible to distinguish or differentiate between the both.

I am not motivated by the current conflict in Ukraine and it matters not who is right and who is wrong. What matters is the long term prosperity of the Ukrainian people regardless of ideology, religion or ethnicity.

The success of the Russian Revolution sent shockwaves throughout Europe. In Poland First Marshall Jozef Pilsudski launched a preemptive strike into Ukraine in an attempt to prevent the inevitable with the proposition of setting up a new federation comprising of the Baltic States (Lithuania, Latvia, and Estonia), Finland, Belarus, Ukraine, Hungary, Yugoslavia and Czechoslovakia.

Aligned with him were the citizens of Western Ukraine who rallied under the umbrella of the Western Ukrainian People’s Republic comprising mainly of people of Polish origin. The Russian Ukrainians who lived in Eastern Ukraine assembled under the banner of Symon Petliura’s Ukrainian People’s Republic. The coalition fired the first salvo and the rebellion, to break away from Bolshevik rule, lasted until October 1920.

The conditions prior to the revolution were deplorable. Capitalism did not develop organically in Ukraine and the wealth of the nation was divided among the ruling elite. Ethnic Ukrainians were confined to the realms of the proletariat

From the perspective of pro-Ukrainian writers, the revolution in Ukraine that ran concurrently with the Russian Revolution was not only an uprising against Imperial Russia but also an uprising aimed at ending Bolshevik rule in Ukraine. I tend to agree.

In the aftermath of the October Revolution of 1917, anarchism was the order of the day. The czarist rulers of Russia, in an attempt to re-install democracy, freed thousands of political prisoners and dissidents, in an effort to win popular support.

Lenin was quick to seize the opportunity and many of the disillusioned political prisoners were persuaded to embrace the politics of the Bolsheviks. Shift and change was in the air and it’s difficult to determine if the bulk of the masses were in favor of Lenin’s ideological reforms or if they merely wanted change. Whatever the reasons, the Bolsheviks swept to power.

Post their victory, the lush and fertile fields of Ukraine were trampled on by the boots of militants. The tide of battle flowed back and forth with a bulk of the proletariat, who comprised of farmers and poor peasants paying the price. The Bolsheviks would be quick to state that freedom came at a cost but they had no measure of the price that was to be extracted or extorted.

Featuring prominently on the Ukrainian side of things was someone who can aptly be described as a modern day Robin Hood, Nestor Ivanovych Makhno, the commander of an independent anarchist army.

Makno was born in Huliaipole. An Ukrainian from peasant stock, he spent many years as a political prisoner for his guerilla style strikes against those aligned with the czar. Released as part of social reforms and in an attempt to strike a balance between the ruling class and the proletariat, Makno and hundreds of his comrades would go on to structure and engineer another minor revolution.

Copyright © 2017 by Dyarne Ward

Statutory Interpretation I

When interpreting laws, there are three rules that the courts generally use. They are as follows: –

i) the Literal Rule

ii) the Golden Rule and

iii) the Mischief Rule or Heydon’s Rule

When the literal rule is applied, the courts will give the words their ordinary and natural meaning. Let’s look at a few examples. In Fisher v Bell (1961) – the respondent was the owner of a shop and had displayed in his shop window knives with tags attached that read “ejector knife”.

A policeman entered the shop to examine the weapon and took it back to the station for further investigation. The chief inspector of police, convinced that it was indeed a flick knife charged the owner of the shop.

Under s1.1 of the Restriction of Offensive Weapons Act 1959 it is an offence for anyone to manufacture, sell or hire or offer for sale or hire, a flick knife.

Most people looking at the display would come to the conclusion that the knifes were on sale or were offered for sale but under the ordinary law of contract the display of an item in a shop window with a price tag attached to it is merely an invitation to treat and it must be taken that parliament while legislating knew or was aware of the meaning that is attached to a display of items with a price tag attached in a shop window. Here the courts gave the words their ordinary and natural meaning.

In Partridge v Crittenden (1968) Mr. Partridge took out an advertisement stating that he had either in his possession or access to, Bramblefinch cocks and Bramblefinch hens, without using the words offer for sale. Mr. Crittenden upon reading the advertisement sent Mr. Partridge a cheque and Mr. Partridge in turn sent him a hen. Mr. Crittenden on behalf of the RSPCA brought the matter to the attention of the courts.

Under s. 1 of the Protection of Birds Act 1954 it is an offence, with the exception of those holding a license granted under section 10 of the Act, for any person to sell, to offer for sale or to have in his possession for sale, various species of wild birds.

The operative words here were “offer for sale” or “have in his possession for sale” and the words were not used in the advertisement. In addition to that, in contract law, advertisements in newspapers and catalogues (Grainger & Son v Gough (1896)) are construed as invitations to treat and not offers.

The next rule that is applied is the golden rule and it is applied when the application of the literal rule brings about an absurd result or a result that parliament could not have intended. When using the golden rule, the words have to be construed after taking into account the statute as a whole. However, if so construed, the words lead to an absurd result, the courts may infer an additional meaning (River Wear Commissioners v Adamson (1877).

The judge has to try and determine the intention of parliament and decide what parliament had in mind when it passed the law. In R v Allen the defendant was convicted of bigamy under s57 of the Offences Against the Persons Act (1861) which reads as follows: –

“Whosoever, being married, shall marry any other person during the life of the former husband or wife, whether the second marriage shall have taken place in England or Ireland or elsewhere, shall be guilty of felony, and being convicted thereof shall be liable . . .”

A person who is married cannot marry again and therefore the courts construed the words “shall marry” as “go through the ceremony of marriage”.

In Adler v George (1964), the case concerned s3 of the Official Secrets Act 1920 which reads “No person in the vicinity of any prohibited place shall obstruct, knowingly mislead or otherwise interfere with or impede, the chief officer or a superintendent or other officer of police, or any member of His Majesty’s forces engaged on guard, sentry, patrol, or other similar duty in relation to the prohibited place ….”.

The defendant somehow managed to enter an Air Force base and was charged under the act. While the act made it an offence to be in the vicinity of a prohibited place, it did not mention anything about being in it. The courts applied the golden road and construed “in the vicinity” to include being in a prohibited area.

The third rule that is used to interpret laws or acts of parliament was laid down in Heydon’s case (1584) where the defendant was tried for intruding into certain lands. When applying the rule the courts will take into account three factors: –

i) what was the common law before the making of the act?

ii) what was the mischief or the defect common law did not provide for? and

iii) what remedy has parliament resolved to provide?

In Corkery v Carpenter (1951) the defendant was drunk and was found pushing his bike along a street. He was subsequently charged under s12 of the Licensing Act 1872 which reads “Every person …. who is drunk while in charge on any highway or other public place of any carriage, horse, cattle, or steam engine, or who is drunk when in possession of any loaded firearms, ….”.

The defendant argued that s12 of the Licensing Act 1872 makes no mention of bicycles. The court applied the mischief rule and held that the purpose of the act was to prevent a person from being in charge of a vehicle or a mode of transport while the person was drunk. A bicycle was clearly a vehicle or a mode of transport.

In Elliot v Grey (1960) the defendant’s car was uninsured and he left it parked on a road, jacked up and with the battery removed. Under the Road Traffic Act 1930 it was an offence to use an uninsured car on the road.

The defendant was charged under the Road Traffic Act 1930 and he argued that he was not using his car because it is impossible to use a car without a battery. The courts applied the mischief rule and held that it was being used on the road because it represented a hazard and therefore insurance would be required in case of an accident.

In his dissenting statement, Lord Wilberforce in Royal College of Nursing of the United Kingdom v Department of Health and Social Security (1981) said that “when a new state of affairs, or a fresh set of facts, come into existence, the courts have to consider whether they fall within the Parliamentary intention. They may be held to do so, if they fall within the same genus of facts as those to which the expressed policy has been formulated.

Copyright © 2017 by Dyarne Ward

Elements in a Contract – Collateral Contracts

A collateral contract is a subsidiary contract which induces another party to enter into the main contract. A collateral contract is often an oral agreement or an undertaking given prior to the formalization of the main contract and is accepted as part of the contract on the basis that the parties came to an agreement in reliance of the promise or the oral undertaking.

In Bannerman v White (1861), the plaintiff (claimant) agreed to purchase some hops from the defendant for brewing purposes. The plaintiff stipulated that the hops must not be treated with sulphur prior to the purchase because it was intended for use in the manufacture of a consumable product.

The defendant assured the plaintiff that the hops had not been treated with sulphur but as it turned out they were. The defendant argued that the representation was not a term in the contract but the courts determined otherwise because the plaintiff had emphasized the importance of the term, prior to formalizing the agreement. The defendant’s oral assertion was a collateral contract.

In Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd (1965) the plaintiffs were looking for a Bentley car and had certain criteria that they based their selection upon. The defendant a car dealer who was an expert on Bentley cars sold them a car based on the criteria that the plaintiffs had set. It later turned out that the car in question did not fit the criteria the plaintiffs had set and the plaintiffs sued. The courts held that the oral statements made prior to the formalization of the contract were indeed a part of the contract and the plaintiffs were successful in their claim. The main contract was dependent on the oral assertion being satisfied.

In J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976) the defendant assured the plaintiff that the goods, will be ferried below deck, and entered into the contract based on the undertaking or in reliance of the promise, when in actual fact the goods were stored on the deck and were damaged in a storm. The plaintiff sued and was successful. The oral agreement was held to be a collateral contract i.e. a subsidiary contract which induced the party to enter into the main contract.

In Heilbut Symons v Buckleton (1913) the plaintiffs were rubber merchants who underwrote a large number of shares in the defendant company on the basis that they were bringing out a rubber company and the details were confirmed in a telephone conversation. It later turned out that the defendant did not bring out a rubber company i.e. the company couldn’t be described as a rubber company and the plaintiffs sued. The plaintiffs were successful.

In City and Westminster Properties Ltd v Mudd (1934) the tenant was party to a lease that stipulated that the premises the tenant was on could only be used for business purposes. Prior to that however the landlord had assured the tenant that, the tenant in addition to using the premises for business purposes could also reside on the premises and the tenant signed the lease based on the assurance.

The tenant used the premises for 10 years during which time he not only used it for business but he also used it as a residence before the landlords attempted to vacate him. It was held that the promise that the tenant could reside on the property was a collateral contract and the tenant was successful.

In Shanklin Pier Ltd v Detel Products Ltd (1951) the plaintiffs needed to have their pier painted and contacted Detel Products and made inquiries as to the paint. The defendants assured them that their paint would last for 7 years when in fact after 3 months of the pier being painted the paint began to deteriorate. The plaintiffs sued and were allowed to adduce the prior oral contract as evidence that they had entered into the contract based on the reliance of the oral promise and the oral contract was held to be a collateral contract.

In Wells (Merstham) Ltd v Buckland Sand and Silica Co Ltd (1965) the plaintiffs were chrysanthemum growers who purchased sand from the defendants based on its chemical composition. The sand did not contain the chemical composition that the plaintiffs were told it would and as a result the crop failed. It was held that the plaintiffs had signed the contract based on the defendants assurances and the plaintiffs were successful in their claim.

In Esso Petroluem v Mardon (1976) the plaintiff’s representative assured the defendant that his new petrol station would be able to sell at least 200,000 gallons of petrol per year. Following the representation, the local council made some changes to the site and as a result it was estimated that the sales would fall and would be lower than what was initially projected but the plaintiff’s representative failed to communicate the changes made by the local council and the ensuing changes in the estimated sales to the defendant.

As a result, the defendant fell in arrears and Esso Petroleum sued for the outstanding payment. The defendant made a counter claim and he was successful. In addition to negligent misrepresentation there was also a collateral contract in place in that the defendant had entered into the contract based on Esso’s estimates and projections.

Copyright © 2017 by Dyarne Ward

Elements in a Contract – Domestic and Social Agreements

Social and domestic agreements i.e. agreements made between friends and agreements made between family members are generally not treated or regarded as legally binding agreements unless there is some consideration that suggests or implies otherwise.

Charitable Agreements

In Re Hudson (1885) Hudson promised to pay £4,000 per year to a chapel, for 5 years, to help it pay off its debt. He died before the last 2 installments could be made and his estate refused to pay the outstanding installments. It was held that a contract had not come into existence and that there was only a gratuitous promise in place. As a result Hudson’s estate could discontinue the payments if they so desired.

Agreements between spouses and partners

In Balfour v Balfour (1919), the husband while working overseas agreed to send regular payments to his wife. Subsequently the relationship went downhill and the husband stopped sending his wife money. Mrs. Balfour brought an action against her husband and it was held that the agreement that was in place was a purely social agreement and that it didn’t amount to a contract.

The situation however is different when it comes to former partners who are legally separated. In Merritt v Merritt (1970) – a husband and wife separated and there was an outstanding debt owing on the house which the couple had jointly purchased. The couple entered into an agreement whereby the husband would pay the wife a certain amount of money each month until the mortgage was fully paid off and once the mortgage was out of the way, the house would be transferred to the wife.

The husband failed to transfer his interest in the house to the wife once the payments were complete and the wife brought an action against the husband. It was held that there was a binding agreement and that it was enforceable at law.

Agreements between other family members

In Jones v Padavatton (1969) a mother persuaded her daughter to leave her high paying job in the US and move to London to complete her bar. In addition to giving her a certain amount of money each month the mother also purchased a house for her to help her financially until she completed her exams. The daughter subsequently moved to London but did not complete her bar as agreed but chose to marry and settle down instead.

The mother then sought possession of the house and the court held that there wasn’t a legally binding agreement in place and that the agreement between the mother and daughter was not intended to have legal consequences.

In Todd v Nicol (1957) the defendant invited the plaintiff, her sister in law, to come and live with her, with the promise that upon her death the family house would eventually be hers. The plaintiff sold her belongings and moved to the defendant’s house in reliance of the defendant’s promise. The relationship took a turn for the worse and the defendant refused to honor her promise. It was held that there was a binding agreement on the grounds that the changes that took place were so substantial that consideration was implied.

In both Jones v Padavatton (1969) and Todd v Nicol (1957), the defendant in the former and the plaintiff in the latter, had made substantial changes to their lives and had to some degree acted to their detriment, based on the promise of another party and therefore had provided some form of consideration.

Social Agreements

In Simpkins v Payns (1955) a tenant, landlady and her granddaughter entered into a weekly competition run by a newspaper. A coupon was sent in, in the landlady’s name each week and all three took turns to send in the entries and the nominal sum which accompanied the entries based on an agreement that should any of them win the prize, it would be split or shared three-ways. The landlady won the prize and upon winning refused to give the tenant his share of the winnings. The tenant brought an action in court against the landlady and it was held that there was indeed a valid contract.

In Trevey v Grubb (1982) three friends contributed regularly to purchasing a lottery ticket and eventually the defendant won. The defendant refused to share the prize money and the plaintiff sued. The court decided along the lines of Simpkins v Payns (1955) and held that the plaintiff was entitled to his share of the prize money.

The plaintiffs in both the cases contributed regularly by either submitting the entries or purchasing the tickets and therefore had provided some form of consideration that entitled them to their share of the winnings. Hence there was some measure of certainty in the agreements.

In Wilson v Burnett (2007) three friends came to an agreement that if they were successful at bingo on a particular evening, they would split the prize money three-ways. One of the friends was extremely successful and won in excess of £100,000. The other two friends brought an action to claim their share of the prize money.

It was held that the issue before the courts was to decide whether there was a binding agreement made between the friends, prior to playing bingo that evening and if the agreement was of sufficient certainty. The plaintiffs were unsuccessful in their claim.

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Elements in a Contract IX – Parol Evidence Rule

When the terms of a contract have been formalized by a written agreement, the general rule is that the terms cannot be changed by adducing extrinsic (external) evidence to alter the terms of the contract. This is known as the Parol Evidence rule.

In Henderson v Arthur (1907) the defendant was party to a lease that stipulated that rent could be paid in advance. However, prior to that there was an oral agreement whereby the parties agreed that the rent could be paid in arrears.

The rent was outstanding and the plaintiff brought an action against the defendant. The defendant argued that there was a prior agreement that allowed him to pay the rent in arrears but the Court of Appeal held that an earlier oral agreement could not replace the terms of a later written agreement and the Parol Evidence rule prevented the earlier agreement from altering the terms of the new agreement.

There are however certain exceptions to the rule and instances or circumstances where the rule will not apply. The first exception is rectification i.e. when an oral contract is formalized in writing and there is an error in the written agreement, then extrinsic evidence may be allowed to show that there was an error, so that the contract may be rectified in the manner in which the contracting parties intended.

The next exception to the rule occurs when there is a partially written agreement i.e. the agreement is part oral and part written. In Couchman v Hill (1947) the plaintiff bought a heifer at an auction and prior to acquiring the heifer, he had related to the defendant that he intended that the heifer be “unserved” and the defendant was fully aware of the plaintiff’s intentions. It was later discovered that the heifer was carrying a calf and died as a result of carrying the calf too young. The plaintiff sued and was successful. He was allowed to adduce the prior oral agreement as evidence to support his claim.

Similarly, in J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976) the defendant assured the plaintiff that goods will be ferried below deck when in actual fact the goods were stored on the deck and were damaged in a storm. The plaintiff sued and was successful. The oral agreement was held to be a collateral contract i.e. a subsidiary contract which induced the party to enter into the main contract.

When a term of a contract is ambiguous or worded in a manner that gives rise to more than one interpretation, extrinsic evidence may be adduce to show or determine the intention of the parties and hence ambiguous terms are also an exception to the Parol Evidence rule.

The Parol Evidence rule is also waivered when there is a need to show that existing custom or tradition gives the term or attaches a different meaning to the term than which would otherwise normally be applied. In Smith v Wilson (1832) it was held that the interpretation of 1,000 rabbits as 1,200 rabbits as dictated by local custom was valid.

In Hutton v Warren (1936) the plaintiff was a tenant in the defendant’s fields and had accordingly tilled the fields and sown it with seeds. The tenancy was then terminated prior to the crops being harvested and the defendant, contrary to local custom refused to pay the plaintiff for the cost he’d incurred and for the work he’d done because it was not stipulated in the written agreement. The plaintiff brought and action against the defendant and was successful.

Another exception to the Parol Evidence rule occurs when there are terms implied by law and those terms are not present in the contract. In Liverpool City Council v Irwin (1977) the tenants in a block of flats rented out by the City Council refused to pay the rent because the flats were in a state of disrepair and some of the basic amenities were either not available or were unusable. The council sued and in their claim they argued that the duty to keep the flats in good repair was not a term of the agreement. The House of Lords held that the landlord should take reasonable care to ensure that the facilities were kept in a good state of repair and the plaintiffs were unsuccessful in their claim.

The Parol Evidence rule will also not apply when a written contract is dependent on an event taking place prior to coming into operation. In Pym v Campbell (1856) the plaintiff signed an agreement with the defendant who agreed to acquire a portion of the profits that would result from the plaintiff’s invention and accordingly signed an agreement with the plaintiff.

Later one of the two inspectors who tested the invention failed to approve it and the defendant refused to continue with the agreement. The plaintiff brought an action in court. The courts found for the defendant and held that the agreement was subject to approval from the inspectors or would commence only after the invention had been approved.

Copyright © 2017 by Dyarne Ward