Contract law week 1

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Contract Law Week 1


“Agreement between two or more parties having the capacity to make it, in the form demanded by law to perform on one side or both acts which are not trifling indeterminate  impossible or illegal”

Unilateral Contracts V Promise (Pre-contractual negotiations)

No contract = no liability (case)

UC = agreed between the parties

UP= undertaking by one party (case)

To create a contract

  1. Full agreement of important aspects ( consensus in idem)
  2. Consent of the parties ( agreement to be legally bound)
  3. Capacity to contract
  4. Formality
  5. Not prohibited by law/unenforceable

Formation of a contract

Consensus in idem “ A contract is formed when the parties have reached agreement on the essential terms of the contract always provided that they have the intention to create legal obligations”


What is an essential term?

Certainty (case)

RTS Flexible systems LTD v Molkerei Alois Muller gmbH 2010

“It depends not upon their subjective state of mind upon consideration of what was communicated between them by words of conduct, and whether that leads objectively that they intended to create legal relations”

Essential Terms

Wight v Newton 1911 SC 762

  • Tenant (W) offered lease (in writing)
  • W in possession before lease executed
  • Draft had been prepared by Landlord (n) but not adjusted
  • When entered possession repair clause in dispute
  • After 3yrs possession W brought an action to have lease executed ( as adjusted by him – repair clause in favour)
  • N argued – no agreement on repair clause = no contract


Held, “ it was argued for the pursuer that the four essentials of a lease, namely the parties thereto the subjects, the duration and the rent, having been proved or admitted to have been agreed on between the parties, he was entitled to ask the court to remit to a  man of skill to determine whether *772 the particular clause should be inserted in the lease as one of the usual and necessary clauses of such a lease” – Essential terms may vary depending on the type of contract being negotiated.


Agreement as to form

Agreement reached but provision re writing = Not binding till in writing (Case)  K seeking specific implement re exclusive distribution


Subjective v Objective

Muirhead and Turnbull v Dickson 1905

  • Piano merchant ( M&T) practise of sale, hire-purchase and hire
  • Oral offer to D “at value of £26, payable 15s. per month”

“Now, of course, if the matter really was as to what in their inmost hearts people thought, I think that, taking these people as honest people on both one side and the other, what they thought would have lead me to the conclusion at which sheriff has arrived, namely, the Grant thought he was selling on HP system, and the other person thought he was buying upon some instalment plan. Commercial contracts Cannot be arranged by what people think in their inmost minds. CC are made according to what people say”

To create a contract

  • Full agreement ( consenus in idem)
  • Consent of the parties ( legally bound)
  • Capacity to contract
  • Formality
  • Not prohibited by law/unenforceable

What is an agreement to be legally bound?

  • Purely social and domestic not enforceable
  • Expressions of intention alone insufficient
  • Illegal and immoral agreements not recognised
  • Other – statutory
  1. Balfour v Balfour 1919 ( husband and wife)
  2. Ritchie v Cowan and kinghorn 1901


  1. Dow v Tayside University hospitals NHS 2006 SLT

Parties to the contract

There must be at least 2 parties to a contract!


One person grants a “consideration” and the other party does something on the strength of the first party’s “consideration” or undertaking which is not necessarily for the benefit of the first party

Mortons Trs v Aged Christian friend’s society 1899

  • M undertook to pay society 1k ( on certain conditions)
  • To be paid in 10×100 instalments
  • Society met conditions
  • 8 instalments paid – m died
  • Charity claiming payment of 2 outstanding instalments


Promisor and promise. Promise does not have to accept. Requires patrimonial interest but not reciprocity/exchange. Promisee does not have to do anything.

Smith v Oliver 1911

  • Lady promised to leave sum in will for church renovations but DID NOT
  • Church sued estate
  • Promise enforceable in principle
  • Case failed as insufficient proof


Offer and Acceptance

Party A makes an offer (oral, written, implied)

Party B accepts A offer (Oral,written,implied)

We have a valid binding legal contract between A & B


A statmenet by a P ( offeror) Seeking to enter into a contract which contains all the essential terms upon which he/she seeks to do business with the P to whome the offer is made (offeree) If accepted, a legally binding contract is formed.

Essentials for a valid offer

Must be firm, Must be certain and must be communicated

Must be Firm

Fire as in definite, equates to binding promise, the word offer need not be used, words not necessary if action etc. if “firm”. Inappropriate terminology (not firm) would be “I hope to buy” “Are you interested” “I intend to sell”

Must be Certain

Terms must be clear or capable of being made clear very readily. If not…

Scammell v Ouston, 1941 O purported to buy lorry with trade-in-plus balance payable “on HP terms” over 2 years, S reneged; HoL held no contract as O offer insufficiently clear.

Foley v Classique coaches 1934. F agreed to sell land to CC to build filing station and cc agreed to buy all petrol from F, price of petrol to be agreed from time to time or refereed to an arbiter if dispute, CC began buying elsewhere, F sued, CC argued that the clause on price was too vague to be valid but Ct held otherwise as there was a clear laid down method of resolving price. F illustrates – “Certum est certum quod redid potest” which means that is certain which can be rendered certain

Must be Communicated

Offer may be express, implied. It may address one person, a group, the entire world, person’s unknown or known e.g an award.

Express = Oral and written (verbal, letter, fax)

Implied – vending machine, supermarket, checkout behaviour

No words needed. Chapelton v Barry UDC 1940

Collapsing desk chair, ticket was a receipt not part of contract

Normally adverts are neither intended as nor interpreted as objectively as offers ( objective test)

Adverts are a type of “invitation to treat” rather than offer


Invitation to treat

Offer and acceptance is often preceaded by negotations, enticements or advertising of some sort. Pre-offer negoatations are not formally legally binding to anyone. Adverts are not usually bidning except in rare cases. ITT = expression of willingness to do business.


  • Requests for tenders, bids etc common in construction industry and other fields.
  • Inviting tenders doesn’t constitute an offer
  • Tender submission may be very expensive
  • Tender makes offer by submission of bid
  • Lowest or any other tender needn’t be accepted unless party inviting tender has promised otherwise

Harvela Investment V Royal Trust co of Canada 1985

RTCC invited H to bid for shares and promised to accept highest offer. H bid $2,175,000, sir LO bid $2,100,00 or $101,000 in excess of any other offer. RTCC accepted L as highest offer, H disputed. Hol held, there was a contract between RTCC & H as h’s bid constituted an acceptance in the circs of the invitation( which was a binding promise to accept the highest instant “offer”. Referntial bids only competent in a proper auction.

Shop displays

  • Invitation to treat.
  • Custoer makes the offer, which shop doesn’t need to accept
  • Sex and race discrimination and trades descriptions legislation raise separate non contractual issues of “criminal” liability etc.

Fisher v Bell 1961

1959 act banned sale of flick knives. Offence to offer offensive weapons for sale. Shop display of flick knife with price tag. Prosecution failed as display was ITT only, not offer (customers made offers) Offer for sale given same meaning as per law of contract thus shop not convicted for mere ITT

… bb

Acceptence is unqualified, unconditional assent to offer, must meet the offer in material respects (consensus in idem) must be communicated and must be timeous

Communication of acceptance by Conduct. Carlill v Carbolic smokeball co 1893. CSC advertised flu prevention remedy. £100 to anyone who got flue despite it, Mrs C took it but got flu, CSC refused £100 said it was a gimmick not serious. CSC argued her acceptance not communicated this no contract,

Held, the ad was firm, certain and communicated thus it was a legal offer and mrs C had accepted by complying with instructions thus CSC bound to pay £100.


Capacity and Error


Governed by P’ship act 1890. Each P is an agent for the firm, each P is an agent for the fellow P’s. Each P is liable for whole firms debts. Each P may claim pro rata relief from fellows. P’shop is a distinct legal person but has no contractual capacity of its own.


Error (mistake) Focus on different types before analysing their legal effects and consequences, error of judgement, error in law, in fact and in expression.

Error of judgement

No common law legal remedy for adults with full legal capacity if they strike poor bargain

Error in law

Ignorance of law is no excuse. No remedy in contract but possibly unjust enrichment remedy

Error in fact

May be legally significant or not. Unilateral error, error in concomitans, error in the substantials, essential error, induced error

Bilateral = both parties labour under a mistake

Common = bilateral, both make same error

Mutual = bilateral, misunderstand each other

Unilateral = only one P is mistaken

Concomitans = not dundamental or essential

Essential = for this, P wouldn’t have contracted

Error in expression

Parties agreement inaccurately expressed, common law and statutory rules, common law – no unfair advantage by one P over other, bad faith not to be rewarded

Validity of Contracts

Ex facie valid contract may be invalid due to fundamental legal defect, fundamental legal defect may impair legal status of contract rendering it unenforceable, defect may be latent, hidden, not apparent.

Typical defects

Insanity,Youth,Intoxication,lack of capacity, war,error, misrepresentation, force,fear

Legally recongised vitiating factors may render contract void,voidable or unenforceable


Fatally flawed or defective, of no legal effect, a nullity from the outset, vitiated beyond redemption, null & void ab initio. As if the contract never existed.


“wounded” tainted, flawed, but… valid until and unless successfulyy challenged/set aside (due to flaw) Liable to be avoided, reduced , set aside but fully effective in law until and unless set aside. Ticking time bomb? Vulnerable to challenge by one of the parties but not others. Not null ab initio, only from date of reduction. If neither party successfully challenges the flawed voidable contrast subsists perfectly validly. Obligations will have to be performed. Payments will be due and enforceable, voidable contract valid until and unless reduced by successful legal challenge. The time bomb can be defused by reference to:

Personal Bar, Resitutio in integrum , innocent 3rd parties

Personal Bar – right to repudiate a VC may be PB’d. Pb’d by acquiescence and delay, rights must be excersised reasonably timeously or objections to infringement of P contractual rights made timeously potentially loose right to rescind withdraw.

Restitutio in Integrum ( entire restoration)

Right to rescind lost if parties cannot restore each other ro original pre-contract positions, Restoration must occur be real not hypothertical or theory only. Must happen. If R not possible then contract cannot be set aside.

Innocent 3rd parties rights

If 3rd party acting in good faith has acquired rights the contract ceases to be voidable can no longer be set aside.

Contrast between void and voidable is seen by comparing onward sale of sloten car to 3rd innocent party ( null and void due to original fatal taint of theft)

Macleod v Kerr 1965

Honest man sold car to rogue who paid with stole cheque which bounced by which time rogue had sold car to innocent, good faith 3rd party dealer

The rogue was convicted in the criminal courts but the dispure as to who owned the car had to be resolved in the civil courts.

Held, that dealer owned the car as contrast between honest man and rogue was merely voidable not void ab initio and it had not been set aside before an innocent 3rd party had acquired rights to the car. There was no actual error of identity but rather a freadulent misrepresentation of the cheque

Voidable contracts

Undue influence, facility and circumvention, intoxication unless absolutely blotto, certain kinds of error and misrepresentation

Unenforceable contracts

Void, various contracts fall into this bracket. Pacta Illicita, Illegal contracts. Eg. To commit a crime, not enforceable, not really a contract at all, null and void ab initio.

Examples(not illegal but unenforceable)

Gentlemans agreement (honour only)

Social and domestic agreements, convents in unreasonable restraint of trade

Contracts which cannot be proved. E.g. unwritten non business promise (unless personal Bar)


Vitiating factors may render an apparent, ex face valid agreement, void etc

Void, Voidable and unenforceable

The vitiating factors include, Lack of capacity, fraud, error, misrepresentation, undue influence, facility and circumvention.

Lack of legal competence/ full legal capacity may vitiate an ex facie othwerwise binding agreement, lack of capacity to contract renders it void or voidable. This involves examination of status.

Generally all adults have full competent contractual capacity. Lack of capacity may arise due to: youth, mental incapacity/insanity, lack of authority, bankruptcy, lack of legal personality.

General Rule

All adults have full contractual capacity, adults are 16 +, governed by ALCSA 1991, capacity is automatically presumed. Age of Legal capacity (scot) act 1991

Under 16s have no capacity, unless common transaction by reference to age and circs and terms of the transaction not unreasonable, otherwise <16 do contract through parent or guardian.


Passive capacity possessed by individuals from birth e.g. owning property, rights vested (HR) duties owed to you (delict) Passive capacity not dependent on age or sanity etc

Insanity (dementia, Alzheimers etc)

Insane have no contractual capacity, purported contracts are null and void ab initio, presumption of sanity, however thus proof evidence needed to rebut presumption, no rebuttal without evidence, Valid contract competent during lucid intervals if fluctuating condition. On-going contract not invalidated by supervening insanity but may be frustrated if delectus personae involved. Insane P has passive capacity but will need a representative to act.

Louden v Elders CB 1923

Dundee meat retailer ordered supply from Liverpool firm while insane, unknown to supplier , certified insane after order but before delivery, CB appointed and cancelled order, supplier sought damages for breach. Held, No liability as contract void.

Contrast with English Law – Hart v Connor 1985

Mentally unsound P bound to sell land as the other P did not know of incapacity when bargain was made.


Drunkness, drugs etc, Not a vitiating facor unless severe, total irrationality robbing P of understanding and ability to consent renders contract void, Mere impaired judgment due to drink has no legal effect

Taylor v Provan 1864

Negotation to buy cattle, P was buyer, T was seller. P thought T price was too high until after P got drunk and bought T high price which P had rejected when sober. P refused tp pay. T sued. P asked ct to reduce contract, but Ct held P to it, as he was not irrational to the point of incapacity.

Pollock v Burns 1875

P was a habitual drunkard and entered into a contract while drunk but did  not challenge validity for 6 months. Rejected as habitual drunkenness was not a sufficient degree of intoxication to invalidate and adverse comment on delay in challenging.

Law is unclear

Total drunk = void other = voidable only

Enemy Aliens

Citizens of countries UK at war with wherever they live, British citizens who reside in or do business in enemy countries in wartime. Businesses  controlled by EA are EA’s too. EA have no contractual capacity. Contract will be void

Unjustified Enrichment

A party who is enriched by another party’s loss should restore that enrichment to that party. Foundation= roman law. An unjustified enrichment is where retention is supported by legal grounds. E.g. where a contract is void.


Any P unable or unwilling to pay debts is insolvent (bankrupt) Liabilites exceed assests = insolvent.

Sequestration – Ct process of declaration of bankruptcy, trustee appointed. Trustee ingathers assets and pays out creditors. Bankruptcy (s) act 1985. Insolvency Act 1986, Bankruptcy and Diligence etc (s) Act 2007

Trustee in Sequestration may take over contracts or not, may enter into new ones( sell property) Bankrupt may only enter into contracts which do not adversely interfere with the estate( his assets) …bb





Misrepresentation Undue Influence Force and Fear

3 types of misrepresentation

Innocent, Negligent and Fraudulent. Silence, non disclosure and concealment as Misrepresentaion.


False or untrue statement of fact or Misleading conduct. Made prior to formation of a contact, often with the motive/purpose of inducing and encouraging the other P to enter into the contract.

3 elements of Misrepresentation

  1. Statement
  2. Statement etc is re-fact
  3. inducement

If M causes essential error( or error in substanialibus) contract is VOID

If M causes collateral error only ( error concomitans) then voidable only

Fraudulent Misrepresentation

Makes contract void or voidable.

This depends on  if it causes EE or Eis (void) or causes merely collateral error (voidable only)

Fraud is a Delict (civil wrong) and fraudster liable in delictual damages to deceived P. Fraud may also be a crime, depends, leading to conviction and punishment.

Deceived P entitled to civil damages ( if any relevant loss) Wheather contract is void and reduced or not ( may be impossible due to Restitutio issues or 3rd p rights)

Spence v Crawford 1939

shows that Restitutio not too literal insisted on if fraud. S and C were directors; C said that the company was in trouble, so S sold shares in company to C, shares then increased in value so S sought reduction. To pay S, C had sold securities at loss to cover S’s bank overdraft, thus literal Restitutio impossible. But since FM present, C ordered to pay S previous value less loss.

Smith v Sim 1954

Smith bought Market Arms pub in Montrose, relied on false turnover figures supplied by seller. Action for damages was competent without reducing contract

FM must involve, Mala fides, Knowledge of the untruth or reckless disregard, but mere carelessness is negligent only not fraud this in

Derry v Peek 1889

New investement, company directors, prospectus, steam powered trams, permission refused, investor, sued but statement had been with honest belief, thus no liability at common law. Legislation enacted to change common law

Advertisers boasts “value for money” “ace deal” – permissible

Lies not allowed.

Bile Bean Manufacturing v Davidson 1906

Fasle claim about fictitious secret Australian aborigine ingredient entitled D to damages for FM. Genuine opinion is not FM

Trade descriptions act 1968 – criminal sanctions

Property misdescriptions act 1991

Companies act 2006 – company prospectus

Sales of good and supply of service – legislation – fit for purpose etc

Negligent Misrepresentation

NM occurs if a P under a legal duty to take reasonable care fails to do so. Negligence – failure to take reasonable care, no element of dishonesty normally. Law is evolving and unclear in some aspects. NM is contract overlaps with the other two branches of obligations

NM can make a contract void, if it causes EE, otherwise voidable only.

NM is the same as IM in common law, thus no damages paid at common law for NM, however NM no damages rule refored by LRMPSA 1985,

Damages paid: if P induced into contract, with someone who owes p a duty of care, then p can get damages for breach of duty. If P relies on NM and suffers loss

Sometimes difficult to assess if Ct is awarding damages for Delict or contract so focus who is suing who,m 3rd P does not get any rights from contract thus can only be sued in Delict.

Esso Petroleum v Mardon 1976

M induced by esso exaggerated turnover claims to take tenacy of filling station, M awaraded damages as Esso knew M would rely on their turnover negligently inaccurate figures.

Hedley Byrne v Heller and Partners 1964

Negligence case where customers sued bank for providing wrong and fault info about 3rd party which induced them to do business with the 3rd party which 3rd party went bust( no point suing them) but customers successfully sued bank on Negligence principles. Delectual liability.

Damages may be claimed as well as or alternative to reduction of contract per s10 LRMSPA 1985

Innocent Misrepresentation

No fraud or negligence, Innocent P honestly believed in truth of the misrepresented issue

IM must be material to be legally significant

IM causing EE or EiS makes contract void. IM if collateral, voidable

IM must have been relied on, acted on by the innocent party who acted resonaly and in good faith.

No damages for IM as its not a delict,

Ferguson v Wilson 1904

Aberdeen engineer advertised for partner, F replied, was impressed by W’s optimism etc (unfounded) entered into p’ship agreement. Sought reduction when real picture emerged, successful due to W’s Im and restitio was possible. Contract was voidable

Boyd & Forrest v Glasgow & SW railway 1912

BF contracted to build railway and used an independent survey of terrain on which to base their price of 243k. The terrain was more difficult than survey said and job cost 379k. survey had been “corrected” by GWS engineer who honestly thought it was wrong. BF sued for damages for FM but none awarded. Held, no FM, honest innocent no damages. Next BF sought to reduce contract due to IM and although no contractual damages, BF hoped to claim actual cost on Unjust Enrichment principles, quantum meruitm, but no go again as restitution impossible and BF pb’d from disowning the voidable contract by completing the contract works. They should have repudiated asap.




Silence, Non-disclosure and Concealment as Misrep

Normally at common law, silence never = M

Normally at common law, parties are at arms length in pre contract negotiations and don’t have to volunteer any information. But if asked must answer honestly fairly to avoid FM. Arms length = each P looks out for himself. Common law “caveat emptor” much modified by legislation

If X offers to buy your car for 2k you don’t have to tell her its only worth 100 or that it needs 300 work done. But you must not lie about condition nor fraudulently conceal defects.

No half truths either if likely to mislead. Material change of circumstances may have to be intimated in some cases. E.g car wrecked in interval between X viewing it and phoning back to offer to buy it.

Gibson v NCR 1925

Fradulent concealment of fact that cash registers were not new but reconditioned second hand, G elected to keep but got damages. Fraudulent concealment involves element of felonious deception rather than just making something look good.

Undue Influence

Abuse of trust, fiduciary relationships etc, improperly taking advantage.

Professional = doctor / lawyer

Personal = parent/child; husband/wife

Renders tainted contract voidable!

Reduction only if weaker P suffers material detriment. Reduce only if material detriment is due to lack of independent advice. Fraud/Deceit are not required by law.

McPhersons Trs v Watt 5R(HL)9

Solicitor acted on behalf of and advised trustees in sale of houses to brother, having “secretly” arranged with brother to buy houses from him. When trustees found out they refused to proceed. Brother sued. Trustees claimed reduction of contract.

Facility and Circumvention

Facility may be due to Old age, mental or physical illness, depression, stress, distress

Facile person has full legal capacity, perfectly competent to enter into binding contracts, is not legally incapax but is easily influenced

Circumvention is short of actual fraud may involve element of deceit or dishonesty although deceit or dishonesty is not required as such. C is activelty taking unfair advantage in a situation you have engineered

C = imposing upon the FP, solicitation of the FP, misleading the FP, manipulation of FP.

Lesion- loss injury, or detriment must occur, loss must be attributable to the contract entered into by F&C… bb



Terms of contract – Interpretation and Construction

Content of agreemnts. What if contect is disputed ? Is it incorporated or not? What if the meaning of content is disputed, what do terms actually mean?

Legal rules to be applied if dispute? Common Law rules, Staturory rules e.g. Contracts (s) Act 1997, UCTA 1977, UTCC regs 1999

  1. Ordinary menaing of words
  2. The Objective approach
  3. Certainty or effectiveness of agreements
  4. The Contra Proferentem Rule
  5. The Ejusdem General Rule
  6. Experssio unius est exclusion alterius
  7. Negotiated terms preferred to pro forma
  8. Priority of express terms over Implied terms
  9. Preference for Resonable effect vc Absurdity
  10. Vague general terms limited by precise terms
  11. Extrinsic Evidence and additional terms, contract (s) act 1997
  12. Exttinsic evidence and interpretation; common law excludes but exceptions for

latent ambiguity, formation context, customs, written admission,


  1. Ordinary meaning of words

Unless the context indicates otherwise, ordinary words are presumed to be used in their ordinary sense, given their ordinary menaing, technical jargon presumed to be used in their technical sense, otherwise, words given their clear everyday meaning

  1. The Objective approach. This is another aspect of the rule in Muirhead and Turnbull v Dickson 1905, the piano case. Cts apply what the parties appear to have meant viewed from a reasonable, objectibe perspective. Not from one P’s entirely subjectibe “innermost mind” view (no matter how sincere)
  2. Certainty or effectiveness of agreements. If > one interpretation is possible, Cts orefer that which gives effect over that which would not. Ambiguitu interpreted purposively if reasonable possible. But iof essential matter is left too vague then no consensus and no contract. Cts prefer interpretations which produce efficacy. Cts resist interpretation that produces absurdity or contrary to common sense. But per Matheieson Gee Ltd v Quigley 1952 – Ct will not construct agreement if there is none despite parties wishes or expression to contrary. Sole function of CT is to interpret what the parties have agreed not to invent or make it up
  3. The Contra Proferentem Rule. If the term is unclear, ambiguous, its construed against the interests of the P founding on it. E.g in a way least favourable especially if it’s a standard term and not individually negotiated. Especially to prevent prejudice to the other party. Prevents one P taking unfair advantage of other, will not be allowed wide latitude to detriment of the other. Example – exclusion of liability clauses in insurance contracts imposed by Ins CO. Interoperated narrowly as possible if any ambiguity.
  4. The Ejusdem Generis Rule – literally means “ of the same kind” In a list like terms, vague or general terms are limited by associated specific or precise terms. Employees will wear shirt and tie and suit or other smart dress at all time- means what? EGR is a presumption e.g. without prejudice to the generality of the following items, students shall not bring coffee, tea, juice, water, pies, rolls, confectionary, fruit or any other food or drink whatsoever into lectures
  5. Expressio unius est exclusion alterius – Presumption only. Specific mention of one thing and omission of other things excludes those other things. E.g. you book a room for a meeting and order coffee at break time. This excludes tea and biscuits but its implied that boiling water, milk, sugar and cups will be supplied.
  6. Negotiated terms preferred to pro forma- Terms which the parties have given specific consideration to in the negotiations are presumed to be more accurate reflection of parties’ intention than pre-printed pro forma standard terms which have not been discussed. This will apply only if there is a dispute/conflict between negotiated and pro forma in same contract. However, pro forma standard terms perfectly valid and apply otherwise
  7. Priority of express over implied terms. These terms may be written or oral. Express prevail unless the implied terms are obligatory statutory ones which the law does not allow to be excluded. E.g. unfair contract terms legislation
  8. Preference for Resonable effect over absurdity. Cts prefer meanings which give the contract reasonable effect. Cts resits meaning which would fly against common sense or produce absurdity
  9. Vague general terms limited by precise terms. This is another way of expressing the Ejusdem Generis rule
  10. Extrinsic evisence and additional terms
  11. Extrinsic evidence and interpretation

If contract is written then EE could be parole evidence or other written material. Parties may wish to rely on EE for one or two reasons. To prove additional terms which are not within the 4 cornrs of the written contract. Also, to interpret the terms of (written) contract. Thus, additional terms, interpretation of terms.

EE and Interpretation of terms

Cotract but many exceptions including: latent ambiguity, surrounding circumstances, trade customs, written admissions of party now denying something

Terms of contract may be

Express, Implied. (terms) incorporated by Reference. Exclususion or exemption clauses. Express terms can be standard forms which parties have barely scrutinised, pro forma. They can be individually drafted terms, the result of detailed negotiation. E.g. Car hire, Credit cards, Bank loans etc.

Arbitration  clauses –  referee to resolve disputes

Exemption and exclusion of liability clauses, including limitation of claims

Indemnity clauses – compensate for extra cost

Liquidate damages clauses –  estimate of loss, but no penalties

Frustration –  what is to happen if something makes it very difficult to perform contract? E.g. damnum fatale, act of god.

Insolvency –  what happens if one goes bust.

Morton and Co v Muir Bros 1907

Lace curtains, restrictive term implied by custom. Retailers engaed factory to manufacture curtains to a unique design. Later new owners of factory used template to manufacture curtains for others. Retailers successfully sought ban due to local custom that template not transferable. CT agreed that custom implied such condition in the contract

General contract law implies-

Cooperation –  if appropriate parties with each other

No obstacles  – Parties must not hinder, obstruct

Act reasonably – exercise choice and discretion that will impact on performace of contract reasonably

Do not hinder the other party by unnecessary delay or prevarication or lack of consideration etc whether intentional or careless.

Terms implied by Fact

Obvious self-evident examples e.g. hotel room contains bed, cup to pour coffee in etc. what about oversights, gaps, failure to cover?

Ascertain what these parties would have done, business efficacy, must be clear, must be certain, obvious but must not contradict express term

Crawford v Bruce 1992

Rent review clause dispute re-edinburgh shop. Review every 3 years, landlord sought increase from 3250 to 6500. Tenant argued successfully that the clause was unenforceable due to uncertainty. L said current market rent as fixed by an independent arbiter should be implied but Ct rejected as it could not be descried as a condition that all reasonable tenants would not fail to agree…. Bb


Common law assumes that parties have equal bargaining power economically etc.. Judges have tried to develop common law sympathetically to protect the weak, vulnerable publc. Common law development is not systematic. Ultimately if conditions are properly incorporated etc then they stand the weak will be bound, (Rationale of the) common law.


Exclusion and exemption clauses


A contractual term purporting to; Exempt, exclude or limit liability ( for any breach of contract or negligence) By a party in breach of contract

E.g. exclude or limit liablility; for death, personal injury or other loss, damage, compensation or require indemnity to make good 3rd party liability

Examples: may be incorporated by notice, “ticket” pro forma or pre-printed standard terms. Dominant parties (economic, scarcity monopoly) often impose these terms

Limitations of common law protection

Ultimately exclusion of liability may be expressly imported into contract validly

Excluding liability or restricting is not always economic oppression or abuse of position of monopoly although often it is

Sometimes it may only be possible to offer goods or services at economic rates if liability can be kept within bounds.


Modern statutory intervention minimises worst excesses in many contexts, legislation cannot be overridden usually. We will focus on legislation dealing with terms of contracts which are incorporated expressly or by reference etc which ex facie purport to exclude or minimise liability for breach of contract etc

UCTA 1977 UTCCR 1999

Unfair contract terms act 1977

Original title was avoidance of liability act. Exclusion and limitation of liability clauses only ( and notices) Thus not all unfair terms covered.

Applies to Business contracts ONLY. Not private agreements. Business & business contracts = trade, services, commerce, professional, gvt, p’ship, sole traders

Clause seeking to limit or exclude liability for breach of contract resulting in death or personal injury, VOID.

Apart from death and personal injury exclusion clauses – Clauses limiting or excluding liability for other breaches of contract valid only if fair and reasonable at the time agreement made.

UCTA applies to Business only!

=Consumer contracts ( One party is transacting in the course of business and other is not. I.e the customer)

=Standard form contracts ( even if between business)

It also covers the following.. contracts for the sale of goods, contracts for hire goods (not heritable property), contracts of employment, contracts for services, to enter premises(cinema, pool etc) But NOT contracts for insurance, sale of land, company or p’ships formation.

Clauses stuck at by UCTA

  1. No refunds without receipt (valid but f&r test)
  2. No claim after 14 days (valid but f&r test)
  3. Bungee jumps at own risk (void as personal injury involced)


… bb


Unfair Terms in Consumer contract Regulations 1999

Covers all terms of CC, except price and subject

Insurance contacts covered unlike UCTA 1977 however Employment contracts aren’t and Non-contractual notices, not.

Unfair terms in any contract between seller or supplier and consumer = unenforceable

Consumer = natural person acting outside her trade, profession or business

Seller or supplier = any natural or legal person acting for purposes relating to her trade, profession or business.

Any term which contrary to the requirement of good faith causes a significant imbalance in the parties rights and obligations arising out of the contract to the detreiment of the consumer, AND which has not been individually negotiated