LECTURE 2 BUSINESS LAW : OFFER, ACCEPTANCE, CONSIDERATION, INTENTION TO CREATE LEGAL RELATIONS, TERMS AND EXCLUSION CLAUSES
OFFER
The objective test
An
offer is an expression of willingness to contract on specified terms, made with
the intention that it shall become binding as soon as it is accepted by the
person to whom it is addressed.
Storer v. Manchester [1974] 1 W.L.R. 1403.
The Council decided to sell council houses to tenants and
instructed the town clerk to devise a simple form for quick agreements which
dispensed with legal formalities, the plaintiff applied to buy his council
house and the town clerk replied with a copy of the agreement for purchase with
a note to sign the agreement and return same for signature by the Council. The enclosed agreement had been filled in
with details such as purchase price and monthly repayments although date when
tenancy was to cease and mortgage payments start was left blank. The plaintiff signed and returned agreement for
sale but due to change in council it was not signed.
Held: A binding contract had been concluded. The council intention was to be bound when
plaintiff signed agreement and returned same.
When
parties negotiate with a view to making a contract, many preliminary
communications may pass between them before a definite offer is made. One party
may simply respond to a request for information. That party is then said to
make an "invitation to treat": he does not make an offer but, invites
the other party to do so. The
distinction between an offer and an invitation to treat is often hard to draw
as it depends on the elusive criterion of intention. But there are certain
stereotyped situations in which the distinction is determined, at least prima
facie, by rules of law. Examples are as
follows:
At
an auction sale, the general rule is that the offer is made by the bidder and
accepted by the auctioneer when he signifies his acceptance in the customary
manner, e.g. by fall of the hammer. Before acceptance the bidder may withdraw
his bid and the auctioneer may withdraw the goods. It seems, moreover, that the
offer made by each bidder lapses as soon as a higher bid is made. Thus if a
higher bid is made and withdrawn the auctioneer can no longer accept the next
highest.
The defendant auctioneer advertised that lots including certain
office furniture would be sold by him on specified dates. The plaintiff had a commission to buy
furniture and travelled to the place of the auction. On the date of the auction, the lots were withdrawn from
sale. The plaintiff brought an action
against the defendant to recover for loss of time and expenses.
Held: He had no such right of action, the advertisement was only
an invitation to treat and did not amount to a promise that all the articles
advertised would be put up for sale.
The
general rule is that a display of price-marked goods in a shop window is not an
offer to sell goods but is an invitation to a customer to make an offer to
buy. Similarly, the display of goods on
the shelves of a self-service shop is merely an invitation to treat; the
customer makes an offer to buy when he carries the goods to the cashdesk, where
the shopkeeper may accept or reject it.
A shopkeeper displayed a flick knife in his shop window with a
ticket stating “ Ejector Knife – 4 shillings”.
Charged with offering for knife for sale under law preventing offer of
dangerous weapons.
Held: A display of goods in a shop window with a price ticket
attached was merely an invitation to treat and not an offer for sale. So that no offence had been committed.
Advertisements
of rewards for the return of lost or stolen property, or for information leading
to the arrest or conviction of the perpetrator of a crime, are invariably
treated as offers: they are clearly made with the intention to be bound as no
further bargaining is expected to result from them. The same is true of other
advertisements of unilateral contracts.
Carlill v. Carbolic Smoke Ball Co.
An advertisement promising to pay f100 to any use of a carbolic
smokeball who caught influenza was held to be an offer. The intention to be bound was made
particularly clear in this case by the statement “that the advertisers had
deposited f1000 in their bank shewing (sic) our sincerity”.
Acceptance Defined
An
acceptance is a final and unqualified expression of assent to the terms of an
offer. The objective test of agreement applies to an acceptance no less than to
an offer. On this test, a mere acknowledgment of an offer would not be an
acceptance; nor is there an acceptance where a person who has received an offer
to sell goods merely replies that it is his "intention to place an
order."
Where
the offer makes alternative proposals, the reply must make it clear to which of
them the assent is directed.
An offer to build a freight terminal was made by a tender quoting
in the alternative a fixed price and a price varying with the cost of labour
and materials. The offeree purported to accept "your tender" and it
was held that there was no contract as there was no way of telling which price
term had been accepted.
Acceptance by conduct
An
offer may be accepted by conduct, e.g. by supplying or despatching goods in
response to an offer to buy.
Conduct
will, however, only have this effect if the offeree did the act with the
intention (ascertained in accordance with the objective principle) of accepting
the offer.
The battle of forms
The
growing use of printed contract forms by one or both parties has given rise to
problems with regard to the rule that the acceptance must correspond to the
offer.
Each
party may purport to contract with reference to his own set of standard terms
and these terms may conflict.
In B.R.S. v. Arthur V. Crutchley Ltd. the plaintiffs
delivered a consignment of whisky to the defendants for storage. Their driver
handed the defendants a delivery note purporting to incorporate the plaintiffs'
"conditions of carriage." The note was stamped by the defendants:
"Received under [the defendants'] conditions." It was held that this
amounted to a counter-offer which the plaintiffs had accepted by handing over
the goods, and the contract therefore incorporated the defendants' and not the
plaintiffs' conditions.
This
case gave some support to the so-called "last shot" doctrine: i.e. to
the view that, where conflicting communications are exchanged, each is a
counter offer so that if a contract results at all (e.g. from an acceptance by
conduct) it must be on the terms of the final document in the series leading to
the conclusion of the contract.
Butler Machine Tool Co. Ltd. v. Ex-Cell-0 Corporation (England)
Ltd." In that case sellers offered to supply a machine for a specified
sum. The offer was expressed to be subject to certain terms and conditions,
including a "price escalation clause," by which the amount actually
payable by the buyers was to depend on "prices ruling upon date of
delivery." In reply, the buyers placed an
order for the machine on their own terms and conditions, which differed
from those of the sellers in containing no price-escalation clause and also in
various other respects. It also contained a tear-off slip to be signed by the
sellers and returned to the buyers, stating that the sellers accepted the order
"on the terms and conditions stated therein." The sellers did so sign
the slip and returned it with a letter saying that they were
"entering" the order "in accordance with" their offer. This
communication from the sellers was held to be an acceptance of the buyers'
counter-offer so that the resulting contract was on the buyers' terms, and the
sellers were not entitled to the benefit of the price escalation clause.
In
contract law, silence is not normally construed as acceptance.
In Felthouse v. Bindley the plaintiff offered to buy his
nephew's horse by a letter in which he said: "If I hear no more about him,
I shall consider the horse mine." Later, the horse was, by mistake,
included in an auction sale of the nephew's property. The plaintiff sued the
auctioneer for damages for the conversion of the horse. It was held that, at
the time of the auction, there was no contract for the sale of the horse to the
plaintiff because "The uncle had no right to impose upon the nephew the
sale of his horse . . . unless he chose to comply with the condition of writing
to repudiate the offer . . . "
In Roberts v. Hayward a tenant accepted his landlord's
offer of a new tenancy at an increased rent by simply staying on the premises.
It was held that he had accepted the landlord's offer by silence; but it seems
better to say that he accepted by conduct and that the landlord waived notice
of acceptance.
In Rusty. Abbey Life Ins Co. the plaintiff applied and
paid for a "property bond which
was allocated to her on the terms of the defendants' usual policy of insurance.
After having retained this document for some seven months, she claimed the return of her payment, alleging
that no contract had been concluded. The claim was rejected on the ground that
her application was an offer which had been accepted by issue of the policy.
But it was further held that even if the policy constituted a counter-offer,
this counter-offer had been accepted by “the conduct of the plaintiff in doing
and saying nothing for seven months...”
Thus mere inaction was said to be sufficient to constitute acceptance;
and it seems to have amounted to no more than silence in spite of having been
described as "conduct."
CONSIDERATION
In English law, a promise is not, as a general rule, binding as a contract unless it is either made in a deed or supported by some "consideration." The purpose of the requirement of consideration is to put some legal limits on the enforceability of agreements even where they are intended to be legally binding and are not vitiated by some factor such as mistake, misrepresentation, duress or illegality.
The
basic feature of that doctrine is the idea of reciprocity: "something of
value in the eye of the law" must be given for a promise in order to make
it enforceable as a contract. An informal gratuitous promise therefore does not
amount to a contract.
The
doctrine of consideration has, however, also struck at many promises which were
not "gratuitous" in any ordinary or commercial sense. These
applications of the doctrine were brought within its scope by stressing that
consideration had to be not merely "something of value," but
"something of value in the eye of the law". The law in certain cases refused to recognise the
"value" of acts or promises which might well be regarded as valuable
by a layman.
Definitions
Benefit and detriment
The traditional definition of consideration
concentrates on the requirement that "something of value" must be
given and accordingly states that consideration is either some detriment to the
promisee (in that he may give value) or some benefit to the promisor (in that
he may receive value). Usually, this detriment and benefit are merely the same
thing looked at from different points of view.
Under
the traditional definition it is sufficient if there is either a detriment to
the promisee or a benefit to the promisor. Thus detriment to the promisee
suffices even though the promisor does not benefit.
The
traditional definition of consideration in terms of benefit and detriment is
often regarded as unsatisfactory. One cause of dissatisfaction is that it is
wrong to talk of benefit and detriment when both parties expect to, and
actually may, benefit from the contract.
Sir Frederick Pollock has, accordingly, described consideration simply
as the price for which the promise is bought.
Consideration need not be
Adequate
Under
the doctrine of consideration, a promise has no contractual force unless some
value has been given for it. But the courts do not, in general, ask whether adequate
value has been given, or whether the agreement is harsh or one- sided. It is rather that they should not interfere
with the bargain actually made by the parties.
Gaumont-British Pictures Corp. v. Alexander [19360 2 ALL ER 1686 (Check Library)
Nominal Consideration
The
rule that consideration need not be adequate makes it possible to evade the
doctrine of consideration, i.e. to make a gratuitous promise binding by means
of a nominal consideration, e.g. for the promise of valuable property, or a peppercorn
for a substantial sum of money. Such cases are merely extreme applications of
the rule that the courts will not judge the adequacy of consideration.
Westminster City Council v. Duke of Westminster [1991] 4 ALLER
136 (Check Library)
Nominal and inadequate
consideration
It
is not normally necessary to distinguish between "nominal" and "inadequate" consideration,
since both equally suffice to make a promise binding.
Midland Bank (S Trust Co. Ltd. v. Green, where a husband sold a farm,
said to be worth £40,000, to his wife for £500. It was held that the wife was,
for the purposes of the Land Charges Act 1925, s.l3(2) a "purchaser for
money or money's worth" so that the sale to her prevailed over an
unregistered option to purchase the land, which had been granted to one of the
couple's sons. It was not necessary to
decide whether the consideration for
the sale was nominal but Lord Wilberforce said that he would have had
"great difficulty" in so holding; and that "To equate 'nominal'
with 'inadequate' or even 'grossly
inadequate' consideration would embark the law on inquiries which I cannot
think were ever intended by Parliament": i.e. inquiries into the adequacy
of the price.
CONSIDERATION MUST BE OF SOME VALUE
Must be of Economic Value
An act, forbearance or promise
will only amount to consideration if the law recognises that it has some
economic value. It may have such value even though the value cannot be
precisely quantified.
But natural affection of itself
is not a sufficient consideration.
The same is true of other merely
sentimental motives for promising.
White v. Bluett a son had not provided
consideration (for his father's promise not to sue him on a promissory note) by
promising not to bore his father with complaints.
Trivial Acts or Objects
Since consideration need not be
adequate, acts or omissions of very small value
can be consideration.
In Chappell (S Co. Ltd. v.
Nestle Co. Ltd. Chocolate manufacturers sold gramo phone records for Is. 6d. plus three
wrappers of their 6d. bars of chocolate It was held that the delivery of the
wrappers formed part of the consideration though the wrappers were of little
value and were in fact thrown away. If the delivery of the wrappers formed part
of the consideration it could, presumably have formed the whole of the
consideration, so that a promise to deliver records for wrappers alone would
have been binding.
CERTAINTY
An agreement is not a binding
contract if it lacks certainty, either because it is too vague or because it is
obviously incomplete.
Vagueness and Uncertainty
Vagueness
An agreement may be so vague
that no definite meaning can be given to it without adding new terms.
Thus in G. Scammell &
Nephew Ltd. v. Ouston the House of Lords held that an agreement to buy
goods "on hire-purchase" was too vague to be enforced, since there
were many kinds of hire-purchase agreements in widely different terms, so that
it was impossible to say on which terms the parties intended to contract.
But the courts do not expect
commercial documents to be drafted with strict precision, and will,
particularly if the parties have acted on an agreement, do their best to avoid
striking it down on the ground that it is too vague.
Custom and trade usage
Apparent vagueness can be
resolved by custom. Thus a contract to load coal at Grimsby "on the terms
of the usual colliery guarantee" was upheld on proof of the terms usually
contained in such guarantees at Grimsby. It has similarly been held that an
undertaking to grant a lease of a shop "in prime position" was not to
be too uncertain to be enforced since the phrase was commonly used by persons
dealing with shop property, so that its meaning could be determined by expert
evidence.
In Hillas & Co. Ltd. v. Arms Ltd., an agreement for the
sale of timber "of fair specification," was made between persons well
acquainted with the timber trade. The agreement was upheld as the standard of
reasonableness could be applied to make the otherwise vague phrase certain.
Incompleteness
Parties may reach agreement on
essential matters of principle, but leave important points unsettled, so that
their agreement is incomplete. There is, for example, no contract if an
agreement for a lease fails to specify the date on which the term is to
commence.
Foley v. Classique Coaches Ltd The plaintiff owned a
petrol-filling station and adjoining land. He sold the land to the defendants
on condition that they should enter into an agreement to buy petrol for the
purpose of their motor-coach business exclusively from him. This agreement was
duly executed, but the defendants broke it, and argued that it was incomplete
because it provided that the petrol should be bought "at a price agreed by
the parties from time to time." The Court of Appeal rejected this argument
and held that, in default of agreement, a reasonable price must be paid.
Thus an agreement is not
incomplete merely because it calls for some further agreement between the
parties.
Contract To Make a Contract.
In some cases of incomplete
agreements it is said that there is a contract to make a contract.
Agreement to execute formal
document. One possibility is that the parties may agree to execute a formal
document incorporating terms on which they have previously agreed. Such a
"contract to make a contract" is perfectly binding.
For example, in Morton
v. Morton an
agreement "to enter
into a separation deed
containing the following clauses" (of which a summary was then given) was
held to be a binding contract.
A further possibility is that the
parties have simply agreed to negotiate. In spite of dicta to the contrary, it
has been held that a mere agreement to negotiate is not a contract
"because it is too uncertain to have any binding force." It therefore
does not impose any obligation to negotiate, or to use best endeavours to reach
agreement, or to accept proposals that with hindsight appear to be
reasonable."
CONTRACTUAL INTENTION
An agreement, though supported
by consideration, is not binding as a contract if it was made without any intention
of creating legal relations.
Mere Puffs
A statement inducing a contract
may be so vague, or so clearly one of opinion, that the law refuses to give it
any contractual effect.
Even a statement that is
perfectly precise may nevertheless not be binding if the court considers that
it was not seriously meant.
Thus in Weeks v. Tybald
the defendant "affirmed and published that he would give £100 to him that
should marry his daughter with his consent." The court held that "It
is not reasonable that the defendant should be bound by such general words
spoken to excite suitors."
Letters of Intent or of Comfort
An issue of contractual
intention may arise where parties in the course of negotiations exchange "letters of intent" or where one
party gives to the other a "letter
of comfort." The terms of such documents may negative contractual intention.
The fact that the parties
envisage that the letter is to be
superseded by a later, more formal, contractual document does not, of itself,
prevent it from taking effect as a contract.
Appointment of a person as a
Minister of the Methodist Church did not give rise to a contract as the
relationship was not one "in which the parties intended to create legal
relations between themselves so as to make the agreement . . . enforceable in
the courts.
The fact that a statement was
made in jest or anger may also negative contractual intention.
Defendant was a director of the plaintiff
company and of another company. The plaintiff company held shares in the other
company and resolved, in the defendant's absence, to sell them. At a later
meeting this resolution was rescinded after a heated discussion during which
the defendant said that he would make good any loss which the plaintiff company
might suffer if it kept the shares. It was held that the defendant was not
liable on this undertaking. Nobody at the meeting regarded it as a contract; it
was not recorded as such in the minute
book; and the defendant's fellow-directors at most thought that he was bound in
honour.
Proof of Contractual Intention
The question of contractual
intention is, in the last resort, one of fact.
The test of contractual intention is normally an objective one.
Esso Petroleum Ltd. v.
Commissioners of Customs and Excise [1976] 1 WLR 1 (Check Library)
The representative of a firm of
forwarding agents told a customer, with whom the firm had long dealt, that
henceforth his goods would be packed in containers and assured him that these
would be carried under deck. About a year later, such a container was carried
on deck and lost. At first instance, KerrJ. held that the promise was not
intended to be legally binding since it was made in the course of a courtesy
call, not related to any particular transaction, and indefinite with regard to
its future duration. The Court of Appeal, however, held that the promise did have contractual force,
relying principally on the importance attached by the customer to the carriage
of his goods under deck, and on the fact that he would not have agreed to the
new mode of carriage but for the promise.
THE CONTENTS OF A CONTRACT
The
contents of a contract depend primarily on the words used by the parties in
entering into the contract: these make up its express terms. A contract may, in
addition, contain terms which are not expressly stated, but which are implied,
either because the parties so intended, or by operation of law, or by custom or
usage.
TERMS AND CONDITIONS
These are statements that form the express terms of contract and can lead to action if are not honoured on the basis of breach of contract.
Representations
are statements which do not form part of the contract but which assisted a
party or induced a party into entering a contract. If these statements are found to be false, they can be considered
as misrepresentations and actionable.
Terms Forming Part of a Contract
Whether or not a statement becomes a term of the contract depends on the intention of the parties and several factors are considered by the Courts before coming to such a conclusion.
i.
The
importance of the statement to the parties
A prospective buyer of hops asked the seller if any sulphur had been used in the growth or treatment of the hops, adding that he would not even ask the price of sulphur had been used. The seller replied that sulphur had not been used when it fact it had.
Held: The statement was a term of the contract allowing the buyer
to terminate for breach
Couchman v. Hill [1947] KB 554
ii.
The
respective knowledge of the Parties
Whether
the person making the statement had special knowledge or skill.
iii.
Where
a contract has been reduced to writing
The
terms will normally be the statements incorporated into the written
contract. But a contract may be partly
oral and partly written.
iv.
The
importance of the truth of the statement
If
the truth of the statement was crucial to the person making the contract it
will probably be considered a term.
v.
Reliance
on the Statement
If it suggests verification it is unlikely to be a term more like a representation, if it discourages verification, it is likely to be a term.
Plaintiff orally agreed to buy the defendant’s motor cruiser for f750 and in conversation asked questions as to its soundness. Then inquired whether defendant was going to have it assessed and defendant said no. Plaintiff bought boat and turned out to be unsound.
Held: Looking at the conversation at a whole including the
question about the assessment of the boat amounted to no more than innocent
misrepresentation and the claim of the plaintiff fails.
vi.
When
the Statement was made
The
greater the interval of time between making the statement and making the
contract, the more likely that it will be a representation.
EXPRESS TERMS
Where
a contract is made orally, the ascertainment of its terms raises in the first
place the pure question of fact: what did the parties say? Once this has been
determined, a further question can arise as to the meaning of the words used.
In answering this question, the court applies the objective test of
agreement. Under that test, a party
cannot enforce the contract in the sense which he gave to the words, if that
sense differs from the one which the other party reasonably gave to them.
Incorporation by Express
Reference
The terms of a contract may be contained in more than one document. One of these may expressly refer to another, e.g. where a contract is made subject to standard terms settled by a trade association. Those terms are then incorporated by reference into the contract.
Adamastos Shipping Co. v. Anglo-Saxon Petroleum Co. [1959] A.C.
133 Clause 1 of a charterparty provided:
"This bill of lading shall have effect subject to the Carriage of Goods by
Sea Act of the United States 1936, which shall be deemed to be incorporated
herein. ..." The object of this clause was to reduce the shipowner's duty
to provide a seaworthy ship from the absolute duty existing at common law to
that of due diligence imposed by the Act.6 But section 5 of the Act stated that
its provisions "shall not be applicable to charterparties. ..." Two
difficulties arose out of this contract. First, the parties had described their
contract as "this bill of lading" when it was a charterparty; but, as
this was a simple mistake, it was held that the phrase could be taken to mean
"this charterparty." Secondly, the parties had apparendy provided
that the charterparty was to take effect subject to an Act which expressly provided
that it did not apply to charterparties. The House of Lords could have held the
whole contract meaningless or rejected clause 1 of the charterparty, or
rejected section 5 of the United States Act. The House chose the last course,
and so gave effect to the intention of the parties that there should be a
contract under which the shipowner was only bound to use due diligence to
provide a seaworthy ship. The case is a good illustration of the anxiety of the
courts to make sense, if possible, of loosely and sometimes carelessly drafted
commercial documents.
The Parol Evidence Rule
Statement of the rule
The
parol evidence rule states that evidence cannot be admitted (or, even if
admitted, cannot be used) to add to, vary or contradict a written instrument.
Written Agreement not the Whole
Agreement
When
a Contract is reduced to writing, there is a presumption that the writing was
intended to include all the terms of the contract; but this presumption is
rebuttable.
If
the written document was not intended to set out all the terms on which the
parties had actually agreed, extrinsic evidence is admissible.
The buyer of a horse received a note as follows: "Bought of G. Pink, a horse for the sum of ff 2s. 6d. G. Pink." Evidence of an oral warranty that the horse would go quietly in harness was admitted as the note was "meant merely as a memorandum of the transaction, or as an informal receipt for the money, not as containing the terms of the contract itself.
This
case should be contrasted with Hutton v. Watling [1948] Ch. 398
where
a document was headed "To sale of a business," set out a number of
terms, contained a receipt for the price of the goodwill, and was signed over a
6d. stamp. In an action by the purchaser to enforce one of the clauses of the
written document, the vendor argued that the document was only a memorandum of
a provisional agreement for the sale of goodwill, which had already been fully
performed. Evidence to this effect was held inadmissible as the document was
not intended to be a mere memorandum but a "true recordof the contract.
To Identify the Subject Matter
Extrinsic
evidence is admissible to identify the subject-matter of a contract.
Extrinsic evidence admitted to show that “your wool” meant not only wool produced by the plaintiff but also wool produced on a neighbouring farm.
IMPLIED TERMS
Implied
terms may be divided into three groups. The first consists of terms implied in
fact, that is, terms which were not expressly set out in the contract, but
which the parties must have intended to include. The second consists of terms
implied in law, that is, terms imported by operation of law, although the
parties may not have intended to include them. The third consists of terms
implied by custom.
Terms Implied in Fact
One
test for the implication of a term in fact is the "officious
bystander" test. This has been stated by MacKinnon LJ. as follows:
"Prima facie that which in any contract is left to be implied and need not
be expressed is something so obvious that it goes without saying; so that, if
while the parties were making their bargain, an officious bystander were to
suggest some express provision for it in the agreement, they would testily
suppress him with a common 'Oh, of course!'
Gardner v. Coutts [1968] 1 WLR 173.
A vendor of land undertook that, if he later sold certain
adjoining land, he would give the purchaser the "first refusal" of
it. A term was implied to prevent the vendor from defeating the purchaser's
expectation by disposing of the land to a third party by way of gift.
Shell U.K. Ltd. v. Lostock Garages Ltd. [1976 1 WLR 1187
A written contract provided that Shell should supply petrol and
oil to the defendant garage company which undertook, (inter alia) to buy such
goods solely from Shell. During a price war, Shell reduced the price of petrol
to neighbouring garages, so that the defendant could only trade at a loss. A
majority of the Court of Appeal refused to imply a term that Shell should not
"abnormally discriminate" against the defendant. One ground for
rejecting the implication was that Shell would not have agreed to it; another
was that the alleged implication was too vague. The complexity of the alleged
term may be yet a further ground for saying that the "officious
bystander" test is not satisfied.
A
second test for the implication of a term in fact is that of "business
efficacy." Lord Wright has described such a term as one "of which it
can be predicated that 'it goes without saying,' some term not expressed but
necessary to give the transaction such business efficacy as the parties must
have intended."
Liverpool City Council v. Irwin [1977 AC 239 (Check Library in the equivalent years of All England Reports and you might get the case)
Terms Implied by Statute
Sale of Goods Act
CLASSIFICATION OF TERMS
Terms can be placed in three categores, namely conditions, warranties and innominate terms.
The first two have been hallowed
by long usage as will be seen below. The third has only relatively recently
become firmly established. See Reardon
Smith v Hansen-Tangen [1976] 1WLR 989 (Check
Library).
Given this classification one then turns to the means adopted for distinguishing between them. The general policy of English Law is to allow the parties freedom to form their own bargain on such terms as they think fit, and the courts will not remake their contract for them.
It
follows from this principle that the parties are largely free to classify a
contractual term in whatsoever manner they please. If they have clearly and
demonstrably decided that a particular term shall be, say a condition, the
courts will give effect to their choice.
The
courts will not override the parties plain intention. However it is frequently
the case that they have not made it clear into which of the three categories a
term is to fall, and in the event of a dispute arising concerning that term it
will be for the courts to determine as a matter of law the true nature of it.
If
the word is expressly used, the court must be satisfied that it was intended to
be used in its technical sense, otherwise the label may be disregarded and the
courts will look at the substance of the clause to determine its true nature.
Conditions
are terms which are vitally important to the contract. If a condition is
breached, the other party can sue for damages and break off the contract
altogether.
Attention
is called to two cases Poussard v Spiers and Bettini
v Gye.
In the former a promise to perform
on the first night was held to be a condition and a breach entitled the
producer to treat the contract as discharged. In the latter however it was held
only to be a warranty that the singer would arrive 6 days in advance before her
first appearance.
Warranties
are terms which are of secondary importance and would not ruin the whole
contract is breached. If a warranty is
breached, the other party can sue for damages, but they cannot break off the
contract.
A
warranty is a promise but one of a subsidiary nature, the breach of which
entitles the injured party to damages only and not to terminate the contract.
If a term is not a condition it must either be a warranty or an innominate
term. A distinction is made by deciding upon the importance of the term to the
contract as a whole and from the decision inferring the intention of the
parties.
Behn
v Bumess the court had to evaluate
a statement that a ship was now in the port of Amsterdam. This statement was
inaccurate since the ship arrived 4 days later. It was held that if the statement of the place of the ship was a
substantive part of the contract, it must have been a condition and so it was.
/
STANDARD FORM CONTRACTS
The
terms of many contracts are set out in printed standard forms which are used for all contracts of the same kind, and
are only varied so far as the circumstances of each contract require. Such
terms are often settled by a trade association for use by its members for
contracting with each other or with members of the outside public. One object
of these standard forms is to save time.
Between businessmen bargaining at arm's length such uses of standard
forms can be perfectly legitimate but a less defensible object of standard form
contracts has been to exploit and abuse the superior bargaining power of
commercial suppliers of goods or services when contracting with private
consumers. The supplier could draft the standard terms both so as to exclude or
limit his liability for defective performance and also so as to define his
rights under the contract in ways highly favourable to himself. In cases
concerning exemption clauses, the courts were to a considerable extent able to
redress the balance in favour of the parties prejudicially affected by standard
form contracts; but they were less inclined to do so where standard terms
conferred rights on the supplier. In both fields, legislative intervention has
become increasingly important. The most important legislative provisions are
contained in the Unfair Contract Terms Act.
However it is still necessary also to consider the common law approach
to exemption clauses.
EXEMPTION CLAUSES AT COMMON LAW
A
party who wishes to rely on a clause excluding or limiting liability must show
that the clause has been incorporated in the contract, and also that, on its
true construction, it covers the breach which has occurred and the resulting
loss or damage. Even if he can show these things, he may still find that the
clause is invalid or inoperative.
Incorporation in the Contract
An
exemption clause can be incorporated in the contract by signature, by notice,
or by course of dealing.
(a) Signature
A
person who signs a contractual document is bound by its terms even though he
has not read them.
L'Estrange v. F. Graucob Ltd.
The proprietress of a cafe bought an automatic cigarette vending machine. She signed, but did not read, a sales agreement which contained an exemption clause in regrettably small print. It was held that she was bound by the clause, so that she could not rely on defects in the machine, either as a defence to a claim for part of the price, or as entitling her to damages.
It
would have made no difference had she been a foreigner who could not read
English.
(b) Notice
If
the exemption clause is set out, or referred to, in a document which is simply
handed by one party to the other, or displayed where the contract is made, it
will be incorporated in the contract only if reasonable notice of its existence
is given to the party adversely affected by it. Whether such notice has been
given depends on the following factors.
Circle Freight International Limited v. Mideast Gulf Exports [1988] 2 Lloyd’s R. 427 (Check Library).
(i)
Nature of the Document
An
exemption clause is not incorporated in the contract if the document in which
it is set out (or referred to) is not intended to have contractual force.
Chapelton v. Barry U.D.C
The plaintiff hired a deck chair from the defendants for three hours. He paid 2d., and was given a ticket which he did not read. It was held that an exemption clause printed on the ticket was not a term of the contract as the ticket was a mere voucher or receipt. It did not purport to set out the terms on which the plaintiff had hired the chair but only to show for how long he had hired it, and that he had paid the fee.
(ii)
Degree of Notice
The party relying on the exemption clause need not show that he actually brought it to the notice of the other party, but only that he took reasonable steps to do so. The test is whether the former party took such steps—not whether the latter should, in the exercise of reasonable caution have discovered or read the clause. Where the clause is printed on a ticket it is not enough to show that the party to whom it was handed knew that there was writing on the ticket, for the writing might not have been intended to have contractual effect. The question whether adequate notice has been given turns principally on two factors: the steps taken to give notice and the nature of the exempting conditions.
Parker v. South Eastern Railway [1877] 2 CPD 416.
Plaintiff deposited bag in defendant’s cloakroom, paid and received a ticket. On the face of the ticket it said ‘See Back” and the back stated company not liable for value of any package in excess of f10. A notice with the same condition was placed in the Cloakroom. The bag was either lost or stolen and the plaintiff sought to claim in excess of f10. Plaintiff argued that he had read the face of the ticket and thought it was a receipt for the monies paid to store the bag or evidence that the defendants’ had the bag. Held: The trial judge had misdirected the jury since he had not asked them whether the defendants had taken reasonable steps to give the plaintiff notice of the condition.
(iii)
Steps Taken to Give Notice
Where
the notice is contained in a contractual document it is normally sufficient for
the exempting condition to be prominently set out or referred to on the face of
the document.
Thompson v. L.M.SS.
The plaintiff asked her niece to buy a railway excursion ticket for her. The ticket (which cost 2s. 7d.) had on its face the words "see back" and on the back a statement that it was issued subject to the conditions set out in the company’s time-tables, which could be bought for 6d. These conditions included an exemption clause. The plaintiff could not read the words on the ticket as she was illiterate. The Court of Appeal held that there was no evidence to support this finding as the notice was clear and as the ticket was a common form contractual document. Hence the exemption clause was held to be incorporated in the contract.
(iv)
Nature of the Notice
The
more unusual or unexpected a particular term is, the higher will be the degree
of notice required to incorporate it. If the clause is of such a nature that
the party adversely affected would not normally expect it then the other party
will not be able to incorporate it by simply handing over or displaying a
document containing the clause. He must go further and "make it
conspicuous" or take other special steps to draw attention to it. For
example, a person who drives his car into a car-park might expect to find in
his contract a clause excluding the proprietor's liability for loss of or
damage to the car. But in Thomton
v. Shoe Lane Parking Ltd. the car-park ticket referred to a condition
purporting to exclude liability for personal injury. It was held that adequate notice of this condition had not been
given, even though the steps taken by the proprietor might have been sufficient
to incorporate the more usual clauses excluding or limiting liability for
property damage.
(v)
Time of Notice
The
steps required to give notice of an exemption clause must be before or at the
time of contracting.
The plaintiff booked a room in the defendant's hotel. She later saw a notice in her bedroom exempting the defendants from liability for articles lost or stolen unless handed to the management for safe custody. It was held that the contract was made at the reception desk when the defendants agreed to accept the plaintiff as a guest. The notice in the bedroom could not have been seen by the plaintiff until later and was therefore not incorporated in the contract.
(c)
Course of dealing
Parties
may for some time have dealt with each other on terms that exempted one of them from liability and that were
usually incorporated by signature or notice. On the occasion in question,
however, the usual document may by some oversight not have been handed over or
signed at the time of contracting; and the question then arises whether the
usual exemption clause is nevertheless incorporated in that particular
transaction. The present position is that if there has been a long consistent
course of dealing on terms incorporating an exemption clause, then those terms
may apply to a particular transaction even though in relation to it the usual
steps to incorporate the clause has not been taken.
Hardwick Game Farm v. Suffolk Agricultural Association [1969] 2 AC 31 (Check Library for equivalent citation in All England or Weekly Law Reports).
NEGLIGENCE
Legislation
has severely restricted the effectiveness of clauses to exempt a party from
liability for negligence; and the negligence of the party in breach may also
support the conclusion that the statutory requirement of reasonableness has not
been satisfied. But even where it
remains possible to exclude liability for negligence, "clear words"
must be used for this purpose, since the courts regard it as "inherently
improbable that one party to a contract should intend to absolve the other
party from the consequence of his own negligence. The requirement is most obviously satisfied where the exemption
clause expressly refers to negligence: i.e. uses the word
"negligence" or some synonym for it.
If
there is a realistic possibility (as opposed to a merely fanciful one) that a
party can be made liable irrespective of negligence, an exemption clause in
general terms will not normally be construed so as to cover liability for
negligence. For example, a common
carrier of goods is strictly liable if they are lost or damaged. A clause
exempting him from liability "for loss or damage" would be construed
to refer to his strict liability only.
Further by means of statute the
exemption must satisfy the test of reasonableness.
MINORS
The
law on this topic is based on two principles. The first, and more important, is
that the law must protect the minor against his inexperience, which may enable
an adult to take unfair advantage of him, or to induce him to enter into a
contract which, though in itself fair, is simply improvident. This principle is
the basis of the general rule that a minor is not bound by his contracts. The
second principle is that the law should not cause unnecessary hardship to
adults who deal fairly with minors. Under this principle certain contracts with
minors are valid; others are voidable in the sense that they bind the minor
unless he repudiates; and a minor may be under some liability in tort and in
restitution.
1.
Valid Contracts
Service
contracts
A
minor is bound by a service contract if it is on the whole for his benefit. He
may be bound even though some of the terms of the contract are to his
disadvantage.
Clements v. L. & N.W. Ry. [1894] 2 QB 112
A minor who was a railway porter agreed to join an insurance scheme, to which his employers contributed and to give up any claim for personal injury under the Employers' Liability Act 1880. His rights under the scheme were in some ways more, and in other ways less, beneficial than those under the Act; and it was held that the contract was on the whole beneficial, so that the minor was bound by it. But a term which simply limits or excludes the liability of the employer without giving the minor any rights in return is unlikely to be upheld.
A
minor is, on the other hand, not bound by a service contract if it is on the
whole harsh and oppressive.
De Francesco v. Barnum (1889)
43 Ch D 165
A minor was apprenticed for stage dancing by a deed which provided that she should be entirely at the disposal of the master; that she should get no pay unless he actually employed her, which he was not bound to do; that he could send her abroad; that he could put an end to the contract if, after fair trial, he found her unsuitable, and that she should not accept any professional engagement without his consent. She accepted a professional engagement with the defendant without the master’s consent It was held that the master could not sue the defendant for inducing a breach of the apprenticeship deed as it was unreasonably harsh and thus invalid.
In
deciding whether a service contract is on the whole beneficial the court is
entitled to look at surrounding circumstances. For example, a service contract
with a minor may contain a covenant in restraint of trade. Such a covenant if
otherwise valid does not invalidate the contract if the minor could not have
got similar work on any other terms. But it would invalidate a service contract
with a minor if it was of a kind that was not usually found in service
contracts that trade and locality. These principles also apply to contracts
connected with service contracts. Thus they determine the validity of contracts
to carry minors to work, of compromises of industrial injury claims, and of
agreements to dissolve service contracts.
DRUNKARDS
Extreme
drunkenness is a defence to an action on a contract if it prevents the
defendant from understanding the transaction, and if the plaintiff knows this. Gore
v Gibson (1843) 13 M&W 623 The drunkard is liable if he ratifies
the contract when he becomes sober.
TUTORIAL
QUESTIONS
1. Rajcoomar
Construction Equipment Rental Company Limited ("RC") was in the
business of renting equipment including road paving equipment. Badwork Limited
was awarded a contract to build a road from Sacamar to Ocot on the island of
Carabobo. After being awarded the contract, Badwork placed an order with RC for
the delivery of a heavy duty Asphalt Spreader. The Spreader was delivered
promptly to Badwork and the Managing Director of Badwork was informed that a
printed form contract would follow on the "usual terms and conditions of
such hire". Badwork in the past had rented equipment from many rental
companies and they all had a standard contract but it was the first time
equipment was being rented from RC. The printed from contract arrived with a
clause making Badwork liable for all damages that may occur to the equipment
during its use and requiring Badwork to indemnify RC for all such damages.
However, prior to the contract being signed, the Spreader sank in marshy
ground. Badwork claimed that the term providing for liability and
indemnfication was not incorporated into any contract of hire. Further, after
the Spreader sank in the marshy ground, barely the tip was showing and Badwork
placed a small hazard light and a notice warning people of the presence of the
Spreader. Harry Ramnath drove his car onto the tip of the Spreader where he
received numerous injuries, and damage to his new Elantra.
Advise RC as to
their legal postion with respect to the indemnification for losses due to the
Spreader.
Does Harry
Ramnath have any legal recourse for the damages he suffered to person and
property caused by the accident with the Spreader?
2. David Smith
& Co. Ltd. ('DS') is in the business of manufacturing chicken feed and also
rearing chickens. Due to the relatively small size of its feed manufacturing
plant, it is no longer economically feasible to continue the feed manufacturing
operations as better prices can be obtained from Gigantic Feed Mill. DS has put
the feed manufacturing plant up for sale without any conditions being
stipulated for the receipt of tenders. The highest bid was received from Buju
Chicken Farm to the sum of TT$1.5 million with the second highest bid being
that from General Grant Chicken Farm to the sum of TT$1.4 million. DS
management reviewed the bids and took the position that Buju Chicken Farm was
located to close to their operations and therefore was a potential competitor
and accordingly the feed manufacturing plant should not be sold to Buju Chicken
Farm. Management decided not to correspond with Buju Chicken Farm as to its
decision and further advised its business advisor to draft a warranty clause
with respect to the feed manufacturing plant to accompany the offer letter to
General Grant Chicken Farm.
What legal
remedies are available to Buju Chicken Farm? Draft the warranty clause for DS.
3. Harry induced
Ramesh to purchase an apartment building, making false statements regarding the
amount of rents and the duration of leases. Ramesh admitted that he had not
investigated these claims by consulting the tenants or inspecting the leases.
The trial court ruled for the defendant on the ground that Ramesh had a duty to
protect himself by making reasonable inquiry. Should this ruling be reversed on
appeal?
4. This case
grows out of the alleged refusal of the defendant to sell to the plaintiff a
certain piece of clothing which it had offered for sale in a newspaper
advertisement. It appears from the record that on April 6, 2001, Jenny May, the
defendant, published the following advertisement in the Daily Star newspaper:
Saturday 9 AM Sharp
3 Brand New 517 Levi's
Worth $1000.00
First Come First Served
$50 Each
On April 13, the
defendant again published an advertisement in the same newspaper as follows:
Saturday 9 AM Sharp
3 Diamond Rings
Worth $6000.00
First Come First Served . . . $200.00 each
First Come First Served
On each of the Saturdays following the publication
of the above-described ads, Erasmus Benjamin Black, the plaintiff, was the
first to present himself at the appropriate counter in the defendant's store
and on each occasion demanded the pants and the ring so advertised and
indicated his readiness to pay the sale price. On both occasions, the defendant
refused to sell the merchandise to the plaintiff, stating on the first occasion
that, by a "house rule", the offer was intended for women only and
sales would not be made to men, and on the second visit that the plaintiff knew
defendant's house rules. . .
Mr. Black is
aggrieved and will like to take action against the defendant, please advise.
5. In January
2000, Dr. John Crow purchased a brand new black Hardest sports sedan for
$40,750.88 from an authorized Hardest Car dealer in Robert Hill, Siparia. After
driving the car for approximately nine months, and without noticing any flaws
in its appearance, Dr. Crow took the car to "Posh Finish," an independent
detailer, to make it look 'jazzier than it normally would appear.' Mr. Posh,
the proprietor, detected evidence that the car had been repainted. Convinced
that he had been cheated, Dr. Crow brought suit against Hardest Car Company of
Sunnyland. Dr. Crow alleges that the failure to disclose that the car had been
repainted constituted suppression of a material fact and a false representation
and claimed compensatory damages on the basis that a repainted car could not be
considered a new car and was worth less than one never repainted. Dr. Crow is
also seeking punitive damages for not being advised that the car had been
repainted prior to being sold as a new car.
Hardest Car
Company acknowledges that it had adopted a policy that if a car was damaged in
the course of transportation from the factory in Rainyland, it will be
repainted and sold as new.
Hardest Car
Company is seeking your advice.
6. On May 7, Roy,
a minor, a resident of Smithton, purchased an automobile from Royal Motors,
Inc., for $12,750 in cash. On the same day, he bought a motor scooter from
Marks, also a minor, for $750 and paid him in full. On June 5, two days before
attaining his majority, Roy disaffirmed the contracts and offered to return the
car and the motor scooter to the respective sellers. Royal Motors and Marks
each refused the offers. On June 16, Roy brought separate appropriate actions
against Royal Motors and Marks to recover the purchase price of the car and the
motor scooter. By agreement on July 30, Royal Motors accepted the automobile.
Royal then filed a counterclaim against Roy for the reasonable rental value of
the car between June 5 and July 30. The car was not damaged during this period.
Royal knew that Roy lived twenty-five miles from his place of employment in Smithton
and that he would probably drive the car, as he did, to provide himself
transportation.
Discuss Roy's
action against Royal Motors, Inc.; the counterclaim of Royal Motors Inc.
against Roy; and Roy's action against Marks.
7. Until 10
December 1999, S was the registered owner of a property consisting of 39 flats.
S had granted 99-year leases of 37 of the flats but retained possession of two
of the flats ('flats 11 and 18') for leasing. In mid-1998, S decided to sell
the freehold interest of the property but to retain flats 11 and 18 for itself.
On advice, the property was marketed for £60,000 and the annual aggregate
ground rents, if all 39 flats were let, was valued at £4,875. F made an offer
to buy the freehold at £60,000 and that was accepted by S. Sample leases were
sent to F setting out the essential terms relating to all of the flats
excluding those leases belonging to flats 11 and 18. On 7 April 1999, F's
solicitor wrote to S's solicitor stating that no leases had been received for
flats 11 and 18. Further correspondence passed between the two solicitors, the
result of which was to inform F's solicitor that S owned both of those flats
and that there was no intention to sell them in the short term. There was no
further communication thereafter between the solicitors and so, from that
silence. On 7 December 1999, a schedule of ground rent arrears was sent from S
to F on all of the flats. All of the flats were shown to owe ground rent except
flats 11 and 18, where S was shown to be the tenant. Completion took place on
10 December 1999 and no reference was made, nor rights reserved, in respect of
flats 11 and 18. S proceeded with completion on the basis that it still
retained a substantial interest in flats 11 and 18. S subsequently instructed
an agent to let one of the properties on a long lease at a valuation of £50,000
and later accepted an offer of £45,000. The agent later received similar
instructions from S on the second property. In February 2000, S discovered that
it had mistakenly parted with all of its interest in flats 11 and 18.
Following F's
refusal to consent to rectification of the transfer, you are asked to advise S.
8. Eurovideo was
a distributor of video films for home entertainment within the German-speaking
market. Pulse was the copyright owner of a number of titles in a series
entitled "Animated Classics" ('the programs'). Eurovideo approached
Pulse with a view to taking a seven-year license to distribute the programs
within German territories. A draft license was provided by Pulse. Following a
letter in which Eurovideo asked whether Pulse was agreeable to making an
assurance that distribution rights were to be exclusive and rights of first
distribution, the draft agreement was amended to contain a provision that
Eurovideo acquired "exclusive first exploitation rights" in the
programs. In July 1998 Eurovideo discovered that the programs had been the
subject of previous licenses within the territories. Accordingly, by a letter
dated 25 August 1998, Eurovideo purported to rescind the agreement and sought
damages.
Advise Eurovideo.
9. Steinberg
received a catalogue, applied for a admission to Chicago Medical School, and
paid a $15 fee. He was rejected. Steinberg filed a contract action against the
school, claiming it had failed to evaluate his application and those of other
applicants according to the academic criteria in the school’s bulletin.
According to the complaint, Chicago used non-academic criteria, primarily the
ability of the applicant or his family to pledge or make payment of large sums
of money to the school. Does Steinberg have any grounds for relief?
10. Marlene
orally placed an order for fabrics with Carnac. No method of dispute resolution
was discussed at the time. Almost immediately thereafter, Marlene sent Carnac a
“purchase order” and Carnac sent Marlene an “acknowledgement of order”.
Marlene’s form did not provide for arbitration; it did declare that it would
not become effective as a contract unless it were signed by the seller and that
its terms could not be “superseded”. Carnac’s form, on the other hand,
contained arbitration clause in the midst of some 13 lines of small-type
“boiler plate”. After the fabrics were delivered, a dispute arose. Was Marlene
bound to arbitration?
11. Headline:
Soodhoo's firm sues for $3 6 billion – Trinidad Express Publication Date
23/4/2000
Ken Soodoo and
Ved Seereeram's investigative firm Alliance Capital Markets has sued Petrotrin
for over US$500 million for reneging on a contract made a year ago. Alliance
Capital Markets Ltd was hired last April by Petrotrin to investigate Citibank's
1993 refinance of a US$62 million loan to Petrotrin. The agreement promised a
ten per cent recovery fee.
In a 35-page
review of the transaction presented to Petrotrin last May, Soodoo and Seereeram
the principals of Alliance, both former Citibank executives identified
"that the Citibank overcharged (Petrotrin) by US$137,696,135. They further
claimed that Petrotrin was entitled to general and punitive damages of
$USD963,872,945.
Publication Date
9/03/2000 - Headline: Petrotrin ponders options
Faced with a
US$578 million lawsuit, Petrotrin is examining all of its options, including a
counter-action suit and an out-of-court settlement with Alliance Capital.
Chairman Donald Baldeosingh was tight with. He said Petrotrin was examining the
Citibank transaction as a separate issue. “We have to take this transaction by
itself, It is not a straight transaction. We are reviewing all the relevant
material”.
In its statement
of defence, Petrotrin denied having a contract with Alliance. It confirmed
signing an April 15, 1999 letter with Alliance but countered that "the
letter was too vague, uncertain and incomplete to constitute a legally
enforceable agreement between the plaintiff and the defendant”.
Discuss the above.
CASES
Privy
Council Appeal No. 8 of 2000
Goomti Ramnarace Appellant
v.
Harrypersad Lutchman Respondent
FROM
THE COURT OF APPEAL OF
TRINIDAD AND TOBAGO
---------------
JUDGMENT
OF THE LORDS OF THE JUDICIAL
COMMITTEE
OF THE PRIVY COUNCIL,
Delivered
the 21st May 2001
------------------
Present
at the hearing:-
Lord
Bingham of Cornhill
Lord
Nicholls of Birkenhead
Lord
Hoffmann
Lord
Millett
Lord
Scott of Foscote
[Delivered by Lord Millett]
------------------
1.
In
July 1974 with the consent of her uncle and aunt Angad and Kushmee Lutchman the appellant entered into occupation
of a piece of land which they owned at Orange Field Road, Carapichaima, in
central Trinidad. The land is described in the statement of claim as comprising
2½ lots more or less and measuring 75 feet on each of its northern and southern
boundaries and 200 feet on each of its
eastern and western boundaries and bounded on the north by Orange Field Road,
on the south by lands occupied by Abdool, on the east by lands of Rampersad and
on the west by lands of Mr and Mrs Lutchman.
It became clear in the course of the trial that the reference to 2½ lots
in the statement of claim is an error: the area so described comprises four
lots. The land was unfenced, but identifiable on the ground.
2.
The
appellant had been living with her husband and three children rent-free in a
house on another parcel of land a short distance away which belonged to her
brother-in-law. He asked the appellant to leave as he needed the house, and she
approached her uncle and aunt in search of somewhere to live. Her uncle told
her that she could live on the land or as much of it as she wanted until she
could afford to buy it. The appellant went into occupation with her family. She
built a three-bedroomed wooden house on the highest part of the land, and has
lived there ever since without paying any rent or other sums for her
occupation. Her uncle died in 1977, her
aunt in 1988. In 1990 she demolished
the wooden house and built a concrete house in its place. She also enclosed an
area of 2½ lots round the house ("the disputed land") by erecting a
chain link fence around it. The appellant accepts that she had not then been in
possession of the land for sufficiently long to have acquired a possessory title, and that thereafter she
ceased to occupy the 1½ lots. She has remained in possession of the disputed
land and claims to have acquired a
possessory title to it.
3.
The
respondent, who is Mr and Mrs Lutchman's son, has periodically challenged the
appellant's right to live on the land.
In 1978 and again in 1985, on both occasions while his mother was alive,
he served what purported to be a notice to quit on the appellant, though he
took no steps to enforce either of them.
The Court of Appeal criticised the judge for making no finding in regard
to the service of these notices. Their
Lordships consider the criticism to be misplaced. By themselves the notices
were not effective to stop time running in favour of the appellant, and as will
appear they were not relevant to anything which the judge had to decide.
4.
The
appellant remained in undisturbed possession of the whole of the land until
October 1990, when she erected the chain link fence round the disputed
land. The respondent thereupon used a
wrecker to pull down the fence. In
September 1991 the respondent cut down the appellant's iron gate with a cutting
torch.
5.
The
appellant brought the present proceedings in November 1990. Time had not yet run in her favour, and she
was unable to claim a possessory title.
By her writ she sought a declaration that she was a tenant of the
disputed land, damages for trespass and injunctive relief. By the time she served her statement of
claim on 20th November 1991, however, time had run in her favour, and she
claimed a declaration that the title of the respondent and his predecessors in
title to the disputed land had been extinguished. By his defence and counterclaim served on 24th December 1991 the
respondent disputed the appellant's claim and counterclaimed for a declaration
that he was the owner of the disputed land and an order for possession. By her reply the appellant contended that
the respondent's title (if any) to the disputed land had been extinguished
before 24th December 1991.
6.
The
appellant's claim to a possessory title in the statement of claim may have been
liable to be struck out as a departure from the relief claimed in the writ, but
this is of no moment. The respondent
did nothing to stop time running until he served his counterclaim for
possession on 24th December 1991. The
issue which falls to be decided thus arises, not in the action, but on the
counterclaim.
7.
The
judge found that the appellant entered into occupation of the four lots as
tenant at will in July 1974; that by virtue of section 8 of the Real Property
Limitation Ordinance 1940 ("the Ordinance") the tenancy determined
one year later at the end of July 1975; that she had remained in exclusive
possession without interruption of the four lots until October 1990 and of the
disputed land thereafter; and that by July 1991 the respondent's title to the
disputed land was extinguished by the operation of section 3 of the Ordinance.
8.
The
Court of Appeal allowed the respondent's appeal. It did so on the ground that the appellant had entered into
occupation originally as licensee and not as tenant at will, and that her
licence had been determined at the earliest by the service of notice to quit by
the respondent in 1985 and at the latest by the death of her aunt in 1988. She had thus not been in adverse possession
of the land for the period required to extinguish the respondent’s title. In holding the appellant to have been in
occupation as licensee, the Court of Appeal relied on the dictum of Denning LJ
in Facchini v Bryson (1952) 1 TLR 1386 at p. 1389 where he said:
“In
all the cases where an occupier has been held to be a licensee there has been
something in the circumstances such as a family arrangement, an act of
friendship or generosity, or suchlike, to negative any intention to create a
tenancy.”
This statement was accepted as correct by
Scarman LJ in Heslop v Burns (1974) 1 WLR 1241 at p. 1252.
9.
The
Ordinance substantially reproduces the provisions of the English Real Property
Act, 1833. The limitation period for an
action to recover land is 16 years, and the period starts when the right to
bring the action first accrues to the person bringing the action or someone
through whom he claims: section 3 of the Ordinance (corresponding to section 2
of the 1833 Act). Neither the Ordinance nor the 1833 Act contains any reference
to the concept of adverse possession which became enshrined in the English
statute by section 10(1) of the Limitation Act 1939, but this was no more than
a statutory enactment of the case law on the earlier English Limitation Acts
(see Moses v Lovegrove [1952] 2 QB 533, 539 per Sir Raymond Evershed
MR). In these circumstances their Lordships
do not doubt that the concept is incorporated into the Ordinance also.
10.
Generally
speaking, adverse possession is possession which is inconsistent with and in
denial of the title of the true owner.
Possession is not normally adverse if it is enjoyed by a lawful title or
with the consent of the true owner.
Section 8 of the Ordinance, however, (reproducing section 7 of the 1833
Act) provides that, where a person is in possession of any land as tenant at
will, the right of the true owner to bring an action to recover the land “shall
be deemed to have first accrued” at the expiration of one year from the
commencement of the tenancy, at which time the tenancy “shall be deemed to have
determined”.
11.
It
follows that if a tenancy at will is determined during the first year the
owner’s right of action accrues immediately; otherwise it accrues automatically
by virtue of section 8 at the end of the first year, and any later
determination of the tenancy is ineffective for limitation purposes unless a
new tenancy is created: see Day v Day (1871) LR 3 PC 751. This decision was unfortunately overlooked
in Seesahai v Mangaree (1959) 1 WIR 363 and Chootoo v Joseph
(1971) 18 WIR 134, where events after the expiry of the first year (in the
former case requests by the owner to the occupier to leave the land and in the
latter the death of the owner) were held to determine the tenancy at will
and start time running afresh. This was contrary to the Ordinance; in each
of the cases the tenancy at will had already been determined for limitation
purposes by the operation of section 8 of the Ordinance, and the determination
of the tenancy for other purposes (such as a claim for mesne profits) could not
interrupt the running of time. Their Lordships consider that these cases were wrongly
decided.
12.
The
effect of sections 3 and 8 of the Ordinance taken together is that if no action
is taken by the true owner his title is extinguished after the expiration of 17
years from the commencement of the tenancy even though the possession of the
occupier is permissive throughout: see Lynes v Snaith [1899] 1 QB
486. It was the deliberate policy of
the legislature that the title of owners who allowed others to remain in
possession of their land for many years with their consent but without paying
rent or acknowledging their title should eventually be extinguished.
13.
The
law was settled to this effect until well after the end of the Second World
War. Thereafter developments took place
in England which had no counterpart in Trinidad and Tobago. Section 7 of the 1833 Act was re-enacted by
section 9(1) of the Limitation Act, 1939.
But in the 1960’s and 1970’s, largely under the influence of Lord
Denning MR, the courts began to develop the idea of a non-contractual licence
to occupy land. While in some respects
such a licence was capable of providing a valuable means of giving legal effect
to informal arrangements for the occupation of land, it was capable of being
exploited by landlords who wished to circumvent the operation of statutory
provisions which gave security of tenure to their tenants. It also undermined the basic policy of the
Limitation Acts. Since the licence was
consensual the occupation of the licensee did not constitute adverse
possession; and since it was not a tenancy at will it fell outside section 9(1)
of the 1939 Act. Accordingly time did
not run in favour of a licensee so long as the licence endured: see Hughes v
Griffin [1969] 1 WLR 23. For many
years the operation of the Limitation Acts was further stultified by the
doctrine of implied licence which attributed the presence of a trespasser on
vacant land not required by the true owner to a licence. In Wallis's Cayton Bay Holiday Camp Ltd.
v Shell-Mex and B.P. Ltd. [1975] QB 94 at p. 103 Lord Denning MR even said
that it did not lie in a trespasser's mouth to assert "that he used the
land of his own wrong as a trespasser”.
This was entirely contrary to the policy of the statutes, and was later
described as "Lord Denning's original heresy": see Buckinghamshire
County Council v Moran [1990] Ch 623, 646 per Nourse LJ.
14.
The
difficulty of distinguishing between a tenancy at will and a licence led to a
change in the law in England following a recommendation of the Law Reform
Committee (Cmd. 6923) in 1977. The
Committee commented that the distinction between a tenancy at will and a
gratuitous licence was “at best tenuous”, and recommended that, whether the
land be occupied under a tenancy at will or a gratuitous licence, time should
not begin to run in favour of the occupier until the tenancy or licence had
actually been determined. The
Committee’s recommendation was given effect by section 3(1) of the Limitation
Amendment Act 1980, which repealed section 9(1) of the 1939 Act. At the same time the opportunity was taken
to abolish the doctrine of the implied licence.
15.
Not long afterwards orthodoxy was restored by
the decision of the House of Lords in Street v Mountford [1985] AC 809.
This reaffirmed the principle that the distinguishing feature of a tenancy is
that it grants the tenant exclusive possession. Lord Templeman expressly
approved the reasoning of Windeyer J sitting in the High Court of Australia in Radaich
v Smith (1959) 101 CLR 209, 222 where he said:
“What
then is the fundamental right which a tenant has that distinguishes his
position from that of a licensee? It is an interest in land as distinct from a
personal permission to enter the land and use it for some stipulated purpose or
purposes. And how is it to be ascertained whether such an interest in land has
been given? By seeing whether the grantee was given a legal right of exclusive
possession of the land for a term or from year to year or for a life or lives.
If he was, he is a tenant. And he cannot be other than a tenant, because a
legal right of exclusive possession is a tenancy and the creation of such a
right is a demise. To say that a man who has, by agreement with a landlord, a
right of exclusive possession of land for a term is not a tenant is simply to
contradict the first proposition by the second.”
16.
A tenancy at will is of indefinite duration,
but in all other respects it shares the characteristics of a tenancy. As Lord Templeman observed at p. 818, there
can be no tenancy unless the occupier enjoys exclusive possession; but the
converse is not necessarily true. An
occupier who enjoys exclusive possession is not necessarily a tenant. He may be the freehold owner, a trespasser,
a mortgagee in possession, an object of charity or a service occupier.
Exclusive possession of land may be referable to a legal relationship other
than a tenancy or to the absence of any legal relationship at all. A purchaser who is allowed into possession
before completion and an occupier who remains in possession pending the
exercise of an option each has in equity an immediate interest in the land to
which his possession is ancillary. They
are not tenants at will: see Essex Plan Ltd. v Broadminster (1988) 56 P
& CR 353, 356 per Hoffmann J.
17.
A person cannot be a tenant at will where it
appears from the surrounding circumstances that there was no intention to
create legal relations. A tenancy is a legal relationship; it cannot be created
by a transaction which is not intended to create legal relations. This provides
a principled rationalisation of the statement of Denning LJ in Facchini v
Bryson on which the Court of Appeal relied in the present case. Before
an occupier who is in exclusive occupation of land can be treated as holding
under a licence and not a tenancy there must be something in the circumstances
such as a family arrangement, an act of friendship or generosity or suchlike,
to negative any intention to create legal relations.
21.
The
appeal will be allowed and the judgment of the judge restored. The respondent must pay the appellant’s
costs before the Board and below.