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Example Law Essay

Contract Law Problem Question

This scenario relates to the various contractual relationships entered into by the multi-millionaire property developer, Simon Cuddle. The first contract is with Best Builders Limited (“BBL”) and is for the construction of a new concert hall in the grounds of a mansion. The second contract is with Ravishing Rooms Limited (“RRL”) and is for the construction of built-in wardrobes at one of Cuddle’s hotels. Finally, Cuddles has contracted with Perfect Print Limited (“PPL”) to produce leaflets as publicity for his new estate agency, “Houses R Us”. Unfortunately, problems arise in each of the commercial relationship, and the parties look to their contracts to ascertain their respective rights, duties, and remedies. This essay will consider these aspects of all three contractual relationships for the purposes of advising each of the contracting parties.

Let us begin with Cuddle’s contract with BBL. The construction of the concert hall is delayed beyond the contractually due date, meaning that he is unable to go ahead with the planned grand opening. The date of 1 May for completion is articulated to BBL. Cuddle considers that his losses flowing directly from the delay in construction amount to £60,000. The question is whether BBL are liable to Cuddle for breach of contract, and therefore to pay damages in this amount to him. As Chitty states, a "number of difficulties surround the law relating to time stipulations in contracts". Treitel points out, however, that “failure to perform a stipulation as to time does not differ intrinsically from any other failure to perform”. In the middle of the Nineteenth Century, Sir John Romilly MR stated that "at law time is always of the essence of the contract. When any time is fixed for the completion of it, the contract must be completed on the day specified, or an action will lie for breach of it" (Parkin v Thorold (1852). It is not, however, that straightforward, and subsequent case law suggests that it will need to be established that the time specified was intended to be essential by the parties. In this instance, Cuddles has informed BBL of the booking for the day after the intended completion date, and following Bunge Corps, New York v Tradax Export SA, Panama (1981), it is likely that the court would find time to be of the essence.

The effect of time being of the essence in this contract is that BBL’s failure to comply with the completion date will enable Cuddles to terminate the contract. This, of course, is of little comfort to Cuddles who is more concerned about the lost revenue resulting. Fortunately, the Law of Property Act 1925 makes a delay in performance a breach that will sound in damages. This was confirmed in Raineri v Miles (1981). We must, therefore, consider the question of the quantum of damages for which BBL is liable to Cuddle. Following a line of cases that include Mertens v Home Freeholds (1921), Hoenig v Isaacs (1952), and William Cory & Sons v Wingate Investments Limited (1978), there is strong authority for the proposition that a defendant building company who is in breach of an obligation is prima facie liable on a “cost of cure” basis. Given that Cuddles specifically told BBL of the reason why the project needed to be completed by the specified date, the losses flowing from the delay should be recoverable under the rules established in Hadley v Baxendale (1854) (specifically, losses which were in the contemplation of the parties at the time they made the contract) and refined in Victoria Laundry (Windsor) Limited v Newman Industries Limited (1949) (that the loss was “reasonably foreseeable as liable to result from the breach”, notwithstanding the House of Lords’ increase in the requisite level of probability in The Heron II (1969)). It also appears that Cuddles has complied with his common law duty to mitigate his loss by seeking other contractors to complete the work.

We move to Cuddles’ contract with RRL pursuant to which RRL agree to make built-in wardrobe. The contract contains an exclusion clause purporting to exclude liability for any damage or injury in any circumstances. This is very likely to fall foul of various provisions relating to exemption clauses. The first question is whether the clause was incorporated into the contract. It seems the clause was in the written instrument, and following L’Estrange v F Graucob Limited (1934), if Cuddles signed this, he will be bound by it. By including the exclusion in the document, it is likely that RRL took “sufficient” steps to bring it to Cuddles’ attention according to Parker v SE Ry (1877). Notwithstanding this, however, as Treitel points out, legislation “has severely restricted the effectiveness of clauses purporting to exempt a party from liability for negligence, which is what RRL are seeking to do here. Of particular relevance is the Unfair Contract Terms Act 1977. This prohibits a party from restricting liability for death or personal injury resulting from negligence. Consequently, RRL would not be able to rely on the exclusion clause in respect of Cuddles’ injury. What about RRL’s liability for the damage to the Persian rug? Even where liability for negligence can be excluded, “clear words” are required to do so, for the reason that the courts consider it “inherently improbable that one party to a contract should intend to absolve the other party from the consequence of his own negligence” (Gillespie Bros Limited v Roy Bowles Transport Limited (1973)). The “clear words” test is likely to be satisfied, however, where the clause excludes “all liability whatsoever” as in the present case, and as was the case in Canada SS Lines Limited v The King (1952). It seems to be the case, then, the RRL will not be liable for the damage to the rug by virtue of the wide exclusion clause, but would, in theory, be liable for the personal injury, if this was caused by RRL’s negligence.

The causation must now be considered. Did RRL’s negligence cause the injury to Cuddles? Would the loss have been suffered had there not been a breach by RRL? It seems in this case that there were concurrent causes of Cuddles’ injury. The first was the wardrobe crashing down due to RRL’s negligence, but the second, and most proximate cause, was the computer wire left on the floor. In Heskell v Continental Express Limited (1950), Devlin J stated that “if a breach of contract is one of two causes, both cooperating and both of equal efficacy ... it is sufficient to carry a judgment for damages”. In this instance it is likely that the two causes would be deemed to be of equal efficacy. Following The Silver Sky (1981), however, where the loss arises partly from the breach of contract and partly from the act of a third party (as in this case), the party in breach is only liable if the third party’s act was foreseeable. The foreseeability must be satisfied on the standard of probability which governs remoteness in contract. If this can be satisfied (as it is likely), RRL will be liable. Unfortunately for Cuddles, however, following Addis v Gramophone Co Limited (1909), in a contractual action the right to recover damages for “injured feelings” is limited. An exception to this was made in Watts v Morrow (1991), however, such that Cuddles may be able to recover damages for his mental suffering “directly related to that [physical] inconvenience” caused by RRL’s negligence.

Finally we come to Cuddles’ contract with PPL for the production of his publicity leaflet, which Cuddles purports to terminate for breach. PPL make representations to Cuddles that they have been the “leading specialist for years” and use “only the latest and up-to-date printing machines on the market”. Without verifying these statements, but no doubt in reliance upon them, Cuddles enters the contract. The question to consider is whether these statements qualify as misrepresentations, and if so what Cuddles is entitled to as a result. There will be no remedy for what is known as a “mere puff”, which is a statement that is so vague that it has no effect at law or equity. These statements are more precise, however, and would qualify as specific assertions of verifiable facts. For PPL to be liable for misrepresentation, the statement must be unambiguous, which both of these are. Crucially, the misrepresentations must be “material”, following cases such as McDowell v Fraser (1779). To be material, the statement must be one which would affect the judgment of a reasonable person when deciding whether to enter the contract and on what terms. Finally, there must be a reliance on the statement on the part of the representee. It is clear that Cuddles relied on the statements made by PPL when considering the terms of the contract. Pursuant to the requirement in Pan Atlantic Insurance Co Limited v Pine Top Insurance Co Limited (1995), the statements must have induced Cuddles to enter into the contract, and he should have little trouble ascertaining that this was the case.

It seems, prima facie, as though PPL has made a number of misrepresentations on the basis of which Cuddles entered into the contract with them. PPL did, however, offer him the opportunity to verify their statements to find out the truth. Does this remove the cause of action? Following a line of cases that commenced with Dobell v Stevens (1825), it is the position that even where this opportunity has existed but has not been taken, the representee may still have a right to relief. As Moore-Bick LJ said in Peekay Intermark Limited v ANZ Banking Group Limited (2006), “it is not enough to show that the claimant could have discovered the truth”. It seems, then, that Cuddles will be entitled to relief for misrepresentation. Following Clough v L & NW Ry (1871), a misrepresentation makes the contract voidable at the option of the representee. This means that Cuddles is within his rights to terminate the contract. What of the benefit that he received before terminating the contract (that is, the 7000 leaflets that were not blurred)? This does not bar his right to rescind, as demonstrated, for example, in Spence v Crawford (1939).

We have seen how Cuddles will be entitled to some relief for his disastrous series of contracts, although not for everything. He will be able to recover from BBL the losses arising from their failure to comply with the deadline for completion, and is within his right to terminate the contract with PPL without paying them. He will be less successful in seeking to recover from RRL, however, although he may receive some benefit for his depression arising from his injuries.

BIBLIOGRAPHY

Statutes
Law of Property Act 1925
Unfair Contract Terms Act 1977
Cases
Addis v Gramophone Co Limited [1909] AC 488
Bunge Corps, New York v Tradax Export SA, Panama [1981] 1 WLR 711
Canada SS Lines Limited v The King [1952] AC 192
Clough v L & NW Ry (1871) LR 7 Ex 26
Dobell v Stevens (1825) 3 B&C 623
Gillespie Bros Limited v Roy Bowles Transport Limited [1973] QB 400
Hadley v Baxendale (1854) 9 Exch 341
Heskell v Continental Express Limited [1950] 1 All ER 1033
Hoenig v Isaacs [1952] 1 TLR
L’Estrange v F Graucob Limited [1934] 2 KB 394
McDowell v Fraser (1779) 1 Dougl 247
Mertens v Home Freeholds [1921] 2 KB 526
Pan Atlantic Insurance Co Limited v Pine Top Insurance Co Limited [1995] 2 AC 501
Parker v South East Railway
Parkin v Thorold (1852) 16 Beav 59
Peekay Intermark Limited v ANZ Banking Group Limited [2006] EWCA Civ 386
Raineri v Miles [1981] AC 1050
Spence v Crawford [1939] 3 All ER 271
The Heron II [1969] 1 AC 350
The Silver Sky [1981] 2 Lloyd’s Rep 95
Victoria Laundry (Windsor) Limited v Newman Industries Limited [1949] 2 KB 528
Watts v Morrow [1991] 1 WLR 1421
William Cory & Sons v Wingate Investments Limited (1978) 248 EG 687
Secondary sources
Beale, H.G. (Ed) (2004) Chitty on Contracts, 29th Edition (London: Sweet & Maxwell)
McKendrick, E. (2009) Contract Law, 8th Edition (London: MacMillan)
Peel, E. (2007) Treitel: The Law of Contract, 12th Edition (London: Sweet & Maxwell)


Beale, H.G. (Ed) (2004) Chitty on Contracts, 29th Edition (London: Sweet & Maxwell)

Peel, E. (Ed) (2007) Treitel: The Law of Contract, 12th Edition (London: Sweet & Maxwell), p917

Parkin v Thorold (1852) 16 Beav 59, per Sir John Romilly MR at 65

See section 41 of the Law of Property Act 1925

See Peel, R. (2007) Treitel: The Law of Contract, 12th Edition (London: Sweet & Maxwell), p1014

Peel (2007), p259

See section 2(1)

[1973] QB 400 at 419

1 All ER 1033, per Devlin J at 1048

Peel (2007), p1057

[1991] 1 WLR 1421, at 1445

Peel (2007), p362

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